The Kepner Income Tax is an approach to

taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...

, suggested in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

, that would collect on a progressive

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

(with no deductions, credits or exemptions) and an

estate tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an es ...

. It would repeal the

corporate tax A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at ...

and

payroll tax Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the em ...

es (including

Federal Insurance Contributions Act tax The Federal Insurance Contributions Act (FICA ) is a United States federal payroll (or employment) contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for reti ...

(FICA)). All income, from whatever source, would be taxed the same (i.e., whether income from wages, dividends, interest or capital gains). The plan was proposed by Hayden Kepner of the law firm Arnall Golden Gregory. Kepner states that such a tax system would be transparent, easily understandable, could fit on a post-card, and everyone who earns an income would pay taxes. The plan would expand the tax base and he suggests that it would have an incentive to keep federal spending at modest levels (under our current system, approximately 50% pay no income taxes and may not have the incentive to try to keep federal spending in control). The personal income tax would be made up of three progressive rates: 15%, 25%, and 35% (locked together to prevent raising of one rate without raising the others). The estate tax would apply an annual wealth tax of 1-2%, which would be similar to property taxes currently administered at the state level, but would include all property (i.e., stocks, bonds, real property) above a threshold amount.

Predicted effects

Tax burden visibility

Supporters assert that the proposal would make the cost of federal government visible. Under the current tax system, the federal government collects revenue through a wide variety of taxes on individuals and businesses. Thus the cost of government is spread out among many different avenues and may not be fully visible to individual citizens. For example, corporate taxes and compliance costs are passed partially from producers to final consumers when producers include those costs in the retail price of goods and services. Proponents claim that the Kepner income tax would reduce the " K Street tax lobbyist's" ability to influence legislators to manipulate the U.S. tax code for the benefit of their clients. The plan does not prevent future changes by Congress; however, due to the transparency of the tax, the American people would be aware of changes to the tax base from exemptions because a change in tax rate would likely be reflected. Politicians would have to justify to the American people any tax increase or decrease. In addition, the Kepner tax would remove the use of tax exemptions for

corporate welfare Corporate welfare is a phrase used to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment for corporations. The definition of corporate welfare is sometimes restricted to direct government subsidie ...

Effect on international business locality

Global corporations consider local tax structures when making planning and capital investment decisions. Lower corporate tax rates and favorable transfer pricing regulations can induce higher corporate investment in a given locality. Such investment translates into higher economic growth.

Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...

's real GDP growth was almost three times higher than the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...

average between 1991 and 2000. During the decade, Ireland taxed corporate profits from manufacturing at 10%, the lowest in the EU. The United States currently has the highest combined statutory corporate income tax rate among

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...

countries. The Kepner tax would eliminate the corporate income tax, which supporters argue would make the United States a

tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

and boost the economy.

Critique

Critics claim that the Kepner Income Tax system could penalize work and discourage

saving Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recur ...

and

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

. Phil Hinson stated that the Kepner tax would provide many benefits over the current system; however, Hinson argued that the

tax rate In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...

s would need to be higher than the FairTax proposal (often criticized by Kepner), that special interests would manipulate the tax, and that no formal proposal or research exists. The principles of an income tax are also argued by critics.

Frank Chodorov Frank Chodorov (February 15, 1887 – December 28, 1966) was an American member of the Old Right, a group of conservative and libertarian thinkers who were non-interventionist in foreign policy and opposed to both the American entry into World ...

wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession."{{cite web, url=http://www.mises.org/fullstory.aspx?control=1597, title=The Origin of the Income Tax, publisher=

Ludwig von Mises Institute Ludwig von Mises Institute for Austrian Economics, or Mises Institute, is a libertarian nonprofit think tank headquartered in Auburn, Alabama, United States. It is named after the Austrian School economist Ludwig von Mises (1881–1973). It wa ...

, last=Young, first=Adam, date=2004-09-07, accessdate=2007-01-24

Notes

External links