Tax Reform

Replacing the Progressive Income Tax

Keeping More of What You Earn

People should be free to keep the fruits of their labor and live the American dream without having their success taxed for pork projects, social engineering, special favors to lobbyists, bailouts of failed private investments of others, subsidies for private industries, charities chosen by the government rather than by the donor, and funding the consequences of other individuals’ irresponsible personal choices.

We believe that a federal government scaled back to its Constitutional limits would allow the elimination or dramatic reduction of many taxes. However, even with the kind of smaller and more limited government desired by our Founding Fathers, it is likely that taxation in some form will be required to support the legitimate functions of government.

Toward that end, we offer three less onerous alternatives:

Flat Rate Tax

Fifty years ago, Hong Kong was mired in poverty. Today, their economy is booming with unemployment around three percent.

How did this come about?

Besides having a general respect for property rights, Hong Kong instituted a 16% flat tax on income, while allowing deductions for mortgage interest and charity. Combined with a 0% capital gains tax, Hong Kong has created an environment that encourages and rewards entrepreneurial risk-taking, making it worthwhile to invest in stocks, real estate and business.

In concert with adopting Hong Kong’s flat tax model, we advocate giving each American the choice as to how to calculate their taxes: use the existing, complex tax code with its myriad of forms and schedules during a five-year transition period; or immediately choose this alternative, simplified flat tax approach that could be filled out on a post card.

National Sales Tax

Some Libertarians favor a national sales tax model called “The Fair Tax.” The state of Nevada serves as a great model for the benefits of this system. Nevadans have zero personal income tax, zero business income tax, zero capital gains tax, and zero death tax. The state pays its bills based only on sales tax, property tax, and gaming taxes.

Until the Great Recession, Nevada led the nation in population growth, economic growth and small business creation for many years. During the last decade, Nevada gained over 1,000,000 new residents, while its high-tax neighbor California lost over 1,000,000 residents. Nevada was first in America in population growth for seven decades straight and was recently rated as the state with the second lowest taxes in America. We don’t believe any of this was a coincidence.

A national sales tax system administered by the states that replicates the Nevada model would allow the citizens of the United States to keep their income and only pay taxes on what they spend. The IRS would be eliminated. Capital gains taxes would be eliminated. Payroll taxes would be eliminated. And retirees would be free to live off their income, investments, stocks and dividends tax-free.

States Rights Tax

Our boldest proposal replaces all federal taxes – including the income tax! – with a tax on each state. It’s what we call a States Rights Tax, where each state would be responsible for paying an annual tax based on population, and each would determine how its share of the money is raised, provided they do not tax interstate commerce.

Our Founding Fathers understood the power of the purse as an instrument of tyranny.

Today, because the U.S. Government taxes its citizens and then kicks back a portion of the money to the states (as it sees fit), the federal government exercises enormous unconstitutional power against the states through various federal mandates, ranging from No Child Left Behind, to Real ID, to the allocation of Highway Funds.

Our vision for dramatic change in U.S. tax policy is as simple as it is revolutionary in scope. Imagine only 50 taxpayers writing checks to the U.S. Treasury each year. With no other source of revenue to the U.S. Government, the balance of power would be forever dramatically reversed.

And because these 50 states (and their citizens) prefer keeping tax dollars at home instead of sending them to Washington, they will have great incentive to mount enormous political pressure on Congress to reduce the size of the federal government – minimizing both spending and taxes.

The State Rights Tax offers an intriguing alternative in support of the Libertarian view of reducing the size of the federal government by transferring power to the states.

Source: www.lncc.org

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