Welcome to the June issue of NorthBay biz. This month, we introduce “Business Innovation” as the magazine’s cover theme. Change, it seems, is this year’s fundamental buzzword. From politics, to lifestyle, to the environment and all the way back to how business is practiced, the goal, in each instance, is to generate new solutions to existing problems through innovation. The cover story, “Forward Thinking,” looks at the newly created Sonoma County Innovation Council and the work it’s doing to prepare us, business and community, for the challenges and opportunities that will arise over the next decade. Other stories include a view of an award-winning program that provides entrepreneurs easy access to venture capitalists, while another discusses how the introduction of cutting-edge technology is changing the world of corporate meetings. Plus, more stories, all our columnists and all our special features grace this issue of the North Bay’s only locally owned business publication—NorthBay biz.
As promised, this month’s column will comment on a new initiative being introduced in Congress, sure to warm the hearts of everyone who’s ever longed for equitable tax reform. It’s the flat tax. However, this time it has a new wrinkle—it’s optional.
As the price of gas continues to soar, and the subprime mortgage market meltdown fiasco has spread to the credit markets, the timing couldn’t be better for the reintroduction of the flat tax proposal. Many homeowners have found their largest investment has lost value, and the media’s unrelenting, shrill cacophony of doom exaggerates and exacerbates the problem. You don’t need to have a great memory to recall not so long ago that the always helpful and insightful media was decrying the fact that the housing prices were too high. It wasn’t a lack of cheap mortgages that was an obstacle to home ownership they said, what was really needed was a lowering of the price of homes. It seems since their wish has been granted, it’s created another catastrophe. However, during this “crisis” home ownership has declined only 0.3 percent. At almost 68 percent, it remains higher than when Clinton left office. Subprime mortgages only make up a small percentage of total mortgages, and only a small percentage of those are defaulting. But to listen to the media, the sky isn’t falling—it already fell.
Enter Senator Lamar Alexander (R-Tenn.), who recently outlined a plan to create an optional 17 percent federal flat tax that can be filed annually on a single-page form. Since his proposal is optional, Americans would have the choice of paying their taxes using this approach or continuing to pay using the existing tax tables and multi-page form. “Family budgets are groaning under the strain of a heavy tax burden, which will only get worse as tax relief expires and higher rates kick in,” says Alexander. “Leaders in Congress have already allowed the state and local sales tax deductions to expire and appear ready to let other tax relief measures for millions of lower and middle-income Americans meet the same fate. Failing to act will lead to the largest tax hike in history, and that is one of the worst things we can do for family budgets. That’s why I believe Americans should have the option of filing a one-page federal income tax return with a 19 percent rate for two years and 17 percent thereafter. This proposal would save money, encourage growth and relieve a great deal of anxiety that occurs every spring when April 15 rolls around.”
To say this plan would save time and money is the understatement of the year. In 2005, American taxpayers collectively spent 6 billion hours and $265 billion to comply with the existing tax code. This proposal will finally put all the special interest tax loopholes to an end, (not to mention putting thousands of special interest lobbyists out of a job) and incentivize our economy onto a track of growth and prosperity.
Here are the basic elements of Senator Alexander’s optional flat tax plan, reduced to four simple bullet points:
• A single tax rate of 17 percent for all individuals and businesses;
• Elimination of taxes on savings, dividends and capital gains;
• Elimination of the death tax and the Alternative Minimum Tax;
• A standard deduction for single and married taxpayers above the poverty level.
This last bullet point ensures that the flat tax wouldn’t unfairly target the poor. In fact, it’s estimated that under this plan, the lowest 42 percent of income earners would pay no taxes at all. And everyone would begin paying tax only on the amount of income that exceeded this base income level.
To put this plan in better perspective, the standard deduction being proposed for a married couple filing jointly would be $25,580. For every dependent, you’d add $5,510. So a family of four would begin paying taxes on earnings in excess of $36,600 and they’d pay a flat 17 percent. Businesses would be taxed on total revenue minus expense, which would include wages, pensions and the cost of new business equipment.
This new, optional flat tax proposal is designed to be revenue-neutral. It isn’t intended to raise or lower taxes. It is designed to simplify an unwieldy, out-of-control, overly complicated and loophole-ridden tax system that’s corrupt and outdated.
The idea of changing how we pay our taxes in this country has been kicking around for decades. While we’ve been dithering, there are some examples of success others have enjoyed by using a flat tax approach. In 2003, Indiana adopted a flat tax and, by 2007, its corporate tax revenues grew by 250 percent. Colorado introduced its flat tax in 1987 and it has created repeated surpluses, leading to corporate tax rate reductions in 2000 and 2001. Most Eastern European nations have flat tax structures, and their economies are booming. In this year of “change” isn’t it about time to change the way we pay our taxes?
That’s it for now. Enjoy this month’s magazine.
