10. Income Tax & Negative Income Tax

Income tax rates (for all entities, including individuals and businesses) should be progressive but calculated using a smooth algebraic formula rather than inherently unfair tax brackets and should be based on total gross yearly earnings before any deductions for retirement contributions, tax payments or anything else are made. Income from all sources, including labor, investment income, gambling winnings and punitive awards, should be included, except income meant as direct compensation for a loss (such as compensatory insurance monies). Gifts, tips and inheritances are also not required to be included.

Since income is an active economic activity, the sales tax would be applied to it. Everyone, including the very poor, must pay the standard sales tax rate on the income they earn. This sales tax, in effect, would be their income tax. A specific income tax would be levied on any individual making more than $50,000 per year.

Negative Income Tax

A negative income tax (NIT) would be paid out to all adult citizens (any citizen 16 years and older will qualify, but at a half rate until age 18, when full rates are provided) to dramatically simplify (or in some cases eliminate) the administrative costs associate with a plethora of other welfare programs. In addition, an NIT would eliminate the perverse incentives, known as the ‘welfare trap’, that often result within other aid programs, when the consequences of earning any relatively small income cause the recipient to become ineligible for continued aid payments, which, in effect results in a significantly smaller overall income.

The formula used for calculating personal income tax rates will be higher than that used for calculating business income tax rates in order to better fit each category’s revenue ranges.

Instead of using tax brackets, a much fairer way to charge income taxes is through the use of a smooth algebraic formula that generates a slightly higher tax rate for each additional dollar of income. The charts below give examples of various income levels and the tax rates that would be associated with those levels according to this smooth algebraic formula.

Individual Income Tax Rate Proposal

Tax Rate Total Income Taxes Paid Net Income
0% $0 -$12,500 $12,500
0% $10,000 -$10,000 $20,000
0% $20,000 -7,500 $27,500
0% $30,000 -$5,000 $35,000
0% $40,000 -$2,500 $42,500
0% $50,000 $0 $50,000
5% $100,000 $5,000 $95,000
10% $250,000 $25,000 $225,000
20% $500,000 $100,000 $400,000
30% $1,000,000 $300,000 $700,000
40% $5,000,000 $2,000,000 $3,000,000
50% $10,000,000 $5,000,000 $5,000,000
60% $50,000,000 $30,000,000 $20,000,000
70% $100,000,000 $70,000,000 $30,000,000
80% $1,000,000,000 $800,000,000 $200,000,000
90% $10,000,000,000 $9,000,000,000 $1,000,000,000
95% $100,000,000,000 $95,000,000,000 $5,000,000,000
99% $1,000,000,000,000 $990,000,000,000 $10,000,000,000

 

Business Income Tax Rate Proposal

Tax Rate Total Revenues Taxes Paid Net Revenues
0% $0 $0 $0
0% $1,000,000 $0 $1,000,000
10% $10,000,000 $1,000,000 $9,000,000
20% $100,000,000 $20,000,000 $80,000,000
30% $1,000,000,000 $300,000,000 $700,000,000
40% $10,000,000,000 $4,000,000,000 $6,000,000,000
50% $100,000,000,000 $50,000,000,000 $50,000,000,000
60% $1,000,000,000,000 $600,000,000,000 $400,000,000,000
70% $10,000,000,000,000 $7,000,000,000,000 $3,000,000,000,000
80% $100,000,000,000,000 $80,000,000,000,000 $20,000,000,000,000
90% $1,000,000,000,000,000 $900,000,000,000,000 $100,000,000,000,000
95% $10,000,000,000,000,000 $9,500,000,000,000,000 $500,000,000,000,000
99% $100,000,000,000,000,000 $99,000,000,000,000,000 $1,000,000,000,000,000

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