2022 Tax Proposal

(For a short summary: https://americarepair.home.blog/2019/09/09/summary-of-2022-tax-plan/ )

The national debt is real debt, and there is no magic fix. You know there will be consequences when you always go deeper into debt. You know it’s wrong to make your grandchildren pay for what you buy. You might not live to see it, but your kids could experience a crisis that will leave the U.S. dollar worth less than a Canadian nickel. When that happens, the little people, who don’t have vast assets of real estate and gold, will be the ones who get clobbered. We must raise revenue to leave future generations a fiscal outlook as good as the one we inherited.

The “Tax Cuts And Jobs Act” didn’t touch the tax that directly affects JOBS, the payroll tax. Huge corporations got a huge tax cut, but self-employed middle class workers are still taxed at rates that would make millionaires cringe. The president and congress slashed taxes for 2018, and blew up the deficit, to get corporate donations, and buy votes. I have a better plan for tax year 2022, to buy a future for the U.S. middle class.

Objectives of the 2022 Tax Plan

Lower the unfair payroll tax.
Eliminate the regressive aspect of social security tax, the tax cap.
Let the trust funds expire, and fully fund Social Security and Medicare with general fund money.
Steepen tax bracket graduations because taxes are too flat overall.
Raise income tax rates, but cut taxes on low income workers. (Lower than 2018)
Keep taxes on middle class workers lower than Obama era. (Lower than 2017)
Raise capital gains tax, especially the outrageous 0% bracket.
Eliminate the separate tax brackets for capital gains and dividends.
Lower the standard deduction in fairness to people who should itemize.
Allow poor and middle income workers a $400 non-refundable payroll tax credit. (Tax credits work like a 0% tax bracket for lower middle class incomes.)
Allow a $2000 non-refundable tax credit for senior citizens, that will apply to both income tax and payroll tax. This will help compensate for the tax hike on passive income, pay income tax on social security benefits, and limit the silliness of taxing people who are simultaneously receiving benefits.

The core of the plan is reducing payroll tax rates, and increasing income tax rates. This will shift tax burden off of lower middle class workers and businesses that employ people, while raising rates on passive income. Those raised rates, together with eliminating the cap on SS payroll tax, will raise necessary revenue.

2022 proposed payroll tax for both SS and Medicare

Employer Employee, both 4%
(Currently 7.65% each)
Self-Employment = 8%
(Currently 14.13%)
All payroll tax will be 100% deductible for income tax. (Currently only the employer portion is deductible.)
A new $400 payroll tax credit, nonrefundable, that phases out between single filer labor income of $53,000 and $58,000.

2022 proposed income tax, single filer

$8000 standard deduction,
Up to $10,000 taxable, 15%
Up to $45k, $1500 + 19% over 10k
Up to $130k, $8150 + 30% over 45k
Up to $270k, $33,650 + 39% over 130k
To infinity, $88,250 + 47% over $270k,
And a new $2000 senior tax credit, starting the year you turn 61, that will apply to both income and payroll tax, and the Social Security administration will apply it automatically, boosting benefit checks.

[ For comparison, the following are the 2018 brackets, in 2022 dollars using 2% yearly inflation (Single filer):
Standard deduction $12,989
Up to $10,310 taxable, 10%
Up to $41,980, $1031 + (12% x amount over 10,310)
Up to $89,301, $4821 + (22% x amount over 41,980)
Up to $170,483, $15,232 + (24% x amount over $89,301)
Up to $216,486, $34,716 + (32% x amount over $170,483)
35% up to $541,216, and 37% above that. ]

Though the 2022 proposed rates are higher, the payroll tax cut reduces overall taxes on all low and middle income workers, compared to 2017. Compared to 2018, employees making up to 20,000, and self-employed making up to 58,000 will have a tax cut.

Capital gains tax

Let’s eliminate the 0% bracket, because it is just plain evil to excuse already-wealthy people from paying taxes, while workers are paying thousands. The separate brackets for capital gains are completely unnecessary and should be eliminated, if only to avoid any appearance of corruption.

Second, for 366 days to be considered “long-term” is an obviously unfair dodge that puts speculators in the same category as people selling their multi-generation family estate or business. Holding periods should be increased.

I believe far too many investors are enjoying low tax rates, but with cautious deference to the many who insist on taxing investment profits at lower rates than income from labor, I would implement significant increases on capital gains tax while keeping it lower than income tax.

Years ago, we used exclusions instead of separate gains brackets. An exclusion is a percentage of income that is considered tax-exempt. Exclusions allow the taxable percentage of capital gains to be added to your regular income, and taxed on the reasonably graduated income tax brackets, which makes much more sense. Figure exclusions first, total up taxable income, then apply deductions.

Capital gains rates

The additional medicare tax on upper incomes will be repealed. The new rates will make up for it.

Short term and dividends: 15% exclusion. (85% taxable. Short-term is currently 100% taxable. With the increased income tax rates, this tax will be as much as 4 points higher than 2018. Profit-based dividends are currently taxable as long-term, but short-term is more appropriate.)

Medium term, held over 2 years: 30% exclusion. (70% taxable. It’s absolutely fair to require that capital be held more than one year to get a reduced rate. The new rate will raise a lot of revenue, compared to 2018 long-term.)

Long term, held over 4 years: 45% exclusion. (Grandpa’s business was probably owned longer than 4 years. 55% of the top income tax rate will be 25.85%, the old top rate was 23.8%.)

Capital losses will be fully deductible from total income in the first year. Losses are subject to a 15% reduction every year they carry forward.

Subtract exclusions first, add to regular income, then subtract deductions from total income. Tax will then be determined from the income tax schedule.

Individual rates fall mostly between Reagan and Trump eras. Short-term / div is close to Obama income tax.

Corporate

Corporate tax was slashed from an upper bracket rate of 35% to a flat rate of 21% in 2018, while the bottom bracket saw a tax INCREASE from 15%, when gradual tax reductions would be much more prudent, when the government needed that revenue, and remember, it’s a tax on PROFITS. I agree that 35% was likely too high, but 21% is too low. Using two brackets, 16% and 26%, will be more fair and raise more revenue. The revenue is crucial, and foreign investors don’t need to get that much richer on the backs of American laborer/taxpayers.

More perspective concerning federal taxes:

We should correct several unfair aspects of federal taxes. We are taxed extra for positive activities such as working and employing Americans. Tax rates are ridiculously low for stock market investors. We argue over whether the top income tax rates should be in the mid-30s or high-30s, but it was 70% and higher over three decades, (and payroll taxes were much lower), during which we saw excellent economic growth, and low deficits, as the WWII debt withered from inflation, but we got away from those productive policies. Strangely, in the 1980s, as most tax rates went down in a major way, payroll tax rates went up, a mistake I would love to reverse.

Cutting taxes is the wrong thing to do if taxes are already too low, which is the case with wealthy people in general. The government spends what the people require it to, and if there isn’t enough revenue, congress should be held accountable for its mindless, continual deepening of the federal debt. “Starving the beast” has failed, so it’s time to get real, and raise taxes on the people who can afford to pay.

The tax plan put into effect for 2018 was a tax cut for a large number of Americans. The tax bracket percentages were reduced (except the lowest bracket). The increased standard deduction reduced taxes for many, but some people’s taxes increased since they can no longer take deductions they deserve to take.

The 2018 tax cuts would have been appropriate for 2008 to 2011, when the economy was down. 2018, when Republicans were bragging of ecomomic prosperity, was an irresponsible time to reduce revenue, and I can give you 20,000,000,000,000 reasons why (national debt, September 2017). If they really wanted to balance the budget, they should have NOT cut taxes, and let the revenue roll in during a healthy economy. Rational policy would save any tax cuts for the next economic slump.

Not only is Trump shifting his tax burden onto your grandchildren, not only are we all going to pay interest on that increased debt for the rest of our lives (to investors and foreign governments), but also the Medicare and Social Security trust funds are being depleted. More revenue would be a good idea, and the sooner we get started, the less it’s going to hurt.

But we have a ZERO PERCENT tax bracket for long term capital gains and qualified dividends, cut to zero in 2008. An investor can enjoy a gross income up to $50,000, TAX FREE. At that level, an employee and their employer would each have to pay $3825 in payroll tax, a self-employed worker would pay $7065 in payroll tax, and income tax would cost each worker around $4000 more. This is for real, American workers are being CHEATED when those who don’t have to work are excused from paying anything.

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