The Clean Slate

Frequently Asked Questions (FAQs)

Frequently Asked Questions about The Clean Slate plan:

Q. Isn't the VAT too hard on low income people?
A. The VAT can be made more progressive by either exempting necessities or paying rebates to low income people.  The Clean Slate overall is more progressive than the present system because there are no deductions against investment income and there is a higher rate on very high compensation. The withholding rates are progressive.  It is fairer overall because there are no tax shelters and higher compliance.

Q. Won't there be a lot of tax evasion?
A. There will be less evasion.  The IRS says 15% of tax revenue is now lost to underreporting, excess deductions and non-filing. That is $350 billion and growing.  The VAT will catch some of those losses because it applies to all purchases.  Strict withholding on investment income and compensation will eliminate more losses.  The Tax Policy Center estimates that a simple withholding system allows about 5% evasion while a simple self-reporting system can allow 50% evasion.  The Clean Slate would move evasion rates closer to 5% from the current 15% because it is a withholding system and collects VAT on sales.

Q. Won't there be winners and losers?
A. Yes, but overall fairness will improve and the system will be simple and understandable.

Q. What about corporations and proprietorships?
A. There is no change to their tax system.  Individuals conducting businesses with more than $35,000 of business revenue would be taxed like all other businesses, just as they are now.

Q. How do companies set withholding rates if the payees have several jobs or change jobs?
A. The IRS now collects payment information from all sources with respect to each person.  The IRS can add them up and notify each company what the withholding rate is for each person based on the total.

Q. How do companies withhold on capital gains if they don't have the tax basis?
A. Many companies, like banks and brokers already have the basis information.  In other cases the company would have to get it from the seller.  If the seller does not supply it, the full amount is taxed so there is every reason to provide the tax basis to the company for withholding purposes.

Q. How do you tax the transaction when one individual pays another one and no one fits the business definition for filing?
A. Some taxes would be missed.  The VAT would pick up some of that when the money is spent.

Q. Who wins and who loses under the Clean Slate?
A. Fairness, simplicity and clarity are more important to most people than trying to juggle competing special interests.  The present system is so full of winners and losers that the public does not support it anymore.  "4 in every 5 adults say the federal tax code is complex (85 percent) and say that the tax system needs to be completely overhauled or needs major changes (82 percent)," according to a 2009 poll by Harris Interactive for the Tax Foundation.

Q. How can the Clean Slate ever pass Congress?
A. Maybe no tax reform can get passed. The Clean Slate has a better chance because it does not fit into the polarized positions that have deadlocked the debate. Republicans and Democrats can each find something to like in the plan. So will economists. The public will really like it. Tinkering with the present system just makes a bad system worse.

Q. What happens to the Clean Slate if Congress does not reduce rates by 50%?
A. The important ideas in the Clean Slate are to have companies collect all taxes by withholding, eliminate deduction corruption, and add a consumption tax. This new structure works well with different rates as federal budget requirements change from time to time.

Q. What about negative income tax payments?

A. Presently some low income taxpayers who pay no income taxes receive payments from the IRS when they file a return. Such payments should be handled by Health and Human Services within a comprehensive program of government assistance based on total need, rather than just a tax return.

Q. Are you crazy?  How can this possibly work?

A. Yes, the internal revenue code will send anyone round the bend.  

    The revenues lost by the tax cut are made up by eliminating deductions and adding a 12%VAT.  Withholding allows us to eliminate tax returns because only companies would have to deal with the IRS and they are equipped to do so.




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