2010-December-21
Amended 2011-11-27
A. Income Tax -
When I am king, we will have a mathematical curve that defines the tax rate for all incomes. This curve will be smooth,
continuous and progressive** so that the higher your income is, the higher your tax rate is, up to a designated limit,
and there it will be truncated for the richest tax payers. (A flat tax for the super rich.) One such curve is given by the
equation: TaxRate% = log(Income/a, b), in Excel math, where "a" is the zero crossing constant and "b" is the base of
the log. Constant "a" and log base "b" were adjusted to make the curve fit the 2010 single tax rate schedule. (a = 2
when income is in k$, and b = 1.202) You can see this curve by downloading an up-to-date Excel work sheet (click
on: Tax Rate Curve) or by looking below at outdated photos of the Excel page. The fit is not exact but close enough.
(Further refinement is possible.) Notice that the curve for the 2010 Singles Income Tax Schedule flattens out to a rate
of 35% starting at incomes over ~2M$/yr. Well what do you know, the rich guys do have a flat tax!!!
Now notice the proposed new tax law, the curve shown in the right hand column of red graphs. This curve is the same
as the one fitted to the 2010 tax rate schedule except that: a) it extends to 0% tax rate at an income of 2k$ (2,000$), b)
it has a 0% tax rate for incomes between 0 and 2,000$ (a flat tax rate for the really poor)**, c) it has no 35% tax rate
limit, but instead, d) it continues to rise smoothly to a very-rich-guy flat tax rate of 50%, for incomes over ~20M$/yr.
(Only 1% earn more than 380k$/yr, but many of these people earn much, much more, like entertainment celebrities,
top pro ball players, top level executives, some merchant bankers, some investment brokers, and some politicians.)
The upper limit of 94% of yore was too much and the present 35% limit is too little. 50% (a historically prominent
number - see sheet #4 of the "Tax Rate Curve" spreadsheet) is more reasonable. (Some experts say that a limit of
about 70% would maximize tax revenue.) See: http://en.wikipedia.org/wiki/Laffer_curve for a further discussion. Its a
little confusing but it will broaden your perspective.
This new curve is more fair than the old tax rate schedule for the following reasons:
has a starting tax amount and then on top of that there is added a percentage of the income in excess of the starting
income of that bracket. This formulation causes the true tax rate to progress asymptotically to the incremental tax rate
number. When the amount of the income gets to be much larger than the starting income in the bracket, then the
starting income becomes insignificant and after that all income is taxed at a seemingly flat rate equal to the incremental
tax rate. In other words, the tax rate schedule does not result in a smooth, continually progressing true tax rate. That
is not fair.
Most people could handle the logarithmic equation, (everyone who has Excel or maybe Turbo Tax software, or who
uses a Tax Accountant), but for some people it would be a problem. But for those, the IRS could set up a phone
number and a URL where people could go to input a taxable income number and get back the amount of tax due. Or
we could go back to a tax rate schedule, if we were willing to compromise accuracy (fairness), only this time we could
minimize inaccuracy by making the brackets smaller, especially at the lower end of the curve. Also, the tax for the ends
of each bracket would be computed from the Kluznickian curve, and the incremental tax rate would be computed as the
slope of a straight line between bracket end points. The new and improved tax rate schedule, based on the proposed
curve, would be as follows:
The income tax upper limit should not be reduced until after the national debt is reduced to the pre-Reagan days -
about 2,500,000 M$ (2.5 trillion $) in 2010 dollars. (See work sheet #5 of the "Tax Rate Curve" spread sheet.)
B. Capital Gains Tax -
The present flat rate of 15% is ridiculously low for the super rich !!!
"The top 0.1% -- about 315,000 individuals out of 315 million -- are making about half of all capital gains on the sale
of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400." And
these guys are paying 15% on their main source of income!!! Absurd! Obnoxious!
The capital gains flat tax is in need of change for all of the same reasons given above for flat taxes, and I propose the
same solution. The capital gains tax rate should be a function of a persons adjusted gross capital gains. This function
should be smooth, progressive, and flatten out at an upper limit. It should be logarithmic, like the one used for Income
Taxes, but with a different upper limit, say 35% starting at an Adjusted Gross Capital Gains of 20M$. Why 35% and
20M$? Because it feels right. (See http://news.yahoo.com/top-0-1-nation-earn-half-capital-gains-172647859.html)
Well, maybe 20M$ should be 2M$ ?? I leave it to the political economists to arrive at the "right" numbers.
To see the graphs of the proposed curve, go to sheet #7 of the Excel spreadsheet "Tax Rate Curve". The equation is:
Tax Rate (%) = log(CapitalGains/2, 1.301) in Excel math, for capital gains in k$, as above.
The capital gains tax upper limit should not be reduced until after the national debt is reduced to the pre-Reagan days,
about 2,500,000 M$ in 2010 dollars. (See work sheet #5 of the "Tax Rate Curve" spread sheet.)
C. Payroll Tax -
What are payroll taxes? They are FICA, FUTA and SUTA. FICA is Social Security (SS) and Medicare. FUTA and
SUTA are Federal and State Unemployment Taxes. As of 2007 the tax is:
97,500$ ??? What a crock. Why in the world does the 6.2% SS tax stop at 97,500$ ??? What, the rich guys are
needy, and deserve a tax break??? Rich guy favoritism!!! What a crock!!! Not only would I remove the income limit,
but I would also make the tax progressive, with a tax limit of 10% starting at 2M$. Its the only fair way...
Should we force business to pay for welfare (SS co pay, Medicare co pay, FUTA, and SUTA)? I think not. It raises the
cost of their products, makes them less competitive with their foreign competition, increases the foreign deficit,
decreases GDP, decreases the number of jobs available, ... The government should shift corporate welfare taxes to
other sources... income tax, sales tax, product tax, property tax, excise tax, estate tax, sin taxes, ... ???
To be continued... (maybe.)
D. Estate Taxes - TBD (maybe.)
E. Balanced Budget Law -
Sounds good to me. Why didn't Reagan or Bush 1 or Bush 2 think of this??? (See the National Debt on work sheet
#5 of the "Tax Rate Curve" spread sheet.)
----------
So remember to vote for me. (You wont have to call me "Your Royal Highness", Sire will suffice. Or just Nick.)
ps: I will also put the nation on the metric system!
Amended 2011-11-27
A. Income Tax -
When I am king, we will have a mathematical curve that defines the tax rate for all incomes. This curve will be smooth,
continuous and progressive** so that the higher your income is, the higher your tax rate is, up to a designated limit,
and there it will be truncated for the richest tax payers. (A flat tax for the super rich.) One such curve is given by the
equation: TaxRate% = log(Income/a, b), in Excel math, where "a" is the zero crossing constant and "b" is the base of
the log. Constant "a" and log base "b" were adjusted to make the curve fit the 2010 single tax rate schedule. (a = 2
when income is in k$, and b = 1.202) You can see this curve by downloading an up-to-date Excel work sheet (click
on: Tax Rate Curve) or by looking below at outdated photos of the Excel page. The fit is not exact but close enough.
(Further refinement is possible.) Notice that the curve for the 2010 Singles Income Tax Schedule flattens out to a rate
of 35% starting at incomes over ~2M$/yr. Well what do you know, the rich guys do have a flat tax!!!
- ** A single flat tax rate for everyone is absurd! It would be too high for the poor and too low for the rich. Poor
people are poor! They don't have much money. They need help. If the flat tax were low enough for the poor to
afford it, then there would not be enough tax money to run the country. If it were high enough to run the country,
say 25 to 30% ??, then poor people could not afford it, the middle class would be stressed, and only the rich
people could afford it, while the super rich wold be laughing all the way to the bank. A progressive tax rate
is the only fair way to tax a financially stratified society. Its the Christian way. Rich people helping
poor people. Are there no Christians among the Republicans?
A flat tax, which Increases the taxes of the destitute and decreases the taxes of the super rich, is incredibly
stupid!!! It is taking from the poor and giving to the rich.
OK, look at it this way - We should have a flat tax for the super rich, and a flat tax for the destitute, and for
everyone in between - some kind of a tax rate curve. As a matter of fact, thats exactly what I propose. Read on.
(Or 5 flat taxes for the destitute, the poor, the middle class, the rich, and the super rich. Or 10 flat taxes,,, etc, etc.)
Also, think of the looming problems with Social Security, Medicare and the deficit that are awaiting solutions...
Rich people can afford to help. With wealth comes responsibility. Or so it should be.
Furthermore, consider this fact - In 2008, only 1% of the taxpayers earned more than 380 k$. However, this 1%
group contributed 38% of all income taxes collected!!! (See http://www.taxfoundation.org/news/show/250.html.)
What this means is that the average person in this 1% group earns one hell of a lot of money. They are super
rich. Therefore, if this 1% group were taxed at a higher rate, it would significantly increase the amount of income
tax money collected. And super rich people can easily afford it.
Figures A1, A2, and A3 are on the top row; figures B1, B2, and B3 are on the next row, etc. The first column(A1
to D1) contains blue data points derived from the 2010 Single Taxpayer tax schedule. Column 2, graphs (A2 to
D2), show a red curve that is a plot of a formula (TaxRate% = log(Income$/a, b) that was adjusted to "fit" the
curve of the Tax Rate Schedule. The red Formula curve is superimposed over the blue Tax Schedule curve for
purposes of comparison. Notice the ugly bumps in the blue curve and the nice smooth progression of the red
curve. Next, the third column (A3 to D3) of red graphs shows the proposed tax rate curve. The column 3 graph
horizontal axis use E notation; 1E+06 is read as one times ten raised to the power of plus six, which is 1M$. The
Excel spreadsheet has updated graphs and other good stuff. To download it, click on: Tax Rate Curve.
Now notice the proposed new tax law, the curve shown in the right hand column of red graphs. This curve is the same
as the one fitted to the 2010 tax rate schedule except that: a) it extends to 0% tax rate at an income of 2k$ (2,000$), b)
it has a 0% tax rate for incomes between 0 and 2,000$ (a flat tax rate for the really poor)**, c) it has no 35% tax rate
limit, but instead, d) it continues to rise smoothly to a very-rich-guy flat tax rate of 50%, for incomes over ~20M$/yr.
(Only 1% earn more than 380k$/yr, but many of these people earn much, much more, like entertainment celebrities,
top pro ball players, top level executives, some merchant bankers, some investment brokers, and some politicians.)
The upper limit of 94% of yore was too much and the present 35% limit is too little. 50% (a historically prominent
number - see sheet #4 of the "Tax Rate Curve" spreadsheet) is more reasonable. (Some experts say that a limit of
about 70% would maximize tax revenue.) See: http://en.wikipedia.org/wiki/Laffer_curve for a further discussion. Its a
little confusing but it will broaden your perspective.
- ** Maybe people who do not pay any income tax should not have the right to vote?
This new curve is more fair than the old tax rate schedule for the following reasons:
- It is progressive over a longer range than is the tax rate schedule.
- At the lower end, the schedule taxes poor people a flat 10% on incomes from 0 to 8,375$. To be
progressive, it should start at 0% and work up to 10%. The proposed curve charges very poor people 0%
tax on incomes from 0 to 2,0000$ and then it progressively increases to 10% at an income of 11,920$
(11.920k$). This is more fair. - At the high end, as mentioned before, the schedule charges a flat 35% for incomes of about 2M$ and above,
whereas the new curve allows the tax rate to continue to rise smoothly, until it reaches 50% for incomes of
about 20M$ and above. This is more fair.
- The schedule results in bumps and pockets (explained latter) on a graph of the true** tax rate vs. income, that
result in inequities (see figure A1). The Kluznickian tax rate curve has no such inequities. It is continuous,
smooth, and progressive. It corrects a seemingly errant data point of the schedule - The true tax rate for the high
end of the 2nd bracket, for an income of 34,000$, should be 15.4%, not the 13.8% that results from the tax rate
schedule. This is more fair.
- ** True tax rate is defined by the formula TTR% = (Tax$ / Income$) X 100. This differs from the Incremental
(or marginal) tax rate for a bracket, which is defined by the formula
- ITR% = {[Tax$(Hi) - Tax$(Lo)] / [Income$(Hi) - Income$(Lo)]} X 100
- where Hi and Lo refer to the ends of the tax bracket. The percentage numbers given in the tax rate schedule
are incremental tax rate numbers. All of the graphs above are of true tax rates.
has a starting tax amount and then on top of that there is added a percentage of the income in excess of the starting
income of that bracket. This formulation causes the true tax rate to progress asymptotically to the incremental tax rate
number. When the amount of the income gets to be much larger than the starting income in the bracket, then the
starting income becomes insignificant and after that all income is taxed at a seemingly flat rate equal to the incremental
tax rate. In other words, the tax rate schedule does not result in a smooth, continually progressing true tax rate. That
is not fair.
Most people could handle the logarithmic equation, (everyone who has Excel or maybe Turbo Tax software, or who
uses a Tax Accountant), but for some people it would be a problem. But for those, the IRS could set up a phone
number and a URL where people could go to input a taxable income number and get back the amount of tax due. Or
we could go back to a tax rate schedule, if we were willing to compromise accuracy (fairness), only this time we could
minimize inaccuracy by making the brackets smaller, especially at the lower end of the curve. Also, the tax for the ends
of each bracket would be computed from the Kluznickian curve, and the incremental tax rate would be computed as the
slope of a straight line between bracket end points. The new and improved tax rate schedule, based on the proposed
curve, would be as follows:
- Alternative Income Tax Rate Schedule
for a Single Taxpayer
The income tax upper limit should not be reduced until after the national debt is reduced to the pre-Reagan days -
about 2,500,000 M$ (2.5 trillion $) in 2010 dollars. (See work sheet #5 of the "Tax Rate Curve" spread sheet.)
B. Capital Gains Tax -
The present flat rate of 15% is ridiculously low for the super rich !!!
"The top 0.1% -- about 315,000 individuals out of 315 million -- are making about half of all capital gains on the sale
of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400." And
these guys are paying 15% on their main source of income!!! Absurd! Obnoxious!
The capital gains flat tax is in need of change for all of the same reasons given above for flat taxes, and I propose the
same solution. The capital gains tax rate should be a function of a persons adjusted gross capital gains. This function
should be smooth, progressive, and flatten out at an upper limit. It should be logarithmic, like the one used for Income
Taxes, but with a different upper limit, say 35% starting at an Adjusted Gross Capital Gains of 20M$. Why 35% and
20M$? Because it feels right. (See http://news.yahoo.com/top-0-1-nation-earn-half-capital-gains-172647859.html)
Well, maybe 20M$ should be 2M$ ?? I leave it to the political economists to arrive at the "right" numbers.
To see the graphs of the proposed curve, go to sheet #7 of the Excel spreadsheet "Tax Rate Curve". The equation is:
Tax Rate (%) = log(CapitalGains/2, 1.301) in Excel math, for capital gains in k$, as above.
The capital gains tax upper limit should not be reduced until after the national debt is reduced to the pre-Reagan days,
about 2,500,000 M$ in 2010 dollars. (See work sheet #5 of the "Tax Rate Curve" spread sheet.)
C. Payroll Tax -
What are payroll taxes? They are FICA, FUTA and SUTA. FICA is Social Security (SS) and Medicare. FUTA and
SUTA are Federal and State Unemployment Taxes. As of 2007 the tax is:
- SS - 6.2% is withheld from an employee's pay, plus a matching amount is paid by the employer, for salaries up to
97,500$. Once that amount has been earned, neither the employee nor the employer owes any more SS tax for
the remainder of the year. - Medicare - 1.45% is withheld from an employee's pay, plus a matching amount is paid by the employer. There is
no wage base for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay
Medicare tax, no matter how much is earned. - FUTA - The employer must pay a FUTA tax of 6.2 %, but he can take a credit of up to 5.4% for SUTA taxes that
are paid. If the employer is eligible for the maximum credit, the FUTA rate will be 0.8%. The wage base for FUTA
is 7,000$. The employer will stop paying FUTA for each employee once their wages exceed 7,000$ for the year. - SUTA - Generally, the SUTA tax rate is based on the amount of unemployment claims that are filed by employees
that have been terminated. When a business is new, the SUTA tax rate starts at the maximum but then declines if
a history of few claims is established.
97,500$ ??? What a crock. Why in the world does the 6.2% SS tax stop at 97,500$ ??? What, the rich guys are
needy, and deserve a tax break??? Rich guy favoritism!!! What a crock!!! Not only would I remove the income limit,
but I would also make the tax progressive, with a tax limit of 10% starting at 2M$. Its the only fair way...
Should we force business to pay for welfare (SS co pay, Medicare co pay, FUTA, and SUTA)? I think not. It raises the
cost of their products, makes them less competitive with their foreign competition, increases the foreign deficit,
decreases GDP, decreases the number of jobs available, ... The government should shift corporate welfare taxes to
other sources... income tax, sales tax, product tax, property tax, excise tax, estate tax, sin taxes, ... ???
To be continued... (maybe.)
D. Estate Taxes - TBD (maybe.)
E. Balanced Budget Law -
Sounds good to me. Why didn't Reagan or Bush 1 or Bush 2 think of this??? (See the National Debt on work sheet
#5 of the "Tax Rate Curve" spread sheet.)
----------
So remember to vote for me. (You wont have to call me "Your Royal Highness", Sire will suffice. Or just Nick.)
ps: I will also put the nation on the metric system!
- And make the Kluznickian Calendar the prime candidate for calendar reform.
And restore banking and market regulations.
And disallow corporations from making political contributions.
And disallow unions from making political contributions.
And amend the constitution to explicitly separate the church and the state, and disallow clergy from politics and
government. And ban religion from public schools - no biblical creation myth, no "Intelligent Design" myth, no
school prayers.
And make English the only official language in the USA; required of all citizens. Make all government documents
English only.
And further restrict immigration.
And tax kids rather than deduct them, each year.
And keep the GI Bill, for GI's.
And put both Saturday and Sunday at the end of the week on our calendars.
And eliminate Affirmative Action (it is racial discrimination).
And ban abortion issues from the ballot and the legislature. (Men should not have the right to vote on it.)
And legalize the right to die.
And legalize doctor assisted suicide.
And ban all graphic violence from TV, movies, comic books, kids books and games, arcades, Koran, ...
And ban new Muslim churches until they revise the Koran to outlaw all violence and endorse all human rights.
And outlaw the practice of Sharia in the US.
And "free" the Indians. Make them all US citizens. All the same rights and privileges; no more and no less.
And reduce the salary and perks of all legislators; and the pensions of past, present and future legislators.
And the same for all civil servants.
And a few other things...
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