Sunday, March 21, 2010

Bonus Tax

I read this article shortly after reading this article. I happen to think there is much rationale for both arguments, but believe both programs would require too much Accounting for proper tax assessment. Jim Webb wants to tax the huge bonuses, and Robert Frank wants a positive consumptive surtax. Both want to go after the big Money winners. Way too complicated for any tax assessment. Webb wants a temporary tax, Frank wants a Tax which is permanent, but with all types of safeguards to ensure that the Accounting firms will make a fortune. Tax revenues from whatever passage along these lines will deteriorate from the Get-Go. Making the Tax Code even more complicated is not the Answer!

Here is where I would go at the Problem. First, I would clearly separate Salary and Bonuses for Tax purposes. Salary will be taxed at normal rates, while Bonuses would be taxed at special rates. My contribution will be to state that Salary will enjoy the benefits of deductions; Bonuses will not. The second measure will state that all Salaries and Bonuses will be subject to the taxation; this to discourage the impending nepotism of award of bonuses to such things as Wives, Children, and Friends to drop below the contracted minimum Bonus subjugation to the Tax. Third, I would establish a common rate of Credit extension for each Income level, and tax any overage as a form of Bonus extension. I would finally set the Bonus tax rates no higher than the nominal Personal Income tax rates currently on the books–simply eliminating the Tax Credit, Deductibles, and all Tax Exemptions from application of the Bonus tax.

Such a Taxation would increase total federal tax revenues by an estimated 11% overall. The system should be implemented immediately, not waiting for better economic times. There will be vast opposition to this position, but it is the only Condition under which such a Tax increase would work; showing that there is a manner to increase Tax revenues even in a sharp Recession, without worse impact on the economy. I thought of a Tax deduction for this special Income, where the Bonus Earner would get a percentage Tax deduction for the Bonus if he could prove to have spent the funds on Consumption by the time of Tax filing; though I discounted this measure as it led to accountability issues–of which We have far more than necessary. lgl

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