WASHINGTON, Nov. 4, 2015 − The Republican candidates for president are moving toward embracing a tax policy position that has been proposed for a number of years. The Busler Single Rate Tax plan will fairly and efficiently reach all of the nation’s economic goals and ultimately solve almost all of its economic problems. Republicans are starting to agree.
In between the extremely biased questions and blatant attempts by CNBC moderators to play “gotcha” with the Republican candidates during last week’s Republican presidential debate, one consensus policy did emerge from the on-air donnybrook. The candidates all stated their firm belief that economic growth should be the No. 1 policy priority of America. They agreed this could be readily accomplished by removing current barriers to growth and by providing proper growth incentives, including an overhaul of the current counterproductive, inequitable and revenue-short federal income tax code.
The Busler Single Rate Tax plan would tax all income above a livable minimum (twice the poverty rate) at 15 percent. All income would be taxed the same whether derived from wages and salaries, interest, rent, profit, dividends or capital gains. There would be no deductions for anything.
Corporations would also be taxed at 15 percent. In return for the lower corporate tax rate, businesses would pay the entire 12.4 percent Social Security tax directly instead of splitting the payments with their employees. This has long been and remains the situation under current law.
The livable minimum would be set at a range from about $24,000 for a single person to about $50,000 for a family of four. If a family of four earned $80,000, they would subtract the $50,000 livable minimum and would be taxed on the remaining $30,000. Multiply that by 15 percent and the amount of taxes owed would be $4,500. It’s that simple.
By eliminating all loopholes, this policy would treat every American exactly the same, giving no preferential treatment to anyone. Labor and capital are taxed at the same rate. The tax liability calculation is simple. No tax preparers are needed, and we have almost no need for the increasingly obtrusive IRS.
Coupled with an environment that encourages economic growth, this policy could double the growth rate in domestic GDP from the current level, currently in the 2 percent range, to above 4 percent − much closer to and even somewhat above the historical norm.
Again, the higher growth in the economy would increase GDP and personal income so that income tax revenue would increase.
The Busler plan meets all the criteria for tax policy. It raises more revenue, is easy to administer, causes no market distortions, virtually eliminates the IRS, brings back the $2 trillion that corporations are holding in foreign countries to avoid the high U.S. corporate tax rate and may even attract some foreign corporations to locate in the U.S. It is (arguably) also very fair since all Americans are treated exactly the same.
But isn’t this just a tax cut for the rich? The answer is no. In fact, the rich will actually pay more income taxes.
Realize first that people pay taxes in dollars, not percentage points. While it is true the top tax rates will decrease, this will result in the high income earners having more investment capital that will earn more income. (That’s what fuels the growth in GDP, especially considering that we have an historically low labor force participation rate at present.)
But, while these top earners will be taxed at a lower rate, they will be taxed on more income due to the removal of all the tax loopholes they currently enjoy − loopholes not generally available to the average current U.S. taxpayer. Thus, the wealthy will actually end up paying more income tax dollars. This achieves the ultimate plan goal, which is to have the highest income earners pay more dollars.
Mike Huckabee has offered an alternative. He suggests a tax on consumption, which he refers to as the Fair Tax. In reality, it is unfair, however, because it places a greater tax burden on the lowest income earners who must spend a greater percentage of their annual income on necessities, all of which would be taxed under the Huckabee alternative.
A household with annual income of $40,000 probably saves little or nothing, which means they spend their entire $40,000 on the necessities of life with little if anything left over. As such they are taxed on 100 percent of their income. A household that earns annual income of $1,000,000 may save/invest $600,000 and spend $400,000. As such, the wealthy household is taxed on only 40 percent of its income. No matter how you adjust it, taxes on consumption are regressive, placing an undue burden on the lower income earner.
With the Busler plan every income earner pays 15 percent on taxable income.
Ben Carson and Rand Paul, on the other hand, are offering plans approaching the Busler Single Rate Tax plan. Donald Trump and Marc Rubio have plans with some progressivity, but they may eventually move toward the Busler plan.
If the candidates are interested in a tax policy that reaches all of the economic goals this country currently needs to achieve, they should favor the Busler Single Rate Tax. It now appears they are moving in that direction.