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United States of America
The OneTax is a tax reform plan and proposed amendment to the United States Constitution that eliminates the federal income tax for all individuals earning less than $215,870. The OneTax is described as revenue-neutral, which means that it compensates for lost revenue from the income tax by closing loopholes and eliminating tax expenditures in the current income tax system.
The current United States income tax system imposes higher costs of tax compliance than any other country, with direct costs exceeding $460 billion, and indirect deadweight loss costs of over $1.2 trillion. As this figure was calculated in 2004, it is likely that the actual current deadweight loss caused by the income tax is more than $1.4 trillion. As a national sales would create comparable deadweight loss, tax reform plans like OneTax aim to reduce or eliminate income tax compliance costs without instituting a national sales tax.
The OneTax and plans like it were first created in the 1990s by policy wonks outside the Beltway, seeking to put forward a tax simplification plan that wasn't regressive. At the time, the major tax reform proposals were the FairTax and flat tax, both of which are regressive with regards to income. The first recorded mention of this reform by a political candidate for national office was at a "Town Hall" campaign event held in Smithfield, Rhode Island in 2002. In 2011, the Republican Presidential Primary race brought tax reform proposals to the fore. In addition, discussion of the plan as a way to eliminate the income tax for "the 99%" was a topic of the Occupy Movement.
The core piece of the reform is a proposed Constitutional Amendment which repeals the Sixteenth Amendment to the United States Constitution, but carves out taxes on income to remain in place for two specifically defined ways:
2. The United States federal government may continue to collect a payroll tax on all workers, the proceeds of which are earmarked for exclusive transfer to, or provision of health care benefits for, those persons aged 65 or older.
The primary effect is the elimination of the present personal income tax system and the elimination of 97.6% of all personal income tax compliance costs, and the elimination of more than 96% of the current deadweight loss. These two items are predicted to create an immediate boost of more than $2.1 trillion to the lagging U.S. economy.
It is not in dispute that the OneTax will lead to higher effective tax rates for higher-income individuals (or it will lead to significantly lower federal spending). Many opponents of such tax changes argue that the country's highest income earners are the economy's "job creators". These opponents claim that taxing wealthy individuals at a higher rates will discourage job creation.
Others argue that the current low rate of tax on capital gains encourages investment and is necessary for the long-term stability and growth of the United States and world economy. Meanwhile, still others, such as Warren Buffett claim that higher tax rates on the rich do not discourage investment and growth.
Revenue neutrality and effective tax rate
The conservative Media Research Center argues that the OneTax cannot be revenue neutral without raising the top marginal income tax rate above 39.6%. According to the MRC, total income tax collected (not including payroll tax) in 2009 was $867 billion. The total taxable income for those making $200,000 or greater was $1.663 trillion. Therefore, to remain revenue neutral, shifting the income tax to those earning more than $200,000 would require an effective rate of 52%. The total taxable income for those making $200,000 or less is $3.46 trillion.
This criticism by the MRC does not address the argument that $1.1 trillion in additional annual revenue could be generated by closing loopholes and eliminating tax expenditures. Eliminating just 19% of these tax expenditures would raise the same revenue without raising the top marginal tax rate, and eliminating income taxes on all earnings below $200,000. Additionally, fewer than 30% of Americans realize that the payroll tax generates almost as much federal revenue as the income tax. Currently, all earnings above $106,000 are exempt from the payroll tax, meaning that the majority of federal taxes collected on the middle class are collected through a regressive tax. Eliminating this exemption raises the highest effective marginal tax rate (combining both income taxes and payroll taxes) to about 48%. This is similar to the effective tax rate currently paid by small business owners with incomes below $150,000. This change, combined with the elimination of other exemptions, it is argued, allows the OneTax to remain revenue neutral despite eliminating income tax filing for more than 98% of American households.
- Excess burden of taxation
- Flat tax
- Land value tax
- Occupy movement
- Optimal tax
- Single tax
- Tax reform
- 9-9-9 plan
- Bartlett, Bruce. The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take. Simon & Schuster.
- "Personal Income and Its Disposition 1990-2010" (PDF). United States Bureau of the Census. April 2011. Retrieved 2011-11-03.
- InvestorGuide.com. "Definition of Revenue Neutral". Retrieved 2011-11-03.
- Johnsson, Richard (June 2004). "Taxation and Domestic Free Trade". The Ratio Institute.
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- "Candidate Seeks Wholesale Tax Reform". Bristol Phenix. July 2002.
- "Occupy San Diego: No Platform But Some Ideas". La Jolla Light. October 2011.
- Trumbull,Mark (September 16, 2011). "Boehner vs. Obama: Are US job creators really on strike?". The Christian Science Monitor. Retrieved 2011-11-03.
- Calmes,Jackie (September 17, 2011). "Obama Tax Plan Would Ask More Of Millionaires". The New York Times. Retrieved 2011-11-03.
- "About the Media Research Center". MRC. Retrieved 2012-09-11.
- "IRS Tax Statistics". Retrieved November 3, 2011.
- "100 Percent Tax on Those Earning $500K or More Leaves U.S. With $839B Deficit". Retrieved November 3, 2011.
- "Spending Through The Tax Code". MRC. 2011-10-11. Retrieved 2012-09-11.
- "TPC, Feldstein and Tax Reform". Jared Bernstein. 2012-08-29. Retrieved 2012-09-11.
- Kaiser Kennedy School (May 15, 2011). "American's Knowledge Of Federal Tax Statistics".
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