Even as a liberal, i am not happy with the direction that the federal budget has taken over the last decade or so. From runaway healthcare costs to reckless defense spending to mindless tax exemptions, the federal budget has it all.
Here is my attempt to address it. Tax rates don't go down, exemptions do. Savings will come from all parts of government - not by eliminating benefits but by looking at cost of operations. Financial tranactions will come at cost and not open for speculation. We should continue to invest in next-generation technologies but in an open, transparent manner.
1. Federal Income Tax: There will be 5 tax slabs - 5%, 10%, 15%, 25%, 35% over 20k, 40k, 75k, 150k, 500k respectively. 1.5x multiplier for joint tax declaration. Total deductions cannot exceed 10% of gross salary. Once we reach surplus, tax rates will go down in each category proportionately. No additional deductions or loopholes can be created. Only tax rate reduction will be entertained.
2. Capital gains Tax: can be declared under income or be will be taxed at 25% for under 500k and 35% for over 500k. no loophole for carried interest.
3. Corporate Income tax: There will be 4 slabs - 5%, 10%, 20% and 30% over $100k, $10M, $100 and $1000M. Non-repatriation of income on annual basis will incur a 5% additional tax at the end of 3 years. Current foreign funds have to be repatriated within 3 years for a 25% rate. Corporate foreign rate includes deductions for income tax paid in a different country. Companies can deduct if income tax rate paid in any country is higher than US from the overll company income tax. Companies not HQed in US will not be eligible for federal or state programs.
4. Federal Estate tax will have 3 slabs - 5%, 10% and 15% for $500k, $2M and $5M. No exemptions including charity and trusts.
5. All financial transactions - options, futures will levy a 2% delivery deposit at the beginning of the transaction. If the option is exercised and the buyer takes delivery or the seller ships delivery, the 2% will be paid back. If however, the option is squared-off or rolled-over, the deposit is forfeit. Eg: If you are an oil trader and make a trade for 100k barrels of crude, you will not be impacted if you take delivery. However, if you are a speculator and use arbitrage to make money, you pay 2%. In the oil market alone, 70% of futures market is considered speculation. In Feb 2011, the CME market alone averaged 2.2 million contracts ie. 2.2 BILLION barrels traded every day when US production is 19 million barrels a day ie trading is 115 times daily consumption.
5. Healthcare (Medicare and Medicaid) and defense funding will have to achieve the same rate of spending cut over the next 5 years - 3% YoY over current budget without reduction in benefits. I am not an expert in either areas but there are enough consultants who can help in identifying leakages, overspending and wastage.
6. Non-healthcare, non-defense funding will reduce by 6%YoY over the next 5 years from current budget baselines without reduction in benefits. Hire a McKinsey, Booz, Bain or a combination of these consultants and pay them on cost realized only.
7. 33% of the above mentioned savings from the above categories will be invested in infrastructure.The rest will go to deficit reduction. The government will announce their infrastructure and future tech investment priorities and all bids will be against these programs online and in transparent, low bid basis only
8. Social security salary limits will be increased from 108k to 500k. The rate will remain constant till it is funded at 120% for the next 75 years. If we reach a state of over-funds, the overall ss tax rate will go down. Also, SS revenue will be seperated from budget.
Let me know your feedback ... Is this workable? Shouldn't this how the progressive budget proposal should look like?