By Michael Lewitt
Editor, Sure Money
Money Map Press
Whatever the outcome in November, our new president will be saddled with a tremendous economic mess.
The U.S. is drowning in debt. Entitlement spending is about to explode, including the costs of ObamaCare that were conveniently delayed until its namesake left office. The cost of servicing what will soon be a $20 trillion federal deficit is heading higher and consuming a larger percentage of government spending. The United States fiscal situation is on an unsustainable trajectory.
The situation, however, is not hopeless. There are steps a new president can take to improve the situation.
But there’s one thing he – or she – absolutely must deal with right away.
Right now, only a radical reprogramming will place the U.S. economy on a sufficiently productive path to pay its current and future obligations. Some may view the following proposals as extreme, but they are absolutely necessary. Whether they are feasible depends on whether we can summon the political and moral courage to enact them.
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Our Taxes Are Killing Us. We Need to Cut Them.
The tax code is the DNA of the economy. It establishes incentives for different types of economic behavior. Unfortunately, the U.S. tax code has been hijacked by Wall Street, big business, big oil and other special interests. The result is a system that favors debt over equity and speculative over productive investment. In some cases, such as the totally unjustified tax breaks given to hedge fund and private equity managers, the wealthiest Americans are allowed to pay significantly lower tax rates on their income than lower earning Americans.
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Two Smaller Reforms That Will Make A Big Difference End the Estate Tax: The estate tax should be eliminated. Rather than promoting tax fairness by confiscating the life’s work of the most accomplished people in society, the estate tax is a socialist relic that is easily avoided and accomplishes little. It should be given a decent burial and free up financial and intellectual capital for more productive uses. Raise Sin Taxes: Taxes should be raised significantly on cigarettes, alcohol, legal gambling and guns. In addition, if marijuana is legalized as it should be, it should be taxed heavily. All of these activities (with the possible exception of marijuana usage) contribute to higher healthcare costs and should be discouraged by the government that ends up paying for much of the damage they cause. The most effective and equitable way to accomplish this is by making those who use these products compensate society directly through higher taxes. |
Until these flaws in the economy’s DNA are fixed, the U.S. will keep growing more indebted, less productive and less competitive.
The first step is to broaden the tax base and promote tax fairness .A common misconception is that the way to promote “fairness” is to raise taxes: that type of thinking is the product of minds that understand little of economics and less about human nature.
Lower tax rates benefit everyone but particularly those who aspire to the top of the economic pyramid. Higher tax rates discourage economic activity and encourage people to avoid taxes. The government is an inefficient allocator of capital. Higher tax rates reduce the return on capital, create disincentives for investment, and reduce the amount of capital available for investment in productive activities such as technology, education, building new factories and capital goods, and research and development.
They also reduce the capital available to invest in raising labor productivity to enhance economic growth and income gains. In short, they trap the nation in an economic death spiral.
Leaving more income in the hands of the private sector, on the other hand, is the surest pathway toward economic revival (which we certainly need right now).
My solution is simple.
Drastically lower all income tax rates. Individual tax rates (including payroll taxes) should be lowered to 10 percent on all incomes below $100,000 per year, 20 percent on all income below $1,000,000 per year, and 25 percent per year for all income above $1,000,000.
Get rid of tax deductions. Ordinary income tax rates should be lowered and all individual deductions (with two exceptions) reduced or eliminated. The only tax deductions that should be kept in place are the charitable deduction, which should be capped at 20 percent of income annually, and retirement plan contribution deductions for taxpayers with income below $500,000 per year. Taxpayers with higher incomes should be permitted to contribute to these plans but their deductions should be capped. Businesses should continue to be able to deduct their ordinary and necessary business expenses from their income to determine taxable income.
Stop “rewarding” people for borrowing money. One of the biggest flaws in the tax code is that it creates enormous incentives to borrow money. This makes the U.S. government-which means the U.S. taxpayer-a partner in every debt transaction in the economy. Every time someone borrows money, he or she is subsidized by his fellow citizens. Is it any wonder that debt never stops growing?
An essential step that must be taken to fix the tax code and strengthen the economy is ending the interest deduction for all debt-and that includes the hallowed home mortgage deduction. Once we start treating equity and debt equally, the foundation of the American economy will strengthen as equity replaces debt in individual and corporate capital structures. An appropriate period to phase-in this change (i.e., five years) should be provided, but we must bite the bullet and recapitalize our economy with equity.
Stop killing businesses with obscene corporate tax rates. The U.S. corporate tax rate of 35 percent is among the highest in the world; it should be cut in half to 17.5 percent and applied to net income after all reasonable and necessary business expenses. Special tax breaks should be eliminated except where they relate to scientific or medical research. High U.S. corporate tax rates are placing American corporations at a serious competitive disadvantage because they make the United States an undesirable location for corporate headquarters and investment.
Rather than criticize U.S. companies for taking advantage of perfectly legal strategies to reduce their tax burdens, Congress should lower these tax burdens and make it more attractive for U.S. companies to remain domiciled and invested in their own country. Corporations respond to incentives, and the U.S. tax code currently incentivizes them to get out of town.
Like monetary policy, tax policy suffers from the flawed belief that economic actors do not respond to incentives. Tax policy loses the forest for the trees; it focuses on tax rates rather than overall tax revenues. Each time tax rates were lowered, tax revenues increased because economic growth increased. It is common sense that taxpayers will spend less time avoiding taxes if they are required to pay lower rates and if they believe the system is taxing them fairly. If overall corporate tax rates were lower, more revenue would remain in the U.S. and more taxes would be paid here which, after all, is the point of the tax code in the first place.
Just remember Security security is not an entitlement. We the working Americans entrusted that money to the United States, towards our retirement. To fix SS stop paying people who never paid into it lik illegals. The government should pay back the money it took from the system. We Works are not Welfare.
As well as Veteran’s Benefits, what I see you doing with this “plan” is increasing the money Corporations can invest overseas.
So, my main question is: Who exactly pays for this publication? Would you be willing to post your entire list of contributors, paymasters, etc on this site for all of us to read?
I got news for you, I’m a disabled Veteran of the Vietnam era and even VA is giving us the shaft. Taking my mortgage deduction will put you on my bad side right now.
So I do not want to receive any more of your “plans” to increase the wealth of the very companies that put us in this mess.
This is the problem. Don’t dare touch MY program. Don’t dare touch Social Security, even though it’s insolvent!! I got news for you whiners. Either we all suffer some discomfort and logically fix this problem while we can, or you can deal with a totally destroyed economic system. Then you’ll wish your mortgage deduction was your biggest problem. After armed looters force you from your house and steal all your valuables.
I agree 100%! In addition, since new unemployed (unemployable without being able to speak English?) are supported by “social security”, the Federal government should FUND EXTRÅ for each new immigrant rather than continuing to dilute OUR PERSONAL FUNDS!
In addition, high medical costs, including prescriptions and home care, keep driving us into further debt. My suggestion is to let us deduct this type item. (they now take approximately 35% of my gross income!
Jack R Titus
The healthcare system of Canada, UK, Australia and New Zealand are all very good. We should copy their systems. Our present healthcare system benefits the large corporations – hospitals, big pharma, large insurance companies etc. It’s at the expense of the average American. Illegals should NOT be entitled to social security.
Well, where would the money come from to help these ppl. survive? The progressive/marxist/socialists in our government thinks it’s our duty to take in all these ppl. & care for their every need. I am sick of ppl. coming here like it was the promised land, flowing with milk & honey. [ SS, welfare benefits, food stamps, an increase for every newborn baby. Later on if the doc. says he is hyper-active child, he can get on SS. It never ends, no wonder we are 20 T $$ in debt.Our stupid politicians do not care, they are only interested in a person’s vote. One thing that needs to come to a screeching halt, is paying poor mothers to have more children. There should be a cap, say 2 kids, then if you have more you have so much cut out of your benefits, unless you name the father so he can have a free vasectomy. This would stop some of the week-end ramblers, maybe. There are a lot of things wrong with our gov. that needs fixing, I do not know if a new POTUS could do it or not, he might inspire Congress to do some of it. That remains to be seen. I know Hilary wouldn’t try to decrease the size of gov., not really sure Trump could, but I will vote for him over her lying, corrupt self.
It is immoral to tax a person on the fruits of his labors. Consumption should be taxed and not production. If someone wants to save and invest there should be no tax. If someone wants to splurge on luxury yachts and $100,000 automobiles then tax the crap out of them. Of course, basic goods and services should not be taxed such as food, medicine, and reasonable shelter. Those in power and the ‘deep state’ want to consume with abandon while reaping the benefits of a skewed tax code. I fair simple ‘low’ flat tax plus a tax on frivolous consumption would go a long way toward fixing our problems. After all, if you can afford to pay $100,000 for that new luxury car another $50,000 won’t hurt that badly. If you really “need” that Rolex for $5000 you will still buy that necessity of life for $7500.
Expat Tom
Good ideas, but there should be one other tax deduction: As Marco Rublio suggested, raise the child exemption to $10,000. Make it a tax credit. Kids are expensive and we need more of them. Excluding immigration our birth rate is 1.6. 2.11 is replacement. With immigration we are only at break even and once immigrants have been here one generation, their birthrate slows as well. If we do not get back to replacement we will sink into the same deflationary spiral as Japan.
Excellent post
Scott, I love Marco Rubio but disagree with his Tax Credit Proposal, which sounds very good but is, in effect, a subsidy for under-paying employers. Unfortunately, in my opinion, it will not encourage a higher birthrate of our better-educated society.
A 10% tax on income for those earning less than $100,000 per year would be an increase in taxes for us. Not to mention our property taxes amount to approximately 20% of our income. That would work if social security and pensions would return to their non-taxable status. Social Security originated as a retirement “insurance”, not an entitlement!
You are correct AW Social Security was never intended to be an entitlement. I paid into SS for 55 years and quite frankly resent the hell out of that bunch of idiots in DC considering it as an entitlement and that all should get to draw out of the kitty even if they never paid in a dime. Between SS and my pension my wife and I are barely able to scrape by. We are continually dropping all extras cable TV, magazine subscriptions, cell service. ETC….. Even though I likely qualify for food stamps I will never go down that path. Just dam well wasn’t raised that way. Trump 2016 God Bless America Let FREEDOM Ring
Born in the South, so was I I was raised to care for myself & my family too. I too, am tired of some ppl milking the gov. for everything they can get, except now if you are of a certain ethnicity, you have access to all kinds of benefits. If a person is down on their luck, I am in favor of helping him back on his feet, but I believe it should not take him very long to get back up. We have too many who have chosen the life style of living off the government. You do not say whether your wife is on SS or not but she might could get some quack doctor to say she is dis-abled or hyper or something. so she could start drawing. Something else my wife & I have noticed in our state, is now they have “coats for the children” in the winter time & “feed the children” for the summertime. They don’t have money for food & coats because these same ppl. spend it on new cars & hair & nails. I have seen them at Wall-Mart, late model cars, those fancy, painted, nails & hair styled like some queen, all at tax-payer expense, then they go to all these free food & coats for the little chidren. No I don’t contribute one, copper penny for any of that, unless it is through the taxes I pay. If our economy collapses I’ll bet you some these people will fare terrible, because they won’t know how to survive for themselves, they will always be dependent on the govment to care for them.
Holice, we were both posting within a short time of each other, so I didn’t see your comments a few days ago. (My first post is several below this.) You are absolutely the ONLY other person I have ever encountered who promotes the idea of limiting couples on welfare to 2 kids — that is, to collect benefits for. We’ll have a hard stopping them from making babies, but as you and I have both stated, if the benefits are limited, they might think a bit more about taking precautions.
I also like your idea about getting the fathers to be named so they can get vasectomies — even if we have to pay for them. Cheaper to pay for one quick surgery than support a brood of kids to adulthood.
And finally, I share your feelings about all these “drives” to collect coats, shoes, school supplies, and Christmas toys for people who could pay for some of that if they’d quit smoking and spend their doles on necessities instead of hairdos and manicures. I too will not contribute to these drives. There no longer seems to be much if any effort to try to get these folks educated to take jobs and become producers instead of free-loaders.
I would expect you’ll agree with me that life is much more rewarding when a person can look to his/her own achievements, even with a few instructive failures along the way, than to sit around watching “the game” or “the chat” while polishing nails!
Why cap deductions for anyone contributing to a retirement plan/
The Government. will get its share when the money is used to support the retiree.
There are two areas your column didn’t discuss, the first is on 48 percent of the adult people living in the US pay income taxes. We as a country need to find a way to get as many of the remaining 52% of the population to pay income taxes.
The second is Social Security. The way it’s currently funded is a ponzi scheme. The funds collected from current tax payers go directly to pay those collecting payments. Social Security system needs to be overhauled. Those 50 or above we stay in the current system. Those 40 to 49 have the choice to stay in the current system or convert over to a system much like a 401k plan where the money invested goes into an account that remains with that individual. Those under 40 would be required to convert into a private account.
The government would pay into these accounts all the funds contributed by both the individual plus his or her employers, plus a reasonable interest.
As for corporate income taxes, US companies at 35%, pay the highest corporate tax rate of any of the top 200 countries with the largest GDPs. This puts US based companies at a distinct disadvantage with foreign based companies.
Quit the lifetime money flow for former government elected officials. During their service in office keep them on the same health programs the general public must use. Require work for the handouts for those that aren’t fully employed. Make all retirement programs private with some regulations and accountability. Utilize the checks and balances in federal government as per the original intent. Put term limits on all federal elected officials. Have some form of enforcing adherence to the Constitution and Bill of Rights and the amendments.
YES, YES, YES, YES, YES!!!
About a year ago, I read Mark Levin’s book “The Liberty Amendments,” (not to be confused with the “Liberty Amendment” first proposed in the 60s to abolish the income tax and IRS). Levin supports the concept of a Constitutional Convention, and in the book, he has proposed about 12 amendments that would accomplish pretty much everything you call for above if such ConCon would pass them. I heartily agree with all of Levin’s proposed amendments except one. He calls for a 15% limit on income tax. My studies indicate that the 16th A was never legally ratified to start with and that with better financial management, we could employ the original Liberty Amendment — singular — to do just that.
Obama should pay back the $ 500,000.00 he took from SSI to put in to Obama care.
Recently I was drafted into helping a woman who is homeless and on welfare. She has 3 grown daughters who should be taking care of her, but they’re too busy living the same kind of dissolute life that got this gal into trouble. (You know where they learned it.) I’ve driven her to doctor appointments and to a hospital and picked up medications for her. She is in her mid-50s and on SEVEN different meds for diabetes, heart problems, and heaven only knows what else. A couple of these are regularly advertised on TV so that we all know their names, and these same meds turn up on the lists that Big Pharma keeps raising the prices for, sometimes double, triple and five times. She also recently acquired a “free” cell phone with her time and data paid for. So you and I, dear taxpayers, are footing the bill for this sadly wasted life.
What blows my mind even more is the ads I see every day on TV to sign up for this or that program and get “free” prescriptions,free vision care, free dental care, free phones, and other freebies. These ads don’t only target the homeless and those on welfare but seem to aimed at people like me. (For the record, I worked all my life, retired with a modest IRA, and make my way without free-loading on anybody.) So my question is, where is the money coming from to foot the bills for all these freebies that are being offered to just about anyone?
Just how stupid are the American people that they keep voting into office people who promise freebies? Doesn’t anyone (except maybe Trump) study economics any more?
While the ideas suggested in this article make some sense (I disagree with a couple), we could start by giving warning to all those who never paid into programs such as social security that after a certain date (say six months out), they will no longer be able to receive those benefits. Those who cannot afford to pay SOMETHING toward medical care will have to do without. No driver’s licenses for those here illegally. And subsidized housing should have severe limits on it. We don’t need 4 families crowded into 1 apartment the way it’s done in some countries, with each family getting subsidies so that the whole gang manage to live high on the hog.
Also, one idea I’ve never heard anyone else mention: Limit the welfare payments for children!! If John and Mary each hold down adequate jobs (even if one is only serving fast food), and Mary gets pregnant, they don’t get raises for having a kid — they get raises on merit. Same should hold true for welfare. If John and Mary collect welfare and have a kid, they get more money for the kid. If they go on to have 6 kids, they get 6 times the money. That should stop. Payments for no more than 2 kids. THAT would encourage some serious thinking about whether they can afford more kids — just as intelligent productive working people do.
Interesting.
Good article.
All of these problems have been in the pipeline for a long time. And it will take time to fix. But maybe we can stop digging the hole deeper.
Cutting taxes is not the answer!! Get rid of the BUSH tax breaks is the first place to start. Then get rid of the tax loop wholes that companies use to move out of country. Make these companies move back to the USA. Restore the tax rates that were used during the Clinton years. Take away all the free stuff given to people who have illegally entered the country and send them home! Bush tax breaks cost the treasury a trillion dollars a year. Then he starts two wars with no money to pay for them (more Debt). To knock it all off Congress then passes NAFTA which sent hundreds of factories and five million jobs overseas causing more debt due to unemployment. Enough for now I have a whole lot more I could say. Congress is a joke! They are killing our
country just to line their pockets!!!
No, not the rates that were in effect under Clinton, use the rates that were in effect under Eisenhower.
The top rate was over 92%. If you earnings are ungodly, your tax rate should match.
The give away to the rich must end.
You want the US to become Venezuela?
Trump has called for reducing corporate tax rates precisely to bring “ex-pat” money — and jobs — back to the US. He has also stated his opposition to NAFTA and the TPP. Remember, the idea that corporations pay taxes is imaginary — those taxes are actually paid by the consumers who buy the products produced by the corporations. If XYC Company has its tax rate raised from 10% to 15%, they are going to raise the price of their “widgits” enough to cover the tax increase, so you and I are the ones actually paying the taxes. Therefore, a 92% tax rate doesn’t really hurt the corporation — it hurts the average citizen exactly the same way as an increase in individual taxes.
I lost a very good paying professional job due to my age (although not stated). Took a job for less than half in income. That job ended up being sent to Mexico. I asked my company if I could transfer to Mexico to work for them. I was told “no” because I couldn’t speak fluent Spanish. What??? I pointed out that all of our employees here couldn’t speak fluent English. We had employees from Bosnia, Congo, Sudan, South Africa, Mexico, etc. Cashed in my 401K to pay off credit card balances because that was the right thing to do. Was on Obama Care for short period. It is a horrible plan. Nothing but problems. Was advised to go on Medicaid which is very upsetting. I have NEVER taken an entitlement because I have more pride than that. Luckily, I will be eligible for Medicare in a few months. I took early social security. Today, I was advised when on Medicare I Will qualify for assistance to pay my premiums for Medicare. I was also advised that I qualify for food stamps. I’ll be damned If I’m going to use them. Started my own business to supplement my social security. On a daily basis, I transport welfare baby mama’s, baby daddy’s that WON’T work (that have no problem taking HARD WORKING money from the workers. They all know exactly how to get all the freebies they can. One mom was on phone with DHS telling them she had to have some temporary food stamps that day. She hung up, laughed & said she didn’t really need them, but was going to take them. They come out of the stores with steaks, roasts, etc. I can’t afford that. They also sell food stamps for cash. The going rate in this town is $.50 on the dollar. I AM sick of this. One mom told me she was getting a Federal Income Tax Refund of $12k. What? I’ve never received a high return like that & I made in $54k. You ask what is wrong with the U.S. ENTITLEMENTS! I probably qualify for disability, but refuse to go that route. I qualify for ENTITLEMENTS, but refuse to go that route.
All good comments if you have 100 people and 52 live off of the others 48 the 52 will always vote for the free benefits. Schools indoctrinate youths learn a trade work for under the table money and use the system it will all collapse soon anyway. The biggest joke is when your politicians say God bless America since America is for everything the bible says is wrong gays abortion how can God bless this nation#!#
Let’s bring up something else from the Bible. Do you know the term Jubilee? The King would declare a Jubilee and all debts were forgiven. Everybody starts off at zero. Could this be possible today?
I agree with lower taxes to promote spending.
Across the board.
I disagree with the opportunity to avoid taxes by hidden means.
My father was a financial advisor. Wrote a few books on it.
But the biggest problem in both the usa and canada where i am from is the entitlements both governments allow.
Not only to big business but also to immigration and welfare and midical aid.
Here in canada we have a pretty good medical system. Everyone deserves the right to get better. What ever the ailment may be. But one of the problems is both our governments give away billions of dollars every year to other countries for whatever reason.
I can understand aid in a crisis but free money to cou tries that operate independantly and against the rights of their citizens is a no go for me.
Why give money to corrupt governments .
Why give money to corrupt emercecy aid re:
Unicef. Christian aid. Etc. Etc.
I feel sorry for people all over the world when disaster strikes but if i donate money to the cause that corrupt organisation takes over 90% of that money and distributes less than 10% to the cause. I mean really.
Its like our governments look good in world media but we pay for it in the end.
CORRUPTION VIA GOVERNMENT CONTROL!
I would like to see all countries around the world take a good look at their government spending and say hey. What the heck is going on.
But that will NEVER happen.
All governing powers have some sort of corruptness.
But what i do believe also is that there is enough oil in already capped wells in the usa and canada to sustain us for the next hundred years.
Get rid of OPEC. Get rid of WALL STREET.
Get rid of NATO.
Let every country evolve the way it should. If you have to stand against your government then VOTE.
GET INFORMED. And quit letting governing powers use the money of the tax payer to continually strip us of our rights.
I am a proud Canadian and i think we do OK. But our governing powers need reform also.
The rich get richer and the poor get poorer.
The constitution of both our countries needs to be re-written.
China has all the manufacturing as do other countries .
Why?
Because of NAFTA.
But Canada Mexico and the USA governi g powers thought it was a good idea.
Now we all have high unemployment and ocer worked unemployment.
If everyo e worked for a fair wage and had a cap hit of 15 % income tax we could bring manufacturing back to us.
I could go on but it almost seems useless.
Our doctors get paid by the system. Your doctors get paid by the operation they perfoem. I pay a sum of % to my income. You pay by the visit.
Your USA system sucks and needs to be overhauled.
Im better off living in your country with duel residence and co.ing back to canada for hospital or doctor visits.
It shouldnt be this way.
The USA is way behing Canada in appropriation of medical funding for its citizens. The US medical system is another FDA approved by the government and big corporation sponsored corrupt system.
Ours needs work but yours is totally corrupt.
Ok i have had my fill of this.
Best of luck to all.
Canadians. Americans. Mexicans. And Latinos.
why do we need a tax cut? The stock market hit a new high again. That means executives are making huge profits(in salary bonuses & in their stock options). The U.S. has to reduce it’s deficit & not increase it with tax cuts. WAKE UP GREEDY ONES!!!
Why is DENMARK the happiest country in the world? $20 min. wage, 33hr. work week, free university, free childcare &healthcare. Guess who China & Israel taxed when they wanted to reduce their national deficit? CORP’s!!!!!
Why is it when I call Social Security or Medicare I have to press one for English and 2 for Spanish. One day I pushed 2 and It was all in Spanish. Now these people have not worked in our country as we speak English so why are they calling for benefits
Mike: I have to suggest a better way would be to eliminate income taxes completely, and move to the Fair Tax.
I am not going to go through the few rules but many benefits here; there are already two books available that do exactly that. Instead, I am just going to point out that this would also eliminate the direct estate (inheritance) tax, and it would get rid of any preferential treatment that the current income tax code allows for. Those seem to be your two biggest points about the system you would like to see.
The other benefit is that there would be more money to spend throughout the nation, because none would be funneled to the less-productive systems that clog the Washington, DC beltway and its arteries.
And it also eliminates personal reporting to the government of your incomes.
Are you reading this, Mr. Trump? No matter what you do you’ll have 90% of America angry with you. Does it make you want to toss the problems in Hillary’s lap? You fix it you fat mouthed broad!! I don’t know whether to laugh, cuss, or cry.
One last addition. There have been a few in Congress trying hard to address this problem. But every time a conservative speaks up they are drowned out by the spend, spend, spend crowd. And of course there was one Senator fighting ObamaCare hard as he could. Didn’t get any respect from his Republican leaders/fellow Senators. Of course, Mr. Cruz.