07 October 2013

The Master Plan, revealed at last.

Create a negative income tax, also called a guaranteed annual income.

For example, if an individual's annual income falls beneath $20,000 the Federal government would cut a check for the difference. As a refinement dependent children would be granted a lesser amount, say, $7,000, into the guardian's care.

Eliminate Social Security and other federal welfare programs.

All Federal departments offering retirement plans, such as the military, should be directed to move to a supplemental income allowance.

Tax all income over $20,000 at a flat rate, say five percent.

Eliminate tax deductions, except:

Any income under $150,000 may be set aside, tax free, into a restricted Health and Retirement Account (HRA).

It may be wise to allow the individual more liberal access to a HRA after a period of time, say ten years, tax being paid when used for other than health or retirement. After a certain age the fund is fully accessible, open, perhaps, to taxation on interest.

The Federal government will add an additional annual $1,000 to all individual HRAs.

Eliminate corporate taxes and the impact of capitol gains and losses. This is not strictly necessary to a negative income tax but is a fine idea on it's own.

All figures are for illustration but I think they are fairly considered. For example, in 2012 about twenty percent of Americans had an income of $20,000 or less. A negative income tax using that amount should cost significantly less than a trillion dollars a year, well within the budget.

One may want a higher income tax and here we could compromise. Say we start out with a ten percent tax and lower it every 3 years until it reached  5 percent.

The actual guaranteed income should probably be pegged to some standard. Perhaps 150% of the average rent in the lowest quintile.

A tax system with an easily predictable rate and without deductions or favors would remove a large accounting cost to doing business. Ideally tax code will become simple and stable and politicians would sharpen their knives elsewhere.

With everyone guaranteed a basic living we should be able to eliminate most subsidies. Agricultural comes to mind. A negative income tax creates a protective buffer for both individuals and businesses.

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