Saturday, February 25, 2012

The Jim Jackson Simplified Income Tax Plan

I’ve noticed all the presidential candidates have a new tax plan they are offering. I am not a candidate (and if nominated I will not run; if elected I will serve – so be careful), but thought I would propose my plan for simplified taxes.

Personal Income Taxes:

1. All income, regardless how earned will be treated equally under the Jim Jackson plan. A dollar earned by wages, dividend, interest, capital gains or pass-through from some corporate-like entity are all taxed the same. The fact is, someone paid you the dollar and government needs some portion of that dollar to operate public services and provide public goods.

2. Every person is taxed individually. If a couple owns a joint account, each is taxed on 50% of the income. If one spouse works and the other stays home to take care of the children, pets, sick relatives or lays on the beach, only the income earner is taxed.

3. How you spend your money, if legal, is no matter to me. Therefore, net income equals gross income. Yes, I am eliminating the mortgage deduction, medical deduction, child credit, personal exemption, and everything else. They are all gone. No extra deductions for being older than someone else, or blind or having children.

4. I propose graduated rates. Four brackets seems fine to me, but if tax experts prefer four or five, I’m not going to argue. The first bracket should be 5%. Everyone who earns income should contribute to the Federal government. (And yes, I know some will need more support than their income is taxed. That’s fine; provide them the service or give them a direct payment to cover the need. Do it directly, don’t try to cram it into an income TAX system.) The top rate should be 45%. I don’t know why 45% rather than 65%--but that way the earner gets more than the government even if they don’t really deserve it. Make the other two rates 15% and 30%.

I do not know what income levels each tax should kick in since I don’t have the data, time nor requisite skills to determine the revenues from my proposal. Given the current budget deficits, we clearly need more income than we are getting.

5. We need a transition. I propose five years. In the first year, everyone can choose to pay either on the new tax plan or 20% new and 80% old. The next year, the same choice, but with 40% new and 60% old. After five years, we are totally under the new plan. If in any year a person chooses 100% new plan, they can’t go back to the transition.

I know (unlike apparently Newt Gingrich who also has a transition in his plan) that my proposed transition will initially bring in fewer taxes than a plan without transition because everyone will choose the alternative that works best for them. To rectify this somewhat, I propose immediate repeal of the “Bush” tax reductions in current marginal rates.

Another reason for the transition is because a lot of smart people who earn their living off an overly complex tax system will need to retrain for productive work. My proposed transition provides a planned obsolescence of their skills. Just think how the economy can grow if these bright people apply their minds to productive activity.

Corporate Income Taxes

1. Eliminate all corporate income taxes. End of plan. No transition. No deductions for anything.

2. This plan eliminates all loopholes. If Congress wants to “encourage” some business activity they must cut checks, not hide the largess within “tax breaks.”

3. Eliminating the corporate income tax means the US should become a tax-haven for corporations, bringing back some jobs from overseas. Let the other governments figure out how they want to respond.

4. It also means corporations will be making more money, which they will eventually have to pass through to shareholders in the way of dividends, which (see above) are fully taxed.

5. Since corporations get no deductions for charitable, political or other contributions, they might wonder why they should make them—or at least shareholders should be asking that question since the money is coming directly from their future dividends.

6. Personal income tax rates will need to be higher to reflect the elimination of corporate income taxes—which is fine in the long run but might cause some larger deficits in the short term. Unlike other budget deficits, this one is self-correcting since it is only a temporary imbalance until the increase in corporate net income is passed through to investors.

Estate Taxes

1. A hereditary oligarchy is an anathema to a broadly representative government. Therefore if someone didn’t manage to spend or give away their money before death, the government shall help them do it through the estate tax.

2. This item more properly belongs under the income tax section, but it occurs after death and Republicans have labeled the estate tax a death tax anyway, so I’m including it here. What am I including? At death, the difference between market value and book value of all assets is income in the year of death. The individual could have sold the asset, realized the gains and paid taxes. They chose not to make the sale while they were living, but now they are dead and income taxes are owed.

It does not matter whether we are talking about shares in Apple or the family farm that has increased in value or a small private business. Income has been earned and it shall be taxed. Life insurance agents will be happy that they still have a role in estate planning for small businesses.

3. After paying any income taxes, estates over $1 million dollars (adjusted for inflation from the date the limit was first $1 million) are taxed at a 50% rate. The very rich will still be incredibly rich, but less so than with no estate tax.

4. The estate tax planners still have a modicum of work to do since planned giving/ gift taxes etc. will still exist. However, note that under the proposed plan, the Government gets its 50% off the top before any distributions to heirs, charities or created foundations.


I estimate (based on nothing concrete) that the Jim Jackson tax plan eliminates 99+% of the current tax code and regulations. By eliminating all deductions, it allows each individual to decide for themselves without government incentive how to spend their income. It forces government to make explicit expenditures to corporations or individuals rather than hide them in the tax code, which will allow the public to better understand where we are spending our money and whether the government is effectively addressing the needs of the people.

Does the Jim Jackson tax plan need to be fleshed out? Of course, but I suspect I already included more than sufficient detail to attract plenty of attacks from the entrenched corporations and wealthy, not to mention the anti-corporation liberals.

~ Jim

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