Taxes

[Jonathan Buhacoff]

The primary purpose of taxes is to fund government operations. A secondary purpose of taxes is to promote a certain economic activity or behavior (by lowering taxes on it) or deter undesirable economic activity or behavior (by raising taxes on it).

Tax laws for example are entirely too complicated. Sales tax for people who buy things, and flat revenue tax for all business. Non-profit and public benefit corporations must still be taxed, possibly with a lower flat revenue tax than for-profit business — but they still need to be taxed, because it still costs money to keep track of them and make sure they are not cheating in some way, being used as a “tax shelter” for wealthy people, giving extravagant “benefits” to their officers or board members, etc. basically not cheating the public by pretending to be one thing and really being something else.

Government tax revenue would be a lot higher than today, and we would eliminate a lot of wasteful paperwork, if we simply impose a flat tax on corporate gross revenue.

This will not change the dynamics of “narrow margin” businesses — their margin will still be narrow, and since all of them will be required to pay tax the same way, prices will adjust as needed and their cut-throat competition will resume with the new normal.

To help startups and small business, while ensuring that really large business pays their share (they used to depend on externalities, now their tax will go up to compensate the public for this behavior). We can also do gradual tax brackets on corporations to that startups and small business will get a break, while large established businesses will need to pay more. For example, pay 1% of revenues up to $1 million (this also means the IRS can drop the stupid rules about “S-Corporations”, because paying an additional 1% tax on top of personal income tax won’t be much, so this will help with having less exceptions and less paperwork), then 3% of all revenues above $1 million and under $10 million, then 6% of all revenues above $10 million and under $100 million, then 9% of all revenues above $100 million and under $1 billion, then 12% of all revenues above $1 billion and under $10 billion, then 15% of all revenues above $10 billion. This easy system means revenue x10 but incremental tax only x3 for each subsequent bracket.

Looking at some of the wealthiest companies, Apple paid $9.68 billion of income tax in 2020, which is an effective tax rate of 3.5%. With the revenues in $274 billion, the taxes they pay on their first $10 billion dollars are in the lower brackets, and then 15% of revenues above $10 billion so that’s at least $26 billion in taxes. Their taxes would nearly triple under the new scheme. In comparison, Sleep Number, with an effective tax rate of 20%, would pay less because it only has $1.8 billion in revenue so it would be paying the lower brackets up to $1 billion then 12% on the next $800 million.

The wealthiest 1% of Americans earn $500K+ in personal income. The wealthiest 0.1% earn $2.4 million annually . The wealthiest 0.01% earn at least $63 million annually. This excludes the ultra-wealthy who take hardly any paycheck at all but have the immense wealth of their companies available to them. https://www.inquirer.com/business/america-rich-top-one-percent-income-wealth-inequality-20191017.html

It’s unfair that the complicated and loophole-ridden tax code enables people with more money, as a group, to actually pay less taxes than people with less money. The way to fix it is by doing two things: First, eliminate the personal income tax for individuals. Second, set sales taxes on goods in a way that allows poor people to pay less or even no tax for the essentials such as food and water, and wealthy people to pay more taxes on luxury items like large houses and boats. This way wealthy people don’t need to hunt for loopholes in the tax code, it doesn’t matter if they “earn” their money or if they merely “control” some asset, the tricks with taking loans won’t matter, because regardless of how they get the money or who is paying for it, the tax is paid for the item purchased. Wealthy people buy more things, they buy more nice to have and luxury items, so they’ll naturally be paying more in sales taxes. If a wealthy person decided to live like a poor person and buy all the essentials, then they wouldn’t be paying so much taxes. They could invest that money instead.

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