The Progressivity of The Common Sense Tax

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The Common Sense Tax is a proposal to vastly simplify federal taxation. The proposal is designed to be revenue-neutral assuming no response of the economy to the proposal’s significant growth potential. The proposal is also designed to maintain or enhance the system’s progressivity, as properly measured, to improve most Americans’ incentives to work and save, and to significantly expand the economy’s productivity and output.

Key Features of the Common Sense Tax

The Common Sense Tax or CST is extremely simple. It has just four features – a new, lower-rate FICA tax with no earnings ceiling, a single-rate tax on the incomes of married and single households above high thresholds, the taxation of corporate income at the personal, rather than the corporate level, and the replacement of the federal Gift and Estate tax with taxation of bequests and gifts received under the CST’s income tax.

Key features include:

A New Lower Rate FICA Tax with No Ceiling

A New Personal Income Tax

Elimination of the Corporate Income Tax, but Immediate Taxation of Corporate Profits at the Personal Level

Elimination of the Federal Estate and Gift Tax, But Taxation of Bequests and Gifts Received under the CST Income Tax
 

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Is the Common Sense Tax Progressive?

The CST has a number of progressive elements. Consider first payroll taxation. Today's FICA payroll tax taxes workers (ignoring the employer-employee tax “payment” distinction) on 15.3 percent of their wages up to $113,700, but only 2.9 percent above this ceiling, increasing to 3.8 percent for married households earning more than $250,000 and single households earnings more than $200,000. Consequently, four fifths of today’s payroll tax is extremely regressive.

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The mission of the Common Sense Tax organization is to promote a comprehensive tax reform plan known as the Common Sense Tax.