Month: March 2020

Our current system is called a progressive tax.  An alternative is the flat tax.  Which is better?  Should we change systems?

The essence of a progressive income tax is that the rate of tax increases as income increases. For example, the tax rate on incomes up to $9,700 is 12% while the rate is 32% on income between $160,725 and $204,100.

It is the general consensus that the wealthy should pay more into the system than the poor. In practice, our tax system achieves this goal; the top 1% pay nearly 10 times what those in the lowest quintile pay.

Generally, citizens resent the time and expense of filing under the current system and also suspect that the maze of credits, deductions and exemptions gives a special advantage to the wealthy who can afford expert tax advisers.

A flat tax is a system in which everyone pays the same tax rate regardless of income. For example, with a 10% tax rate, a family with income of $70,000 would pay $7,000 in taxes while income of $7 million would be taxed $700,000.

Flat tax would be imposed on wages/salary only, meaning that there’s no tax on capital gains or investments. This can spur investment, savings and thus long-term economic growth.  Additionally, many economists believe the current tax system, with high rates and discriminatory taxation of saving and investment, reduces growth, punishes job creation and lowers income.

How would a flat tax work for individual taxpayers? Households get only one exemption, an allowance based on family size, and then pay the flat rate on their income.

How would a flat tax work for businesses? All businesses, from the largest multinational to a corner pub, would play by the same rules. Companies would add up their receipts, then subtract their costs (salaries, raw materials, plant operations, marketing, etc.) and pay the flat rate on net income.

The complicated documents, instruction manuals and numerous forms that taxpayers struggle with today would be replaced by a brief set of instructions. Proponents believe the entire tax code could be based on two simple postcard-sized forms.

Currently the IRS has about 75,0000 employees and a budget of $12 billion. In spite of that resourcing, the “tax gap”, the amount of taxes owed that go uncollected, has been averaging $458 billion per year.

There would be an obvious advantage to having a tax system that EVERYONE can understand vs the current system that NOONE can understand. How did we get to where we are today?

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­The current tax code law is about 2600 pages. Then there are an additional 70,000-plus pages of regulations and tax-case history that are in play.

Special interest groups working through politicians have convinced them to insert numerous “tax breaks” into the law thereby creating the impression that the rich and influential have tax privileges.

Can we “fix” the current tax laws and regulations?  No. It is not feasible to believe the Congress could work through 70,000 plus pages of law, regulations and judgements and end up with ground truth and simplicity.  We could conceivably end up with a worse system.  

With a pure flat tax, it is likely the single rate may be punitive to the lower and middle-class taxpayers. Remember, in spite of all the loopholes available to the wealthy, the top 10% still pay about 70% of all income taxes.  Therefore, my recommendation is as follows: 

Scrap the entire 70,000 pages of current law/regulations/legal judgements. Start over and create a simple, stand-alone, flat tax law that is 50 pages or less, explains in great detail exactly the income that is to be taxed, no deductions, no loopholes and can be filled out on one or two forms.

But, instead of having a single tax rate have a graduated flat tax rate. For example, zero tax for those below the official poverty line (About $11,000 single and $24,000 for a family of four).  Then from the poverty line up to $75,000 in income, pay a 15% tax rate.  For $75,001 to $150,000 pay 18% and so on until anything over $500,000 income pays 30%.  The lawmakers need to lay out the graduated scale of income/tax rates and pass it as the new tax code law.  Include in the law that it cannot be amended in any way by “earmark” legislation that is tagged on to an unrelated bill. 

This could be the best merging of flat and progressive tax systems. There are four characteristics of a good tax system, certainty, equity, simplicity and efficiency. The current system gets an “F” in all four.  A graduated flat tax system might be at lease a B+. 

Lieutenant General, US Army retired, Marvin L. Covault is the author of Vision to Execution, a book for leaders.

If you were shadowing Bernie Sanders on the campaign trail, every day you would hear him say, “The United States will join every other major country on earth and guarantee healthcare to all people as a right.” 

The very foundation of our great country is the Bill of Rights, the first 10 Amendments to the Constitution. It spells out Americans’ rights; specifically, freedom of speech, press, and religion and it sets rules for due process of law. Fact check; healthcare is not a “right”.

Bernie will go on to tell you it is, “free at the point of service.” Fact check; nothing provided by the government is free. We the people pay for everything.

Bernie claims, “No networks, no premiums, no deductibles, no copays, no surprise bills”. Fact check, there will be a bill Bernie, it’s called taxes and we, not the millionaire down the street, will be taxed like you cannot believe.  Fact, you cannot imagine how expensive a massive government program can be until it is “free.”

Bernie tells us that, “Medicare coverage will be expanded and improved to include: dental, hearing, vision, and home-based and community-based long-term care, in-patient and out-patient services, mental health and substance abuse treatment, reproductive and maternity care, prescription drugs, and more.” What Bernie has not told us is what the quality of this health care will be and how it will be paid for. 

In the United Kingdom during 2017 a record 4.2 million patients were on National Health Service waiting lists. AFTER having received their diagnosis and referral, 458,000 patients waited longer than four months for treatment.  More than 19% wait 2 months or longer to begin their first URGENT CANCER TREATMENT while 17% wait more than 4 months for brain surgery.

In Canada the median wait-time between diagnosis and seeing a specialist is 10.2 weeks.  Canadians with heart disease wait 3 months for their FIRST TREATMENT. For life-changing orthopedic surgery, like hip or knee replacement, they likely wait 10 months.

In Europe, lower-income and middle-class taxpayers pay an average marginal wage tax rate of 49 percent on income above $37,000 a year, and an average value-added tax (VAT) of 20 percent. Those same U.S. taxpayers face a marginal wage tax of 32 percent and an average sales tax of 6 percent.

European countries tax revenue as a percentage of gross domestic product:  France 46%, Sweden 44%, UK 33%. The US is 27%.

Universal coverage does not mean universal access to quality care; quite the contrary.  FACT, every country that has tried nationalized health care has ended up with fewer quality health care professionals, much higher taxes, longer wait times for care, pain, suffering, permanent disability, forgone wages and in many cases premature death.

Fact, we have had government-run medical care for decades; the Veterans Administration. It has been such a dismal failure the whole process has been under scrutiny and investigation for the past twenty years and is not yet fixed. Forty vets died in Phoenix while waiting for appointments. The inspector general found employees hiding treatment delays at 26 facilities and the system is generally plagued by negligence, falsified records and gross mismanagement. 

The 2021 VA budget request is $243 billion with 395,000 employees serving about 9 million veterans. Let’s do some scary math. Using these numbers and looking ahead proportionally, in order to serve all 331 million US citizens with total health care, the budget would be almost $9 trillion per year with over 14 million employees. Of course, expanding 9 million patients to 331 million would not be exactly proportional but what if these totals are even half right ($4.5 trillion/7 million employees) or one third right ($3 trillion/4.6 million employees)? The entire federal revenue is expected to be only $3.86 trillion in 2021 with an Executive Branch of less than 3 million people. 

Fact:  between 2004 and 2017 “mistakes and improper Medicare and Medicaid payments” averaged $48 billion per year. Do we surmise that all that graft, corruption, mistakes and improper payment will magically disappear? I am much more inclined to believe the $48 billion will grow right along with the expansion of the program. Why? 

The federal government has a clear and remarkable history of failure when it comes to “running” big, national programs.  What do the Postal Service, Social Security, Fannie Mae, Amtrak, and Freddie Mac all have in common?  Two things, they are big bloated federal government programs and they are all broke. And so will the taxpayers be…..broke.

If the government confiscated the entire wealth of the top tier income producers, it would not cover the cost of one year of Bernie’s boondoggle universal health care. 

Marv Covault, Lieutenant General US Army retired, author of Vision to Execution, a book for leaders