Posted by
grad_1986 on Monday, April 06, 2009 8:23:18 PM
The problem with our current tax system is that it has not changed with the times. It works pretty much the same as it did back in the early 1900's. As the income tax system has "evolved" it has grown enormously complex. Today its a system of loop-holes to fix loop-holes resembling Swiss-cheese. The system was based on the fact that there was no way back then to have a centralized system to record peoples incomes to figure out how much they owed. If we had a "flat-tax" system there would be no problem. Essentially any income incurred could be taxed at a fixed rate by a bank or financial institution and the money sent directly to the government. But because we as Americans believe that higher income earners should be paying a larger burden a "graduated system" has been put in place. This graduated system therefore required us to "estimate" (W-4) what we think we will be earning the coming year so the government gets their "fair share" of the pie and then "report" what we actually made every year on April 15th (1040).
But a lot has changed since 1919 when the income tax system was put in place (did you know that in 1919 the only people who had to pay income taxes were people earning over $500,000 and they only had to pay 1% of their income?). Today we have the internet and at the speed of light we can have a centralized recorder of income to automatically figure out how much tax to extract from each persons "income". This is how it would work
1) Every tax payer is given a unique tax payer ID# (not your SS#) and would register that number with:
- their employers
- their banks
- their financial institutions
2) Each taxpayer tells the IRS how many deductions they are claiming (children)
3) Each January 1st everyone's account in the IRS database is reset to ZERO - #deductions * 2000.
- so people with children start out with negative numbers
4) Every time a person is paid, income, interest, dividends,etc.. the company logs onto the IRS database and the amount is recorded
5) The IRS will send back the exact amount to be subtracted from the amount by adding the amount to the running total and taking the
amounts in their respective brackets
- Let's say a person with 2 children earns 5000 per month
Jan 1st they start out with: -4000
At the end of January the person receives 5000 so the first 4000 is not taxed as it is still below zero.
The next 1000, is taxed at 10% so the IRS tells the company to withhold 100. from the pay and the person get $4900.
And so on...
Banks and other financial institutions would go through the same pay as you go system. The IRS would always get the correct amount and no 1040 would need to be filed on April 15th. The other benefit is that NO ONE CAN CHEAT the system ( not even tax-cheat Timothy Geithner!) We all pay our fair share.
Now of course it means we will need to give up our "deductions" such as charitable giving (which is going away anyway), but I think that is a small penalty for a system where I know we are on a level playing ground. The benefits of this system would also be:
1) Free up Americans to INVEST! How many of us avoid investing because it would complicate our taxes? I know I do.
2) Save corporations MILLIONS of dollars in "tax lawyers" and "tax accountants".
3) Get rid of the IRS auditors.
We need a 21st century tax system to help us with our 21st century problems. Otherwise we are doomed as a country living in the early 20th century.