http://online.wsj.com/article/SB1000142 … inion_mainIn tonight's State of the Union address, President Obama will declare a new found commitment to "fiscal responsibility" to cover the huge spending and debt he and congressional Democrats have run up in his first year in office. But next Monday, when he submits his actual budget, I fear it will rely on gimmickry, commissions, luke-warm spending "freezes," and paper-tiger controls to create the illusion of budget discipline. Meanwhile, he and the Democratic congressional leadership will continue pursuing a relentless expansion of government and a new culture of dependency.
America needs an alternative. For that reason, I have reintroduced my plan to tackle our nation's most pressing domestic challenges—updated to reflect the dramatic decline in our economic and fiscal condition. The plan, called A Road Map for America's Future and first introduced in 2008, is a comprehensive proposal to ensure health and retirement security for all Americans, to lift the debt burdens that are mounting every day because of Washington's reckless spending, and to promote jobs and competitiveness in the 21st century global economy.
The difference between the Road Map and the Democrats' approach could not be more clear. From the enactment of a $1 trillion "stimulus" last February to the current pass-at-all costs government takeover of health care, the Democratic leadership has followed a "progressive" strategy that will take us closer to a tipping point past which most Americans receive more in government benefits than they pay in taxes—a European-style welfare state where double-digit unemployment becomes a way of life.
Americans don't have to settle for this path of decline. There's still time to choose a different future. That is what the Road Map offers. It is based on a fundamentally different vision from the one now prevailing in Washington. It focuses the government on its proper role. It restrains government spending, and hence limits the size of government itself. It rejuvenates the vibrant market economy that made America the envy of the world. And it restores an American character rooted in individual initiative, entrepreneurship and opportunity.
Here are the principal elements:
• Health Care. The plan ensures universal access to affordable health insurance by restructuring the tax code, allowing all Americans to secure an affordable health plan that best suits their needs, and shifting the control and ownership of health coverage away from the government and employers to individuals.
It provides a refundable tax credit—$2,300 for individuals and $5,700 for families—to purchase coverage (from another state if they so choose) and keep it with them if they move or change jobs. It establishes transparency in health-care price and quality data, so this critical information is readily available before someone needs health services.
State-based high risk pools will make affordable care available to those with pre-existing conditions. In addition to the tax credit, Medicaid will provide supplemental payments to low-income recipients so they too can obtain the health coverage of their choice and no longer be consigned to the stigmatized, sclerotic care that Medicaid has come to represent.
• Medicare. The Road Map secures Medicare for current beneficiaries, while making common-sense reforms to save this critical program. It preserves the existing Medicare program for Americans currently 55 or older so they can receive the benefits they planned for throughout their working lives.
For those under 55—as they become Medicare-eligible—it creates a Medicare payment, initially averaging $11,000, to be used to purchase a Medicare certified plan. The payment is adjusted to reflect medical inflation, and pegged to income, with low-income individuals receiving greater support. The plan also provides risk adjustment, so those with greater medical needs receive a higher payment.
The proposal also fully funds Medical Savings Accounts (MSAs) for low-income beneficiaries, while continuing to allow all beneficiaries, regardless of income, to set up tax-free MSAs. Enacted together, these reforms will help keep Medicare solvent for generations to come.
• Social Security. The Road Map preserves the existing Social Security program for those 55 or older. For those under 55, the plan offers the option of investing over one-third of their current Social Security taxes into personal retirement accounts, similar to the Thrift Savings Plan available to federal employees. This proposal includes a property right, so those who own these accounts can pass on the assets to their heirs. The plan also guarantees that individuals will not lose a dollar they contribute to their accounts, even after inflation.
The plan also makes the program permanently solvent by combining a modest adjustment in the growth of initial Social Security's benefits for higher-income individuals, with a gradual, modest increase in the retirement age.
• Tax Reform. The Road Map offers an alternative to today's needlessly complex and unfair tax code, providing the option of a simplified system that promotes work, saving and investment.
This highly simplified code fits on a postcard. It has just two rates: 10% on income up to $100,000 for joint filers and $50,000 for single filers, and 25% on taxable income above these amounts. It also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four), and no tax loopholes, deductions, credits or exclusions (except the health-care tax credit).
The proposal eliminates the alternative minimum tax. It promotes saving by eliminating taxes on interest, capital gains, and dividends. It eliminates the death tax. It replaces the corporate income tax—currently the second highest in the industrialized world—with a business consumption tax of 8.5%. This new rate is roughly half the average in the industrialized world and will put American companies and workers in a stronger position to compete in a global economy.
Even without the Democratic spending spree, our fiscal outlook is deteriorating. They are only hastening the crisis. It is not too late to take control of our fiscal and economic future. But the longer we wait, the bigger the problem becomes and the more difficult our options for solving it.
The Road Map promotes our national prosperity by limiting government's burden of spending, mandates and regulation. It ensures the opportunity for individuals to fulfill their human potential and enjoy the satisfaction of their own achievements—and it secures the distinctly American legacy of leaving the next generation better off.
Right about now most conservatives would be nodding their heads and going 'What a great idea!'. Lower taxes? Personal responsibility? Sign me up!
Yeah... about that. This plan would completely fuck over quite a few people.
Let's start with the graduated income tax with it's two brackets arbitrarily set at $0 and $100k. Sounds great on paper because it 'punishes' the 'rich', no? Well, two things. One, it doesn't take into account cost of living. $100k in real income in New York is the same as $50k in real income in Florida. Two people, doing the same job, just living in different parts of the country so their incomes are different. One would pay $25k in taxes, the other would pay $5k. After taxes the person in New York will have made $75k, the person in Florida $45k. The person in Florida is now making 60% of what the person in New York is making instead of 50%, in absolute income. The Floridian is now making a 10% higher relative value in income. Any graduated tax system, in order to be fair, must take into account cost of living.
Secondly, and by far the most important part, is the removal of the capital gains tax completely. This is a very bad thing. Let's see how.
Under the current system, an individual making up to $172k is taxed at a rate of 28%, capital gains tax is 15%. Let's say that this person scrimped and saved and managed to invest $100,000 into the stock market. Because of taxes, the real value that he needed to invest was $128k. He buys a stock and he sits on it with an annual return of 10% for 20 years. After 20 years he decides to divest. Over that time his holdings have increased in value to $672,749.99 total. He then pays capital gains taxes of 15% on the $572,749.99 profit that he made over those twenty years. It comes out to $85,912.50 in taxes. When the initial taxes that he paid are tacked onto the total, he's paid a total of 16.9% in taxes on his initial $100k investment and turned that $100k into a healthy $586,837.50 after taxes.
Under the proposed system, the individual making $172k and investing $100k would pay an initial hit of 25%, making the pretax income he would need to put into a $100k investment at $125k. He then realizes the same 10% annual growth over 20 years and ends up with the same $672,749.99. He pays nothing in taxes because it's a capital gain and capital gains taxes have been eradicated. So he paid a total of $25k in taxes on his $672,749.99 which is a whopping 3.7%, far less than the guy that trudged through life and thought he was getting off easy by only paying 10% of his income in taxes instead of the 25% the 'rich' were paying all that time.
As we can see, under both the current and proposed systems the poor and middle class are actually paying a higher percentage of their income in taxes than those that are on the wealthy end and savvy enough to garner a 10% annual return. It kind of made me sad to do all this math because it puts the lie to our supposedly equitable distribution of taxation in this country. The rich are in fact paying far lighter taxes than the worker bees but are hiding it behind the smoke and mirrors of the supposed progressive tax system that 'seems' to punish the wealthy in support of the 'little guy'. The truth is anything but.
"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat
-Frederick Bastiat
