Bottom Line Regulation
Bottom Line Regulation is a concept borrowed from the corporate playbook: It is a financial incentive plan for the economy along the lines of financial salary incentives given to key corporate employees (i. e., bonuses). The fundamental idea is to add another tax bracket for very high income earners (salary over one million dollars, adjusted annually for inflation). People in this income bracket are the movers and shakers who determine the direction the economy takes; so, they should be given an incentive to improve the economy. As far as I am concerned, the most important metric for the economy is the unemployment rate -- Bottom Line Regulation will mainly address that. In a nutshell, the new income tax bracket would be taxed at the same rate as the next lower tax bracket when the unemployment rate is between 4.5% and 6.5%. If the unemployment rate goes above 6.5%, the taxes for income over 1 million dollars go up. If the unemployment rate goes below 4.5%, those taxes go down. There could also be minor adjustments for achieving other goals the government deems important.
In addition to providing an incentive to keep the economy fair for all, Bottom Line Regulation also should provide a stabilizing effect on the economy -- The increased revenue during bad times should automatically be applied to stimulus spending. And during a hot economy, there will be less money in the budget for lawmakers to use to overextend Federal commitments.
A more detailed explanation follows: There is a new tax bracket for very high income earners (salary over one million dollars, adjusted annually for inflation). Let’s call this the “bottom line tax bracket”. Income in the bottom line tax bracket is taxed at the “bottom line tax rate”. The bottom line tax rate would be based on the rate for the next lower tax bracket and adjusted up or down based on the performance of the economy during the previous tax year(s). Here is an example of how the bottom line tax rate would be computed (in percent, assuming the next lower bracket is 35%):
35 + unemployment-adjustment + carbon-incentive
The unemployment-adjustment would be 15 times the amount the unemployment rate for the preceding year exceeded 6.5% (5.5% is the median unemployment from 1948 to 2009, from the Bureau of Labor Statistics). If the unemployment rate drops below 4.5%, the adjustment would reduce the overall tax rate by 15 times the amount it dropped below 4.5%.
The carbon incentive would be -3% if greenhouse gas reduction goals were met for the preceding year.
In other words, the tax rate for 2010 (peak unemployment 10.1% in 2009, carbon incentive not met) would be 89%. At the other end of the scale, if the greenhouse gas targets are met and the unemployment rate falls to 2.36%, there would be no taxes on income in this bracket.
If the total tax computation comes out over 90%, the rate would be capped at 90%. If the bottom line tax rate went lower than any preceding tax brackets, the rates for those brackets would be lowered to match the bottom line tax rate.
This is intended to be an incentive, not a punishment; so, it would be phased in by capping the tax increase to 10% until the economy recovers.
We need to encourage more innovation. I am in favor of having little or no capital gains tax, but only on purchases of IPO (Initial Public Offering) stock in American companies or for American manufacturing facilities. I am also in favor of using even lower capital gains taxes to encourage investment in strategic technologies (like renewable energy). The mechanism for the tax break would be to create a new class of stock that can be sold without tax consequences before the company goes public (for newly formed companies) and can be bought in the initial public offering. The purchaser of that stock would be exempt from paying any capital gains tax when they sell the stock. When sold after the IPO, the stock would become ordinary common stock (after the sale).
I also believe the basis value for all capital gains should be adjusted for inflation -- It's just plain unfair to tax people on inflation! If we do that, then the tax rate for ordinary capital gains could fairly be treated as ordinary income.
For starters, corporations are not people and should not be taxed that way. Congress should make it clear that corporations are not people and that they have a different relationship with government. That relationship should include a relatively low flat tax rate with few deductions.
Internet Sales Tax
I believe that all Internet commerce is interstate and can be regulated by Congress. I am opposed to any Internet taxes. That includes establishing an Internet sales tax. Actually, I am opposed to all sales taxes, but that isn't something the Federal government can regulate.