1. SIMPLIFYING THE US FEDERAL TAX CODE TAX PROPOSAL

2. AGENDA Introduction Current State of US Federal Tax Code Potential Tax Reform Options Impact of these options Recommendations to move forward Proposed Tax Structure Expected Revenue Expected Outcomes Assumptions and Considerations

3. INTRODUCTION As we move to a global economy, the United States plays an important role as the most vibrant economy that remains the most stable, pro growth environment across the world As we move to a global economy, the United States plays an important role as the most vibrant economy that remains the most stable, pro growth environment across the world The importance of the US economy on the world is increasingly more apparent as we have seen direct correlation of world economic turmoil following any economic uncertainty in the US economy The importance of the US economy on the world is increasingly more apparent as we have seen direct correlation of world economic turmoil following any economic uncertainty in the US economy To continue to provide a pro growth environment for business in the US, several areas need to be tackled; this presentation looks at our current tax code and its impact on growth To continue to provide a pro growth environment for business in the US, several areas need to be tackled; this presentation looks at our current tax code and its impact on growth

4. CURRENT STATE OF US FEDERAL TAX CODE Overly complicated, overbearing, and unfair Expensive for government to force compliance Expensive for individuals and corporations (filing costs) Large portion of tax burden for middle income is property taxes and OASDI Can easily reach 25-30%, especially for those paying self employment tax The same burden is reduced as level of income increases Cap on OASDI Property taxes do not escalate linearly to match income increases Many earn capital gains instead of income further reducing overall tax burden Exemptions from high local taxes has resulted in half the country not paying any federal income tax Corporate taxes Not bringing in expected revenue (~10%) due to loopholes Has even resulted in sending refunds to corporations that are profitable

5. POTENTIAL TAX REFORM OPTIONS Two major proposals by the two parties in power Reduce taxes Increase taxes on the rich and large corporations Options are diametrically opposed Have little chance of moving forward Neither of these options will really remediate the overall structural issues in our overly complicated tax code Potential alternative options already proposed Sales/vat tax only Eliminate (certain) exemptions Flat tax

6. IMPACT OF THESE OPTIONS SALES/VAT TAX Reduces tax code Percentage of tax would be nearly 35% Will likely have negative impact on consumption Will have a higher penalty against lower and middle income households

7. IMPACT OF THESE OPTIONS ELIMINATE EXEMPTION Would need to remove a large number of exemptions to offset the budget deficit Would burden lower and middle income households more than higher income households Compliance cost and filing costs still high Changing exemptions may cause negative impact to specific markets Likely to be unpopular

8. IMPACT OF THESE OPTIONS FLAT TAX Would eliminate all loopholes Capital gains tax rate needs to be evaluated Tax rate would need to be close to 30% Would burden lower and middle income households more than higher income households Unlikely that lower and middle income earners could pay that much Potential to disrupt the economy Less disposable income for majority of households as total tax burden would end up going beyond 50%

9. RECOMMENDATIONS TO MOVE FORWARD A hybrid approach is more balanced Based on the 2005 “President's Advisory Panel for Federal Tax Reform” commissioned by President Bush Tiered income tax with a federal sales/vat tax No deductions for income tax Will need to eliminate property taxes If not exempted, would unfairly burden lower/middle income households Property taxes mostly used for public schooling Should be moved to a federally funded model Federal tax will need to be high enough to cover it

10. PROPOSED TAX STRUCTURE Federal Sales/VAT of 17.5%, but exempt the following all government transactions (local, state, and federal purchases of goods and services) all government sales transactions (purchase/use of government services by citizens) all uncooked/unprepared food clothing items with individual cost under $50 home heating oil, gasoline, diesel fuel, natural gas, water/sewer service, and electric service (or any other fuels used for personal transportation and home heating) Tiered individual income tax Lower income – 9% tax rate ( Exempt taxes for income below 1.5 times local minimum wage) Middle income – 12% tax rate High income – 16% tax rate Short term capital gains should continue to be treated as income Long term capital gains should be considered investments, and should not be taxed Possible to include a reducing over time tax (x% for 2 year investment, y% for 3 years, and so on) Amount of revenue generated is unlikely to be substantial enough to warrant the overhead Current loopholes on income that should be considered short term should be eliminated Corporate tax 1% of profit for corporations with over $500k of profit Payroll tax To continue to pay for unemployment, payroll tax of 1.5% All other current income taxes eliminated (including OASDI/Medicare)

11. EXPECTED REVENUE Sales/VAT – $1,300B ($1.3T) Income Tax - $980B Corporate Income Tax - $13B Payroll Tax - $117B Total Revenue - $2,412B In addition, for the next 30 years(to be phased in after 2014) An additional 3.75% sales/VAT tax for debt relief An additional 3% income tax across the board (without the same exemption for 1.5 time minimum wage) for debt relief An additional 1% corporate income tax for debt relief These will combine to eliminate the non shadow federal debt shadow debt will simply be written off as the collection process will no longer be a separate tax (OASDI). current process for determining social security benefits will continue to be used Expected annual tax collection for debt relief - $553B This tax should show up as a separate line item on all receipts, paychecks, etc. This would tentatively pay the debt off around 2040 All numbers are based on 2011 tax base

12. EXPECTED OUTCOMES Does not penalize any income earners regardless how much or how little they make Corporations no longer burdened with careful planning, preparation, and accounting costs Individual tax filing is simplified Individual savings and investment would likely go up Lower payroll tax and lower corporate tax should help drive business growth and investment in US Historical evidence shows consumption based taxation has net positive impact on economic growth Government is incentivised to make rules and regulations that don’t hinder consumerism as it would directly impact tax revenue There would be less tax evasion as direct rates would be too low to make it worth attempting Less penalty on corporations to hire someone – very small payroll tax; investment in people has less tax than investment in equipment

13. ASSUMPTIONS AND CONSIDERATIONS Interest payments on debt can be covered by debt relief funds (approximately $275B in 2011) Tax revenue is about $300B higher than current revenues for non debt related outlays To tax to the level of current expenditure would be detrimental to the US economy Possible to increase some level of taxation, but not to the level of current expenditure Expenditure rate needs to be reduced over the next several years It is expected that the federal government will not be able to contain costs until there is real economic growth, acting as the only growth engine Long term, the current expenditure model is unsustainable Real cost containment is required in order to allow debt reduction, and eventual elimination Debt relief fund needs to be eliminated when the debt is paid off Must not be used for any other purpose Law must be written accordingly Override should require a 90% majority in Congress