Five Ten Begin Again

So far, we've maxed out individual income tax rates at 10.0% of gross income.  Now, let's compare some of our corporate giants, and the income tax they paid in 2010.

                                                     Microsoft             10.0% of gross revenue
                                                     Morgan-Chase      7.3%         "
                                                     Exxon                    5.6%        "
                                                     G E                        0.7%        "
                                                     Gen Motors           0.5%        "
                                                     Ford                      0.5%        "

As you can see, some of our corporate citizens have learned how to game the system and avoid tax liability to the federal government.  I'm sure that some of the credits and exemptions that helped them avoid liability for federal taxes were put into the tax code for some lofty, worthy, goal.

I'm equally sure that some of those lofty, worthy, goals are no longer necessary...and I'm also sure that some of those tax breaks were put into the system for selfish, partisan, and greedy reasons, not in the least bit concerned with the public good.

It's time to re-think the business income tax.  First off, the business tax is not based on the income of the business...it's a tax based on the remaining PROFITS of the business, AFTER the business has written off all of its expenses and taken its credits and exemptions.

The name of the game for the business is to write off as much as it can, so it doesn't show too much profit to pay tax on...and, even if the business tax rate sounds high, it's a small amount because it is only based on the profits of a business, not on the gross income of the business.

Plus, few, if any, businesses really PAY a business tax, no matter what the tax rate is.  Whatever the cost of the tax, or regulation, or mandate is, the business really has only two choices.  Choice number one is to charge the customer for that cost (to make a profit and stay in business), or, choice number two, eat the cost out of profits (and go out of business, if there aren't enough profits to cover the costs).

The taxes (and regulations) on business are really hidden costs that government covertly forces businesses to pass on to customers.  Tinkering with the business tax rate is a convenient way for politicians to favor some industries and companies, without taking responsibility for rising consumer costs.  It raises bodacious campaign contributions while leaving very few fingerprints leading back to the politician.

So, let's create a federal business tax similar to the individual income tax, or the state sales tax.  Let's make the business tax a flat 5% tax on every sale.  It can be handled just like a sales tax, added on to every transaction so that the consumer can see it every time they purchase goods or services.

It should require a 60% majority congressional vote to increase the business tax, and the increase should only be for a specific purpose, and for a maximum of two years, without an additional 60% majority vote every two years to continue the tax.




You could hide this tax from the consumer and make the business pay it, but the net effect would be the same:  the business would have to add it to the price of the goods to make a profit anyway.  By showing it to the consumer, you would make it more difficult for politicians to hide the cost from consumers.


This tax would not have to be indexed for inflation, since the dollars it raises will automatically rise with inflation and fall with deflation.  The tax would apply to all products and/or services sold by licensed businesses.  It would be very similar to the "value-added" tax system that is common in Europe, but would be nowhere near as expensive.

The 10% maximum income tax rate and the 5% business tax rate would be much easier to forecast than the current impenetrable fog our current tax system has become, making this "Five Ten Begin Again" format much easier to predict and budget from.  It would be a key building block leading toward balancing the budget.  It could lead to an awareness of the finite dollars the federal government has, and to setting the priorities on which those finite dollars are spent.

Combine a 10% maximum income tax rate with a 5% business tax rate, and we would be very competitive  throughout the world.

I know it would take a miracle to get our current politicians to pass "Five Ten Begin Again".  There is no way they will vote to change the system that benefits them so much.  But, if you don't have a target to aim for, you will never hit a goal.

We can elect new politicians who accept "Five Ten" as a goal.  We can try to change the tax code through constitutional initiatives voted on at the state level.  We can shine light on politicians who hide in the shadows and use the tax code to extort campaign contributions, or to hide the true cost of the programs they advocate.

"Five Ten" is not locked in stone.  It could turn out to be "Eight Ten", or "Ten Ten".  I am not the Congressional Budget Office.  I cannot cost out this proposal, but its purpose is to eliminate political tinkering with the tax rate and to come up with enough money to come somewhat near the money the government is currently receiving.  From that point on, spending should be limited to the revenue coming in.





This business tax would not eliminate the need for generally accepted accounting practices for business.  While there would no longer be any need for the tax code to regulate business profits, there would still be a need for enforced accepted accounting practices to assure that businesses are competing fairly with each other and are providing proper information to investors.

Whether these regulations are best provided by government or by private accounting or business organizations is another discussion for another day.