Corporate Rate Justification | The Numbers

While the answer will seem simple, it has gone through a number of revisions. Often when someone sees an answer that makes sense the response is ‘duh’. I hope that is the response of most people who read this. It takes the best of many of the current proposals while keeping things simple and most importantly, will be perceived as fair.

The American Income Tax Simplification Plan would consist of a three prong approach. While I will cover the specifics in more detail, it will ask that all who benefit from living in or profiting from the economic environment built by this great country will contribute. The method will be simple, straightforward and relatively painless. The goal is to spread the pain wide and thin!

Note: For this initial discussion, I am going to use 1995 numbers because they are the most readily available to me. It has been difficult to come up with some of the numbers as many have not been considered important enough to be widely published.

Goal: To raise $775 billion dollars. That represents the Federal Income tax collected in 1995 along with Estate and Gift taxes. It does not include Excise or Payroll taxes. 

American Income Tax Simplification Plan:

·         A national sales tax of approximately 5%

·         A 3-5 tier Personal Flat Income Tax

·         2 tier Corporate Flat Tax on Gross Revenue

 First the Calculations and then a more in-depth explanation:  

1. Sales/Consumption Tax:  5% * $5,980 billion = $299 Billion
2. 3-5 Tier Personal Flat Income Tax; 10% max: Goal = $201 Billion
3. Corporate Gross Revenue Income Tax
   1. Distributors/Retailers –  1.5% * $10,000 Billion = $150 Billion
   2. Manufactures/Service/Professional – 4 % * $5,000 billion = $125 Billion  

Total = $ 775 Billion 

1. All retail sales would include a 5% federal sales tax. Very simple and easy to implement. Companies are equipped and experienced in collecting State sales tax and computer programs could easily be modified to compute the taxes.
2. We would have a Personal Flat income tax based solely upon income. There would be no deductions except for dependents. Gross income minus a factor per dependent times the rate of your income tier. This would be a version of the flat tax proposal with a lower rate.
3. There would be two categories of businesses with different tax rates. The distinction is really very simple, if a company purchases a product and passes it on to either a reseller or consumer, they are a Distributor/Retailer otherwise they fit into the other category.
   1. Distributors/Retailers – This would include all businesses which resell or distribute a product where less than 5% of their business involves adding value to a product. It would include all gross sales generated within the United States regardless of the corporate location. It would include all gross sales from a facility in the United Sates to any location worldwide. The United Sates has the world’s most efficient process for moving products from the manufacturer to the consumer. This tax rate would minimize any negative impact on their competitive stature and yet require all that benefit to contribute. This rate would be in line with Wal-Mart who currently pays 1.6% of gross sales in Federal Income Tax.
   2. Manufactures – This would include any business that manufactures a product, adds value to more than 5% of its business or is a professional service where no product is involved. These companies traditionally deal with higher profit margins and often place greater stress on the business infrastructure.