Variable Income Tax Percentage

Tax renovation 1

Tax renovation and the variable income tax percentage proposal

Lorie Walda

Western International University

COM 112 Utilizing Information in College Writing

Stacey Brown

November 9, 2005Variable income tax percentage

A variable income tax percentage based on the idea of a flat tax rate is the most effective way to accomplish a federal tax reconditioning. This tax overhaul has to happen. Ideas of demolishing the entire tax system are almost incomprehensible for many people. As scary as it is Congress has already spoken about Income tax laws, social security, and a complete tax renovation. Replacing the whole tax system with a different one will not be easy. This overhaul has to include social security, income taxes, all deductions, and everything else including any money received from the American people for government purposes.

The variable income tax percentage the author is proposing is different from the current ideas being proposed in that it is a combination of many ideas being seriously considered in congress. This process is only a matter of how will it be achieved, when and how smooth it will be concluded, and what will we have to sacrifice in order to accomplish this necessity. The variable income tax percentage proposed is simple with no expected loopholes. What is a variable income tax percentage? Great question, as an American thinking about these issues lately, how has the news and other resources helped to answer your questions?

To greater understand the idea of what is at stake the reader must become more acquainted with the differences of income and consumption tax that are currently in place. The simplest way to explain the ideas currently being expounded in congress is as a representative of CQ Weekly, James Bickley puts it:

The easiest way to understand the differences between the income and consumption tax bases is to define and understand the economic concept of income. In its broadest sense, income is a measure of the command over resources that an individual acquires during a given time period. Conceptually, there are two options an individual can exercise [concerning] his income: he can consume it or he can save it. This theoretical relationship between income, consumption, and saving allows a very useful accounting identity to be established; income, by definition, must equal consumption plus saving. It follows that a tax that has a measure of comprehensive income applies to both consumption and savings. A consumption tax, however, applies to income minus saving. (Bickley, 2002)

The goals the government has in mind for changes could effectively be met by scrapping everything and starting with new tax laws. With that in mind, the author intends to clarify the best ideal tax plan, which is a mixture of the different plans for tax reconditioning that are already proposed. The author proposes a flexible income tax percentage, the VIT percentage, which is flexible by way of annual federal spending and personal savings and investment.

Some congressional representatives have suggested a VAT tax.

How Does a VAT Work?As its name implies, a VAT is designed to tax the “value added” by each company that has a hand in the production and distribution of any good or service, from the manufacturer to the wholesaler to the retailer. Unlike the retail sales taxes levied by states and local governments in the United States, imposed only when a consumer purchases a finished product, a VAT is levied at each link in the production chain. The version of the tax used most often in Europe is called a “credit invoice” VAT. This tax is collected at each stage of the process, though companies take a credit for the amount of tax they pay their suppliers for “inputs,” essentially raw materials, parts and supplies (Schatz, 2005).

Other representatives have suggested a plain flat tax, which includes a single or far fewer tax rates than currently in place. There are nation retail sales taxes or “fair tax” proposals in which “all goods and services would be taxed at a rate of 23 cents on the dollar” (CQ Staff, 2005). In addition, congressional representatives have brought up consumed income tax. This tax deletes tax-free savings options and tops out income for individuals and businesses but this idea has not been incorporated in to the current proposal (CQ Staff, 2005).

The administration’s tax-cut wish list is modest compared with those it has offered previously. Gone is a $12 billion proposal to allow taxpayers to deduct charitable contributions even if they do not itemize other deductions. Also missing are previous recommendations for ending tax-avoidance practices. A senior Treasury official said the “dropped” proposals have not been abandoned but should be “considered more broadly in the context of tax reform,” just like the AMT [Alternative minimum tax] (Jill Barshay, 2005).

The administration of President George W. Bush has temporarily halted talks on deductions for charitable contributions and plans to stop tax evading. This does not mean however it is over for those proposals it just means that the proposals need to be presented in a way that Congress will see they are needed to benefit the average American.

Rep[ublican] Pete Stark, D-Calif[ornia], a senior member of the Ways and Means Committee, said the administration has changed its mind about allowing non-itemizers to take charity deductions. “I think what [Bush] found out is that the Treasury thinks that is a loophole,” Stark said. “People would abuse it [and] it would be impossible to enforce.” One of the few new tax proposals in Bush’s budget targets health care costs. The president is asking Congress to create a tax credit worth $22.7 billion over 10 years for small businesses that contribute to their employees’ health savings accounts. The administration says the subsidy of up to $500 per employee is intended to “provide an incentive to small employers to sponsor group health coverage, especially high-deductible health coverage that encourages cost consciousness” (Jill Barshay, 2005).

The VIT percentage has concepts for business income to be taxed. This would include a tax on every profit businesses made minus employee pay and before any purchases. The employee would pay the percent of taxes due on their pay. A business would not be able to avoid taxes on their inventory because the company would have had to pay taxes on the money they used to purchase the inventory. The company would also have to pay taxes on the money they made off the inventory before purchases are made or bills are paid with the funds.

None of these plans besides the variable income tax percentage that the author is proposing have adequate standards that will benefit most Americans equally.

‘The uniquely American definition of fairness ought to be to treat everybody exactly the same as everybody else,’ says Dick Armey, a Texas Republican and former House majority leader. ‘I would apply that to race. I would apply it to gender. I would certainly apply it in the tax code.’ Armey urges that almost every narrow special interest tax break be scrapped. He has several allies on the political left. ‘You can’t run a tax system if people don’t think it’s reasonably fair. If one person making $1 million is paying nothing and the other is paying $400,000, it’s not going to last,’ said Robert McIntyre, director of Citizens for Tax Justice, a liberal advocacy group (Barshay, 2005).

A true “fair tax” is a VIT percentage it is all income taxed based on gross income minus the cost of out of pocket expenses for health care and non for-profit donations. As well as deductions for the taxes paid through out the year on education loan interest, mortgage interest and health care premiums.

Each person would pay a certain percentage of his or her income. The taxpayer could not claim any deductions besides the ones mentioned previously including dependants. This could possibly put a crunch on small business but would be necessity to better our economy. Besides the fact that some of these small business owners pay themselves a wage with the difference between profits and spending. This fraud is a loophole and allows some small businesses to pay virtually no taxes. Other forms of taxes would have to be eliminated except taxes on alcohol, tobacco, firearms, lottery, and gambling winnings. The money received by the government for these tax exceptions would be applied to the state and public education systems.

Income tax percentages could be as high as 25 percent but should be steadily reduced as the deficit decreases. A minimum 10 percent tax on gross annual income should be mandatory. The public needs to be aware of their contribution to their healthcare and should act accordingly. This would encourage businesses to cover the full cost of employee healthcare and would encourage donating to non-profit charities, especially by big business. This would allow the United States Government to take care of current medical obligations as well as future obligations to the social security system. Each area of benefactors in need of funds would have to submit a declaration to congress or the senate to apply for allotted money each year. When the benefactor is requesting an overage of what the congress feels necessitates the benefactors’ needs, there is an obligation for the governing party to hold a hearing to decide where the benefactor can cut back costs. Future tax increases would have to be changed by a major vote in congress of say 90 percent for an increase or decrease according to the needs of the people. The federal government can set standards by which state governments can follow. This will allow a more unified federal and state government and make the state tax systems better. State alcohol, tobacco, firearms, lottery, and gambling and other tax profits must be submitted over to the US government for average distribution among the 52 states according to population.

The most important thing for our new tax system has to be the balance of tax burden that all Americans deserve. The equality of the tax burden is not currently being met with the present plans that government officials have in mind. A combination of all the differently designed tax plans is in order. This income tax would replace the current federal sales tax, supplement the current social security tax system, and supersede the federal and state sales tax.

The newly proposed tax plan suggested by the author does just this. The proposed VIT percentage allows the taxpayer to see where their money goes. Where the tax is spent would be indicated on the payroll forms by breaking up the percentage to show where each percent of the total percentage will be applied. For example Jane gets $1,000.00 gross on a 25% VIT that would leave her $750.00 and virtually no other taxes to pay unless she purchased any of the exemptions to tax as mentioned previously. Jane would have also put a little back for retirement. Jane would see on her W-2 that she paid B amount (a percentage of the overall percent taken) to personal tax free retirement savings accounts, C was paid for Social Security, and D was paid to make up the difference in amount refunded for medical expenses at tax time. On Jane’s paycheck would also be F percentage paid out of the overall deduction toward the department of defense contracts. Then G was paid to fund the relief effort for Hurricane Katrina victims, and H was paid for medical research grants and so forth. Finally, A through J equals the original 25% paid to the United States Government.

A VIT percentage is the best route for equality among taxpayers. The author concedes she is not an expert. All the research was compiled and the ideas of the VIT percentage were presented. The US government will decide on the issue of what system they will choose to complete the Federal Tax renovations.The American people should be the group to ultimately decide this issue. What is in your best interest?

Tax renovation 1

References

Bickley, J. M. (2002, July 10). Flat tax proposals and fundamental tax reform: an overview. Issue Brief for Congress, IB95060. Retrieved Sep 18, 2005, from http://shelby.senate.gov/legislation/leg_pdf/tax5.pdf

Other tax options. (2005, June 13). CQ Weekly, 01557. Retrieved Sep 10, 2005, from

National sales tax: The pros and cons. (2005, June 13). CQ Weekly, 63, 01557. Retrieved September 20, 2005, from

Tax cuts: When the fix is not in. (2005, February 14). CQ Weekly, 63, 00376. Retrieved September 20, 2005, from

The uneven field: Disparate tax burdens encourage cheating. (2005, February 7). CQ Weekly, 63, 00292. Retrieved September 10, 2005, from