Objectives

• Create a tax system that is:
• fair
• taxes everyone according to their ability to pay
• all taxes are paid by individuals
• simple

Features

• The Tax System includes
• Federal taxes
• Income
• Payroll
• FICA
• Disability
• Medicare
• Estate
• State Taxes
• Sales
• Intangible Property
• Inheritance
• Estate
• Property Transfer
• Local Taxes
• Sales
• Property
• Real Estate
• Personal Property
• Payroll
• Eliminate the corporate income tax
• Corporations would still pay all other taxes
• Eliminates the double taxation of dividends
• Taxation of foreign individuals
• Why corporations don't pay dividends
• want to retain to use in business
• Accumulated earnings increase the value of the stock
• Earnings flow through to taxpayer
• Earnings would be taxed at the shareholder level
• The main problem is how taxes are paid by tax deferred accounts
• Losses do not flow through
• The taxes paid by the individual will provide a stepped-up bas
• A corporation would still distribute dividends directly to the beneficial owners
• Different rules would apply to defined benefit and defined contribution plans
• A difference would apply to corporations
• Corporations that
• Definded Benefit
• The owner of the plan would pay the tax
• If IBM has a defined benefit plan for the benefit of its employees, IBM would have to pay the tax
• If an individual sets up their own defined benefit plan, they would be taxed currently on the earnings
• Defined Contribution
• Since an individual owns their own defined contribution plan, they would be currently taxed on the earnings
• Similar to Sub S and partnership rules
• Earnings are defined according to GAAP
• How does GAAP compare to taxable earnings?
• Deductions are only allowed that relate to the production of income
• All itemized deductions would be eliminated
• Credits are used for subsidies
• All subsidies
• State income taxes
• Problems with current system
• Federal income definitions are not the same as state definitions
• Different treatment for muni bonds
• Same income is taxed in multiple states
• States can tax income based on:
• The source of the income or where the income is earned
• Residency
• Tax credits are used to eliminate double taxation