Excessive government spending and foolish monetary policies are putting downward pressure on the dollar. Since January 7, 2011 the dollar has dropped 13 percent against the Euro.
Oil prices are skyrocketing because of the rapidly declining dollar. Standard and Poor (S&P) put the US debt on a negative watch this week implying that a downgrade is imminent. Currently we are one of about 20 countries that have an AAA debt rating. If we lose this, our ability to finance our deficit will be impeded and the interest on our debt will increase. As a result, more of our federal tax revenues will be required to make interest payments. This causes great concern among those who lend us money.
The Chinese government, the country that funds much of our debt, issued an unusual statement the week concerning our debt: "We hope the U.S. government will take responsible policies and measures to safeguard investors' interests" as they are concerned that devaluation of the dollar will jeopardize their investment in our debt. (http://www.cnbc.com/id/42662970).
Since the negative warning on US debt, our politicians are scampering around Washington like rats on a sinking ship. They are pointing fingers at each other as they circle the wagons to defend hopeless positions.
Let's face it: our country is approaching bankruptcy. Only the cash creation efforts of the Federal Reserve is keeping our government afloat. This week, there are new calls to tax the rich. Well, the rich are at the breaking point. Some have changed states to take advantage of lower taxes. Others are moving their business activities and jobs overseas to lower taxed jurisdictions.
We can expect to see more of this as the Spendocrats (Democrats and RINO Republicans,) in Washington continued to pummel the successful as they redistribute wealth to those who have not earned it.
Any further tax increases on the upper and middle classes will result in a flight of capital to other lands. Our best people will retire or leave the country. Over time, our workforce will lose the cream of the crop as they abandon the workforce, eroding our tax base.
Our country cannot survive without the rich, the middle and lower class workers. We need the rich to invest in commerce, banks and factories, and to fund economic expansion. We need the middle class for their ability to consume products that support our economy.
We also need those who work diligently to manufacture products and construct our buildings and highways. We need low priced workers to work in small business and retail establishments. Only with a good balance of the three classes can our economy survive and our nation prosper.
In my article last week I emphasized the need for massive cuts in the size of government. This week I propose something even more radical. It is time for all adult Americans and US residents to pay income taxes. Currently, 47 percent of the working population pays no income taxes. The top 20 percent of income earners pay 70 percent of all taxes.
Our President says that millionaires are those with family incomes above $250,000. According to his logic, these people should bear the burden of significant tax increases as they are vile, greedy, rich people. Obviously, the President does not know the real definition of a millionaire. In order to be considered a millionaire one must have over $1 million in net assets.
Most families earning $250,000 have large mortgages, car payments, student debt or children in college. These people should not bear the burden of tax increases, as they are not millionaires. In New York City, Chicago or Los Angeles they are just average middle-class people. Every dollar we tax from them is a drain on the economy. Every dollar we let them keep will be spent on purchases, savings or repaying debt. Purchasing increases production and creates jobs. Repaying debt or saving makes capital available for economic expansion.
So what do I propose? I say it is time for all adults to pay income taxes. For the 47 percent of our population that currently pay no taxes under the current tax laws, I suggest the tax rate of 5 percent. This rate will be applied to earnings, welfare payments, unemployment insurance and even Section 8 housing.
Everyone has to pay a share of taxes in this country. We cannot permit freeloaders to drain our wealth. I understand that some people will be unable to work because of disabilities. These people should be given a decent pension and medical care and be respected for their past contributions to society.
Downsizing government may not be enough to balance our budget. Taxing Americans currently not paying their fair share is now necessary.
In the last presidential primaries, Mike Huckabee suggested a flat tax, which he called a fair tax. At the time, I did not agree with his idea. Now I recognize my folly and realize that only through fair taxation of all citizens can we equitably spread the costs of running our great country. That said, I am not ready to accept a federal sales tax, as it is unfair to those who pay both income and sales taxes.
A flat federal income tax has benefits beyond funding the federal government. The tax code will be simplified as there will be no deductions. To quote Representative Jim DeMint (R-SC) "The federal tax code with its 44,000 pages, 5.5 million words, and 721 different forms is a patchwork maze of complexity and a testament to confusion over common sense."
With a flat tax, the tax code could be reduced to five pages or less. Our tax returns would be greatly simplified, possibly to as few as three lines. How much did you earn or receive? Multiply that by .15 and remit that amount by April 15. What could be easier?
Having worked for one of the final four accounting firms I know that this will have a dramatic impact on their tax preparation revenues. Every one of us could calculate our own tax return with a pencil and a piece of paper. No calculator needed, no expensive accountants. All you need is the ability to perform a simple mathematical calculation.
The IRS could be reduced to 10,000 employees from the current 106,000 staff members. Simplifying taxes makes filing easier, reduces government overhead, and reduces the labor in checking and auditing returns.
I know many of us look forward to receiving deductions when we file our tax return. That said, what is the point of a tax deduction for mortgage interest, state taxes, and other items only to have them taken away by the Alternative Minimum Tax (AMT)? This tax was originally implemented to ensure that the rich paid taxes.
Over time, the AMT entrapped many middle class families, robbing them of their deductions. Would it not be far better to compute taxes as a simple percentage of income, profits or payments from the government?
It is now time to re-engineer the way our government is financed. In addition to simplifying the income tax code, we should eliminate hidden and use taxes. These include the airplane ticket tax and taxes on telephone and electric bills, just to name a few.
Our Congress found a myriad of ways to extract money from the population to fund an ever-growing government. In 1773, the Boston Tea Party was a major event leading up to the Declaration of Independence. The colonists rebelled against the 10 percent tax on tea imposed by the British.
In the elections of 2012 there will be a new tea party. It is time to replace tax-and-spend politicians with fiscally conservative representatives who will address our national debt while balancing the budget and revamping the tax code.
© 2011 Gordon Smith All Rights Reserved.