2018’s Flat Tax Debit Card

One of the things that Congress and the president must wrestle with between now and January 2014 is tightening up our fiscal ship.

Achieving some agreement without again shutting down the government means some level of entitlement reform, tax code revision and a relook of what people can deduct within their annual taxes — if we are not going to raise taxes then we must revisit deductions.

Flat Taxes

I do not expect that there will be any major revisions to our tax code. Too hard to do, and too many people wanting to protect their writeoffs, deductions and entitlements.

BTW – ‘entitlement’ is possibly one of the most misused and misunderstood words in the American English language. Entitlement is just a fancy misused term that means if you qualify then you are entitled to participate in something: social security, mortgage deductions, whatever causes you to recieve a fiscal benefit or credit.

2016-18 Real Reform

I do not expect any meaningful fiscal reforms to happen in 2014 as it is an election year. Perhaps in 2015 we can take the chance to discuss reform but my expectation is that both political major parties, one more than the other, sees 2016 as a do or die year.

The only real unexplored territory that represents some form of leveling the playing field is some form of flat taxes.

A recurring criticism of flat taxes is that it hurts the working poor and just adds to their challenge of day-to-day life. This criticism has been around ever since Thomas Jefferson weighed in with his position on taxing the working poor — which sounds terrible as a economic category name but is easier on the tongue than ‘financially at the bottom of the economic pyramid’:

Taxes should be proportioned to what may be annually spared by the individual.”
–Thomas Jefferson to James Madison, 1784.

“Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”
–Thomas Jefferson to James Madison, 1785.

Since there will probably be no serious discussion of flat taxes in 2015 — most Democrats abhor the concept and most Republicans would want to save it as a 2016 campaign item — then we probably will not hear more until 2016’s presidential election.

Few presidential promises ever are kept by either side so we should not expect too much from 2016 either.

However, there is a federal program near and dear to many of us that will prompt us to seek some real change, regardless of our political party affiliation: Social Security.

Social Security enters dangerous waters beginning at some time between 2018-2022. It is a self-funded entitlement (we worked for it) that we have not paid enough into. We are living longer and many of us have been paying attention to those advice givers that say boost your take by retiring slightly later. Social Security will only be able to pay out $75 for every $100 due to beneficiaries by 2033 (read Social Security Trust Fund Trustee Report).

My thesis is that this when real tax reform will come and I believe that we will finally adopt some form of flat tax.

My Solution to assist lower income Americans

We live in an age where a flat tax is very much possible without hurting those below a certain income category by issuing them a Flat Tax Relief Card.

The ‘Flat Tax Relief Card’ would be a credit card-like device that can be used whenever a purchase is made. It would reduce or eliminate the tax on certain items at the point of payment.

As a safeguard against misuse, the card should work like a debit card that checks eligibility each time a purchase is made. The card would automatically time out after 13 months (1 extra month so the IRS has time to reverify your eligibility each year) . The card would also limit the amount of tax deduction for the item/service purchased.

Most things are paid for electronically these days — even at the gas station or the supermarket. 

If Costco, BJs etc can implement a system which automatically tracks credits, offers discounts etc., at the point of purchase then this is not hard to do.

Other safeguards:

— An annual limit on how much tax can be credited to you. If you fall below a certain income level and your annual deductible is $2,200 then the card cuts you off after you have used it for $2,200 in tax credits.

— The card carries a chip just like American Express Blue and ALL credit/debit cards issued in Asia and Europe. Either you are you or you are not you. The card has high security and knows where you are and how it is being used. The card must be physically used to be usable, although there could be a manual credit process for handling those awkward moments when you forgot your card — most stores offer this too now: purchase receipt carry an electronic coding identifier. You can just can scan or present your uncredited receipt at a later time and your account is credited.