Kwoghinomics
Kevin Woghiren
There is no need to worry, my ideas are not as ridiculous as the above nomenclature I have designated to describe my economic and tax policy recommendations. But then again, I’ll take “Kwoghinomics” over “Pratikonomics” any day. Although my recommendations do not follow specific policies such as the FairTax or the FlatTax, I do believe that, with the economy decreasing at an increasing rate, this is not the time for theoretical experimentation and thus, I will only work within the current tax structure.
Given the status quo of the worsening financial environment at the federal and state levels, I thought it’d be appropriate to bring onboard a good friend of mine and burgeoning economist, Pratik Desai, to discuss ways to improve and stimulate government revenue, which is comprised almost entirely of tax revenue. Before I make my argument, I will allow for the following to set the tone: A “D” rating by the American Society of Civil Engineers to America’s infrastructure (roads, bridges, schools, etc); Budget deficits in the billions for several largely populated states including California, Illinois, Michigan, New York, and Massachusetts; Trillions of dollars in deficit for the world’s largest ponzi scheme, Social Security; The current excessive annual military expenditure used primarily to maintain our imperialism abroad; A growing 7.6% unemployment rate; 10 bank failures and well over 600,000 jobs lost to date since January 1, 2009.
To combat unemployment and the increasing financial strain on government resources, several state governors such as Deval Patrick of Massachusetts and David Patterson of New York have proposed introducing new taxes and policies that will significantly affect alcohol and soft drink prices, Registry of Motor Vehicles fees, and other government services fees. On the state level, and for a state currently in a deficit, I would slightly increase the state personal income tax rate (adjusted for inflation and cost of living), but significantly decrease the state’s sales tax rate to a fair correlation in order to re-invigorate America’s consumer culture. Taxes on tobacco, alcohol, and city fuel prices will significantly increase and all internet sales transactions performed in the state, regardless of the company’s headquarters, will be charged according to the state’s sales tax rate.
My ideas for maximizing government revenue at the federal level are to completely erase pork barrel expenditures, significantly decrease our military installations and spending abroad, lessen trade sanctions on countries like Cuba, North Korea, and China to encourage more exports only, decrease the highest tier corporate income tax rate to 20%, from about 35%, and apply it only to companies making over $5 million annually in net income, while only charging a capital gains tax to companies making under $5 million in net income annually. To continue, I would retain the current federal personal income tax rate structure and the Medicare tax, but will remove Social Security taxes. To counter this action, I would still require for employers to match the Medicare tax for employees and this matched amount will be used to accumulate Treasury Bills for the individual that will be available for liquidation by a new Medicare eligibility age minimum of 59 and 1/2 instead of 65.
To briefly elaborate on my ideas, I believe that a lower federal corporate income tax rate would increase business operations on American soil and curtail the number of companies that go abroad seeking “tax havens”. Since corporate income tax revenue accounts for little government revenue, it is not beneficial for the U.S. Government to continue to maintain its incomprehensible high rate. Social Security is a failed program and we do not need any more IOUs from the federal government, so it is best that the program becomes defunct, thus slightly reducing the tax burden on employers and employees alike.
Pratikonomics: Solutions for the American Economy and A Case for FairTax Reform
Pratik Desai (pdesai4@luc.edu)
Loyola University Chicago undergrad 2010; expected B.B.A. in Finance
I have a solution that can put America back on the path of strong economic growth and save our economy. It involves scrapping our 70,000 page tax code in its entirety and replacing it with the FairTax. The current system creates an inefficient drain of over $300 billion on our economy wherein we pay tax professionals to make sure we don’t get audited. It also discourages innovation, growth, and productivity in many respects. Our nation needs a tax system that treats all economic activity as fairly as possible.
The FairTax proposal would eliminate the need for TurboTax (or other tax preparation software) and reduce corporate dependence on tax specialists. It would eliminate all federal taxes (income and corporate taxes included)and replace them with a national sales tax of 23%. April 15th would be just another sunny Spring day, and tax revenues would remain the same as now. Imagine a world where Americans took home every penny they earned and only paid taxes at retail stores. Businesses wouldn’t have to pay a dime in taxes, thus making America the biggest tax haven in the world. Many foreign companies would move their operations here because of the lack of corporate taxation, thus creating countless high paying jobs. This proposal is based on the notion that businesses don’t pay any taxes at all; that they pass on the amount of tax they bear to the consumer in the form of higher prices. By taxing retail consumption (70% of our $13.8 trillion GDP), Americans also share their burden with underground economies and foreigners. Whenever a drug dealer or tourist in America wants to buy anything at the grocery store, he or she pays the 23% tax embedded into the price of the good. All goods would cost the same as they do now because 22-25% of embedded federal taxes are eliminated, and a 23% sales tax is added in its place to produce a no net change in prices. There would also be an incentive to buy used homes and automobiles as they would be tax-free.
For those concerned with burdening the poor with the high national sales tax, note that the FairTax proposal also includes a provision that would send each family of four or more a check of roughly $5000 or more annually, accounting for the amount of taxes they would pay on the federal poverty level of income, thus, allowing families of four or more to spend up to $22,000 or more tax-free.
Those who spend millions of dollars get taxed for those millions and there would be no taxes on savings, investments, dividends, or inheritance. America could finally be free of a brain drain and encourage wealthy and skilled individuals across the world to come live, work, and invest here in America. Of course, this requires a change in immigration and naturalization policies, but the FairTax would be a step in the right direction for a nation struggling to maintain its sole superpower status. Experts estimate that the FairTax would immediately provide a stimulus to the economy upwards of 10% GDP growth (over $1.34 trillion in one year alone), which is much more significant than the billions of dollars that Washington wants to spend on the current stimulus bill. This growth would continue for about a decade until America’s economy settles on a normal, yet high growth rate. Call your local Congressperson or Senator and tell them to support the FairTax proposal. For more information on the FairTax proposal, go to www.fairtax.org.