An Open Letter to the President on Tax Policy

Mr. President:

It is with great interest that I see you have, yet again, called for extending middle class tax cuts while allowing tax cuts on the top 2% to expire.  Frankly, sir, I fail to see how this strategy works now when it has not worked for your entire presidency.  In 2010, it did not even work politically, as the Republicans stood their ground and no pre-election debate to embarrass them ever took place in the Senate.  Let us not be outflanked again, as the result was, in the area of tax policy, we have a third Bush term.  The truth hurts and as a voter, I am not sure that I can go along with tax policy votes that don't actually raise tax rates on dividends.  I would almost rather see all the tax rates expire instead.  This would allow greater government spending, which means I might be able to rejoin the civil service or government contract community.  With a Master of Public Administration and no job, I can do little else.

Please allow me to offer a different menu of compromise provisions.  If enacted, they will benefit our family much more than the measures you have resubmitted into the congressional sausage machine.

1.  Eliminate all tax exemptions, replacing the individual and spousal exemptions with a larger standard deduction while increasing the Child Tax Credit and making it permanent.  Increase it still further by eliminating the Earned Income Tax Credit and make it refundable for all earners.  Allow for negative withholding so that families who are not paying income taxes need not file to get their money, unless there was an error in how the credit was distributed (such as double crediting to both parents).  Allow the 10% tax rate to expire and shift that savings to a higher child tax credit as well.  Pay the child tax credit to non-workers and end the inadequate SNAP program.

2.  Lower the income cap on the employee contribution to Old Age and Survivors Insurance (to lower high income benefits) and shift the remainder of employee FICA taxes, as well as the employer FICA tax.

3.  Enact a Value Added Tax - with the employer contribution to OASI credited equally for all full-time workers (decoupling it from the employee contribution).

4.  Increase the standard deduction on personal income taxes so that the vast majority of families need not even file - while increasing the VAT accordingly to cover non-payroll tax contributions to Medicare and to cover federalizing Medicaid.

5.  Set corporate and personal income tax rates, dividend rates and capital gains rates to between 25% and 29% (negotiate to 27%) if a VAT solution is accepted.

6.  If a VAT is not possible, leave payroll taxes alone for now, and extend the income tax rate cuts for another year, while allowing the capital gains tax rate, Pease rate and Health Care Reform non-wage income tax provisions to take effect January 1.  Increase the dividend rate to 20% (which after Pease and non-wage additions becomes 25%).

These proposals give both sides something, while not increasing taxes for the vast majority of lower middle class families.  The upper middle class can likely afford higher taxes and will vote for you anyway.   The important thing is to allow dividend and capital gains rates to go up to essentially a 25% rate, as when these rates are too low large employers have a strong interest in continuing to reduce labor costs, which keeps unemployment high.

Respectfully,

Michael Bindner