Shared Economic Growth: No Tricks, Just a Powerful Tool to Change America

Shared Economic Growth:
No Tricks, Just a Powerful Tool to Change America

Shared Economic Growth is a simple 3 page bill that keeps the well established enforcement mechanisms of our income tax system in place, and improves them by eliminating incentives for corporate tax and capital gains abuses. It replaces a losing war to control corporate income with a simple, easily enforced tax on 1099 income.

Corporations are allowed a deduction for dividends they pay out, limited to the amount of their pre-deduction tax liability. To the extent that they elect to pay out dividends, they are thus freed from U.S. tax.

Favorable tax rates on capital gains and dividends are eliminated. This causes the dividend deduction to be self funding for dividends paid to individuals. Because corporate earnings are increased by up to 54% due to the lack of U.S. tax, lower bracket shareholders come out ahead, and upper bracket shareholders come out close to even on this trade.

Foreign portfolio investors are subjected to an offsetting 35% withholding tax, holding them neutral

Currently the U.S. gives corporations a dollar-for-dollar credit for taxes paid to foreign countries, making them care less about the tax those countries impose. Most of our trading partners do NOT allow their corporations a credit for U.S. tax, making their companies shy away from high U.S. tax rates. They exempt foreign income. Because Shared Economic Growth would eliminate U.S. corporate level tax on both foreign and domestic income, we could change the foreign tax credit to a deduction, effectively matching our trading partners and complying with our treaty obligations, while forcing more dividends to be paid to - and taxed to - shareholders.

To make up for the revenue loss on dividends flowing to IRAs, 401ks, and defined benefit retirement plans, individual income over $500,000 a year is subjected to a tax at the rate of the employee FICA tax imposed on middle class wage income - a tax that people currently don't pay on most of  that over $500,000 income. The all-in effective income tax rate on persons earning over $500,000, including state taxes, would still be less than 40% on average. This improves the fairness of federal funding for overall retirement security. And, since the tax revenue lost on dividends paid to retirement savings accounts is only temporary, the net tax dollars collected from this offset will be recycled back to help the government to get through the coming Social Security funding crisis. Both personal retirement savings AND tax revenues for Social Security would be increased.