F. Tax Justice
The General Welfare: A Legislative Agenda for a Better American Future
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
"All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside."
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Tax Justice
The Income Tax Simplification Act.
Current income tax law requires ordinary people to complete complicated and unnecessary forms. For the overwhelming majority of Americans, the IRS has, or could have, all the information necessary to complete tax forms itself. Moreover, for middle income Americans, income and consumption are very similar, so a VAT would reach largely the same income as the income tax without requiring ordinary citizens to complete any forms at all or deal with the IRS in any way. The VAT would also encourage the middle class to save more, as it would leave such savings untaxed without requiring complicated and confusing tax-sheltered savings accounts. However, for upper class Americans, income can purchase power, influence and services without being subject to a VAT. Accordingly, in a fair and decent society in which people are expected to take responsibility for their actions and support the common enterprise according to the principle "from those to whom much is given, much will be demanded," a VAT could be the main source of tax revenue, supplemented by an income tax for upper incomes.
The IRS is hereby directed to complete all income tax forms to the maximum degree possible based on information available to it.
It may, by regulation, require payors to provide any additional information it deems appropriate, necessary or helpful to maximize the degree to which the IRS is able to complete tax forms.
At a minimum, the IRS shall promptly create such reporting requirements as are necessary to allow it to compute capital gains, interest and dividend income from all corporations, trusts and similar entities with securities registered under the Securities Act or deposits insured by any Federal agency or paid using any instrumentality of interstate commerce.
The IRS shall distribute completed tax forms to taxpayers, who shall have an appropriate opportunity to contest the entries or tax calculation thereon and be required to provide any necessary supplementary information.
Payors of dividends and interest shall withhold income tax on the same terms as payors of wage and salary income.
A VAT is hereby enacted, in the amount of 20% of all goods and services sold.
The Income Tax personal exemption amount shall be $75,000 for individuals and $150,000 for couples. Taxpayers with gross income below the exemption amount shall not be required to file tax forms. Taxpayers with taxable income (calculated without regard to the exemption amount) below the exemption amount shall owe no income tax.
Any for-profit entity that is considered to be separate from its investors or managers for purposes of tort, property or contract law shall be a taxable entity for purposes of the IRC and shall pay income taxes at the same rate as a human being with similar income, except that it shall have a personal exemption amount of $50,000. Legal entities with substantially similar management or investors, or which are required to file consolidated returns under the IRC, shall share a single exemption amount, allocated appropriately among them.
The Anti-Dead Hand Act.
Super-rich families increasingly have corrupted small states into allowing new abuses of the trust form, allowing the superrich to create permanent funds largely exempt from taxation and protected from creditors, which heirs can enjoy without responsibility. These funds pose a threat to fundamental principles of self-reliance, responsibility, democratic politics and equality under the law, and threaten to create a new hereditary aristocracy of inherited wealth.
In order to preserve the Republican form of Government in these United States and each of them, to prevent the development of an aristocracy therein, to ensure the equal protection of all American citizens, to protect due process of law, freedom of speech and the democratic political process from the corrupting influence of excessive and permanent concentrations of wealth, to promote the common welfare and to regulate interstate commerce, it is hereby enacted that:
No trust or similar instrument or entity shall exist for a period of more than 21 years after the death of a specified life in being, or fifty years, whichever is less, unless the trust or similar instrument or entity will wind up or expire by its own terms at a determinate date not more than fifty years after its creation.
No trust or similar instrument or entity, except for a charitable trust, shall have a corpus of more than $20 million. If one identifiable individual is the direct or indirect beneficiary of two or more trusts, this limit shall apply to all such trusts in the aggregate.
If the beneficiary and trustee of any trust are, or may become, substantially the same person, or if the beneficiary of any trust substantially controls the trust or its trustee, the trust shall be invalid and the beneficiary of the trust shall be deemed the legal and equitable owner of the trust corpus.
The income of every trust with at least one human beneficiary shall be taxed at double the rate applicable to ordinary income of that amount, provided that the maximum marginal rate shall not exceed 90%.
Contributions of assets, in whatever form, to a trust shall be deemed a realization event for the donor thereof and the donor shall owe taxes as if the donor had sold the donated asset.
Contributions of assets, in whatever form, to a trust shall be subject to estate and gift tax on the same terms as if the contribution had been made as a gift or devise to each individual beneficiary of the trust at the time of the contribution. Disbursements by a trust to any beneficiary shall be subject to estate and gift tax on the same terms as if the disbursement were a gift or devise by the trust (as taxpayer), its trustee, its creator, or the donor of the funds to the trust, whichever generates the highest tax.
"Trust" as used in this statute shall include every trust created or domiciled in the United States or having an American person as any of its donors, creators, trustees or beneficiaries, if any part of its corpus is managed by a manager regulated under Federal law, or any part of its corpus is invested directly or indirectly in securities registered under the Securities Actor any other investment affecting interstate commerce, or the trust or its trustee uses instruments of interstate commerce in creating or operating it.
The IRS may make regulations for the clarification and enforcement of this Act.
Any citizen of the United States may sue, as a private attorney general, to enforce this Act by injunction, for damages, or for a percentage of taxes wrongfully unpaid.
The provisions of this act shall be separable.
The AMT Distortion Correction Act.
The AMT was originally intended to ensure that the wealthiest Americans contributed at least something towards the common welfare, even if not the full share that patriotism and decency would require. At a later stage, however, a little noticed amendment transformed it into something quite different. The deduction for state taxes was long recognized as a central part of our federalist system: after all, money that is paid to the state is not available for personal spending and is not appropriately taxed a second time. However, anti-government and anti-city fanatics realized that the deduction for state taxes makes it easier for states to fund their essential functions. They therefore amended the AMT to treat state and local taxes as a tax preference: the deduction for state taxes is denied under the AMT. The consequence is that the AMT, instead of catching wealthy tax avoiders, is largely a penalty tax on professionals who choose to live in high-tax, high-service cities and states. A simple fix would restore the AMT to its original purpose, remove its threat to overwhelm the middle class, and eliminate the dishonest annual budget charade in which Congress increases the AMT threshold for a single year and then budgets as if it won't do the same the following year.
Separately, the AMT should be corrected to treat the deduction for mortgage interest as the tax preference it is; this deduction for a particular personal expense is a market distorting subsidy to bankers with the side the effect of making housing less affordable by artificially driving up prices.
Additionally, the lower tax rate for capital gains is a tax subsidy to unearned income and an incentive for short-term speculation and investing that has done a great deal of harm to the economy. As a matter of efficiency and growth, investors should be encouraged to take a long term view, not to move their capital around every year or two. As a simple matter of fairness, those who work for a living should never pay higher tax rates than those who live off of other's work.
The deduction for state taxes shall be deductible under the AMT to the same degree as in the regular income tax, because it is not a tax preference item.
The deduction for mortgage interest on personal residences, as a deduction for personal interest, is a tax preference item and shall not be deductible under the AMT. To allow the real estate market to adjust, this provision shall take effect five years after passage.
The AMT tax rate for capital gains, interest, dividends and other unearned income shall be the higher of the applicable AMT or regular income tax rate for earned income.
The AMT tax rate for royalties and other rents for intellectual property, when paid to anyone other than the individual human creator of the property in question, shall be the higher of the applicable AMT or regular income tax rate for earned income.
The Agriculture Protection Act.
The existing agriculture support system was originally created to support small family farms and to teach farmers farming sustainable techniques to prevent another dust bowl. Over time, it has lost these purposes and transmuted into subsidies for agribusiness, monoculture, unhealthy foods and poor land stewardship techniques. It is time to shift agriculture support from mass production of soy and corn without regard to ecological consequences to, instead, genuine family farmer who are trained to work the land, not strip it.
All existing agriculture support and subsidy payments are hereby abolished.
The amount previously allocated to agriculture support payments is hereby allocated to a new Agriculture Stewardship Program.
The Agriculture Stewardship Program shall be administered by the USDA, which shall promulgate appropriate rules and regulations.
The USDA shall create or fund services to develop and educate farmers regarding low impact, biodiversity promoting and pollution (including global warming gases) reducing methods of farming, including by creating positions at land grant colleges for such purposes.
Upon a finding of market failure, the USDA shall make grants or support payments to farmers who
(1) if human hold less than 1000 acres, and if corporate, hold less than 1000 acres and have control persons who, in the aggregate, are control persons with respect to corporations and other entities that, collectively, hold less than 1000 acres, and
(2) have a demonstrated or approved plan to farm the land in a way that promotes biodiversity and sustainability, and
(3) do not create measurable run-off or pollution, or are certified by the USDA as using best available technology for achieving such goal and have reduced their run-off and pollution by at least 10% in the last year.
The President Eisenhower Memorial Restoration of Responsibility and Deficit Reduction Income Tax Act.
High income can be powerful incentives to productivity and competition in a capitalist system. However, when prospective incomes get too high, the incentives change: they attract people who are willing to and skilled at cheating and deception, creating short term appearance of success, taking unsound risks with other people's livelihoods and money in order to win an unlikely but large prize even at the cost of highly likely failure and otherwise manipulating the system in order to win extraordinary rewards. For this reason, it is not surprising that higher CEO salaries in recent years have been associated with deceptive and sometimes criminal accounting, mergers and acquisitions lacking sound business rationales but likely to appear attractive to stock markets or bosses, polices likely to generate short term appearance of success even while reducing the likelihood of long term success, and violations of implicit and explict-but-legally-unenforceable agreements in order to seize rights or assets that others reasonably relied upon. Bureaucratic organizations, whether armies, government agencies, or business corporations, quickly lose their competitive edge when their leaders have incentives to work for themselves instead of institutional success. Thus, our capitalist system requires that our business leaders, like other professionals, make a good living only if the institutions they work for do as well -- which requires reducing pay to the point where success is defined by successfully building a long-term viable institution and running it, not by winning the lottery ticket of sudden wealth.
The current tax preference for unearned income such as income and dividends is both unfair and inefficient. Those who need not work for their income but can rely on the work of others benefit more from government; they should be be treated as aristocrats entitled to tax exemptions. Moreover, tax incentives for investors to move their capital around are economically unsound. Reducing the mobility of capital, by taxing it fairly, would reduce speculation. Even more important, it would improve the relative bargaining power of labor: labor, which is human beings, is inherently less mobile than capital, because people need to uproot their families to move or, often, even to change jobs. The greater mobility of capital gives it increased bargaining power in negotiations, where the party that can walk is always in a better position to seize the bulk of the gains from a transaction. Taxing mobile capital will, therefore, have the desireable result of directing more economic growth towards the productive employees who make it possible. .
Furthermore, no republic can long survive if some are rich enough to buy the unquestioning loyalty and obedience of others. Democracy will inevitably collapse into plutocracy if some citizens are rich enough to buy politicians, votes, or public opinion and to use this influence in order to increase their own power and wealth.
Finally, in a competitive market system, extremely high incomes normally result from monopoly or quasi-monopoly power or similar market failures. Worse, large accumulations of wealth can easily be used to overwhelm competitors or corrupt regulators in order to increase such monopoly power and generate further wealth by taking from, rather than giving to, the rest of society.
For each of these reasons, no one has a moral claim to the extraordinary gifts our capitalist system sometimes bestows, and the survival of our capitalist market and democratic republic require that their effects be limited. Accordingly, it is essential to use the taxing power in order to prevent the accumulation of wealth extremes. Unfortunately, our current tax system has been corrupted to tax unearned income at lower rates than earned income and to exempt large accumulations of wealth from most taxation altogether -- much like the feudal French system of taxing the peasantry while exempting the aristocracy.
Whereas, extreme accumulations of wealth and income threaten the integrity of our political process, and
Whereas extreme accumulations of income and wealth are useful only for buying aristocratic privilege, and
Whereas those who benefit the most from our political and economic system should also contribute the most towards its costs, and
Whereas, extremely high pay is associated with corruption and incompetence,
now therefore, be it enacted:
The income tax rate on taxable income over $1 million per year shall be 90% of the amount above $1 million.
The income tax rate for unearned income, including capital gains and dividends, shall be no less than the applicable tax rate for earned wage and salary income.
Step up of basis at death is hereby repealed. The IRS shall, by rule or regulation, provide methods to allow heirs who are unable to prove basis to estimate it.
The regressive cap on social security (FICA) tax is hereby repealed. All earned income is subject to social security tax.
The estate tax exemption amount is set at $3 million ($6 million for a couple). The tax rate is set at zero for amounts below that exemption amount, at 50% for amounts between $3 million (or $6 million for a couple) and $10 million, and 90% for all amounts above $10 million. This means that an estate of $3.1 million will pay $50,000 and an estate of $11 million will pay $4.4 million, leaving more than enough money for any heirs to live well without working. The estate tax shall apply to all devised or inherited assets regardless of form.
Trusts with a corpus exceeding $100,000 shall be taxed at the maximum income tax marginal rate. If multiple trusts directly or indirectly benefit the same individual beneficiary, the entire corpus of such trusts shall be consolidated for purposes of this provision.
Corporate Tax Restoration And Fair Disclosure Act
In the last several decades, major American corporations have dramatically decreased their contributions to the cost of operating the American government and providing the legal, regulatory, police and physical infrastructure that makes their profits possible. Specific loopholes will need to be corrected by tax experts who understand the details of the methods corporations have used to evade their obligations to the public weal. This Act attempts to limit the incentives for such chicanery.
The tax returns of every Large Corporation shall be public information and the IRS shall make such returns available in a readily accessible form.
For purposes of this provision, a Large Corporation shall be any corporation, LLC or other entity however organized that (a) issues securities that are registered under the Securities Act asserts or (b) has gross revenues of over $100 million or adjusted gross income in excess of $20 million, and utilizes at least one of the corporate privileges of entity liability, entity taxation, or perpetual succession.
On a demonstrated showing of specific competitive need, a Large Corporation may request that the IRS redact specific details of its tax returns that would reveal trade secrets and create a competitive disadvantage. The burden of proof shall be on the corporation seeking to suppress its information.
Any statement or accounting of corporation profits presented to shareholders or required by the securities laws or other disclosure requirements shall state precisely the places in which it differs from accounting presented to the IRS and shall include a reconciliation of the differences.
This provision bars the currently routine practice of maintaining separate books for the taxing authorities and shareholders. Under current practices, companies are free to report high profits to their investors while insisting to the IRS that they've earned little. The provision permits dual accounting to continue, but brings it into the open. This may help increase inhibitions against the most blatant forms of tax evasion.
No deduction shall be permitted for any payment of interest (or equivalent payment however characterized, including rents in a sale-leaseback arrangement) at a rate exceeding double the US treasury bond rate for securities of similar duration, unless the payor can establish that it has a debt to equity ratio not exceeding 1.5. This provision shall not affect taxation of the payee.
No deduction shall be permitted for any payment of salary, bonus or other compensation or emolument to any officer, director or executive in an amount exceeding twice the salary of the President of the United States. This provision shall not affect taxation of the payee.
Corporations have taken advantage of the preferred tax status of interest and employment compensation to distribute economic profits to investors and elite employees without paying corporate income tax. These provisions provide that unusually high interest payments, and compensation in excess of the compensation paid for the most difficult job in America, are taxed as distributions of corporate profit, as they should be.