Forget 47%, go for 100% with a consumption tax instead

The talk this week was about the 47% of Americans who pay no federal income tax.  Keep in mind, they pay other taxes, payroll, gas, etc.

The problem is that the US government takes in approximately 18% of GDP and spends 20.5% (these are forty year averages).  That is unsustainable and has grown the deficit under both parties leadership.

Consumption Tax Now
The answer is not to tax wealthier Americans, there simply isn't enough money at 100% tax to help.  The answer is not to increase taxes on the middle class either and certainly taxing those 47% of Americans who pay no federal income taxes (retirees, low income people, military) will help a little but really won't move the needle either.

The answer is simply a flat tax on individuals of say 5% and corporations of say 5% and then a consumption tax.

The consumption tax would not only tax the 47% a little but would also tax the millions that are living and working under the radar, in the black market, etc. because everyone consumes, milk, gas, houses, etc.

The 5% on corporations may seem small but in 2011 while the headline tax or base number is 35% (highest in the world), the average US corporation paid just 1.3% in taxes after deductions (lowest in the world).

We might need to adjust the numbers slightly to make sure the government takes in enough to run the country, say to 6% but businesses would have the certainty they are looking for and without the massive loopholes, businesses could concentrate on building business, not tax dodging.

This idea would have massive bi-partisan support and would pass congress easily.  The President who signs this bill into law would be popular long after its passage.


What Is Labor Participation Rate?

Along with today's unemployment figures came the labor participation rate which is simply the percentage of people in the country that are working (that want to work).

The value of full employment changes with demographics (more people living longer now) and with more women joining the workforce every year.  Keep in mind that 100% includes retired folks, kids, etc and since baby boomers make up a larger percentage of the population now than in the past, it's more likely that 67.5% is full employment.

At 63.5%, today's reading is the lowest since 1981.

That four percent (difference between 67.5 and 63.5) represents about 12 million people unemployed (4% x 300 million people in the US) which is probably not coincidentally the amount of jobs that republican presidential candidate Romney says he wants to create.

It is up to the voters in less than two months now to decide whether they believe this lack of jobs is the fault of President Obama or his situation created during the great recession.