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EquiTax represents a tax reform proposal within the broader concept of inclusive capitalism. This plan aims to simplify and make the tax system fairer, thereby addressing the current economic stagnation.

Recent real estate and financial crises, followed by the resulting recession and the current jobless recovery, further exacerbate these long-term trends. Hopes for a quick recovery after the economic crisis are fading, leading to a widespread sense of despair about the direction of the economy. High unemployment, which could persist until the end of the decade, will contribute to stagnant wage growth and increased economic inequalities.

EquiTax is envisioned as a solution to counter this economic disparity and restore prosperity for all.

Origins of Inclusive Capitalism

Capitalism has revolutionized global wealth and prosperity, but there's now an urgency to evolve toward a more sustainable and inclusive system, especially with ongoing technological advancements, climate change, and social crises. Inclusive capitalism aims to create long-term value for businesses, governments, and communities by promoting equal opportunities for everyone regardless of socioeconomic backgrounds, gender, or ethnicity. This approach seeks to reduce inequalities and foster overall prosperity, particularly in a context of persistent economic crisis and high unemployment.

Global policymakers are embracing this movement, aware of the failure of current policies that have led to stagnation and citizen disengagement from voting. There's a clear need for a change in direction.

Among these are:

Obama Foundation

Clinton

Macron

"EquiTax: Tax Fairness and Economic Growth"

1. Complete Deduction of Any Expense

EquiTax allows the full deduction of any incurred expense. Every expense is legitimate, including investments, luxury, or gambling expenses. The individual or company decides how to use the received money, having the power to manage their finances. Essentially, whoever receives or benefits from the funds is responsible for any taxes or tax burdens associated with those transactions. This feature allows citizens to deduct all types of expenses from taxable income, offering flexibility and incentivizing the economy.

Simulation of Tiered Tax Rates vs. EquiTax

Tiered Tax Rate (Gross $1,500): A person earning $1,500 gross income would need to spend everything to live well, putting them in a taxable situation. Suppose a progressive tax of 20% on the first $1,000 and 30% on the remaining $500. Therefore:

$1,000 * 20% = $200 $500 * 30% = $150 Total taxes = $350

After paying taxes, they can only spend $1,150.

EquiTax (Gross $1,500): With EquiTax, full deduction of expenses reduces taxable income to zero. So, in this scenario, there's no taxation.

In conclusion, while tiered rates impose taxation based on income brackets, EquiTax aims for fairer taxation by eliminating taxes for those fully utilizing deductions. This system could lead to broader tax fairness and greater support for lower-income brackets.

2. Tax Fairness with Uniform Taxation

The EquiTax system implements uniform taxation for everyone, applying the same tax percentage to taxable income. This ensures that every income bracket pays the same percentage of taxes, easing the tax burden for weaker brackets that might not pay taxes.

3. Simplification of Invoicing

EquiTax revolutionizes tax document generation by linking banking transactions to the tax system. This automatic connection allows instant and automatic generation of tax documents, eliminating the need for complex procedures and significantly reducing bureaucratic burdens.

Withholding tax: In EquiTax, withholding tax would be applied automatically by banks, collecting taxes on behalf of the government. This simplifies tax collection and reduces the burden on taxpayers.

Donations

Donations are tracked using "talking transfers." These transfers allow the sender to specify the purpose of the transaction, such as a donation, by providing detailed information within the transfer itself.

This distinction is crucial because for recognized donations considered gifts, the tax burden shifts to the donor instead of the recipient. Consequently, the donor making the donation must be aware that they cannot deduct that amount from their taxes. This system aims to promote greater transparency and clarity in declaring donations, ensuring that the tax burden is appropriately attributed to the transaction initiator, aligning with the specific intentions of the donation itself.

Reducing Tax Evasion

The simplification of the billing process proposed by EquiTax implies a direct connection between banking transactions and the tax system. This integration allows for instant and accurate recording of financial transactions, eliminating the need for complex procedures in generating tax documents.

A key aspect of this simplification lies in how it influences financial behavior: the EquiTax system calculates taxes based on the residual income after deducting expenses. In other words, tax is only applied to the income that remains unspent.

This methodology makes it less appealing to hide or underestimate financial earnings to avoid tax payment. As tax is only applied to net income, reducing the tax burden based on declared expenses, attempting to evade taxes becomes less advantageous and ineffective. Consequently, the simplification of the tax process implemented by EquiTax creates an environment where financial concealment becomes an unsound financial choice.

4. Immediate Taxation for Outgoing Capital

The EquiTax system enforces immediate taxation when capital leaves the country. This mechanism aims to regulate and control financial outflows, encouraging internal reinvestment and supporting the national economy.

5. Capital Increase for Incoming Capital

EquiTax also implements a capital increase, calculated using the formula 100*taxation/(100-taxation). This policy is designed to encourage foreign investments and foster domestic economic growth.

Practical Example of the "Capital Increase for Incoming Capital" Policy in EquiTax

Imagine applying EquiTax in a country with a 20% tax rate, including the policy "Capital Increase for Incoming Capital," ensuring a 25% tax credit on received capital, derived from the formula 100*taxation/(100-taxation).

Scenario: An entity, whether a citizen or a company named "X," receives a transfer of $100,000 from abroad.

Calculation of Tax Credit: Applying the 20% tax to the formula:

10020/(100−20)=10020/80=25

Thus, entity X receives a 25% tax credit on the received capital, equivalent to $25,000.

Benefits of Tax Policy: This credit can be flexibly invested, tangibly stimulating the economy.

Impact on the Economy: Utilizing these funds in new investments can fuel local economic growth. Companies might allocate these funds to projects like building new offices or developing innovative products, promoting job creation and fostering innovation and corporate competitiveness.

6. Treatment of Cash as Foreign Entities

EquiTax adopts a unique policy regarding cash funds, inspired by the principles outlined in points 4 and 5. In this system, cash is considered as if it belongs to a foreign entity.

This strategy aligns with EquiTax's goal of applying immediate taxation on outgoing capital (Point 4) while simultaneously encouraging capital growth for incoming funds (Point 5). Treating cash as part of a foreign state promotes control over investments leaving the country while encouraging foreign investments, stimulating internal economic growth.

This policy aims to balance the regulation of capital outflows with the attraction of foreign investments, supporting the overall goal of stabilizing and strengthening the national economy.

Cash, Taxes, and Illicit Activities: A Fair Approach

Equity represents one of the fundamental pillars of the EquiTax tax system. Its neutrality is highlighted in the obligation to tax every income regardless of its origin, ensuring consistency and fairness in income treatment. This principle is based on the idea that the tax system should not judge the morality or legality of incomes but rather focus on collecting taxes necessary to finance public services and government operations.

Additionally, taxing illegal activities could play a deterrent role in such practices. The obligation to pay taxes on illegal income might discourage engagement in such activities, contributing to reducing their prevalence and promoting law-abiding behaviors, fostering a responsible society.

A crucial element is the use of tax proceeds to fund public services and prevention programs. While it might seem controversial to use funds derived from illegal activities for public services, it could actually mitigate the negative impacts of such activities. For example, proceeds could be invested in rehabilitation or prevention programs, mitigating the harmful effects on society.

In the case of illicit transactions handled in cash, the tax aspect presents peculiarities: the tax burden associated with such income falls on the buyer rather than the final recipient. In practice, cash withdrawals are subject to immediate taxation, as described in EquiTax point 4, thus contributing to regulating capital outflows and promoting a more transparent management of financial transactions.

EquiTax to Stimulate the Economy

EquiTax is designed to stimulate the economy in several ways:

Investment Incentives: Full deduction of expenses, including investments, provides financial flexibility. Individuals and businesses are more likely to invest in strategic sectors knowing they can deduct these expenses, encouraging economic growth in those sectors.

Tax Uniformity: Implementing uniform taxation for all ensures that every income bracket pays the same percentage of taxes. This can reduce the tax burden for weaker brackets, increasing their purchasing power and contributing to overall economic activity.

Simplification of Procedures: By linking bank transactions to the tax system, EquiTax significantly simplifies tax document generation, reducing bureaucracy. This simplification can encourage tax compliance and reduce administrative burdens, allowing businesses to focus more on economic activities.

Financial Flow Control: Immediate taxation on outgoing capital and increased capital for incoming funds helps regulate financial flows. This can promote internal reinvestment, limit capital flight, and support the national economy.

In summary, EquiTax aims to create a more favorable investment environment, simplify tax procedures, and regulate financial flows, contributing to a more dynamic and sustainable economic growth.

Advantages

Tax Equity: EquiTax offers a fairer approach, allowing full deduction of all expenses. Every individual can reduce taxable income through their expenses, ensuring uniform treatment for all taxpayers.

Simplicity and Transparency: By linking bank transactions to the tax system, EquiTax simplifies tax document generation, reducing bureaucracy, and promoting greater transparency in the income declaration process.

Economic Growth: By promoting investments and reducing fiscal barriers through full expense deductions, EquiTax could incentivize both individuals and businesses to invest in strategic sectors. This could lead to increased investments, production, and, in the long run, overall economic growth.

Stimulus to Local Economy: By encouraging entities to invest in local activities through tax deductions, EquiTax could support the growth of small businesses and local communities. This could create a virtuous cycle where local economic growth translates into increased employment and well-being for the community as a whole.

Reduction of Tax Evasion: The direct correlation between financial transactions and taxation decreases the incentive for tax evasion, as the tax is based on net income, incentivizing accurate income declaration.

Regulation of Financial Flows: Immediate taxation on outgoing capital and support for incoming capital contributes to regulating financial movements, encouraging internal reinvestment, and limiting capital flight.

Promotion of Financial Responsibility: Shifting the tax burden to the recipient of expenses can encourage more responsible fund management, promoting support for the economy through conscious spending.

Attractiveness for Foreign Investments: The policy of increasing capital for incoming funds can stimulate foreign investments, fostering internal economic growth and job opportunities.

Control over Illicit Activities: Tax imposition on illegal incomes can act as a deterrent, and tax proceeds could be invested in prevention programs, mitigating harmful effects on society.

Disadvantages

Potential Loss of State Revenue: Introducing full expense deductions could reduce state tax revenues, leading to the need for increased tax rates to finance public services.

Sense of Injustice: Weaker brackets remain exempt, as by deducting all expenses, they reduce taxable income to zero, potentially generating a sense of injustice among those contributing to tax payments, despite both benefiting from deductions.

Risk of Market Distortions: Greater deductions might drive spending or investment choices solely for tax advantages, disrupting normal economic functioning. However, this push towards investments can also act as a weapon against stagnation, giving new impetus to economic activity.

Conclusions

In practical terms, EquiTax stimulates the economy by incentivizing investments, ensuring uniform taxation, simplifying procedures, and regulating financial flows. This promotes economic growth by providing flexibility, reducing administrative burdens, and regulating capital movements.

EquiTax aligns with the principles of inclusive capitalism, aiming for justice, sustainability, and equal opportunities, elements that attract the attention of global leaders and policymakers aspiring to a more balanced economic landscape.