In light of the current debate about tax reform, I believe the first step in that reform is changing the way we assess our citizens' income taxes on their hard-earned wages. The balance is to not punish those in society who have been successful in this capitalistic system while not shifting the burden of tax payments on the working class. In other words, fairness.
Currently, there is a push to tax the wealthiest Americans, that is those who make more than $1 million a year in adjusted gross income, at a rate of 30 percent. While in this battle between the haves and the have-nots, that seems fair and appeals to our populist nature, it does give the impression that our government, who has historically benefited from the successes of the captains of industry, now want to put a damper on those financial achievements.
In Mississippi, we tax our citizens' income in this manner: The first $5000 is assessed at 3 percent, the second $5000 at 4 percent and the remainder at 5 percent. That means basically every worker in Mississippi is paying taxes in all three tax brackets. It is lower than the current Federal rate and could be replicated at the Federal level, but it would be a significant decrease in revenue to operate the national government.
Here is my radical idea, based on the 2010 national adjusted gross income for the United States, which was around $8.3 trillion: I believe that there should only be three tax brackets, and corresponding rates, for generating tax revenue. The first bracket should consist of all incomes below $50,000 and should be taxed at a rate of 7 percent; the second bracket should consist of all incomes between $50,000 and $99,999.99 and should be taxed at a rate of 12 percent; and the third bracket should consist of incomes from $100,000 and over and should be taxed at a rate of 15 percent.
Based on that $8.3 trillion gross income figure, this bracket system will generate over $1.032 trillion in income tax revenues. That would be a reduction of $131 billion in tax revenue collections compared to last year, but if my previous idea is enacted dealing with reforming Medicaid, the Medicaid savings would be greater than the loss of revenue in the new tax plan.
For those who think this would be a regressive tax on those with lower incomes, let me make this argument: the average median income in the United States is around $45,000 or $3750 a month; in the present tax structure, the monthly Federal income tax withholding on $3750 a month is around $405. If my idea is adopted, the monthly withholding would decrease to around $263, a savings of $142. I know I could use an additional $142 a month in my pocket, and so would every American taxpayer.
Ever since the 16th Amendment to the US Constitution was ratified in 1913 (Mississippi was the 5th State to ratify the amendment in March of 1910), fairness in taxation has been an issue. This is my radical idea to address that age-old concern. As always in the legislative process, there is still more work to do in dealing with restructuring the tax code to address standard deductions and so forth, but I contend that in order to have those discussions, this issue has to have consensus first.
For too long we, in America, have treated fairness like beauty, it is truly in the eyes of the beholder. To me, fairness should never be subjective, it should be a universal standard, and I think this idea leads us toward that goal.