 
THE TAX CODE FOR A MILLENNIUM

Equality for All

Published by JK Roos Jr at Smashwords

Copyright 2013 JK Roos Jr.

PREFACE

The present tax code has surprisingly survived for 100 years but it most likely will not survive during the next 100 years. Have we, the people, been wronged again? Yes, it appears that we have because we continue to tolerate a tax code that has not served most of us well. Case in point; since 1969, the tax revenue that was raised annually has consistently been insufficient to pay the annual bills, resulting in deficit spending in all but only four consecutive years. Approximately four decades of serious deficit spending! We have routinely accepted this. If the Romans were here today, they would be taking notes like mad.

Some may argue that this accumulated debt is doing more good than harm, while most unselfish people logically protest that this may do more harm than good. However, an indisputable fact is that consistent deficit spending at a significant magnitude will always leave our descendants with a substantially higher National Debt than we inherited from our ancestors. This is obviously selfish behavior as well as an expression of thoughtlessness toward our future generations which may tag all of them with a lifetime with a lower standard of living than we are enjoying.

This book does not dwell on what is wrong with the present tax code, which has frequently been well documented elsewhere. Instead, the focus will be on a positive approach by presenting a remedy that may pave the way to solve the annual problem of deficit spending. Any tax code alone cannot eliminate deficit spending; however a superior tax code that is transparent may make more people willing and anxious to accept the legislation of a balanced budget amendment in order to introduce the complete control of spending.

This book is about a remedial Income Tax Code, which demonstrates a new Tax Code that will contain the following essential characteristics:

Fair

Efficient

Enforceable

Simple

It is a refreshing quick read that is brief and concise when compared to the reams of paper that it takes to describe the present tax code and regulations. Part I presents the justification for an all-encompassing proposed tax code that is expressed in less than twenty-five words. Part II lays out a possible tax plan in compliance with the proposed tax code while Part III presents some optional aspects of possible tax plans. The most surprising feature of this tax plan is the absolute elimination of the annual tax return and all of its' accompanying anxiety and grief. Can you imagine how this will be accomplished? It may be easier than you think!

One may ask why no one has proposed a tax code like this until now. Many people are going to be either embarrassed or disappointed by the explanation. Among those people who are most qualified to devise a real and complete remedy for the present very cumbersome tax code, too many did not want to kill the "goose that laid the golden egg." Other better intentioned people may have feared consequences from any one of several sources within the tax industry. We have witnessed the ever increasing and thriving industry called "Taxation" that is serviced by a multitude of accountants, government employees, lawyers, lobbyists, politicians (the foregoing incomplete list is in alphabetical order to avoid inferring levels of guilt) plus part of the financial services industry that also specializes in taxation in one form or another, full time or part time. It takes a principled individual to advance a recommendation that may eliminate his or her own job even though it may serve a greater good. But, it takes a fool to advance a recommendation that may eliminate the jobs of most all of his or her contemporaries. Therefore, it appears to be certain that the "Taxation Industry" has many principled individuals, but the same industry seemingly has no fools.

This author is a semi-retired Financial Executive and Consultant who is quite familiar with the significant aspects of the present tax code even though he has never participated in the "Taxation Industry" for remuneration. He has always prepared his own individual and business tax returns. His business, which was established in 1982, is engaged in highly specialized financial and consulting services other than taxation. In view of the foregoing perspective, it is a privilege and a pleasure and to be counted among the few people who are in the enviable position of being able and willing to offer the best alternative to the present tax code.

The introduction and presentation of a new tax plan in accordance with the proposed tax code mostly excludes comparisons with the present tax code in order to avoid wasting words and the reader's precious time. There will be rare exceptions only when it becomes necessary to clarify a point. All readers will discover that there are many potential sources of tax revenue available in this tax plan that may be spread over a larger tax base as well as some sources of tax revenue that should be discontinued. Regardless of the number (fewer is better) of sources of income tax revenue, the expansion of the tax base will be a pleasant surprise for all present taxpayers when the participants in the subterranean economy are included without exception. This also means that criminals will no longer be excluded from the tax base.

Although this author favors this tax plan with only one or two primary sources of tax revenue, a potpourri of other sources will be feasible if necessary. An outstanding advantage of only one or two sources of tax revenue is that each taxpayer becomes more keenly aware of the exact percentage of each taxpayer's income that will be paid in taxes. However, if many or all sources of tax revenue are to be included in the mix, the tax rates of each source may be lower despite the accompanying increase in confusion and lack of transparency. On the other hand, if only one or two sources of taxation are to be selected, the tax rates for each remaining source should be higher. Regardless of the number of tax sources in any tax plan, an enlarged tax base combined with reasonably controlled spending is the most significant factor in determining more favorable tax rates.

As previously stated, the present tax code has not served us well. Therefore, we need to explore the best remedy to solve this problem. The answer may be a proposed tax code accompanied by a tax plan that could become a realistic remedy by solving a host of very serious tax problems for most taxpayers as well as for our country. The manuscript for this book was completed in years ago but set aside due to this author's concern that this proposed tax code might be ignored while the legislature regretfully proceeded to cherry pick just a few aspects of its' tax plan. Another concern of this author was that too many attempts may be advanced to optimize the essential characteristics of the proposed tax code. Within this proposed tax code, "optimize" is considered to be a naughty word and one to never be applied. Any tax plan that fails to maximize each essential characteristic will never be valid under the definition of this recommended tax code.

There are possibly 101 or more potential tax plans that could emanate in accordance with this unaltered proposed tax code. After reading Part I, you may begin to envision your version of such a tax plan. This fact could lead to the development of a fabulous contest or perhaps a series of very informative and entertaining TV Shows.
PART I

HOW THE TAX CODE "SHOULD BE"

Chapter 1 - Description

Paying taxes may never be painless; however, there is no reason why it should be a dreaded, laborious process. Most everyone reading this book is most likely too young to recall the only decade of the twentieth century when there were no personal income taxes in the United States of America. Although that is hard to believe, it is even more likely that few people, if anyone, can envision a day when there will be no personal income taxes. If that day ever arrives, it will most likely result in a regrettable substitution of a more consequential tax or taxes. The proposed tax code is based on the firm belief that there should be no rush to obtain a substitute for the personal income tax. Rather, we should completely explore the possibility of realistically improving the present tax code to every taxpayer's advantage.

Since there is no end in sight to the increasing level of government spending, the need for tax revenue from one or more sources may be necessary far into the future. Therefore, an improvement to the present tax code supported by subsequent changes in the tax laws to completely reflect the objectives of the improved tax code should follow as a result. If history is any guide, increased verbiage used to define a tax code makes it increasingly complicated. More words make a tax code less efficient and much less enforceable, both of which are undesirable. The tax code is further complicated when utilized as a vehicle to accomplish economic, political or social engineering. Not that there is anything wrong with economic, political or social engineering in and of itself, as long as the tax code is not utilized as a vehicle for those purposes.

The proposed tax code is based on the theory that the tax code can be and should be stated in twenty-five (25) words or less. Here is this author's proposed tax code:

Solitary purpose - raise funds to pay the bills without any economic, political or social engineering whatsoever. Essential characteristics; fairness, efficiency, enforceability and simplicity.

Each essential characteristic is equally important; therefore, the essential characteristics in the proposed tax code will always be referred to in alphabetical order.

This proposed tax code is a far cry from the present tax code. The reasons that nothing like the proposed tax code has ever come close to existence is that whenever an innovative approach to taxation is introduced, seemingly intelligent evaluations become overwhelmed by a series of emotional reactions either by evaluators or their audiences or by a combination of both. Reactions all too often are gauged by the foremost concern, "How is this change going to affect me and/or my interests?" If this question must be raised, it might be the last question that is raised, not the first. On the other hand, many tax proposals have been shallow and poorly defined. Too many shallow tax proposals have been offered in a single dimension by touting only one essential characteristic. Occasionally a tax proposal has been based on two essential characteristics. It has often been said that the tax code should be fair, or fairer. Also said is that the tax code should be simple or simpler. It is rarely said that the tax code should be efficient, or more efficient. When, if ever, have you heard a proponent of a tax proposal call for a more enforceable tax code? No matter how a tax plan is structured, the essential characteristics of fairness and enforceability are related. As the enforceability improves, the fairness can improve only if the tax plan is as fair as it can be. That is why each essential characteristic should always be maximized, not optimized. For example, any reduction in the essential characteristic of fairness may result in more unfairness through increased enforceability.

Other innovative tax proposals have contained the element of surprise, which would have only been revealed if they were ever enacted. Although such tax proposals are discussed at great length, they are seldom clearly defined. The most outrageous example of this is the ambiguous and often talked about Flat Tax when it is introduced and expressed incompletely or inaccurately. What about a Flat Tax? A Flat Tax is often a mere talking point where the proponents fail to define their version of the term, Flat Tax. When they say Flat Tax, do they mean Flat Rate Tax, or do they mean elimination of allowable deductions and tax credits, or do they mean a weird combination of both? Does their tax proposal maximize the four essential characteristics? Or, more importantly, does their tax proposal include each of the four essential characteristics in the first place? And, of course, do not rule out the possibility that they mean something else or that they may have forgotten what they set out to accomplish from the beginning.

Now, if you concur conceptually with the desirability of a tax plan that should be based on the proposed tax code, your imagination is most likely starting to tease you to scheme the particulars. If you wholeheartedly agree with the proposed tax code, you may have already projected your vision of a tax plan that should be legislated in accordance with it. On the other hand, if you do not embrace the concept entirely, you may be exploring how the proposed tax code should be changed or adjusted for even more improvement. The accompanying tax plan is based on the proposed tax code while offering unimaginable advantages. Try to envision a tax plan that is so fair, so efficient, so enforceable, and so simple that you want the Internal Revenue Service to function better than ever. Imagine that you want the Internal Revenue Service to offer their trusted employees incentives and rewards based on performance regarding found revenue. Such thoughts are currently frowned upon and regarded as nonsense. In the absence of a tax code that is fair, efficient, enforceable and simple, the foregoing suggestions are not just a stretch of anyone's imagination, but just plain ludicrous. Taxpayers extolling the virtues of the Internal Revenue Service for performing better than ever seems preposterous, right? Although this seems to be a real stretch of anyone's imagination now, it will become more apparent when you read about a tax plan that should be in accordance with the proposed tax code.

This tax plan, in accordance with the proposed tax code could utilize the present withholding system so efficiently that all citizens paying personal income taxes would never be required to file a tax return. Commercial taxes for both domestic corporations and foreign corporations could be filed on a tax return that is a single page 8 ½" x 11", or less. Why not the size of a postcard? Most of the expenses associated with the gathering and reporting of data for all tax returns should be reduced to a small fraction of the expense that is currently incurred by both taxpayers and government. These may initially appear to be outrageous thoughts, especially in the present environment. Believe it or not, the proposed tax code could bring any country, not just to a new century or through a century, but through an entire millennium.
Chapter 2 - Economic, Political and Social Engineering

The concept of eliminating economic, political and social engineering from any tax code is a bit of an unfamiliar concept in the present tax environment. However, it is not only reasonable, it is imperative that any worthwhile element of economic, political or social engineering should always be accomplished directly, outside of the tax code. The direct approach through the legislative process provides much more visibility plus improved control over the life and the cost of any new program.

There are many admirable causes that often involve economic, political or social engineering in combinations. For example, environmental remedies often involve a combination of two or three types of engineering. The primary advantage of eliminating all types of engineering from the tax code is that there is a tendency for each addition to the tax code to become embedded for years, perhaps for generations and sometimes forever. No matter how well intended or how effective any addition to the present tax code may have been, each addition has a life of its own, which is seldom noticed on a timely basis when it outlives its' usefulness. Too often it just remains in the tax code daring the right person who is in the right place at the right time to realize that a change, modification, or repeal is needed. Such people and such realizations are the exception rather than the rule. Another advantage of eliminating all types of engineering from the tax code is that the direct approach to engineering outside the tax code facilitates better control and monitoring of the ongoing cost while eliminating this potential source of tax fraud.

Yet another reason to eliminate all types of engineering from the tax code is that taxpayers, when targeted as potential beneficiaries of a favorable change to the tax code, may too often be in a situation where they fail to take advantage of it. Who knows the number of taxpayers who prepare their own tax return without professional assistance? Who knows the number of taxpayers who prepare their own tax return with unprofessional assistance? Last but not least, how many taxpayers seek professional assistance and still fail to benefit from a favorable change to the tax code because it was overlooked, perhaps for years? The anecdotal evidence has been presented annually by the media during tax return preparation time. These have been the tired old stories when the same theoretical set of tax particulars was presented to professional tax accountants in several different offices. The reported results most always yield a variety of tax returns that do not agree with each other. Utilization of the tax code to deliver benefits in the form of credits, deductions, or exemptions, is an unfair, inefficient, unenforceable, and complicated way to accomplish any objective. There is a better way. Deal with each issue separately, immediately and directly, but outside of the tax code.

A further disadvantage when economic, political or social engineering are included in the tax code is that these inclusions usually result in the failure to accurately forecast and control the real cost of each addition. This also results in another consequential disadvantage, the failure to prevent fraud. Both disadvantages can become significant. Depending on the nature of a favorable tax change, the disadvantages may alternate between being a costly primary disadvantage and a secondary disadvantage.
Chapter 3 - Fairness

Within a tax code that is fair, everyone should be paying what is considered by most people to be an equitable tax burden or each person's fair share. When fairness is an essential characteristic of a tax code that is accompanied by the other essential characteristics of efficiency, enforceability, and simplicity, all eligible taxpayers are productively contributing the funds to pay all of the bills and ideally some of the National Debt. Without any great stretch of the imagination, a tax plan in accordance with the proposed tax code should function with an increased number of taxpayers, or comparatively speaking, a broadened tax base. Therefore, assuming that the additional revenues may not be squandered, the tax burden should be lightened for most individual taxpayers and commercial entities that were taxpayers under the present tax code. However, this should disappoint the people and entities that were not taxpayers under the present tax code when they become new taxpayers.

Fairness is the most difficult essential characteristic for every taxpayer to try to evaluate in the proposed tax code. When evaluating the fairness of any tax code, each taxpayer must detach themselves from their own tax returns under the present tax code as well as the perception of their projected tax burden under the proposed tax code. This is easier said than done. However, when accomplished, that is precisely the point where a taxpayer can proudly proclaim that they have adopted a just and responsible attitude about taxes.

Fairness is also the most difficult essential characteristic to maximize due to the fact that it is more dependent upon each of the other essential characteristics. A tax plan that is not capable of operating with maximum efficiency is not as fair as a tax plan that has maximum efficiency. An inefficient tax plan requires the collection of more taxes in order to cover the heightened expenses associated with collecting taxes. A tax plan that is not capable of operating with maximum enforceability is not as fair as a tax plan that has maximum enforceability. Any degree of lacking enforceability presents a temptation that will always result in increasing tax evasion and an increase in tax cheating. A tax plan that is not capable of operating with the maximum simplicity is therefore too complicated in varying degrees. The more complicated tax plans substantially reduce fairness for many reasons. For example, targeted preferences are unfair to those who do not qualify. Another example is lack of knowledge by some taxpayers as well as ignorance expressed by some paid tax preparers regarding the most recent tax changes as they become effective, as well as the lack of awareness by too many regarding ancient tax law changes.

As previously mentioned, each addition to the present tax code had a purpose, which was most likely well intended. Regardless of how many years ago or how many decades ago, too many additions to the tax code have remained embedded in the present tax code. Is the deduction of mortgage interest by homeowners fair to taxpayers who rent their living space? Are allowable interest deductions fair either to taxpayers who have no debt or to taxpayers who have the wrong kind of debt? Are deductions that are allowable for a homeowner fair to the renters of homes, condos, or apartments? Consider allowable deductions for charitable contributions. Are they fair to the taxpayers who make charitable contributions even though they do not qualify for the deduction for one reason or another?

Although the preceding questions may appear to be crude, especially if quoted out of context, these are rhetorical questions that demonstrate the following points. First of all, the proposed tax code should not prevent the direct approach to government subsidies. When a valid situation of need is recognized, a law should be enacted whereby the appropriate government agency (other than the Internal Revenue Service) could send a check to the deserving person or send a check to the charity that is truly in need. While these questions about fairness refer to a comparison of taxpayers in different circumstances, do not assume that each taxpayer was filing a completely honest and accurate tax return in the first place.

The dishonest tax return as well as the absence of a tax return is always unfair to all taxpayers. A tax code that is inefficient, unenforceable or complicated always invites dishonesty. But, a tax code that lacks the four essential characteristics, perhaps in varying degrees, invites dishonesty in direct proportion to the level of absent essential characteristics. Otherwise honest people may be tempted to become temporarily dishonest only when filing their tax returns. Any government has a moral obligation to provide a tax code and maintain a tax plan that prevents dishonesty by at least minimizing the opportunity for dishonesty. For example, the tax plan under the proposed tax code should eliminate the need for the Internal Revenue Service to send refund checks to anyone. Thus, the monetary incentive to be dishonest by filing a fraudulent tax return would be completely eliminated.

Any government also has a moral obligation to leave no stone unturned in preventing and detecting complete failure by any person or any commercial entity to pay the taxes that are supposed to be paid. In the absence of such an ongoing and complete effort, it is unethical when a government incarcerates taxpayers that have only paid part of their tax obligation, regardless of the intent. To further clarify, any government is immoral while engaging in the practice of sending either an innocent taxpayer or a cheating taxpayer to jail knowing full well that the structure of the tax system condones complete tax cheating as well as partial tax cheating. Prosecution of the latter has been easier and more convenient than discovering and prosecuting the former, those who practice what is commonly referred to as tax evasion.
Chapter 4 - Efficiency

As far back as in the early years of the twentieth century, tolls were collected on bridges in two directions. It wasn't until late in the twentieth century, many decades later, that a resourceful person recognized the heightened efficiency of collecting a double toll in a single direction. We all benefit today from this clever timesaving innovation. How many years was this inefficiency overlooked? How many years may pass before the benefits to be gained are realized when someone devises a plan for maximum efficiency in collecting income taxes? First, it is necessary to understand and widely recognize why anyone should care about maximum efficiency in collecting tax revenue? The reason is that a substantial reduction in the cost of raising funds to pay the bills should result in more funds being available to pay the bills. Another way to express this is to realize that the maximum efficiency in collecting taxes to pay the bills should eventually result in reduced tax rates. Although the impact on the tax rates could be small, this may not be insignificant.

Contrarily, lack of attention to the goal of efficient collection of taxes can result in significant increases in the tax rates. For example, most people are offended when they hear that a particular charity spends an inordinate percentage of raised funds as expenses while raising the funds, thus depriving the charity of much of the donors intended contributions. Well, the lack of efficiency in collecting taxes is equally disheartening. When expressed out of context, the maximum efficiency in collecting taxes may appear to be a frightening thought. However, lack of efficiency in collecting taxes does reduce the fairness of the tax plan while also reducing the enforceability of the tax plan.

One of the fallacies in measuring productivity is that the question is seldom answered satisfactorily regarding whether all or part of a particular activity is necessary. In the case of toll collectors on bridges, individual productivity was most likely examined by a variety of methods over the years. While individual bridge toll collectors appeared to be productive, the fact is that productivity was practically zero for half of the bridge toll collectors, despite their capability and the effort put forth by each individual. Through the oversight of planners, multiple levels of management, and people working at various levels within any organization, there is often work performed at the virtual rate of zero productivity. If any activity is economically rendered as completely unnecessary for one reason or another, the result is always zero productivity for as long as the activity continues to be performed. Whenever an activity is economically rendered to be partially unnecessary, the reduction in productivity will be proportionate to the percentage of the continuing activity that remains unnecessary.

As you read about the suggested tax plan, you cannot avoid raising the question regarding how you, your relatives, and your friends may be affected. The implementation of any tax plan that is based on the proposed tax code will have a dramatic impact on more than one million equivalent full-time jobs that will immediately be recognized as yielding zero productivity. Perhaps the number of equivalent full-time jobs that are yielding zero productivity could be more than two million or several million. This is good news in the long run although there is no denying the bad news in the short run. In the long run, everyone should benefit. The taxpayers of any country are better off whenever the number of jobs that yield zero productivity are completely eliminated and not subsequently recreated. The individuals who find that they are working in a job that yields zero productivity should eventually be better off as their talents and efforts yield more positive results while generating more employee satisfaction after they are assigned to new work that is more productive.

As a tax plan in complete accordance with the proposed tax code is revealed, the identity of the jobs that are yielding zero productivity, or near zero productivity, will not remain a mystery. Unless the majority of taxpayers indicate that they want to replace the present tax code and their voices are heard, this significant problem of jobs yielding zero productivity will remain. This is due to the fact that the equivalent full-time jobs producing a productivity of zero will not only continue to exist, but they will continue to grow.
Chapter 5 - Enforceability

There appears to be a tendency to utilize technological advances by permitting them to accommodate tasks that were never dreamed of only ten and twenty years ago while ignoring the key question as to whether the task itself, in whole or in part, is necessary. The electronic filing of tax returns under the present tax code is a classic example of the complicated accommodation of an old task with the greatest of ease accompanied by a hefty price tag. Part of the cost that may have been overlooked or underestimated is the amount of electronic fraud as well as the expense of trying to prevent and/or control it. Under the proposed tax code, the opportunity to create fraud in the manual filing or in the electronic filing of a personal income tax return should be eliminated. When an activity such as filing a personal tax return is completely eliminated, the opportunity to cheat or steal through that activity completely vanishes. This is another example within the proposed tax code that shows how the essential characteristics of fairness, efficiency and simplicity are integrated to enhance the remaining essential characteristic of enforceability.

In the present tax code, the Internal Revenue Service expends a significant amount of energy and expense auditing taxpayers. It should not be overlooked that the taxpayers, when being audited, are also expending, proportionally speaking, a much more significant amount of energy and expense. The tax plan under the proposed tax code should neither permit nor require the audit of any taxpayer who paid personal income taxes. This is another example of the interdependence of the essential characteristics within the proposed tax code. When a tax plan is fair, efficient, and simple, many of the elements that may otherwise be required for enforceability are unnecessary. If a personal income tax return need not be filed, it cannot be audited. The Internal Revenue Service could then focus its' resources on more productive and less antagonizing audits and collection activities.

The primary mission of the Internal Revenue Service should be to discover all people and commercial entities that are illegally failing to pay their income taxes. How could this be possible? First of all, the tax plan in accordance with the proposed tax code would not require a tax reporting form for personal income taxes. April 15th would come and go like any other day of the year, devoid of the trauma, sleeplessness and frenzy during the tax due dates of the past. By the way, the due date or deadline used to be March 15th, but as the present tax code grew by leaps and bounds and became too complicated, more preparation time was needed and subsequently granted through necessary legislation. This could be an uncomplicated "pay as you earn" tax plan. Quarterly Estimated Income Tax Returns for individual taxpayers could be eliminated. All of the pamphlets, publications and the related tax forms as well as the headaches that they cause could also be eliminated. The number of trees that were previously cut down and hopefully replaced to provide the pulp in order to produce the paper for the preparation of many tax publications and many tax forms could be spared in the future or put to some more productive uses. Memory capacity in the computers throughout the Internal Revenue Service as well as newfound memory capacity in all taxpayer's computers could be restored with availability to accommodate more important applications.

Office space at the Internal Revenue Service, including a few buildings and all of the related expenses could be reallocated, due to the reduction in equipment and perhaps more employees could occupy less official space while some employees could work at or from their homes. Since the income tax forms would be eliminated, new assignments for employees at the Internal Revenue Service could focus on the primary mission of discovering all people who are not taxpayers and all entities that are not taxpayers, but should be taxpayers. Thus an increased number of existing employees at the Internal Revenue Service could spend more time and effort working in the field. Perhaps in some cases, they could work out of a non-deductible office in their home. Of course, non-deductible, since there would be no more personal tax returns.

A very significant source of non-compliance with the present tax code is the subterranean economy, which represents the sum total of all transactions that involve the maintenance of either no records or concealed records. The reason that the subterranean economy is most likely the number one source of non-compliance is anyone's guess, since it cannot be accurately measured. That may be another reason why the subterranean economy is seldom discussed publicly. Since the subterranean economy contains substantial criminal and illegal activity, that may be the primary reason why it is rarely discussed in public. However, one fact remains. A problem ignored will seldom if ever go away by itself. Instead, it will continue to grow and grow and grow. A subterranean economy is more difficult to eliminate within a democracy than it is under other forms of government. Therefore, great care has to be exercised to be sure that the size of the subterranean economy does not surpass the size of the legitimate economy.

If a majority of the people decides that they want a tax plan under the proposed tax code that contains the four essential characteristics, then the government and the Internal Revenue Service must become more diligent in solving the problem of the subterranean economy. And, of course, any time the majority of the people decide that they do not want this, the question then becomes whether the time has arrived where the number of voters participating in the subterranean economy has exceeded the number of voters who are legitimate taxpayers. Are we there yet? Are we almost there yet? Who can accurately estimate the gravity of this problem? Well, the good news is that this tax plan in accordance with the proposed tax code will generate a fresh start in solving this problem. The Internal Revenue Service will be required and enabled to collect taxes from the subterranean economy.
Chapter 6 - Simplicity

Most everyone has heard the overworked acronym "KISS!" It represents the slogan, "Keep It Simple, Stupid." How did everyone permit the creation of a tax code that is so complicated while many of the most educated taxpayers and many of the most productive taxpayers (often the same people) must seek professional assistance in preparing their own tax returns? Unfortunately, the present tax code is the result of a consistent effort, some good and some not so good, by some well-intended people and by some not so well-intended people over a prolonged stretch of time.

Simplicity is the only essential characteristic that is an overriding element for each of the other three essential characteristics. Without simplicity, it is impossible to achieve maximum levels of fairness, efficiency and enforceability in any tax plan. Each of the other essential characteristics, if maximized, requires the maximum presence of at least one of the other characteristics. But the essential characteristic of simplicity can be accomplished to the maximum degree without depending on the maximum presence of any of the other three essential characteristics.

The essential characteristic of simplicity is the one characteristic that is often discussed when tax proposals are introduced, which is understandable in light of the preceding explanation. The problem is that it is seldom, if ever, talked about in terms of maximizing the simplicity of the tax code. You may hear suggestions or promises to simplify the tax code, or to improve the tax code by simplifying it. And sometimes in the same breath you may hear a reference to another essential characteristic, fairness. Unless the maximum simplification of the tax code accompanied by the other three essential characteristics to the maximum degree are planned as the objective, the resulting tax code and tax plan will surely turn out to be undesirable.
Chapter 7 - Relationships among the Essential Characteristics

Here is a very brief examination of the relationships and impacts of each essential characteristic, which is intended to clarify and validate the significance of each characteristic in the proposed tax code. This may be considered a benchmark for evaluating this tax code as well as other suggested tax proposals in the future.

Maximum fairness requires more efficiency; maximum fairness requires more enforceability and maximum fairness requires more simplicity.

Maximum efficiency provides more fairness; maximum efficiency provides more enforceability while maximum efficiency requires more simplicity.

Maximum enforceability provides more fairness; maximum enforceability requires more efficiency and maximum enforceability requires more simplicity.

Maximum simplicity provides more fairness; maximum simplicity provides more efficiency and maximum simplicity provides more enforceability.

Perhaps the table on the next page will further clarify this concept:

In the proposed tax code, the prohibition of all engineering is also crucial. In comparison, you are reading much about the essential characteristics and little about engineering. This will continue and the reason is that economic, political and social engineering are acceptable governing tools that, when desirable or necessary, should always be implemented outside of the tax code by the normal legislative process or by rare executive orders. And, of course, any such engineering should neither become embedded in the tax code nor become embedded in any tax plan that is in accordance with the proposed tax code.
PART II

HOW THE TAX PLAN "WOULD BE"

Chapter 8 - The Suggested Tax Plan in Perspective

Every taxpayer has most likely given the matter of personal income taxes serious thought in varying degrees at one time or another. However, there is no point in speculating about the priority of the reasons why many taxpayers seek professional assistance for the preparation of their personal tax returns under the present tax code. Professional tax return preparation is an entire industry that could be rendered completely unnecessary under this tax plan. Imagine the national reservoir of new productive resources in the form of talent as well as computing facilities and buildings that could become available for more important activities if and when the proposed tax code was implemented in accordance with the best tax plan.

You may be counted among the few people who buy into the concept that within the proposed tax code there is little if any room for improvement. On the other hand, you may believe that it could be embellished under the guise of further clarification. But, it is this author's contention that further clarification only belongs within tax plans, not in the tax code. Others may wish to add a word, or lots of words, thus removing the virtual straightjacket from the proposed tax code. But the tax code should be complete in and of itself while also being as clear and brief as possible. By succinctly expressing the proposed tax code in twenty-five words or less, there should be practically no opportunity for anyone to tinker with the tax code in the future. It could also be extremely difficult for anyone to tinker with the best tax plan in accordance with the proposed tax code. Most importantly, the brevity and clarity of the proposed tax code should always affix to any future tax plans the transparency of being in a fish bowl. Under the proposed tax code, most taxpayers as well as most future taxpayers may evaluate any tax plan by measuring the compliance with the proposed tax code. Of course any tax plan under the proposed tax code could also offer little opportunity for revision or changes. Ideally, whenever an occasional change in the tax rate(s) could be deemed absolutely necessary for one reason or another, it should always become a significant temporary variation.

The proposed tax code, which is expressed in twenty-five words or less, should be etched in stone, figuratively speaking. An unchangeable tax code should be a monument as well as a measuring stick by which existing tax plans or any recommended tax plan may be evaluated. The tax plan revealed here is this author's attempt to devise a tax plan that maximizes each of the four essential characteristics in the absence of any economic, political or social engineering whatsoever. There are many people in the world who are brighter than this author. A more ideal tax plan may come about if and when people give more serious thought to taxes, in general, and the suggested tax plan, in particular. Hopefully, this may generate ideas for how to further improve any tax plan that is in accordance with the proposed tax code. The following pages detail a tax plan with high hopes that you or someone else may be able to say, "I can top this!" Others may ask; "how can I stop this?" It may be too soon for you to determine whether you are making proclamations or raising question, so read on!

Suppose that you do not completely agree with the proposed tax code. Suppose you agree with only two or three of the essential characteristics, despite the relationship and interdependence of the essential characteristic on each other. Suppose you also disagree with the concept that the proposed tax code should prohibit economic, political and social engineering. If that is the case, you should probably read no further. In the interest of preventing a lot of unnecessary aggravation, either toss this book away or be a good sport by sharing it with one of your adversaries. Remember, any tax plan that is in maximum compliance with the proposed tax code exposes such activities as giving tax advice and tax strategies, listening to tax advice and tax strategies, and preparing personal income tax forms, as zero productivity tasks. This is because there are a better tax plans under this tax code that could eliminate each task as being practically unnecessary while producing a productivity of zero.

The reader who enthusiastically agrees with the proposed tax code is most likely visualizing the details of this tax plan. You may wish to refrain as much as possible from references or comparisons with the present tax code even though it is virtually impossible to do so. Such comparisons are almost pointless, since it is like comparing apples to oranges. The present tax code barely contains the four essential characteristics while maximizing none of them. Therefore, before continuing to read on, think about this. Just pause here long enough to evaluate your opinion of the present tax code with your impression of the proposed tax code so far.

You may initially prefer to think about that with which you are most familiar, personal income taxes. Take it a step further to think about commercial income taxes. For example, do you think it is fair to collect income taxes from profitable enterprises while unprofitable enterprises reap the rewards of paying no income taxes? Do not overlook the under-reported story by the media of seldom mentioned corporate welfare, which has developed into one of the best kept secrets in the world. Corporate welfare may have been the number one under-reported story of the twentieth century as it continues to remain so in this century. Beyond the outrageous violation of each of the four essential characteristics of the proposed tax code, do you doubt that corporate welfare came about through varying degrees of economic, political and social engineering? Perhaps you believe that it came about through an abundance of economic, political and social engineering perpetuated by the activities of the lobbyists.

The standard deduction and all itemized deductions from the present tax code could be eliminated in this tax plan under the proposed tax code. Once each taxpayer gets past the initial shock, a lower personal income tax rate combined with no need to file a personal income tax return are at the top of the list of the obvious advantages. The more subtle advantages are reflected in each of the essential characteristics of the proposed tax code as well as the complete definition of the tax code as expressed in twenty-five words or less.

Remember that a significant purpose of the proposed tax code is for the government to cease utilizing any tax code for economic, political and social engineering. Implementation of this tax plan could require provisions for all government assistance and all government subsidies to be delivered directly outside of the tax code and its' tax plan. This could best be accomplished by issuing a check or checks (depending on the specifications of a legislated spending program) to each qualified person, family, or commercial entity as payment from the appropriate government agency under the terms of such legislation. If there were no personal tax returns, there could be no tax refunds, thus completely eliminating that substantial source of tax fraud. It is no secret that incarcerated individuals throughout the country have filed fraudulent tax returns from jail cells and have successfully received tax refund checks from the Treasury Department. Incarcerated individuals serving life sentences have much to gain and nothing to lose. If and when they are caught, their punishment is not effectively increased. Many more incarcerated individuals serving long sentences have much to gain and little to lose. It is silly to have a tax code in effect that is riddled with temptations and opportunities to cheat by so many people. Any tax plan that maximizes the four essential characteristics would minimize the opportunity for anyone to engage in fraudulent tax activities while facilitating the easy detection and routine apprehension of everyone who may attempt to engage in any fraudulent tax activity. The good news is that under this tax plan fraudulent tax refunds as well as most other fraudulent activities would be eliminated immediately!

Consider a circumstance where the legislature may discover a need to render financial assistance to any group of taxpayers victimized through a special set of circumstances during the transition from the present tax code to the proposed tax code. Certainly there could be a number of homeowners whose homes may be temporarily jeopardized due to the discontinuance of deductions for mortgage interest and real estate taxes. Perhaps a program could be established whereby taxpayers who purchased their homes prior to the implementation of a new tax plan and found themselves in dire need of this type of assistance could prepare and submit an application for such direct assistance. When approved, the appropriate government agency could issue checks to the qualified home owners. A program such as this could eliminate itself as time passed and the decreasing number of such qualified applicants could eventually reach zero. Even if this went on for as many as ten or twenty years, it could have a clearly defined and predictable end while providing truly needed and equitable assistance in a process outside of the tax code. If a similar program was incorporated within the present tax code, it most likely would remain embedded there and perhaps continue forever through subsequent amendments and without a clearly defined predictable end.

Another circumstance to consider is the tax approved charity. Under this tax plan, in accordance with the proposed tax code, the Internal Revenue Service could discontinue the often criticized activity of reviewing and approving charitable organizations for tax purposes, since donations could not be tax deductible. In the long run, this may not cause major objections. The people in this country have always been counted among the most generous people in the world. Truly generous people and businesses do not depend on any government to subsidize their contributions. Take for example the many taxpayers who do not itemize their deductions in the first place, yet they routinely make generous contributions. Most people renting their living accommodations are unable to itemize their deductions. Residents of any apartment can verify that they receive and often respond to an abundance of solicitations for charitable contributions.

There are two points to derive from this. First, most people are basically generous and do not need tax deductions as an incentive to make charitable contributions. Selfish people generally are not very charitable, so it matters little whether tax incentives are offered. Secondly, this example demonstrates the essential characteristic of fairness. Either all taxpayers should receive a tax deduction for charitable contributions or no taxpayer should receive a tax deduction for charitable contributions. This has been another controversial part of the present tax code for many years, since some taxpayers are eligible to take a tax deduction for charitable contributions while other taxpayers are not eligible to take a tax deduction for charitable contributions.

For anyone who doubts the validity of the argument that people do not need tax incentives, especially unfair tax incentives, to make substantial charitable contributions, take a look at the anecdotal evidence. Travel around any community, town or city in the country and observe the number of fine churches, private schools and museums that have cornerstones dating (nineteenth century and the first decade of the twentieth century) prior to the time when tax deductions were an incentive for charitable contributions. Admittedly, the members of subsequent generations include some people who may be less inclined to be charitable if it is not tax deductible. Therefore, this may be an example where the legislature may discover a need to directly render financial assistance to any charity that is victimized through a special set of circumstances during the transition from the present tax code to the proposed tax code.

Of course, such direct assistance could be targeted by special legislation temporary in nature and most importantly, outside of this tax plan. Such hardships may be rare since most charitable organizations may find it necessary to redirect their present resources more productively under this tax plan. The time and effort spent by tax approved charities to comply with cumbersome regulations under the present tax code would be replaced by redirected efforts to more efficiently improve their fund raising activities, thus becoming more productive. This is another example where, under the present tax code, the activities of accounting for contributions received and of issuing receipts to the donors are both tasks that result in a virtual zero productivity. The suggested tax plan will provide all charitable organizations with an opportunity to improve their performance through increased productivity.
Chapter 9 - Personal Earned Income Tax

If any tax plan for personal income tax is going to achieve maximum compliance with the essential characteristics of fairness, efficiency, enforceability, and simplicity, it must be a tax plan for individual people, regardless of their status. As ordained by our founding fathers, all people are created equal. A tax plan for individuals should respect that principal. Since all people are created equal, they should continue to be treated as equals, especially for tax purposes. Caveat; don't fall prey to examining your perception of the impact on your future income taxes under the suggested tax plan compared with the present tax system. Whenever a tax plan is changed ever so slightly, there are winners and losers. This tax plan, in accordance with the proposed tax code, also produces winners and losers. The beauty in this tax plan is that all the winners could be all present taxpayers. And the losers could be the people and commercial entities that are currently paying no taxes or something less than what they ought to be paying either due to their dishonesty or due to their penchant for finding and taking advantage of tax loopholes.

A complete flat tax, which eliminates all preferences and all economic, political or social engineering while achieving the maximum performance from the maximized essential characteristics, is the best solution. This tax plan could eliminate tax returns for all taxpayers whose source(s) of personal earned income emanates from being employed by any commercial entity that currently withholds income taxes. If you are a taxpayer now, imagine how you could spend or invest the time and energy that you previously devoted to day to day, week to week, month to month, quarter to quarter and year to year compliance with the ever changing tax laws. Do not forget the parts about doing, thinking and worrying about tax due dates, tax planning, tax strategy, quarterly estimated tax reports, preparation of the annual tax returns and perhaps seeking professional assistance for all of these matters.

What a relief it could be to eliminate the need to file an annual tax return for personal income taxes. That could easily be accomplished by this tax plan, which includes a flat tax. A flat tax that could be as flat as a flat tax could possibly be. All personal income taxes, based on the tax rate(s) as established for each taxpayer, could simply and efficiently be withheld in an enforceable way from each and every paycheck. The fairness may vary depending on whether a majority of the taxpayers prefer a flat rate flat tax or a flat tax with graduated rates. In the end, Congress should resolve this incisive matter based on real feedback from their constituents while ignoring the lobbyists. Regardless of the taxpayer's preference on that issue and the resulting impact on fairness, this tax plan could function successfully without reducing the maximum level of the other three essential characteristics.

With a flat tax, the personal income tax rate, or the personal income tax rates if you prefer, could be much lower for two reasons:

1) When the government ceases to subsidize all preferences within the tax code, the source of taxable income by the expansion of the present tax base would immediately be increased.

2) Increased enforceability of the tax plan would provide a dramatic increase in the number of taxpayers.

Imagine if there could be no annual personal income tax returns and no quarterly estimated payments and no W-4 forms for personal income taxes. The redirected effort by the employees and resources at a restructured Internal Revenue Service could certainly result in the addition of a multitude of new taxpayers through their discovery and recovery of lost personal income tax revenue as well as increased voluntary compliance with this tax plan.

No matter how many reasons are cited for the reduction of the income tax rate or tax rates, each and every such reason depends on fiscal discipline and good sense that our legislators will hopefully exercise by resisting the temptations to accumulate and spend more tax dollars. In other words, when reasons are given why the tax rate(s) could be reduced in this tax plan, it assumes that the essential characteristic of maximum fairness should be respected and not negatively impacted by Congress subsequently legislating more extravagant spending programs and wasteful foreign aid programs.

In this tax plan, the flat tax does not have to be a flat rate tax. That is a question of fairness that has to be decided by the legislature through a majority of the taxpayers. The primary advantage of a flat tax is that it permits the ultimate simplification, efficiency and enforceability of this tax plan. There would be no place to hide due to the fact that all loopholes and all preferences could be completely eliminated under this tax plan. By the way, all references to tax rates throughout this tax plan are presented in round numbers only to assist the reader in grasping the concept. All references to tax rates within the suggested tax plan have not been calculated, compiled or projected in any way to suggest that it is a precise recommendation.

For example, if the flat rate were to be ten percent (10%), a taxpayer with personal earned income in the annual amount of fifty thousand dollars ($50,000.00) could have personal income taxes deducted from each paycheck totaling five thousand dollars ($5,000) by the end of the tax year. Compared to another taxpayer with personal earned income in the annual amount of one million dollars ($1,000,000.00), the personal income taxes deducted from each paycheck could total one hundred thousand dollars ($100,000.00) by the end of the year. Consider another example whereby a taxpayer with personal earned income in the annual amount of two hundred thousand dollars ($200,000) as compared to a taxpayer with personal earned income in the annual amount of five million dollars ($5,000,000); deductions from their paychecks by the end of the year could total twenty thousand dollars ($20,000) and one half million dollars ($500,000) respectively.

Now, consider similar examples if the flat tax rate were to be twenty percent (20%). A taxpayer with personal earned income in the annual amount of fifty thousand dollars ($50,000.00) could have personal income taxes deducted from each pay check totaling ten thousand dollars ($10,000) by the end of the tax year. Compared to another taxpayer with personal earned income in the annual amount of one million dollars ($1,000,000.00), the personal income taxes deducted from each paycheck could total two hundred thousand dollars ($200,000.00) by the end of the year. In another example, a taxpayer with personal earned income in the annual amount of two hundred thousand dollars ($200,000) as compared to a taxpayer with personal earned income in the annual amount of five million dollars ($5,000,000); income tax deductions from their paychecks by the end of the year could total forty thousand dollars ($40,000) and one million dollars ($1,000,000) respectively. The chart on the next page may clarify this.

Remember, the foregoing tax rates are neither proposed nor suggested rates. Instead they are presented in round numbers to clarify the concept. When using a flat rate tax and eliminating all graduated tax tables and tax brackets, the taxpayer who earned one million dollars pays twenty times as much income tax as the taxpayer who earned fifty thousand dollars, regardless of the rate. And the taxpayer who earned five million dollars paid twenty-five times as much income tax as the taxpayer who earned two hundred thousand dollars regardless of the rate. The ratios in the examples of taxpayers paying twenty and twenty-five times as much taxes remain the same even though the tax rates may change. However, in the absence of a flat tax where graduated tax tables and tax brackets are utilized, these ratios would not remain the same and they could most likely become more exaggerated and technically unfair.

The choice of a flat tax with a flat rate or a flat tax with graduated rates should be resolved by taxpayers through their legislators without the guidance or interference of lobbyists. The rhetorical questions, "should we really soak the rich?" or, "are we soaking the rich," may always remain. As gleaned from the flat tax with a flat rate example, the taxpayer with personal earned income that is twenty times or twenty-five times as much as another taxpayer will always pay an income tax that is also twenty times or twenty-five times more. Since this tax plan eliminates all loopholes and preferences, the questions finally boil down to the following; "do we want to just soak the rich" or "do we want to give the rich a hosing?"

When a comparison is made between average taxpayers and taxpayers with personal earned income of one million dollars or more, the total sum of all taxes paid by the latter may be substantially more than the ratios that are expressed in the preceding examples. The ratios exclude any consideration for other substantial taxes, such as real estate taxes, personal property taxes and sales taxes, which most likely would not be in proportion to the average taxpayer. If and when the votes are counted on this issue, the determination may not simply be the accumulation of votes by the wealthy taxpayers against the number of votes by the average taxpayers. The key factor may be the number of average taxpayers who do not want to stifle incentives for all taxpayers, themselves included, while they realistically look forward to their future status. Additional factors may be derived from the number of average taxpayers who are optimistically looking forward to themselves and/or their children successfully becoming higher income taxpayers, as well as the taxpayers who may give due consideration to the essential characteristic of fairness.

If an overwhelming majority supports giving the rich a hosing, this tax plan for personal income taxes can adequately accommodate a flat tax with graduated rates and tax brackets without an unfavorable impact on the essential characteristic of enforceability. The essential characteristics of fairness, efficiency and simplicity would be slightly affected in a negative way. However, all of the superior and related advantages that would result from the elimination of the personal income tax return should prevail for the same number of taxpayers; namely, all taxpayers. If necessary, the withholding of income taxes in a graduated rate flat tax environment could be accomplished with the greatest of ease. Each employer would utilize withholding tables that simply show annualized personal earned income and the related tax rates based on pay rate within the applicable time element, such as the number of hours, days, or weeks in the employee's pay period.

More subtle advantages are reflected in each of the essential characteristics of the proposed tax code as well as the complete definition of the tax code in only twenty-five words or less. Do not lose sight of one significant purpose of the proposed tax code, which is for the government to cease utilizing the tax code for economic, political, or social engineering. As previously stated, this tax plan could require all government assistance and all government subsidies to be provided directly to each qualified person by issuing a check as payment from Treasury Department under the terms of the appropriate legislation. Since there would be no personal tax returns, there could be no tax refunds. Therefore, that source of tax fraud should completely vanish.

In an ideal world of taxation, a tax plan in accordance with the proposed tax code could eventually derive all federal tax revenue from the sole source of the personal income tax. The elimination of such federal taxes as capital gains taxes, estate taxes, excise taxes, fuel taxes, gift taxes, inheritance taxes, luxury taxes, tobacco taxes, unearned income taxes, plus any other concealed taxes that may have been overlooked could necessitate increased rate(s) in personal income taxes. By the way, as long as estate taxes continue, so will the need to file the estate tax returns. There appears to be no way, even in the most efficient tax plan, to withhold estate taxes in accordance with the four essential characteristics of the proposed tax code. Perhaps estate taxes should be the first tax to be discontinued.

Meanwhile, all taxpayers may see that they could be living within the reality of "transparent and truthful taxation." This could explode the myth that all around the world; civilized people in most countries pay more in taxes than we do in the USA. In our present tax system of vast and complicated federal taxes, the inclusion of concealed or virtually invisible taxes like the employer's share of FICA plus all state and local taxes places each taxpayer in the position where the total individual tax burden cannot be easily and accurately calculated. This is another one of many exceptions to the adage; "What you don't know can't hurt you."

In the absence of complete knowledge, taxpayers make bad decisions. There are many families with second breadwinners who have never calculated the incremental net earnings or the real additional net disposable income (considering the related additional expenses and additional taxes) produced by the second breadwinner. There is much more input to consider in such an important decision. But this vital calculation is seldom made due to the fact that it is either too complicated or too time consuming, or both. When the calculation is made, it may either be incomplete or inaccurate. Under the present tax code, many people are clueless about what percentage of their personal earned income really goes to taxes. Well, this tax plan could conveniently and accurately solve that mystery with respect to federal taxes because each taxpayer could always be astutely aware of their personal earned income tax rate. Always!
Chapter 10 - Personal Unearned Income Taxes

The debate about whether or not taxation of unearned income such as personal interest income and personal dividend income discourages savings and investment while encouraging consumption, especially in an inflationary environment, will probably go on forever. This debate feeds an argument that a consumption tax may discourage excess consumption while encouraging savings. But a consumption tax is unacceptable under the proposed tax code for two primary reasons. Firstly, it reeks of economic, political and social engineering, which is completely unacceptable under the proposed tax code. Secondly, it is a regressive tax that is unfair and in no way achieves a desirable level in any one of the four essential characteristics.

If it is really necessary to tax personal unearned income, one flat rate tax that may not necessarily be at the same rate as the tax rate for personal earned income could be the most acceptable alternative. Another flat rate tax for all personal interest income may be the most feasible way to collect that tax without affecting the maximum level of each essential characteristic. Similarly, if personal dividend income must also be taxed, a separate flat rate tax for all personal dividend income may be the most feasible way to collect this tax. The task of collecting unearned income taxes could be accomplished in such a way that no personal income tax return would ever be necessary. The commercial entity or the financial institution could always withhold dividend income or interest income.

It is inconceivable that the personal interest income tax could exist without the personal dividend income tax. Also inconceivable is that both investment income taxes could have different rates from each other, since that might cast an aroma of economic engineering and perhaps political engineering as well. Unfortunately, it is not a stretch to realize that both the personal interest income taxes and the personal dividend income taxes may remain in existence forever in order to maintain an orderly market for tax-free investments. Debates about discontinuing or substantially cutting the tax rates on both types of unearned personal income usually skip over or soft peddle the impact upon tax-free investments. Any resulting increase in their interest rates and the corresponding reduction of value could be substantial. The cost of the transition in discontinuing personal unearned income taxes may require a significant bailout for both the investors and the issuers of tax-free bonds. Avoiding the impact on the tax-free bond market and the related consequences on States and Municipalities may be the only reason why personal unearned income taxes may never be discontinued. This is a classic example of economic, political and social engineering in the present tax code with no end in sight.

Do you believe that continued taxation of personal unearned income may adversely impact the essential characteristics in this tax plan? If so, perhaps less of an impact than you thinks. This issue may be considered in two steps. The first step would be to examine the concept of an isolated source of tax revenue in accordance with the proposed tax code. This step would be accomplished without any consideration of the impact or consequences upon anything from a previous tax code. If the conclusion reveals that taxing personal unearned income would be justified, then the second step would be unnecessary. However, if the conclusion of examining step one reveals that taxing personal unearned income would be unjustified, step two becomes necessary. Step two requires the reexamination of this issue with complete consideration of the impact and consequences upon everyone. The conclusion from step two would also need to include the eventual effective date and whether the discontinuance of personal unearned income taxes could be postponed, phased out or both.

Meanwhile, the tired old debates about whether or not taxation of dividends results in double taxation may only be diluted rather than brought to an end by this tax plan. If the corporate income tax could be completely eliminated or at least replaced by something else, double taxation of corporate income may be eliminated, which would put an end to those arguments.

Let's consider capital gains taxes! In the present tax code, the treatment of capital gains taxes is a classic example of sheer unadulterated nonsense. There is one tax rate for short term capital gains, another tax rate for long term capital gains, plus partial forgiveness or complete forgiveness of capital gains on the sale of a residence depending on marital status and length of time that it was a primary residence. This was more economic, political and social engineering! How do you think the tax treatment of capital gains in the present tax code measures up with the four essential characteristics in the proposed tax code? Within a new tax plan, sources of tax revenue from investment income and capital gains may need to remain temporarily during a transition period while being placed high on the list of taxes that ought to be discontinued as soon as possible.

Assuming capital gains must be taxed, all capital gains could be taxed at one rate, which may or may not be the same rate as for other sources of unearned income. Capital gains taxes could always be withheld by financial institutions at the time of each transaction. In order to accomplish this, the taxes based on capital gains under the present tax code could become a capital revenue tax under this tax plan. The capital revenue tax could be based on the gross amount only from the sell side of the transaction, not on the amount of the gain. Of course the tax rate could be a small fraction of the present capital gains rates, which are based only on the amount of gain in each transaction. Such a tax could be considered a fee for the privilege of doing business in this country, if it continues to be necessary to tax revenues from capital transactions.
Chapter 11 - Corporate Taxes

The controversy over who really pays the corporate taxes has gone on since shortly before the inception of corporate income taxes. Technically, corporate taxes are paid, not by corporations, but indirectly by customers. This very important point is only mentioned as a reminder. Although corporations may remit corporate income taxes, they do so with the money that customers paid when products or services were purchased. The pricing of products and services has always been based on cost of goods and/or services, but always with an intended profit factored in. Corporate income taxes are another one of the many expenses that are included in the cost of doing business. Therefore, the amount of planned after tax profit that is generated from the sale of each product or service includes the amount of corporate income tax that may eventually be paid. The point to never forget is that corporations do not pay taxes because only people pay taxes. Corporate taxes are just another invisible tax to ultimately be paid by their customers!

The present corporate income tax is unfair, inefficient, unenforceable, and extremely complicated. Corporate income taxes have frequently and quietly been the vehicle of choice in delivering the seldom mentioned corporate welfare benefits. The present method of assessing corporate taxes is based on applying the appropriate tax rate to an adjusted bottom line (Taxable Net Income) of the Corporate Income Statement. This means that everything reported between the top line (Gross Revenue) and the Bottom Line (Taxable Net Income) is significant and counts one way or another in the calculation of the corporation's federal tax. Since some items between the top line and the bottom line are not allowable tax items, the corporate income statement must be adjusted for tax purposes in order to arrive at the adjusted bottom line (Taxable Net Income). Each and every item in a taxable corporate income statement is a potential source of innocent error or omission while also being a potential source of intentional error. The preceding description of the taxable corporate income statement is a fair oversimplification for the sake of the readers, since some corporate tax returns with all their supporting documents and schedules occasionally involve thousands of pages.

Assuming that corporate taxes are considered necessary, the tax plan under the proposed tax code could include provisions for corporate taxes in one form or another. Among the four essential characteristics, three of the four could be maintained at the maximum level while the essential characteristic of fairness cannot be maintained at the maximum level. To keep this in perspective, maintaining three out of four essential characteristics while the essential characteristic of fairness is optimized may be considered a respectable compromise by some people, but not by this author. Such a remedy should be considered only as a last resort after all the alternatives have been thoroughly examined. Furthermore, any yielding of an essential characteristic from maximum to optimization in a tax plan within the proposed tax code will inevitably lead to trouble and a journey down the slippery slope. Do not lose sight of the fact that corporate taxes have existed for years only because the majority of the taxpayers want corporate taxes. The most legitimate reason to retain the corporate income tax in view of the rapidly expanding global economic environment is to collect the taxes from all foreign entities in accordance with the four essential characteristics of the proposed tax code.

The reduction in the essential characteristic of fairness is caused by the fact that the corporate tax is priced into the products and services; therefore, it is for all practical purposes a relatively invisible consumption tax. Those who favor the concept of consumption taxes completely replacing income taxes are familiar with the most frequently advanced argument about this regressive tax. Any consumption tax places a heavy burden on lower income consumers while wealthy people share a proportionately lighter tax burden.

The flip side of the coin reveals that another element of fairness could be lost if corporate income taxes were eliminated. Consider foreign corporations. Why are foreign corporations permitted to conduct business in this country without being assessed their fair share of corporate taxes? When foreign corporations claim that they are unprofitable, the fair share of the tax theory explodes. A common complaint often heard is that too many foreign corporations effectively cheat under the present tax code while claiming to be in compliance with their respective country's accounting practices.

Here is the most tantalizing question of all; if the corporate income tax is ever eliminated, will all corporations unselfishly and fairly adjust pricing of products and pricing of services to reflect this change? Although no one knows for sure, the answer may very well be dictated by the prevailing winds of competition at any given time. Perhaps, some day, corporate income taxes will be eliminated even though now may not be the appropriate time. The unrealistic corporate tax or the equivalent thereof could most likely be the last tax to be eliminated, not the first. If and when that time ever arrives, the only source of federal tax revenue beyond import tariffs could be derived solely from personal earned income taxes. In the meantime, the present corporate income tax should be discontinued if it could be replaced by a small commercial gross revenue tax, which would be collected from all commercial entities, including corporations, sole proprietorships, as well as partnerships.
Chapter 12 - Commercial Gross Revenue Tax

The tax plan under the proposed tax code could eliminate all corporate income taxes that are presently in effect by replacing them with a commercial gross revenue tax only if deemed necessary. The commercial gross revenue tax should be considered a fee for the privilege of doing business in this country. In this tax plan, the commercial gross revenue tax could be applicable to all foreign and domestic commercial entities, including sole proprietors, partnerships, as well as all corporations. This tax could be calculated by simply applying the appropriate tax rate to the top line, Gross Revenue. This tax could be as low as one percent, or as high as two percent, or something in between while possibly generating more total tax revenue from this source than the is generated now by the present annual corporate income tax.

In comparison with the present corporate income tax, the commercial gross revenue tax in this tax plan is so fair, so efficient, so enforceable, and so simple that it may be irresistible. When the commercial gross revenue tax is compared to the very detailed corporate income tax, it shows that the time and effort spent by accountants in preparing corporate income tax reports as well as time and effort spent by internal and external auditors while auditing the tax reports always yields a virtual zero productivity. It is virtually zero productivity because there are two exceptions; the time and effort spent in accounting for accurate gross sales and the time and effort spent in auditing the gross sales is valid in the present tax code as well as it should be in this tax plan. The activities of calculating, auditing and paying the corporate tax liability would also be a brief and productive task in this tax plan.

The commercial gross revenue tax is not and should not be confused with any type of value added tax. Value added taxes are commonly referred to as attorney's and accountant's work relief opportunities. Complicated transactions and extensive reports are frequently required since the value added tax is accessed at each and every step within the product distribution path. Entire books have been written about value added taxes as practiced in many countries in Europe. The only point to be made here is that the commercial gross revenue tax should not be confused with value added taxes. In this tax plan, the commercial gross revenue tax would always be paid by the commercial entity, not by the customer. For a similar reason, the commercial gross revenue tax should not be confused with a sales tax, which is always paid directly by all consumers. In sole-proprietorships and partnerships, the commercial gross revenue tax should not be confused with personal income tax. The commercial gross revenue tax, at the hopefully low rate of one percent or two percent or something in between, could be considered a fee for the privilege of doing business in this country.

The commercial gross revenue tax, similar to the corporate tax it is intended to replace, may also be considered as a tax that should eventually be eliminated. On the other hand, like most taxes, there may always be the undesirable engineering temptation of tax rate increases or decreases in order to remedy or reverse special economic circumstances. This could be prevented by popular vigilance under such a transparent tax code.

The commercial gross revenue tax could be calculated and frequently paid, perhaps as often as monthly, or even weekly, by every commercial entity in the country. Ideally, each such entity could be permitted to choose reasonable accounting periods and due dates so that the accurate and efficient calculations of the gross revenue tax due to be paid would not require keeping two sets of books or making adjustments to the original set of books. Recall for a moment the essential characteristic of efficiency and the reference to zero jobs where the example of collecting tolls only one way identified and eliminated the other half of the toll collectors who were collecting two-way tolls. Well, this is even better. The zero productivity of equivalent full time jobs and the applicable zero productivity activities are not simply reduced as in the example of collecting bridge tolls. They are virtually eliminated!

Every commercial entity in the country contains a part time tax department or an entire full time accounting and/or tax department to maintain tax records in order to comply with their obligations for federal taxes and state taxes. In many cases, a separate set of books is maintained for tax purposes. These talented and valuable employees would hopefully be redeployed to other more productive work by the same company. The task of manually calculating and paying the monthly commercial gross revenue tax may take no more than five or ten minutes per month if a monthly payment of the commercial gross revenue tax was required.

Imagine if the commercial gross revenue tax had replaced the corporate income tax twenty-five years ago or, better yet, fifty years ago. All the time wasted by Congress while debating this aspect of taxation and a host of other income tax issues to be granted or denied could have been devoted to solving more serious problems. Many of the income tax topics discussed and debated would have never existed under this tax plan. More importantly, all business decisions could emanate in absence of the additional dimension of taxes, which too often is an influencing factor in too many business decision. For example, depreciation is an expense that is shown between Gross Revenue and Net Income on the Income Statements in accordance with generally accepted accounting principle for all commercial entities. When the depreciation time table expires for a particular building, the depreciation expense vanishes and the temptation occurs to replace that asset with a new one that can generate a new annual depreciation expense.

While considering this tax plan, you have to wonder how many buildings in relatively good condition could have been refurbished rather than imploded. It does not require much imagination to wonder if this tax plan had been in effect during the past twenty-five years, how many buildings and stadiums that were imploded in this country then might still be standing while continuing to be contributing to production and profitability today. The point is that buildings could cease to be demolished because their time had run out only in terms of an exhausted but unrealistic depreciation table (i.e. no depreciation, no tax deduction, therefore, the building could be replaced and a new depreciation table kicks in on future tax returns). People in other countries around the globe are fortunate that this kind of tax related thinking did not prevail in Europe and in the Orient as evidenced by many aged, but still spectacular structures that continue to productively stand today while many have become tourist attractions.

The greatest advantage of instituting the commercial gross revenue tax is that it would eliminate hundreds of ways to cheat in the accumulation and calculation of the correct tax liability as well as hundreds of sources of innocent errors in the accumulation and calculation of the correct tax liability. There could be only two potential sources of error in calculating the correct tax liability for the commercial gross revenue tax, namely the incorrect amount of the commercial gross revenue or a calculation error in applying the tax rate. In either case, any resulting error could be routinely detected and corrected either by the accountants or the auditors.

There are many people who are producing a part-time zero productivity rather than a full-time zero productivity, based on their job description and the mix of their assignments and responsibilities. For example, beyond the tax department in any company, there are activities with zero productivity being performed in support of the tax department, such as programming and actual computer running time. More examples of activities with zero productivity are the amount of time spent by accountants, external auditors, internal auditors, and other members of the corporation's financial management team who review the corporate tax returns. Since these people have enough responsibility and many more important things to do, discontinuing the zero productivity tax related activities should be a tremendous relief. Remember to keep this in perspective; the zero productivity or a portion of zero productivity in any activity can be declared or recognized only when it is revealed that a more efficient method of accomplishment exists, thus rendering the present activity completely or partially useless. Unfortunately, in this situation (the proposed tax code), the declaration, recognition and remedy actually requires an Act of Congress in order to be implemented.

The eventual elimination of the commercial gross revenue tax will always be desirable despite the fact that it may be in accordance with the proposed tax code while the present corporate income tax remains completely contrary to the proposed tax code. The commercial gross revenue tax could be more desirable if and when it is preceded by the elimination of other taxes such as capital gains taxes, estate taxes, excise taxes, fuel taxes, gift taxes, inheritance taxes, luxury taxes, tobacco taxes, unearned income taxes, plus any other taxes are barely visible or concealed. The foregoing list of taxes is expressed in alphabetical order since the order of priority varies in the eyes of the beholder, namely all the taxpayers.
Chapter 13 - Tax Clearing Bank Accounts

This tax plan specifies that all income taxes should be collected through a broad based and accurate withholding tax while eliminating all personal income tax returns as well as eliminating all advanced (quarterly) payments of estimated personal income taxes and annual tax refunds. Qualified banks and other qualified financial institutions would be offered the opportunity to become authorized to maintain United States Tax Clearing Accounts (USTCA) for their customers.

Every income producing person, regardless of their source of income, would have one, but only one USTCA. The authorized banks and other authorized financial institutions would be required to open and maintain this type of account with a zero deposit upon a customer's request. A high percentage of USTCBA's could have a balance of zero much of the time. Therefore, some banks and some other financial institutions may respectfully decline the opportunity to offer this type of account. To minimize the burden, each person should be allowed to maintain only one Tax Clearing Bank Account (USTCA) at any time. On the other hand, some banks and financial institutions may seize the opportunity by offering incentives to their customers for maintaining a balance other than zero in a United States Tax Clearing Bank Account (USTCA). In isolated geographical areas where all qualified banks and other qualified financial institutions refused to provide USTCBA's, the remedy could be for the government to offer USTCBA's through the Treasury Department.

All Employers would be required to pay all employees by making direct deposits to all of their employees USTCA's with no income tax withheld, which would end the employer's cumbersome practice of withholding income taxes. Each employee could immediately withdraw the remaining income deposit reduced by the amount of income tax that the bank will subsequently remit to the Internal Revenue Service. All direct deposits made by employers should always disclose the gross amount of pay for each employee so that each employee and the bank could accurately calculate the amount of income tax that the bank will remit to the Internal Revenue Service. The difference, if any, would be the total of the employee authorized deductions such as Medical Insurance, Retirement Savings, etc., that were deducted by the employer. For the sake of efficiency and administrative convenience, employers could require each employee to establish a USTCA in the bank of the employer's choice. This would require newly hired employees to transfer their USTCA to the bank that was selected by the employers. The only exception would be when an employee has another part time job. Then the employer would have to make the direct deposits to the original bank where the employee's USTCA resides.

On the other hand, there are millions of people who are engaged in income producing activities outside of corporations, partnerships, and sole proprietorships that do not have personal earned income taxes withheld. This is known as a part of the subterranean economy, which is seldom mentioned or written about. When they say, "It's the economy, stupid," they may really mean the word "stupid," since too many transactions in the subterranean economy are escaping the grasp of all tax collectors. However, there are some honest people in the subterranean economy that do in fact try to pay their taxes and consumers cannot distinguish between the legitimate and the illegal participants.

Everybody at one time or another has patronized some participants in the subterranean economy, either knowingly or unwittingly. For example, do you remember the last time that you paid cash for goods or services where you either did not receive a copy of a receipt or the transaction was not processed through a cash register? Better yet, do you remember a transaction without a pre-numbered sales check or receipt where the individual specifically requested cash when you were about to write a check? If so, one or both transactions may have involved tax fraud.

There are exceptions where such transactions are not properly recorded but they make their collective journey all the way through to legitimate tax reporting forms. For example, a new business when the cash register is planned as a future purchase. More common examples are taxies, Laundromats and vending machines. It is not the customer's responsibility to try to distinguish between legitimate and illegitimate subterranean transactions. The point is that not all transactions processed through something other than a cash register or processed without the customer receiving a receipt are involved in tax fraud. Nevertheless, too many unrecorded transactions do actually result in tax fraud.

Well, in this tax plan, income taxes could be processed for reasonable prompt payments from all transactions in the subterranean economy by withholding the personal income tax from each deposit to their United States Tax Clearing Bank Account (USTCBA). Since each person could maintain only one U.S. Tax Clearing Bank Account (USTCBA) at any given time, no individual would be required to open a USTCBA until he or she anticipated or planned to receive their first personal earned income from any other person or commercial entity. For example, a baby sitter could open a USTCBA before she or he accepted the first baby sitting engagement or immediately thereafter. Similarly, any entrepreneurial student rendering services such as yard work, shoveling snow, programming computers, tutoring computer illiterate adults, etc., would open a United States Tax Clearing Bank Account. A nanny could open her USTCBA before accepting her first commitment. All of these people are independent and are rarely connected to a corporation, partnership or sole proprietorship. Therefore, they need a sponsor to record and facilitate the deposit to their USTCBAs.

Each independent person could choose a sponsor within their community. Possible sponsors could be the school that the student is attending. For other people, sponsors could be a CPA, an Attorney, or a Government Executive in the resident's county, city or town. Sponsors could volunteer their services for the good of the community or they could charge small fees to cover their expense without making a profit. The sponsor would be responsible for issuing to each independent person sets of pre-numbered two part sales checks that contain the sponsor's identification. During each transaction, the independent person would write a brief description of the service provided, the date and the amount received. The customer would receive one copy and the other copy would be turned in to the sponsor. The sponsor would account for the complete sequence of the pre-numbered sales slips, verify that the total amount is correct, collect the money and deposit the same amount in the independent person's USTCBA.

It is important to clarify the distinction between independent people and independent contractors. While independent people need a sponsor, independent contractors that have a Federal Tax ID Number are not counted among those in the subterranean economy. Most independent contractors are also sole proprietors and a few independent contractors may instead be incorporated or engaged in a partnership. Nevertheless, a sole proprietor operates a commercial entity that currently has the burden of filing a business tax return (Schedule C) as well as all of the related and pertinent tax forms. The present federal tax reporting requirements for all sole proprietors could be replaced by the small gross revenue tax plus the personal earned income tax. The gross revenue tax would be reported and paid in the exact same way as corporations and partnerships. The personal earned income tax could be withheld by the financial institution each time a deposit is made to the person's USTCBA. Sole proprietors may initially find it to be an inconvenience to write two checks on each payday; one as a deposit to the USTCBA and the other as a partial or complete withdrawal of the after tax net amount from the USTCBA.

On the payment side of the equation, every customer would know what to do when presented with a sales check or an invoice that is lacking a Federal Tax Identification or the name of the local sponsor. The customer could elect to refrain from paying in cash by writing a check, by presenting a credit card or by presenting a debit card. Even this simple tax plan has to contain one or two minor exceptions regarding simplicity. However, these exceptions are not very complicated.

Counted among the most difficult examples of minor exceptions for simplicity and efficiency are restaurants and other establishments where it is customary to leave a tip. The present combined sales check could be replaced by two sales checks. One sales check on behalf of the business would contain its' Federal Tax Identification, which could be subsequently processed as normally as they are processed today. The second sales check for the tip would contain the employee's name and could have "USTCBA" preprinted on the sales check.

The subsequent processing of the sales checks for tips would be deposited to the employee's USTCBA by the employer as follows:

Cash transactions for tips would be collected by the employer and directly deposited to each employee's USTCBA as routinely as the direct deposit of salary or wages.

Credit Card and Debit Card transactions for tips, which would be identified as such, could be processed by the employer's bank or other financial institution. Subsequently, the employer's bank or other financial institution would deposit the credit transaction tips to each employee's USTCBA.

Only the tips processed from Credit Cards and Debit Cards would be subjected to exceptional processing. The essential characteristics of simplicity and efficiency may be compromised a bit in this one type of transaction, which will be an exception. However, the advantage of accurately withholding all tips would be accomplished. While this may be the most complicated example only involving an exception, it remains relatively simple. This inconvenience may be a small price to pay in order to finally solve a problem that Congress has unsuccessfully wrestled with from time to time.
Chapter 14 - Taxes for Kids

Every citizen could be a taxpayer by being considered as either a negative taxpayer or as a positive taxpayer. A newborn obviously does not enter the world as a positive taxpayer. Suppose the government decided that all children under the age of twelve could be negative taxpayers. The government could accomplish this be making an annual deposit of money into an interest bearing account at the US Treasury. The amount of each contribution could correspond to ten times, or perhaps as much as twenty-five times the age of the child, starting with the first birthday. For example, if it were ten times the age of each child, the principal after the sixteenth birthday would be $1,360 plus the compounded interest. At twenty-five times the age of the child, the principal after the sixteenth birthday would be $3,400 plus the compounded interest. The annual deposit could be fifty times the age or one hundred times the age up to a maximum age to be determined between twelve and twenty-one. This could provide every child with a real incentive to remain a law abiding citizen because this financial head start through the miracle of compound interest could eventually be used for education or some other constructive purpose. In order to qualify for the eventual withdrawal of funds from this account, the only prerequisite could be a clean record showing no convictions of criminal activity. Conviction of a crime should result in immediate termination of his or her account and the balance would be returned to the US Treasury.

At first glance, this may appear to be ridiculous and extravagant. But, upon closer scrutiny, the potential net social gain justifies this sort of expense. The cost of a social program like this could represent only a small fraction of the benefit to society by the reduction of crime and the related savings in that expense as well as the expense of unnecessary incarceration. And the source of the revenue needed to run the program could easily be obtained by offsetting reductions in foreign aid. Charity should begin at home!

Wait a minute. What is wrong with this picture? Is this not social engineering? Does this have any place in a tax plan that is supposed to be in accordance with the proposed tax code? The foregoing is a ruse, but it's a good ruse. If you were suspicious, you were absolutely correct. These rhetorical questions show how tempting it is to introduce a remedy that may reduce juvenile crime by providing incentives and rewards that never should become incorporated in this tax plan. Like any great remedy to resolve a social problem, if it is good enough, it should stand up to the legislative scrutiny to become a program or a part of a program by itself, but not as an integral part of any tax plan.

Keeping this tax plan in compliance with the proposed tax code lends itself to another outstanding advantage. The entire proposed tax code (twenty-five words or less) could be memorized by all students while the details of this tax plan should be included as an integral part of the fifth grade curriculum at every primary school in the country. Each student who progressed past the fifth grade could live the rest of their life with the full and complete understanding of how the tax system works and how each individual and each commercial entity is involved. Most importantly, each student who advances beyond the fifth grade should be keenly aware of when and how he or she fits into this tax plan at that time as well as far into in the future.

The future could be now; not by age and not by grade level. The payment of personal earned income taxes could start as soon as the first stream of personal earned income arrives. Armed with the complete knowledge of the taxpaying obligation of each individual, the best time to start paying taxes is as soon as possible, while the lesson is fresh in the student's mind. This source of tax revenue would always produce an insignificant amount of revenue that could never be expected to balance any budgets. The real purpose of taxes for kids is to get youngsters pointed in the right direction with the right attitude at the right time and at an impressionable age so that an ever increasing number of taxpayers would never consider cheating the system. It's sometimes called "patriotism" and, in this case, it may not cost very much in the long run.
Chapter 15 - Taxes for Bartering Transactions

Today, bartering in the commercial part of our world is, for the most part, very professional as well as very respectable. Many of the largest corporations in the world participate in the activity of bartering, often with the assistance of professional bartering brokers. The accurate annual volume of bartering is virtually impossible to determine. However, it is believed that the annual volume of bartering may be in billions of dollars on a global basis and consistently growing.

In pure bartering transactions, no money changes hands. The goods acquired or the services rendered are recorded on the books as a liability. On the other side of the equation, goods provided or services rendered are recorded on the books as an asset. Offsetting transactions seldom occur simultaneously and the variation in the time frame can be substantial. Bartering in the commercial world frequently involves a third party, the bartering broker, who records the transactions for both parties and often plays a role in bringing the transacting parties together in the first place.

Bartering among individuals and commercial entities sometimes is as above board as it is in the world of other commerce, especially when the individuals and all entities utilize the services offered by either barter brokers or barter trade associations. In the absence of professional assistance, bartering sometimes may be very unprofessional and illegal, if the activity of bartering is enthusiastically pursued with the specific intention of evading taxes.

All bartering transactions could easily fit into this tax plan. In every bartering transaction where neither side of the transaction occurs simultaneously, only one of the two parties involved is experiencing a payday. A payday is always experienced by the party that is acquiring the goods or receiving the services regardless of whether either party's bartering account is in the red or in the black. Therefore, the tax liability could be assessed only upon the party that is experiencing the bartering payday. In keeping with the distinction between the commercial gross revenue tax and the personal earned income tax, the tax to be assessed upon the commercial entities could be the commercial gross revenue tax. On the other hand, bartering by individuals could be the personal earned income tax. The barter brokers and barter trade associations could send to their clients and members respectively a combined monthly statement listing the bartering transactions and a bill for the appropriate tax. This tax could be due and payable to the Internal Revenue Service within a reasonable period of time after receiving the monthly statement.

The best way to assure that all taxes for bartering are collected could be to require all bartering transactions to be accounted for by a professional third party. Any person or any commercial entity that participates in bartering without the assistance of either a bartering broker or a bartering trade association may claim that the requirement of any third party may be an unfair statutory expense. No problem! Without creating a hardship on any bartering participant, the Internal Revenue Service could provide this bookkeeping service free of charge. Since there customarily is no cash involved in bartering transactions, the opportunity to withhold the gross revenue tax and the personal earned income tax should be impossible. Therefore, the Internal Revenue Service could also send each bartering participant a combined monthly statement listing the bartering transactions and a bill for both taxes.

Most likely, the cost of this service as provided by the Internal Revenue Service could be completely offset by the increased tax revenue from this activity. In this tax plan, the Internal Revenue Service could provide only a limited bookkeeping service for the bartering participants who do not want to avail themselves of the professional services offered by other third parties. Meanwhile, individuals and entities that have become accustomed to utilizing the wide range of services offered by bartering brokers and bartering trade associations may wish to continue to enjoy their professional relationship.
Chapter 16 - Taxes for Criminals

Before you join the chorus of Spin Misters and chime in with, "this is insane," it is important to realize that until the present time, tax revenue from criminal activity was virtually zero. The reason that it can accurately be described as virtually zero rather than exactly zero is that some tax revenue is unwittingly collected from criminal activities. Those are the ones who utilize an innocent looking commercial entity as a front in order to conceal the primary nature of their criminal enterprises. There are also many individuals who maintain a legitimate job while participating in another job that involves criminal activity. In this tax plan, the goal is to collect all tax revenue that is due from all criminals and to collect tax revenue from all illegal activities as well. While assuming no increase in government spending, a tantalizing question is; if taxes were efficiently collected on revenue and income from all criminals and from all illegal activities, how much would your income taxes have been reduced over the past ten years? How about over the past twenty-five years and how could you have invested that found sum of money?

There is no dearth of bureaucrats and politicians who prefer to take the high road by assuming the posture that it is immoral to collect taxes from criminals and to collect taxes from illegal activities. They may further say that by collecting taxes, the government would be endorsing both the criminal and the illegal activity. That is pure hogwash! Contrarily, it is more immoral to fail to collect billions of dollars in taxes from criminals from their illegal activities while all participants on the legitimate side of the economy pay their full share plus a share of the uncollected taxes from the criminals. Once again, it's the stupid economy that gets blamed and also takes credit for lots of other irregularities. Meanwhile, the important point to reconsider about this moral dilemma is that failure to collect the tax revenue from criminals may continue to increase rather than reduce the volume of illegal activities while it continues penalizing all honest taxpayers.

Let's reflect for a moment on the "pure hogwash" as previously stated. Those are the wonderful folks who take the high road by stating that it is immoral to collect taxes from criminals and to collect taxes from illegal activities. And they further hold that by collecting taxes, they would be endorsing both the criminal and the illegal activity. Yet, not a single one of those supposedly brilliant people can even begin to advance a realistic program to completely and successfully eliminate all criminal enterprises and activities.

So, how is this task to be accomplished in the suggested tax plan? Well, the Internal Revenue Service could initially establish and maintain a confidential relationship with each taxpayer that may rival the attorney-client privileged relationship. This means that the Internal Revenue Service could only receive data about taxpayers from other government agencies, but the Internal Revenue Service could not send, transmit or divulge any data to another government agency or to anyone else. However, if and when the Internal Revenue Service establishes that an individual or a commercial entity has engaged in criminal activity and is not a taxpayer, there should be no limit on the amount of data that could be exchanged with other government agencies by the Internal Revenue Service. A prerequisite in order to establish and maintain the confidential criminal relationship with the Internal Revenue Service should be that each such an individual or a commercial entity must be a taxpayer.

For the first time in our history, criminals would pay taxes on revenue and income from all illegal activities. They could do so with the assurance that they would not be turned in to another government agency by the Internal Revenue Service. However, when the Internal Revenue Service discovers criminal activity by non-taxpayers, all unpaid taxes, interest and penalties should be collected in addition to being prosecuted and possibly incarcerated. Under such circumstances, the normal fines and penalties could be doubled similar to the way the fines for speeding violations within a work zone are treated in most states. This would most often result from an investigation and audit that was initiated from the data that was reported to the Internal Revenue Service by another government agency.
PART III

HOW THE TAX PLAN "COULD BE"

Chapter 17 - Essential Characteristics Revisited

Now that you have taken the time to read about this tax plan, your impression may be dramatically different from when you were introduced to the proposed tax code. You may have mentally challenged it or thought about improving this tax plan as you digested it. While the proposed tax code should be etched in stone, the tax plan as presented in Part II is only one of perhaps one hundred and one (101) possible tax plans that could be in accordance with the proposed tax code. Since Part II only describes this author's opinions about how a tax plan would be, more intelligent people may eventually derive a better tax plan that will also be in complete accordance with the proposed tax code.

This is a good time to revisit the essential characteristics of the proposed tax code to see how much your perspective may have changed. Another reason to take a second look at the essential characteristics at this time is that you have just finished reading Part II – How the Tax Plan "Would Be." In Part II, the "Would Be" is equivalent to "must be" regarding the sources of tax revenue and the methods to achieve overall compliance with the proposed tax code. Beyond this chapter in Part III – How the Tax Plan "Could Be," the "Could Be" covers content that falls into the category of "may be" or "nice to be." This means the features of the tax plan that were described in Part II needed to be included in this tax plan in one form or another. However the content of the chapters that follow this chapter in Part III may be more appropriately described as optional or desirable. In other words, it is important to distinguish between "need to be" in Part II and "nice to be" in Part III.

While improvements to this tax plan are inevitable, the content of the proposed tax code in twenty-five words or less ought to be etched in stone with no revision and no additional wording. The four essential characteristics are dependent upon each other, which is precisely why they are referred to as essential characteristics. No single characteristic among the four essential characteristics is self-sustaining. Each characteristic, when standing alone or without the support of other essential characteristics, always comes up short. This may be precisely why advocates of the present tax code to which we have become accustomed over the years always needed to say so much when they talked about improvements centered on only one or two essential characteristics. Perhaps this was living testimony to the time-tested adage, "if you can't sell 'em, confuse 'em!"

Let's take another look at the detailed examination of the relationship and impact of the essential characteristics on each other to clarify the content of the proposed tax code while assisting you in evaluating other tax code proposals and their related tax plans, present and future:

Maximum fairness requires more efficiency; maximum fairness requires more enforceability and maximum fairness requires more simplicity.

Maximum efficiency provides more fairness; maximum efficiency provides more enforceability while maximum efficiency requires more simplicity.

Maximum enforceability provides more fairness; maximum enforceability requires more efficiency and maximum enforceability requires more simplicity.

Maximum simplicity provides more fairness; maximum simplicity provides more efficiency and maximum simplicity provides more enforceability.

This is best summarized in the table from Part I, which is replicated on the next page:

Each of the four characteristics in the proposed tax code is essential. When one examines the relationship and impact on each other, one sees that fairness appears to be a parasite, requiring the presence and assistance of the remaining three essential characteristics. But, it is not a parasite. Fairness is as equally important as the other essential characteristics. One might be tempted to say that any tax plan achieving the maximum efficiency, the maximum enforcement, and the maximum simplicity might be fair by default. While that may occasionally be true, it cannot be left to chance. It remains unlikely that any tax plan can achieve fairness to the maximum degree by default. Therefore, fairness must remain as one of the essential characteristics so that no one ever loses sight of it as a shared primary objective when planning, revising or changing future tax plans.

On the other hand, simplicity appears to be the champion essential characteristic while providing vital support to each of the other three essential characteristics. This may explain why many people in the past have fallen into the trap of discussing the features of any proposed tax code or tax code changes only in terms of fairness and simplicity. The failure to achieve only one or two essential characteristics to the maximum degree in any tax code will always result in the eventual inequity within any tax plan under such a tax code. The number of essential characteristics with approximate equal weighting must always total four. Regardless of how important each essential characteristic may appear to be when examining the relationship among them, they really do share a level of equal importance. Just imagine any tax code that may be based on only two or three essential characteristics. Or worse yet, imagine a tax plan that is based on only one essential characteristic. Unfortunately, it requires no imagination to wonder about a tax code that is based on none of the essential characteristics with achievement to the maximum degree, since that is the plight of the present tax code.

As previously mentioned, the prohibition of all economic, political or social engineering is also crucial in the proposed tax code. In comparison, you have read much about the essential characteristics and little about engineering and nothing about the solitary purpose of the proposed tax code. The reason, as stated earlier, is that economic, political and social engineering are acceptable governing tools that should always be implemented outside of the tax code by the normal legislative process or by rare executive orders. The solitary purpose of any tax code should be to raise money to pay the bills, which is so fundamental that it should not be debatable. Unfortunately, the present tax code has failed on this score during ninety percent (90%) of the years through the past four decades.

Therefore, this has been debated and many books and articles have been written about the advantages and disadvantages of deficit spending. In the proposed tax code, it is implied that either the rates in this tax plan should be adjusted or the spending should limited so that the provided funds will pay the bills without continuing habitual annual deficit spending.
Chapter 18 - Restructuring the Internal Revenue Service

When proposals have been advanced to suggest that the Internal Revenue Service be downsized or eliminated, it is plain to see that many of the people making such suggestions were pandering to their audiences. Those audiences include many taxpayers who have neither the time nor the specialized knowledge base to seriously consider how the tax code should realistically be improved. In so doing, those same people identify what simplistically appear to be the most distasteful elements or features within the present tax code followed by the suggestion or promise to eliminate or reduce the size of the Internal Revenue Service. The problem is that they are overlooking one essential characteristic, enforcement, which is always necessary for the success of any tax plan. They may pass it off by suggesting a kinder and gentler level of enforcement and they may even take the rear door approach by saying that enforcement ought to be privatized.

In the absence of maximum enforcement, fairness in the tax code is impossible to achieve, since everyone who should completely participate in assuming their fair share of the tax burden may fail to do so. The reduction of the enforcement effort within any tax code eventually increases the frequency and depth of tax cheating. But announcing the reduction of the enforcement effort within any tax code compounds the problem by immediately encouraging tax cheating.

It is imperative for everyone to clearly understand that the Internal Revenue Service currently represents the only source of achieving any level of enforcement in the present tax code. Therefore, anyone who suggests that the country and the people may be better served without the Internal Revenue Service is not being realistic in their attempt to play on the emotions of the taxpayers. However, there is nothing wrong in redefining the primary objective of enforcement, providing that the enforcement is maximized. When each of the four essential characteristics is present, as in the proposed tax code, the primary objective of enforcement could easily be achieved while enhancing another significant essential characteristic, efficiency. The two remaining essential characteristics, fairness and simplicity, are the primary responsibility of the legislature, not the enforcement agency. Regardless of whether the legislature has provided a superior tax code, an inferior tax code, or something in between, the enforcement agency has to carry its responsibility as best as it can under the circumstances. The enforcement agency can assist the legislature in achieving fairness by pursuing the primary objective as completely as possible when seeing to it that all individuals and commercial entities are paying the correct amount of all taxes on a timely basis. It is obvious that a superior tax code will always yield the best results while an inferior tax code will always yield poor results.

In view of the essential characteristics of efficiency and simplicity, the proposed tax code should provide an opportunity for the Internal Revenue Service to be restructured in order to tackle a new primary mission. This intensified mission should be to discover all individuals and commercial entities that are evading taxes. By doing so, the Internal Revenue Service could be able to redeploy their excess employees and excess computing power to maximize the enforcement of the proposed tax code. While there are many tasks and functions that may no longer be necessary, there are other tasks and functions that could be considered out of the question in the current environment. For example, will the census continue to be taken manually through this century as it has been taken during the twentieth century? Will the census continue to be taken every ten years?

While ignoring the future technology for the time being, today's technology can permit the perpetual census of all people all of the time. In order to accomplish a perpetual census, the restructuring of the Internal Revenue Service should include a consolidation or merger by transferring the Bureau of the Census from the Department of Commerce to the Department of the Treasury. If the task of conducting a perpetual census could be performed by the Internal Revenue Service, it is likely that the efficiency would improve to such an extent that the cost of the perpetual census would be less than the present cost of manually taking the census every ten years. More importantly, a perpetual census in a restructured environment of the Internal Revenue Service could make an enormous contribution to the essential characteristics of efficiency and enforceability of the proposed tax code.

The Internal Revenue Service would have to assume a posture that could deserve the wholehearted trust of everyone. While this is a challenging objective, it has to start somewhere. Since this is all about taxes and perhaps the census, consider as the initial step only the trust of the Internal Revenue Service in an expanded role of maintaining a perpetual census while collecting all the taxes. Confidentiality is an obvious prerequisite for any government agency that is assigned the responsibility to be the custodian of any sensitive personal data. As previously mentioned, it would be essential for each taxpayer to enjoy a confidential relationship with the Internal Revenue Service that may rival the attorney-client privileged relationship. This means that the Internal Revenue Service could only receive data about taxpayers, but would not send, transmit or divulge any data to another government agency or anyone else. The only exception would be notification to the Social Security Administration upon the death of a taxpayer, for the obvious purpose of eliminating that source of fraud.

A prerequisite to the implementation of any confidential relationship with the Internal Revenue Service could be that each such person and commercial entity would have to have been a taxpayer in the first place. Criminals would pay taxes on revenue and income from illegal activities for the first time in our history. What's more, they could do so with the assurance that they would not be turned in to another government agency by the Internal Revenue Service. However, this confidential and privileged relationship could be enjoyed only by taxpayers. When the Internal Revenue Service discovers criminal activity in the future by non-taxpayers, all unpaid taxes, interest and penalties should be collected and possibly doubled in addition to a complete reporting of the illegal activities to the appropriate government agency for subsequent action.

The concept of a perpetual census may be distasteful to some people, since it raises concerns about big brother looking at us and through us. Most arguments against this concept are invalid, since the census, which is necessary for many reasons, has been going on for years. A perpetual census, assisted by advanced technology, could change only the frequency and the intensity level of that task. But the personal data pertaining to all living people, especially in a perpetual census, should remain confidential without exception. In terms of taxation under the proposed tax code, the only people who may object to a perpetual census are mostly the non-taxpayers who should be taxpayers. Remember that the tax plan under the proposed tax code does not require the perpetual census. It is worthy of consideration from the viewpoint that if the government deserves our trust, this is how beneficial it could be for everyone. A point that should not be overlooked is that a restructured Internal Revenue Service dedicated to a privileged relationship of taxpayer confidentiality would serve as a buffer between all taxpayers and the rest of the government, perhaps becoming dubbed as "little brother."
Chapter 19 - Federal Identification Card

A perpetual census would require a Federal Identification Card or the equivalent thereof. This could be created and issued within twenty-four hours of birth. No newborn would leave the hospital without it. Such an identification device could most likely be a smart card, containing a computer memory chip for the purpose of accumulating all critical data through each taxpayer's lifetime. Ideally the card would have the capacity to include medical records, dental records, education records, work history, bank records and other desirable information. Within the data creation and transfer part of this system, the authorized read stations and the authorized write stations would have to be very carefully planned, maintained and controlled so that one's privacy could be well protected while preventing abuse. The data contained in such a computer memory chip should be so complete that both centralized and decentralized record keeping facilities could be substantially reduced and eventually eliminated, except for the computer memory chip within the identification card and the one centralized data bank. Do not be alarmed. The only purpose of the single centralized data bank, accessible by no one other than the card owner in a controlled environment, would be utilized to retrieve data under very controlled conditions only when an identification card is lost or inadvertently destroyed.

Suppose that everyone carried such a card to their doctor's offices. Then doctors would have no need to maintain the voluminous medical records for their patients, since each doctor's office could be equipped with a card reading mechanism that would be able to access only the medical data. More importantly for the individual, the doctor would have immediate reference to the entire lifelong medical history, including the immunization record, with complete accuracy and authenticity. But, this is a very controversial subject, which may be best resolved in another book regarding the mutual benefits to be derived from decentralized electronic personal records completely controlled by the individual.

The controversy over medical records may end when each person's individual responsibility is recognized as the ultimate remedy. How can the present abuse of medical records continue if the only available medical record becomes the complete record that is in the possession of each person in the form of complete and accurate data stored on a chip in the identification card? The ideal remedy for a perfect identification card could indeed fill another book.

Meanwhile, the tax plan under the proposed tax code could function adequately if the identification card was to be initially limited only to census and tax data for the benefit of the card owners and the Internal Revenue Service. But even in that limited application, it would harm no one to have such an identification card include the immunization record for each card owner. At the same time, the identification card would need to be designed with the capacity to eventually accommodate all future applications including more complete data as previously described. When various applications become feasible and generally acceptable, the additional utilization of the identification card within an expanded capacity could be possible without the expensive need to completely reissue identification cards.

In a sense, the word perpetual is used loosely when referring to the census. A perpetual census, in the strict sense of the word requires up to the minute updates on a daily basis. To be practical, this perpetual census may be based on a mandatory annual update, a semi-annual update or quarterly update as it proves to be so worthwhile. The mutual advantage of the mandatory update is that the data on the identification card could be synchronized with the data at the Internal Revenue Service. For example, confirmation of the taxes recently received on behalf of the taxpayer could be uploaded to the identification card from the current data file at the convenience of the card owner. In the event an identification card becomes lost or stolen, another identification card would be issued under the strictest controls from the centralized data file. A lost card could never be utilized by anyone in the absence of the original card owner due to the technology that should always require the presence of the card owner for either reading data or entering data. Between the mandatory updates, each person would be expected to keep his or her card updated when significant changes occur such as change of address, change of employer, change of marital status, and any other changes that are crucial to the census system.

The scaled down identification card could initially be titled the Federal Personal Identification Card so that it would not be necessary to change the name if it eventually became accepted as a more encompassing or an all encompassing card. Since this card should always be issued on the date of birth, the need for a hard copy of a birth certificate could be eliminated. The Social Security Number could also be issued when the card is created. The system could be established so that the creation of a new card may be simultaneously downloaded to the central file. When a cardholder expires, the preparation of the death certificate should be accomplished within this same system by the entry of the death data on the card, which could be simultaneously downloaded to the central file. Upon a card owner's death, the identification card could be donated for medical research or properly destroyed, depending on the will of the card owner. The utilization of such an identification card would help in reducing and eventually eliminating a throng of fraudulent activities.

If the chip bearing personal identification cards were considered to be contrary to fair standards of privacy and not feasible, perhaps the government could issue an annual tax receipt to each taxpayer. The purpose of a tax receipt would be to acknowledge that the income tax was paid by or on behalf of the taxpayer and received by the government. In the absence of hi-tech identification, this may be issued in the form of a plastic or paper wallet-size card, bearing no computer memory chip, so that each taxpayer should carry it at all times, similar to a driver's license. No one would leave home without it. Authorized employees of the Internal Revenue Service and/or authorized employees of other agencies within the Treasury Department, carrying proper and widely recognized identification, could have the authority to request anyone to produce their most current tax receipt.

This activity would produce more new taxpayers than anything that is presently being accomplished. Responding to the occasional request to show a tax receipt may be considered a minor inconvenience while knowing that the activity is virtually eliminating tax evasion. In actual practice, the average taxpayer, excluding some criminals, would discover that the tax receipt may be requested less frequently than current requests to examine a driver's license. Not a big deal! Remember that as more people become taxpayers, the tax burden for each taxpayer should decrease, provided that the additional revenue is not squandered through increased federal spending. Also remember that an increasing tax base combined with decreasing spending is the most likely path to the elusive elimination of deficit spending and reduction of the National Debt.
Chapter 20 - Piggybacking by the States

When the federal government adopts a tax plan that is in accordance with the proposed tax code, many states may launch a desperate search for the means and methods to piggyback. How can any state resist a tax code that is fair, efficient, enforceable and simple without any economic, political or social engineering whatsoever? The reasons that every state may want to consider piggybacking corresponds to all of the features of this tax plan, which is in accordance with the proposed tax code. The evaluation and conversion to this tax plan at the federal level is more compelling. But each state must deal with the additional dimension of the neighboring states and the related economic impact, which could make some states hesitate to piggyback.

Piggybacking by states in its simplest terms should of course be voluntary. It would only involve the federal government applying the federal tax rates plus the appropriate state tax rates when collecting the withholding taxes. This federal tax collection of state taxes could be synchronized to only include the same taxes as contained in the federal tax plan at tax rates that should be different. Since each piggybacking state would have no control over the content of the federal tax plan, the state legislature's only tax responsibility could be to generate their total tax revenue by establishing the state tax rates for each tax in the federal tax plan. Some people may see this limited responsibility of the state legislature as a disadvantage while others could appreciate the substantially reduced cost of the outsourced task as a significant bargain.

The federal government would subsequently remit to the states all taxes collected on their behalf. Among the obvious advantages of piggybacking should be the virtual elimination of the state tax departments and the buildings that they occupy, since the entire collection of taxes and the related audit activities could be outsourced to the Internal Revenue Service. The disadvantage of potential disruptions caused by some aggressive states seizing such an opportunity to the disadvantage of their neighboring states may never be resolved. For that reason, Congress may need to consider measures to temporarily postpone the opportunities for state(s) piggybacking when the federal government adopts a tax plan in accordance with the proposed tax code.

But, suppose Congress adopts the proposed tax code and then passes a tax plan in accordance with it while encouraging piggybacking by the states. Only the states that collect or want to collect personal earned income taxes may initially be interested in considering the piggyback option. In addition, some states, especially the states without income taxes, may wish to find a substitute for their regressive sales tax by piggybacking on this tax plan. It is worth mentioning that any state that considers replacing their regressive state sales taxes with new or increased income taxes by piggybacking can look forward to more extensive and more complicated negotiations with their contiguous states. The primary factor in such a decision could be the total number of state residents that commute to work in the neighboring states as well as the total number of non-residents who commute to work in their state without losing sight of the state residents who work within their state. One way for a state to piggyback even though it may initially appear to be mutually disadvantageous would be to negotiate a reciprocity arrangement with the neighboring states.

Of course the states of Alaska and Hawaii have no neighboring states; therefore, either state could consider the piggyback approach at any time that it becomes appropriate. The remaining forty-eight states would find very definite and clearly defined advantages and disadvantages to piggybacking and a decision by each state to piggyback or not to piggyback could be primarily based on their best estimates of the projected net result. Picture the negotiations and length of time it would take the states of New York, New Jersey and Connecticut to work out coordinated piggybacking. While the foregoing examples represent the extremes, there are other geographical situations where a particular state may have many contiguous states, thus rendering all negotiations as entirely too difficult to pursue. For example, consider states such as Massachusetts and Missouri, which have six and eight contiguous states respectively.

But changing its' present form of taxation may become the most significant reason why states choose to piggyback on any tax plan that is in accordance with the proposed tax code. Many residents in states that levy sales taxes suffer the consequences of a consumption tax. Sales taxes do not provide much opportunity for economic, political or social engineering. However, sales taxes cannot even begin to maximize any one of the four essential characteristics in the proposed tax code.

Fairness of state sales taxes is seriously deficient, since it is an indisputable fact that a sales tax is regressive taxation. Unfairness is manifested further when you compare poor and middle income consumers to wealthy consumers. Poor and middle income consumers pay a proportionately higher amount of their disposable income in sales taxes.

Efficiency in collecting state sales taxes, at first glance, appears to be reasonably good. Upon closer scrutiny, the "good" rating may only apply to collection of taxes on sales made within a particular state. The collection of sales taxes for goods and services purchased out-of-state by the state's residents and commercial entities are far less efficient. The state sales tax on the above mentioned purchases are collected as a Sales and Use Tax, which is also very inefficient. Substantial sales tax dollars that are never collected offer another disadvantage while remaining a very quiet and seldom told story.

Enforceability is also negatively impacted by out-of-state purchases. Sales and Use Taxes that are reported or declared by the purchasing party present both the opportunity and the temptation for dishonesty either in the form of inaccurate reporting or failure to report such purchases. Enforceability continues to be an ongoing problem for states levying sales tax. This situation will most likely continue to deteriorate as the volume of E-commerce continues to grow.

Simplicity in collecting state sales tax is present in most cases where the sales tax is collected at the point of the sale. The exception is where the state sales tax is collected at the point of sale, but the transaction is not completed at the point of sale. The most common example is the "Manufacturer's Mail-in Rebate," which is complex in a subtle way. Consequently, many consumers remain unaware as they are gleefully taken in by this unjustified "sales tax bonus" for their state. This is the way it works in many states where a sales tax is levied, regardless of whether the purchase is a case of beverages, a computer, or even an automobile. At the time and place of the purchase (point of sale), a sales tax is collected based on the full price of the product. The rebate check is subsequently issued by the manufacturer after the customer's properly completed application for a rebate is processed. Typically, the rebate check reflects the exact amount of the rebate as originally advertised. It seldom includes a refund of the related portion of the sales tax, which actually results in an overpayment of the sales tax.

Consider an example where the advertised original price of an item is $1,000 and the manufacturer has offered a Mail-in Rebate of $200; the result is a Sale Price of $800. Assuming a sales tax rate at 6%, the state sales tax calculation is based on the full original price of $1,000; the result is a state sales tax of $60. At the point of sale, the customer pays the total amount of $1,060. The rebate check, if the customer didn't fail to submit the application in the first place, will eventually be issued by the manufacturer while typically excluding the overpayment of the state sales tax and it will usually be issued in the amount of only $200, not $212.00.

When a similar transaction takes place under a regular sale rather than a Manufacturer's Mail-in Rebate at the price of $800, the state sales tax collected is $48, resulting in a completed transaction in the total amount of $848. The difference is an overpayment (State Sales Tax Bonus) by the customer of state sales tax in the amount of $12 when the Manufacturer's Mail-in Rebate was typically processed. This example is further clarified in the table on the table on the next page:

Who is responsible for this exploitation? Some states have passed legislation that prohibits the refund of sales tax on rebates. In most cases, both the state and the manufacturer are responsible. Regardless of existing legislation, manufacturers continue to voluntarily offer mail-in rebates for one reason or another without any regard for the excess state sales tax that will be paid by the consumers. This practice still results in a significant accumulation of "sales tax bonus" for most states that levy sales taxes.
Chapter 21 - Piggybacking by Social Security

It may also be desirable and feasible for Social Security to piggyback after making some very basic changes in how it raises funds. Although this may be politically incorrect, let's assume for the sake of argument that all FICA (Federal Insurance Contributions Act) contributions are a tax. This assumption would mean that the amount of FICA withheld from the employee and the employer's matching FICA payment, are both taxes. While FICA may be called many things, there are some that feel threatened and they may proceed to advance a variety of arguments why FICA is not truly a tax. FICA would also be a candidate for piggybacking under this tax plan in compliance with the proposed tax code, but not in its' present form. Changing its' present form would be no small legislative task.

As it is today, FICA may be one of the least justifiable taxes of them all. FICA withholding unfortunately is not voluntary and the purpose, despite many claims to the contrary, is to raise the money to pay the bills, which should be mostly benefits. This is a regressive tax since it has the same disadvantages as consumption taxes or sales taxes. The amount of FICA withholding for lower income people represents a substantial percent of their personal earned income. On the other hand, the limited FICA withholding for higher income people represents a less significant percent of their personal earned income. While that alone may qualify FICA as an unfair tax, the matching contributions may suggest that it is the least fair of all. The matching FICA contribution by the employers is built into their products and services, which results in inflated prices. Who is penalized the most? You guessed it; the lower income people! Too many taxpayers do not understand their role in the employer's share of the FICA payment on behalf of each employee, which adds to the unfairness and much confusion.

An important limitation to realize is that you cannot have it both ways. What if Social Security was permitted to piggyback and the earnings ceiling that is presently utilized to determine the annual amount of FICA to be withheld was eliminated? The higher income people would have more FICA withheld, hopefully at a lower rate for all taxpayers. But, the tax plan in all fairness should have a single flat rate. In other words, the concept of treating FICA as a tax instead of matching contributions by eliminating the ceiling on personal earned income would place an additional burden on higher income people. The matching FICA contributions by all employers could be eliminated and the FICA rates withheld on personal earned income may increase proportionately without being doubled. Since the employer's share of FICA is built into the pricing of all products and services, all consumers are really paying for the employer's share of FICA as a concealed tax, since it is effectively included in the price of every domestic product and service.

The problem that this tax plan presents for the legislatures is that each taxpayer would become more keenly aware of the exact amount of total personal income taxes that he or she would pay annually; in another frightening word, "Transparency!" A note of caution for any proponents of graduated tax rates; the piggybacking by Social Security with graduated rates would definitely place an unfair burden on all higher income earners. While this tax plan prefers a single tax rate, it can accommodate graduated tax rates without significantly affecting the four essential characteristics. But, if graduated rates were adopted, piggybacking by Social Security would be so unfair that it would not be feasible in accordance with the proposed tax code. On the other hand, the adoption of graduated tax rates would make the optional piggybacking by the states much more difficult to achieve, but not impossible.
Chapter 22 - There Ought to be a Law

Congress will have to make several very difficult and very courageous decisions, which should be considered prerequisites, just in order to start the process to adopt the proposed tax code. The prerequisites involve a change in legislative posture that may make it possible for Congress to adopt the proposed tax code and a tax plan in accordance with it. But without the prerequisite legislation, nothing would probably ever get accomplished in attempting to adopt the proposed tax code. Congress would have to come to grips with the fact that their legislative actions may negatively impact many of their greatest supporters and most substantial campaign contributors, while lending a deaf ear to all lobbyists.

Imagine if Congress could really succeed in passing a tax plan in accordance with the proposed tax code. Better yet, try to imagine Congress adopting the recommended tax code without deleting or adding a single word to it. When implemented, the present tax code would become virtually nonexistent as the major source of material that has always required annual teasing accompanied by an abundance of either legislation or attempted legislation. In the future, Congress would have that enormous amount of reallocated time to devote and more productively deal with other matters. Annual tax legislation would become unnecessary in such an environment, except for the occasional, but ideally not annual, fine-tuning of the tax rates.

Of course, any type of real tax legislation may never get done under the inordinate influence of lobbyists. Therefore, the lobbyists must operate under increasing and well deserved transparency in the equivalent of a fish bowl. As prerequisite legislation, why not pass a law that could prohibit any lobbyist from ever conducting lobbying business inside The Beltway? For anyone not familiar with the geography in and around the Capital of the USA, The Beltway is a circular interstate expressway (I-495 and I-95) with a circumference of approximately sixty-four miles. The area inside The Beltway contains the entire District of Columbia as well as small parts of the states of Maryland and Virginia. Furthermore, the same legislation could specify that a lobbyist may conduct business only within the congressional district where the lobbyist's primary residence is located. Unfortunately for the lobbying industry, the law should also prohibit a lobbyist from maintaining his or her primary residence inside The Beltway.

Such a law could make lobbying a cottage industry while completely localizing the function. Perhaps most politics really would become local? Nevertheless, the quality of legislation in such an environment would most likely improve. Another advantage of this prerequisite legislation may be that some Members of Congress may see fit to shorten the legislative calendar so that they could spend more time in their respective home districts with their constituents as well as with the resident lobbyists. Meanwhile, back at the Capitol, each Member of Congress would have the option of establishing their respective Washington, DC Area secondary residences either inside or outside of The Beltway. The Members of Congress who established a Washington Area residence inside The Beltway would be insulated from all lobbyists day and night until they returned to their respective primary residences, which are presently located in the appropriate congressional districts.

Do you believe that something like this was vaguely considered or visualized by someone in the early 1970's when the legislation was passed to require all lobbyists to become officially registered? Shortly thereafter, it accomplished little more than glorifying the activity of lobbying even though the rhetoric initially sounded more like it was time for them to leave town. Well, perhaps now is the time for all lobbyists to come to the aid of their fellow citizens by taking their business elsewhere, namely outside of The Beltway.

The following is not prerequisite legislation necessary for enacting the proposed tax code. Instead, it may be like a warm up exercise to be counted among the virtually impossible to accomplish pieces of legislative action. This could be a preliminary and initial step to substantially reduce medical costs. The savings to the taxpayers from cost reductions in Medicare and Medicaid would be enormous. First we need to renew everyone's respect for the Hippocratic Oath and for those who are bound by it. That may not happen unless such respect could be earned. When that happens, perhaps an annual holiday honoring the entire medical profession should be established. As part of the festivities on that day, all physicians should publicly renew their Hippocratic Oath. Meanwhile, the various licensing boards and medical organizations could be required to vastly improve their respective oversight reviews while administering consequential remedies as their findings justify. The result should be that no one would be able to practice medicine that was not qualified to do so successfully.

As progress in self-regulation intensifies followed by improved confidence and respect for the Hippocratic Oath, another law could be passed to prohibit malpractice lawsuits. This is not repeating the often heard plea for tort reform? Instead, it is applying the word "prohibit" to the extreme by "eliminating" all such lawsuits. By eliminating malpractice suits, many resources presently wasted would be reallocated to the more productive task of effective self-regulation by the medical profession. If the related malpractice insurance premiums were eliminated, medical fees should be reduced by the entire amount of the related insurance premium savings while the quality of medical care could continue to improve in a spectacular fashion.

While reading about effectively reducing medical costs in this chapter titled "There Ought to be a Law," this author needs to appropriately comment about one of his pet peeves in order to close a credibility gap. When some people read or hear about the published results of a study, they immediately attempt to adjust their behavior to conform without asking a single question. There should be a law to require that whenever the results of a study are released and published, it should always include the major source(s) of the funding by revealing the names of the top five sponsors of the study. This Caveat Emptor would assist the public at large by adding a significant dimension for anyone to consider while digesting the results from every study without exception. If and when this mystery is corrected, it may contribute to more good health, which over an extended period of time could generate further reductions in medical costs. Please do not overlook the fact that significant reductions in medical costs always favorably impact the taxes that are connected to Medicaid and Medicare.

Another legislative warm-up exercise may be so easy that it could become the first to do, especially in view of the fact that it would create many very productive jobs for accountants and auditors who may be presently engaged in zero productivity jobs under the present tax code. When the USA so generously and so carelessly sends foreign aid in the form of money, why not pass a law that requires the equivalent of at least one full time independent auditor to accompany each one billion dollars of aid to verify that the money will be spent exactly as intended and specified? This could represent an opportunity for college students to "major in accounting to see the world."
Chapter 23 - Transition from One Tax Plan to Another

This tax plan would not necessarily result in an overall tax cut, although it may eventually work out that way. On the other hand, it may also be possible and very unlikely that this tax plan could result in an overall tax increase. In view of the substantially broadened tax base that would be produced by this tax plan, there are only two crucial elements that determine if this tax plan may produce more tax revenue, less tax revenue, or about the same amount of tax revenue. First and foremost is the tax rate for the personal earned income tax and, if deemed necessary, the personal unearned income tax and the commercial gross revenue tax as favorably impacted by the broadened tax base. Second is the level of spending.

Needless to say, both crucial elements are of equal importance. Furthermore, the level of spending occasionally gets increasingly complicated when bureaucrats and politicians enjoy the luxury of describing certain types of "spending" by substituting the word "investing." But such spin makes good copy that plays well in some places; therefore, this problem cannot be ignored. For example, suppose it suddenly became imperative to eliminate the National Debt over a short period of time such as within a few decades. Or suppose it suddenly became imperative to dramatically fund some Social Security Programs in an accelerated fashion. Both examples of increased spending could result in substantially increased tax rates and/or increased deficit spending.

The ease with which any new tax plan could be implemented will vary depending on the compatibility with the tax plan that it is supposed to replace. The more compatible it is, the greater the ease of implementation will be. Of course, the less compatible it is, the more difficult the implementation will be, without exception. It is somewhat distressing to hear politicians recommend proposals that involve tax plans that are so incompatible with the present tax code that they would be impossible to implement.

To consider the extremes, a ridiculous tax proposal that is vaguely considered from time to time is a tax plan that is based on a consumption tax rather than on an income tax. This concept is usually advanced with the supposedly admirable goal of increasing savings, which is also a worst case example of economic engineering while also including smatterings of political engineering and social engineering as well. It is generally argued that a consumption tax compared to an income tax is regressive and unfair. Most low income people would see a painfully significant percent of their earned income subjected to a consumption tax while most of the highest income people could see a painless and relatively insignificant percent of their earned income subjected to a consumption tax.

A consumption based tax plan in no way complies with the proposed tax code. Furthermore, it is a good example of where the transition from the present income tax plan would be almost impossible to successfully implement. Raising enough tax revenue from a consumption tax in order to completely replace the tax revenue produced by an income tax could require a substantial consumption tax rate as high as twenty or thirty percent. That would be in addition to the tax rates of the present state sales tax, the county sales tax plus the city or town sales tax where applicable.

The most disconcerting problem in the transition to a consumption tax is that it could guarantee, at best, a recession and it could precipitate, at worst, a depression. Most people would attempt to make advance purchases of everything imaginable for as far in the future as they could afford in anticipation of the effective date of a substantial consumption tax. Most stores, except for the sale of fresh food, would need to close for extended periods of time until the demand for their goods resumed at various painfully extended times after the effective implementation date. Black markets would most likely ensue and eventually thrive in the process of restarting the economy in that sort of mode.

If you have any doubts about potential evasive consumer actions, inquire of the Comptroller in any state that attempts to collect sales taxes from residents who extensively shop outside of their state. That shopping pattern is done to avoid comparatively small amounts of consumption taxes. Do not forget the follow up question; is that a significant problem? Another significant problem regarding consumption taxes and sales taxes is that some entities and some people authorized to collect these taxes cheat by failing to remit the full amount collected and due to the government. This problem prevails with the present sales taxes while rates are mostly less than ten percent. Imagine the magnitude of the incentive to cheat when the consumption tax rates become twenty or thirty percent. Contrarily, another feature of this tax plan under the proposed tax code is that it is completely designed to keep honest people honest while offering no opportunity for dishonest people to cheat.

Meanwhile, with closed stores and closed automobile and truck showrooms, most manufacturers would be unable to ship their big ticket products due to the lack of consumer demand. The government could not collect the needed tax revenue until normal consumption resumed. Under those circumstances, it would be impossible to accurately predict when normal consumption could ever resume. Nevertheless, educated people have from time to time advanced the notion that the only real tax remedy is a consumption tax. Some of those same people argue that such objections to a consumption tax replacing the income tax are advanced by unsophisticated people who have an axe to grind. The consumption tax advocates may offer the remedy of phasing in a new consumption tax while phasing out the income tax. The problem with a rolling or rotating phase in and phase out would be that every potential problem remains to be played out in turn over a much longer time frame, producing prolonged disruptions.

In the other extreme, the transition to this tax plan in accordance with the proposed tax code could be as smooth as silk. This tax plan is compatible with the present tax code; therefore, the transition to this tax plan would cause no significant disruptions to the economy. If this tax plan were adopted, the effective date could be as early as the first day of the following year, January 1st.

One potential bump in the road may involve tax-free securities. If this tax plan became effective without taxing unearned personal income, a feature like this would need to be worked out well in advance of the effective date by thoughtful and complete planning. The present tax-free status could no longer offer a substantial advantage over other securities. Therefore, part or all of any anticipated reduction in the value of tax-free securities may require reimbursements by the federal government in what some may refer to as a bailout. Others could refer to this as the cost of winding down the consequences of the previous forms of economic political and social engineering within the present tax code.

However, this bailout may be postponed and thus rendered unnecessary for as long as this tax plan provides for the withholding of a personal unearned income tax on interest and dividends, which could regrettably be forever. That sobering thought is less than ideal and it hopefully would be truly temporary. It is another example of the compatibility of this tax plan in accordance with the proposed tax code as the transition could progress from the present tax code even though the essential characteristic of fairness may be temporarily compromised.

The transition for the present taxpayers could be as easy as discontinuing all plans for the preparation of their respective personal tax returns before the second April 15th following a January 1st effective date. The transition for the participants of the subterranean economy would make preparations by opening their Tax Clearing Bank Accounts while establishing their confidential relationship with the Internal Revenue Service. The transition for the Internal Revenue Service would be somewhat burdensome. In the year that this tax plan could become effective, they would have the tasks of conducting their business as usual, taking in the previous year's tax returns and tax revenues, selecting the tax returns to be audited, issuing refunds and continuing the improved level of communicating with the taxpayers while simultaneously implementing their new responsibility under the recommended tax code.

The Internal Revenue Service could also be in the implementation mode from shortly after the tax legislation was passed to and through the effective date, the first day of the following year, January 1st. If and when this tax plan is passed and implemented, the Internal Revenue Service and the criminals will absorb most all of the transition burden. However, the magnitude of the transition burden when implementing this tax plan may be substantially less than the resulting burden from implementing just about any other new tax code. The transition would be considered a welcome relief by most taxpayers.

*END*

Or

End of the beginning?

It's up to you and the other readers. You know the drill. To make this Tax Code happen, write and/or call your Congress People. Thank you for taking the time to consider this grave matter and it's nice to know there is a remedy to the present income tax problems.
