I propose a progressive payroll tax, which corporations would pay, to replace personal income and sales tax.  Corporations would pay tax on their total payroll.  The percent tax would rise as the payroll rose.  That is the “progressive” part.  Note, most payroll tax proposals I have seen earlier are a flat percentage.

There would be no tax withholding from individual pay as the individual pays no taxes.  I am not, however, recommending this to replace payments for social security and medicare insurance at this time, but maybe.  This withholding would thus continue.  Corporations would continue to pay tax on their profits, but, of course, the payroll tax would be an expense as payroll itself is.  Subchapter S corporations and such would pay progressive payroll tax on their earnings.  The advantage of being a Subchapter S would tend to lessen.

Individuals may still file “tax” returns to claim credits that Congress might deem to be needed.  Adjusted gross income and taxable income would be a thing of the past though.  Your income is your income.  The individuals would then claim the credits they are eligible for based on the situation and income.  If you are claiming no credits, no “tax” return is required.  This should greatly reduce the number of tax returns as corporations already do one, many individuals would not do one because they are not eligible for any credits, and the individual returns would be much less complicated.

I haven’t decided what to propose for interest and dividend income, but perhaps that also would be paid by the entities paying the interest and dividends.  It would, of course, be progressive based on the total of interest and dividends paid.  Then there are capital gains.  Perhaps that would require an individual return.

The transition would be difficult and would need to involve “guidelines” as to how this affected pay.  Basically, people’s current take home pay would become their pay i.e. gross and net (except for SSI and Medicare) would be the same.  There would need to be “guidelines”, however, as there would be some market forces and “fairness” to account for.

The bottom line is this should provide the same income to the government as income and sales tax, be more easily enforceable, and make some corporations think twice about executive pay.

I would think this is appropriate for all levels of government i.e. federal, state, and local.  Maybe it could even replace property tax and, instead, do everything tied to property as fees appropriately allocated.

Copyright © 2008, Richard L. Mitchell

Posted in: Social.
Last Modified: February 13, 2014

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