Michael J. Graetz, a Columbia Law School professor, has a suggestion for a different tax law, he called it the “Competitive Tax Plan.” He wrote a book called “100 Million Unnecessary Returns.”
He suggests instead of our current income tax law, a “Value Added Tax” (VAT) of 10 percent, or maybe up to 15 percent, could be done and only those joint filers (families) with incomes greater than $100,000 a year would file income tax returns. Single persons with incomes of $50,000 a year or less wouldn’t file or pay income tax. His current plan is modeled after the laws in Canada, Australia and Singapore.
There are several different versions of VAT. Australia adopted it in 2000. Canada has had a federal VAT since 1991. Several European countries have a VAT.
Mr. Graetz’s VAT suggestion is a little different. He wants the VAT tax listed on every retail invoice so it’s clear how much the tax is. Consumers would clearly see how much tax is involved if they buy something (car, furniture, appliances, etc.). Small businesses (receipts of less than $500,000) would be exempt from collecting the VAT tax.
He explained his VAT would generate enough revenue so about 90 percent of current taxpayers would be exempt from filing income tax returns. That would free up a lot of time that could be more productive for individuals as well as our nation.
He believes the 10 percent of taxpayers that would still file income tax returns should only have a flat 16 percent to 25 percent tax rate. He also thinks corporations should have a 15 percent to 25 percent income tax rate. It seems clear our tax rates on corporations used to be too high compared to almost all other countries.
He also suggests eliminating the payroll tax for low income workers. He urges an increased child credit that’s refundable be done to help those folks with children. Debit cards might be used.
There seems to be a danger in adopting his proposal. It would create a new tax that could increase the total tax burden. Would the state income taxes be continued or not?
Several years ago I wrote to U.S. Senator Paul Laxalt suggesting a VAT be done instead of the income tax. He wrote back his concern was it would be in addition to the income tax and it could cause more taxes on everyone.
Maybe it is time for a national discussion of alternatives to our existing tax system. It’s sad to see all the special rules (loopholes) that exist to complicate our tax law. If we could reduce all the work and trouble to comply with the existing law, our nation could be more productive.
Did you hear? “A rising tide lifts all boats.” —American proverb
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.