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Tax Plan Proposal For an “Innovation Economy”


After reviewing the tax plans of each of the GOP Presidential Candidates, I decided to try to craft a plan which I think will accomplish five major objectives:

  1. Create an “Innovation Economy”
    1. Economy which rewards Entrepreneurs, Landowners & Businesses who invest in the U.S.
  2. Maximize U.S. economic growth
    1. GDP Growth, Capital Investment Growth, Wage Growth, & New Job Creation
  3. Cut taxes for every single income class
    1. Focusing the largest cuts on those who are most likely to pump it back into the economy
  4. Reduce the size of the Internal Revenue Service
    1. Make it so that every single individual can do taxes on just one form
  5. Incentives for Top Earners to drive extra money into the economy in the most productive way
    1. Make it more profitable to start small businesses, and invest in real estate

I, of course, also have the advantage of not needing to craft a plan that can get me elected, so I am simply trying to build a tax plan that will accomplish those five goals, regardless of how the ideas would play on the campaign trail.

Highlights of the Innovation Economy Tax Plan

Eliminates Corporate Income Tax

Creates a two-tier “Business Transfer Tax” or Value-Added Tax (VAT):  16% and 25%

Enacts a one-time deemed Repatriation tax of 5% on all foreign profits currently deferred

Rental Property, and commercial property, Income would no longer be taxable

Reduces seven Individual Income Tax Brackets down to two:  10% and 25% (Progressive Tax)

Increases Standard Deduction to $25,000

Eliminates all Itemized Deductions and Tax Credits

Eliminates payroll tax

Eliminates Alternative Minimum Tax

Eliminates 3.8% Net Investment Income Tax

Eliminates 0.9% Medicare Surtax

Eliminates Estate Tax

 

 

Replace Corporate Income Tax with Two-Tiered Business Transfer Tax (VAT)

In order to boost GDP, Increase wage growth, and drive new incremental job growth, the United States must lower the tax burden on our nation’s businesses.  At the same time, we must discourage businesses from moving operations overseas, and try to drive as much of the enhanced economic benefit back to people within our borders.  For this reason, I am proposing a two-tier tax Business Transfer Tax.  Businesses who adhere to two simple rules, outlined below, will qualify for the 16% Tax Bracket, those who don’t will qualify for the 25% Tax Bracket:

  1. 90% of employees must be based in the United States
  2. 90% of Capital Investment must be spent inside of the United States

Companies would put in an application every three years, which would examine the past three years.  If they have met the requirements for the past three years, they would be pre-approved for the next three years.  If they are determined to have not met the requirements for the past three years, their pre-approval application would be declined.  If they had been pre-approved in the past, and it is determined that they did not meet the requirements over that 3-year span, they would be given a tax bill for the three years worth of tax breaks which they did not earn.

This is a unique proposal, which will drive specific behaviors among businesses in the United States.  This proposal would do a number of things to jumpstart the Innovation Economy inside the USA:

  1. Heavy Capital Investment Industries would benefit
    1. Tooling Companies, and even U.S. Based Software Outsourcing companies
  2. Less Outsourcing across every industry
    1. Companies near the 90% mark will pull back employees, or outsource less in the future
  3. This will create thousands of small businesses
    1. Lower tax rates for entrepreneurs will lead to more new small business start-ups
  4. Top-Earners will turn towards creating businesses to shield taxes
    1. Higher Capital Gains rates for top earners, so they will invest in business start-ups
  5. This move will boost GDP and create a maximum number of Net Incremental Jobs
    1. Important metric increases by incenting companies, & top earners, to invest in America

Enacts a one-time deemed Repatriation tax of 5% on all foreign profits currently deferred

There are $2.1 Trillion dollars of profits currently being held offshore.  If all of those profits came back to the U.S. today, it would result in several hundreds of billions of dollars in tax revenue, and make investment in the U.S. much easier to accomplish for many companies.  Since it is so expensive to repatriate these profits, that will never happen.  This plan is simple, earning $50 – $100 Billion now, and causing a massive influx of dollars into the American Economy, is better than continuing to incent companies to keep their profits overseas by making it cost-prohibitive to bring the dollars back to America.

This plan advocates a one-time 5% Repatriation fee, that will be good for a period of two years, so that companies can repatriate their profits in an orderly fashion.  Most companies will take advantage of this, because it is such a steal of a deal from a tax perspective.  The two-year timeframe will allow companies to plan out the additional tax expense, and the plan will result in a huge influx of dollars into the U.S. economy. This influx, in conjunction with the tax incentives for investing in U.S. CapEx, will cause unprecedented GDP and Job Growth at the very beginning of this plan, which will make it easy to surpass current Presidential Plans in the traditional 10-year view that the Tax Foundation takes when analyzing the plans.

Rental Property, and commercial property, Income would no longer be taxable

This is one of the most controversial portions of the plan.  The idea here is that by taking away the Mortgage Interest exemption (explained later), the housing market could suffer.  This part of the plan will eliminate that concern, along with making it easier for ordinary Americans to prosper in Real Estate, while also making taxes simpler (and therefore, be able to shrink the IRS), all while giving the top earners a place to invest their money which will benefit everyone in the American Economy.

Here is how it would work.  There would be no taxes on any income made through rental property, or commercial property ownership.  This, of course, will increase the ownership of rental property across America.  It will also likely lower the average rent paid (through more competition, and less need for higher profits to offset the tax burden).  This, in conjunction with the removal of the Mortgage Interest Tax Deduction, will drive a disparity between the cost of renting a home, and the cost of owning a home.  Some will say that this is just another way to drive a wedge between the lower class, and the upper class, but the actual effect would be that both classes prosper (along with the middle class).  The lower class benefits from lower rents through increased competition, and less need to offset the tax burden.  The middle class benefits because entry-level housing will need to become cheaper to compete with the new lower top tier of rental prices (along with less need to offset the tax burden.  The upper class benefits because they can participate in the rental market by making a tax-free profit, while helping the lower class live cheaper than they do today.  It is literally a win-win-win.

How will this affect the overall economy?  The lower class will have more money to spend (due to lower rent).  They tend to spend their excess dollars, so this will instantly pump back into GDP, which will be good for businesses.  The middle class will benefit the most from the Net Incremental Jobs which will be created through the higher GDP.  The upper class will try to avoid the higher tax rate on Capital Gains, and will dump lots of excess money into real estate, which will cause a real estate boom throughout the country.  This will directly help the middle class, as studies have shown that in suburbs over 100,000 people (where most of the middle class resides), cities still have between 19% and 25% of the land sits vacant.  This is land that the top earners can purchase to expand the city’s population, or invest in commercial real estate to bring new jobs to the city, but will likely result in very strong momentum on both fronts.

Individual Income Tax Brackets

Consolidate the 7 current individual tax brackets into two brackets:  10% and 25%.  Everyone making under $200,000/year would fall into the 10%.  Once you have exceeded the $200,000 income level, you would be taxed at 25% thereafter (so, this would be a progressive tax bracket).  All income will be taxed the same, whether it is payroll income, short term capital gains, or long term capital gains.  This plan will result in an overall tax rate drop for every single one of the 7 current tax brackets, which we will discuss later.

Standard Deduction

Increase the current standard deduction from $6,300/person to $25,000/person.  This increase will affect all taxpayers, but will the largest positive affect in the lowest tax bracket.  This is important, as we have discussed, because these folks are the most likely to pump the money directly back into the economy the quickest.

Itemized Deductions & Tax Credits

All Itemized Deductions and Tax Credits would be eliminated.  It is important to note that this includes the Child Tax Credit, and the Earned Income Tax Credit, the Mortgage Interest Tax Deduction, and the Charitable Giving Tax Deduction, all of which most candidates keep in their tax plans.  These Tax Credits and Deductions, which the candidates have kept in their plans, cost taxpayers nearly $250B/year in lost tax revenue.

Earned Income Tax Credit

With the proposed increase in the standard deduction, the lowest income brackets are already receiving drastic tax decreases, and the EITC would only reduce tax liability for couples earning $50,000 or more (right around where the EITC phases out today anyway).  For this reason, there is no real reason to keep the EITC in place, as we have already brought their Federal Tax Burden down to 0%.

Child Tax Credit

Again, after the Standard Deduction increase, this tax break would affect mostly the middle and upper income tiers, and the argument for this Tax Credit is typically the lower-income individuals/families.  Since we are lowering the tax burden for every income bracket, we should take advantage of that to eliminate all tax credits, so that we may move to a much more simple tax process, and thereby shrink the size of the IRS significantly.  The folks who are losing this benefit would be paying dramatically less taxes than they are today, and will not miss its effects.

Mortgage Interest Tax Deduction

This is probably the most controversial Tax Deduction omission.  Many Americans would balk at the thought of eliminating this Tax Break.  However, most people think they get a lot more benefit than they do.  Take a family of four, who is in the 15% tax bracket with a $200,000 home, and a 5% loan.  This family only pays $10,000 in Mortgage Interest per year, and their 15% tax bracket means that the entire benefit from this deduction is only $1,500.  Meanwhile, the drastic increase in the Standard Deduction more than offsets any benefit this family will get from the Mortgage Interest Tax Deduction.  In fact, in this plan, the folks at the highest tax brackets would benefit the most from this deduction, and therefore, it is deemed unnecessary.  Some people will argue that removing this deduction will have a negative effect on the housing market.  I would argue that it will bring the housing market to equilibrium, especially in conjunction with the new tax treatment of rental properties, proposed earlier in the plan.

Folks who probably should not be purchasing a house, but do so because they are told the tax credit is worth it, will now make smarter decisions.  Folks who don’t need a mortgage, but take one out to utilize the tax deduction, will now be less leveraged.  Folks who buy a house just a little beyond their means, using the tax deduction as their reason, will now make better budgetary decisions.  In addition, the new tax treatment of rentals will make renting much more affordable, and will shift people from the fence between buying and renting, making it a much easier decision for the majority of families.

After a few years, the market will completely stabilize, and people will be smarter when it comes to home purchases.  The removal of this deduction will likely stabilize the market, making huge ebbs and flows in prices less likely to occur, as Congress will be less likely to use this deduction as a tool in order to drive artificial dollars into the economy.  Also, with the rental property tax exemption, mentioned earlier, the housing market is more likely to surge, than it is to dip.  The balance between renters and homeowners will just shift accordingly, and appropriately.

Charitable Giving Tax Deduction

This is another tax break that people think is bigger than it really is.  Take the same family, except that they are earning more income (making $100,000/year), and tithing 10% of their income.  This family is giving away $10,000/year, and is now in the 25% tax bracket.  They would get a tax benefit of $2,500.  Again, the lofty standard deduction increase would more than make up for any lost income from this tax credit.  Once again, this tax credit primarily benefits the rich.  The argument can be made that charitable giving will go down if this deduction is removed, but I would argue that the economic benefits from this plan will put more money in people’s pockets, and charitable giving will go up as a result.  After all, giving away $10,000 to save $2,500 in taxes is not a fantastic financial move, it is clear that the motivation for giving stretches beyond the tax break.

Eliminate The Estate Tax

This plan is designed to pump as much money into the economy as possible, resulting in more jobs, higher GDP, more corporate investment, and higher wage growth.  All of that should result in people passing away with larger nest eggs than we have seen in previous generations.  The Estate Tax has been a hot button issue for politicians for years, and one which they like to manipulate (or demonize) in order to get votes during election years.  The idea here is simple:  Your debt has already been paid.  This plan already has the wealthy folks paying a lot more than the everyday folks, and has eliminated every way that the rich folks can get out of paying their fair share.  Waiving the Estate Tax gives people a reason to continue to try to build wealth, which is a key component of the Innovation Economy.  Removing this tax keeps incentives in place for people to work harder, and longer, and will ultimately pay for itself in the form of the economy creating more jobs due to the American Spirit of Innovation.  Also, it is just dirty to have someone work hard to save money all their life, and have their kids watch as the government steals their parent’s hard-earned money before the body is even cold.  That should not be the role of Government in the greatest country in the world.

Summary

In the end, it is clear that this would be a drastic change from today’s tax code, but it would accomplish the five goals we set out to at the beginning of the argument:

  1. Create an “Innovation Economy”
    1. Economy which rewards Entrepreneurs, Landowners & Businesses who invest in the U.S.
  2. Maximize U.S. economic growth
    1. GDP Growth, Capital Investment Growth, Wage Growth, & New Job Creation
  3. Cut taxes for every single income class
    1. Focusing the largest cuts on those who are most likely to pump it back into the economy
  4. Reduce the size of the Internal Revenue Service
    1. Make it so that every single individual can do taxes on just one form
  5. Incentives for Top Earners to drive extra money into the economy in the most productive way
    1. Make it more profitable to start small businesses, and invest in real estate

Reason To Believe

While the Tax Foundation would have to run this plan through one of its massive analysis tools to determine the economic effects over the next 10 years, I decided to include some reasons to believe.

The plan was based off of Ted Cruz’s Flat Tax proposal, then altered from there.  I am going to try to value some puts/takes to see how the final financials would play out.

  1. Eliminating all Tax Credits and Tax Deductions: +$250B/year positive vs. Ted Cruz’s Plan
    1. Adding up the approx. costs of EITC, Mortgage, Child Tax Credit, Charitable Deductions
  2. 2ndIncome Tax Bracket of 25% (5,000 HH in the U.S.): +$175B/year positive vs. Ted Cruz’s Plan
    1. + $125B/year for higher income earners (top 3% of HH in the country)
    2. + $50B/year for higher Capital Gains Tax Rates for higher earners
  3. Higher 25% Business Transfer Tax Income Tier: + $300B/year positive vs. Ted Cruz’s Plan
  4. Lower 16% Business Transfer Tax Income Tier: $0B/year equal vs. Ted Cruz’s Plan
  5. Repeal Estate Tax: $0B/year equal vs. Ted Cruz’s Plan
  6. No Rental Income Taxes: – $25B/year negative vs. Ted Cruz’s Plan
  7. 5% Repatriation Tax: 1-time + $50B Was not factored into the Tax Foundation’s analysis
  8. Increase the Standard Deduction: – $700B/year negative vs. Ted Cruz’s Plan

In total, using these rough calculations, this plan would cost approximately the same as Ted Cruz’s plan, which was estimated to create 4.2M jobs, but still costs around $700B over the next ten years.  However, the enhanced Repatriation benefit (which was not even valued in the Tax Foundation’s analysis of the Cruz plan), the US-Investment based lower Business Transfer Tax incentive, the Rental Income Tax Repeal, and the higher Standard Deduction will all drive economic growth at the very beginning of this plan, and should make up more than the $700B deficit over the next ten years.  As with any tax plan, this would need to be implemented in conjunction with spending cuts to offset any potential cost of the plan, if it were found not to be overall neutral.

This is the type of innovative tax plan that will allow us to boost Innovation, drive U.S. Economic Growth, reduce the size of the IRS, and lower taxes across the board for every citizen.  It would be hard to implement, but the benefits would be felt for years to come.

 

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2016 Presidential Election Preview: Grading The Top 11 Potential Republican Presidential Candidates


Here is a look at the best 11 candidates that the Republican Party has to offer. I have graded them based on their social views, fiscal views, potential grassroots momentum, potential establishment support, their total candidate grade, their likelihood of winning the primary, and their overall likelihood of winning the general election.

Please feel free to discuss/argue/debate my opinions in the comment section, I would love to dive deep on each of these candidates before I decide who to endorse, and I want to hear from you folks!

 

Mike Huckabee

Background: Former Arkansas Governor, Former Preacher, Former Television host

Social Issues: B+ – Strong on Abortion, Crime, and the 2nd Amendment, moderate on Immigration

Fiscal Issues: A – Supports the Fair Tax, and fiscal reform

Grassroots Momentum: A – Fox News Republican base would get behind him, so would Evangelicals

Establishment Support: C – Backed out to let Mitt take the nomination, some will respect that

Total Candidate Grade: A- – Great candidate if he decides to run, needs to declare early and run hard

Likelihood of Winning the Primary: 16%

Likelihood of Winning the Election: 8%

 

Jeb Bush

Background: Former Florida Governor, George Walker Bush’s Brother, George HW Bush’s Son

Social Issues: B – Strong on Abortion, Crime, and the 2nd Amendment. Moderate on Immigration.

Fiscal Issues: D – Willing to negotiate on taxes, careful entitlement reform, big spender

Grassroots Momentum: B – Big brand name, moderates in the party will rally behind him in primary

Establishment Support: A – GOP looking for best chance to win moderates will rally around Jeb

Total Candidate Grade: B+ – Swing State Gov + moderate on immigration/entitlement + big spender

Likelihood of Winning the Primary: 15%

Likelihood of Winning the Election: 7%

 

 

Rick Perry

Background: 4-Term Texas Governor

Social Issues: A – Strong on Abortion, Crime, Immigration, and the 2nd Amendment

Fiscal Issues: A – Called Social Security a Ponzi Scheme, supports the balanced budget amendment

Grassroots Momentum: B – Republicans like Texas Republicans, and he is right on the issues

Establishment Support: D – Needs to shed the “dumb” label from 2012, but can overcome that

Total Candidate Grade: B – Needs to convince people he is intelligent, but he has the whole package

Likelihood of Winning the Primary: 14%

Likelihood of Winning the Election: 6%

 

 

Marco Rubio

Background: Florida Senator

Social Issues: B – Strong on gun rights, and crime, moderate on Immigration and abortion.

Fiscal Issues: A – Strong on tax reform, entitlement reform, and good on budget issues

Grassroots Momentum: B – Latino candidate that people can believe in, could unite party

Establishment Support: B – Strong choice if Jeb is out and Dems are leaning towards Hillary

Total Candidate Grade: B- – Swing State Senator on the right side of every issue for mainstream America

Likelihood of Winning the Primary: 11%

Likelihood of Winning the Election: 6%

 

Scott Walker

Background: Wisconsin Governor

Social Issues: C – Strong on Abortion, gun rights, moderate on Crime, and weak on Immigration.

Fiscal Issues: B+ – Union Buster, strong on budget, light experience on federal fiscal issues

Grassroots Momentum: B – Anti-union crowd hero, survived Recall vote, strong candidate

Establishment Support: A – Fiscal Conservative with good track record, could gain momentum

Total Candidate Grade: C+ – Swing State Governor with guts/determination, don’t count him out

Likelihood of Winning the Primary: 9%

Likelihood of Winning the Election: 5%

 

Rand Paul

Background: Kentucky Senator, Former Doctor

Social Issues: B+ – Strong on Abortion, gun rights, moderate on Crime and Immigration.

Fiscal Issues: A – Strong on reducing spending, entitlement reform, and endorses the flat-tax

Grassroots Momentum: A – Daddy’s fans, plus he won a lot of support with his filibusters

Establishment Support: B – Reasonably conservative candidate with a brand name and moderate ideas

Total Candidate Grade: C+ – He would be #1 here if he was a governor with 4+ years of experience…

Likelihood of Winning the Primary: 8%

Likelihood of Winning the Election: 5%

 

Paul Ryan

Background: Wisconsin Representative

Social Issues: A – Strong on Abortion, gun rights, Crime, and Immigration.

Fiscal Issues: A – Advanced multiple balanced budgets to congress looking for 5+% bump in revenues

Grassroots Momentum: B – Lots of name recognition, newest budget talks could spark discussion

Establishment Support: B – Lots of establishment money spent on Romeny/Ryan, could continue

Total Candidate Grade: C- – Swing State Representative with budget chops, could leverage debt crisis

Likelihood of Winning the Primary: 8%

Likelihood of Winning the Election: 5%

 

John Kasich

Background: Ohio Governor, Former Representative

Social Issues: A- – Strong on Abortion, Crime, and the 2nd Amendment, and Immigration

Fiscal Issues: A – Supports lower taxes, lower spending, and entitlement reform

Grassroots Momentum: B – Would build momentum if he can tell his balanced budget story

Establishment Support: D – Very little support in 2000, he would need to improve on fundraising

Total Candidate Grade: D – Swing State Governor with top-rate credentials, just needs to raise cash

Likelihood of Winning the Primary: 6%

Likelihood of Winning the Election: 3%

 

Chris Christie

Background: New Jersey Governor, former US Attorney, former Lobbyist

Social Issues: D – Flip-flopped on Abortion, semi-weak on immigration, very weak on 2nd amendment

Fiscal Issues: C – Good on tax reform, great on entitlement reform, weak on replacing taxes with fees

Grassroots Momentum: B – BridgeGate slowed down the momentum, but still has a lot of fans

Establishment Support: B – Well known, lots of wall street money behind him, good establishment choice

Total Candidate Grade: D- – Primary will be tough, lots of baggage to overcome, no huge upside

Likelihood of Winning the Primary: 6%

Likelihood of Winning the Election: 2%

 

Rick Santorum

Background: Former Pennsylvania Senator, Former Representative

Social Issues: A- – Strong on Abortion, Crime, and the 2nd Amendment, and Immigration

Fiscal Issues: A – Supports lower taxes, lower spending, and entitlement reform

Grassroots Momentum: B – Some fans left from 2012, but his fan base will always be limited

Establishment Support: C – Fought Mitt to the end, wasting his money, people will not appreciate that

Total Candidate Grade: E – Strong conservative with little chance of winning the entire election

Likelihood of Winning the Primary: 3%

Likelihood of Winning the Election: 1%

 

Ted Cruz

Background: Texas Senator

Social Issues: A – Strong on Abortion, gun rights, Crime, and Immigration.

Fiscal Issues: A – Supports single-rate tax, entitlement reform, and smaller government.

Grassroots Momentum: A – Hardcore Republicans love him, he will have a following

Establishment Support: D – Never met anyone who thinks he can actually win the nomination

Total Candidate Grade: F – Newby who has a reputation for being extreme, no name recognition

Likelihood of Winning the Primary: 2%

Likelihood of Winning the Election: 1%

 

Duck Dynasty, Freedom of Speech, and 45 Words That Every Politician Should Read


Attention Prospective Presidential Candidates:  The First Amendment is only 45 words, please read it before making absurd comments defending an obnoxious, racist, bigot who deserves to be fired…

Yes, we are talking to you Sarah Palin and Bobby Jindal

If you want to be President of this great nation, you should probably know the Bill of Rights backward and forward.  It is only 462 words, it will only take a few minutes to read.  However, even if you were exhausted by the big words, and the ramblings of people who sacrificed everything they had for this country, I assume you could at least get through the First Amendment before quitting your attempt at reading one of the most important documents ever written…

Well, you know what they say about those people who assume…

Here is the entire First Amendment, please take a moment to read along:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances”

Notice how it does not say that you can be an obnoxious, racist, bigot and you are protected from being punished at work.  That is because the First Amendment stops Congress from making laws that restrict free speech, it does not give you the right to say whatever you want, whenever you want, with absolutely no consequences.  Could you imagine what type of service you would get at McDonalds if the cashier was allowed to be as rude as they wanted, because they knew that their first amendment rights would prevent them from being fired?

Phil Robertson made a stupid mistake.  No matter what job you have, but especially if you have a television show, it is probably not wise to say the things that he did about Homosexuals (roughly 4% of the population), Black People (roughly 13% of the population), and Divorced People (roughly 25% of the adult population).  The odds are that some of those people watch his show, and the odds are even higher that some of those people watch other shows on A&E.

Phil Robertson is lucky that they did not fire him.  He will be lucky if this does not turn into a Mel Gibson moment.  But most of all, he is lucky to have three uneducated Presidential Hopefuls talking about how his Freedom of Speech has been violated!

To go on National Television and blatantly mislead the public on what Freedom of Speech means is a pretty big mistake for someone who wants to become President.  To do so while defending someone who made the comments Phil Robertson did is abhorrent.

Sarah Palin and Bobby Jindal owe an apology to A&E for their false allegations of Constitutional misconduct.

They owe an apology to the American people.

But most of all, they owe an apology to the 25,000 American Revolutionaries who died during the Revolutionary War that gave them the very rights that they are now misquoting in an effort to position themselves as the next President of a Nation who definitely deserves a better effort than what they are currently offering…

English: Governor Bobby Jindal at the Republic...

English: Governor Bobby Jindal at the Republican Leadership Conference in New Orleans, Louisiana. (Photo credit: Wikipedia)

 

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