A Novice Idea on Reforming the Tax Code

After hearing so much about the need for a new tax system and a few unconventional plans like the “999” plan  or the choice of a flat 20% and staying with the current system, I decided that I would give it a shot.    With the reduction in the brackets, standard deductions, estate taxes and the elimination of the alternative minimum tax, I think this plan has something for everyone.  Information from Government Spending in the United States retrieved from www.usgovernmentspending.com, says that the normal federal expenditures is 6 trillion dollars divided as 18% for Healthcare, 15% for Education, 12% for Welfare, 16% for Pensions, 15% for Defense and 24% Discretionary/Remainder.  I have taken this 6 trillion dollar number to use in my calculations and attempting to reach this number in my tax reform plan.  It was also important to take a look at what is reported to be the current breakdown regarding revenue.  This information was retrieved from www.usgovernmentrevenue.com under the title Federal, State and Local Government Spending.  The information tells us that the federal government receives approximately 4.6 trillion dollars in revenue which breaks down like this.  Income 35%, Ad-Valorem (added value) 24%, Social Insurance 20%, Business 13% and Fees 8%.  Already we see that the amount of spending is 1.4 trillion over the amount coming in.  This already presents a problem which should now be addressed.

INCOME TAX

We all are quite familiar with the basic income tax designed for all wages and salaries paid to persons.  The current tax brackets ranges from 0 to 194,176 dollars and 10 to 35%.  For this I believe that a reduction in the brackets is not unreasonable.  I would reduce them to 2, which would be 0 to 71,351 dollars, 15%; 71,351 plus dollars 33%.  I would also reduce the standard deduction to head of household maintaining the 8,700 dollars and the married filing jointly maintaining its 11,900 dollars.  I would eliminate the alternative minimum tax because the purpose was to provide a choice for which I do not see any need for now.

ESTATE AND GIFT TAX

We know that an estate tax is tax paid on the right to transfer property at your death.  Since many of us will not really be affected because we will be dead, I believe that this tax should remain but reduced to one single bracket of 35% instead of being based on the value of an item.  I believe that the survivor of the deceased has the right to receive the property but should be required to pay for the right to have it.  The deceased has probably been paying for this property for quite some time and the survivor must now take over that responsibility along with having the benefit of ownership.

EMPLOYMENT, EXCISE AND OTHER TAXES

Regarding employment, miscellaneous excise alcohol, tobacco and other taxes, I see no reason to change their current status and would only review my decision if it is later discovered that they really are discriminatory, unfair or unjust.  I would also let stand mortgage deductions and earned income credit.  I would eliminate the child tax credit mainly because if you elected to become a parent, then you choose to handle all of the responsibilities and be accountable. 

TRUST FUND CODE

Since many view this code as tax avoidance and in some instances trust are not taxed, I would make this taxable upon the changing of hands.  In other words, you would pay a tax to set-it up of 10% and once the benefactor takes possession, they will pay a tax of 15%.   This eliminates the rush to create but it also allows you to finally be able to leave a little something for those surviving loved ones without it costing you an arm and a leg.