The Road Ahead for Middle Class Families | Reader's Digest

The Road Ahead for Middle Class Families

Middle-class families are squeezed as never before. Here, ten ideas to help us all get back on track.

By Barbara Kantrowitz from Reader's Digest | November 2011

IDEA
10 Reform the tax system
Boston University economist Laurence Kotlikoff wants to overhaul the way we finance the federal government to make the system fairer to all, including middle-class taxpayers. “The public is fed up, and they’re waiting for answers,” Kotlikoff says. The first step in what Kotlikoff calls the Purple Tax Plan (to unite red and blue states): reforming the payroll tax to make it less regressive. Kotlikoff advocates levying the employee portion of the tax only on earnings above $40,000 and eliminating the ceiling, which is currently $106,800. He would also replace personal income taxes with a federal sales tax of 17.5 percent. To lessen the blow such a tax would impose on lower-income families, Kotlikoff proposes a monthly payment to every household, based on size and income, which would essentially reimburse poorer families and put most of the burden on richer households. A third prong of his plan would levy a 15 percent tax on all inheritances and gifts above $1 million. Kotlikoff’s plan also calls for eliminating the corporate income tax to make the United States an investment haven.

WILL HELP:
If all the parts of this plan were enacted, Kotlikoff says everyone would benefit.

WON’T HELP:
The people who exploit current loopholes, who will lose those advantages.

CHALLENGES:
Massive tax reform requires Democrats and Republicans to work together; that seems unlikely at the moment. Dumping the income tax for a federal sales tax is an idea that has failed repeatedly to gain traction.

See also:
Snapshot of Middle Class Families

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