American’s who retire should not have to bear the same tax burden as those who are still working.  That does not mean that they should be exempt from paying taxes.  The 33% Solution is the income tax schedule and a combined retirement/estate tax schedule.  Once a person elects to “retire”,[1] the New IRS exempts that person’s unearned income[2] from taxation until “retirement income” exceeds that person’s pre-retirement “earned income” that was already taxed.

The New IRS will know – just as the current IRS knows - exactly how much you earn in a lifetime.  You will have already paid tax on that amount.  Therefore, when you (or the second spouse in the case of married couples) “retire” or die, any asset you still own or control that adds up to less than the amount the New IRS shows you had earned during your working years will not incur a tax.

For example, assume that you made $1 million during your working career.  You wisely saved some money and invested carefully.  The mortgage on your $200,000.00 home is paid off when you “retire”.  Your savings and investments have grown to $1 million and you only take interest and earnings from these accounts.  This leaves the $1 million you saved intact.  When you die, 20 years later, you have taken $1 million of income from your retirement funds ($50,000.00 per year).  That money was tax-free because it didn’t exceed the $1 million you had earned during your working career.

This means your estate - the $1 million you had invested and your home that is now valued at about $400,000.00 - is worth $1.4 million.  Your heirs would pay the 33% Retirement/estate Tax and receive about $1 million from you as a legacy.