Taxes

Great Debates
1

First post here…so I apologize if it is in the wrong place.

Cecil, why doesn’t anyone talk about a progressive flat tax?

Exempting the first, say, $24,000 of income largely eliminates any whining about the tax favoring the rich, or being regressive. Doing so also allows the government some room to eliminate more wasteful government spending :slight_smile: (i.e., the government can say, “get a job, it’s on us.”) and provide low income folks enough income to at least feed, house, clothe and educate their families at a subsistence level.

Create another bracket at $24,001 to, say, $200,000 that has a flat tax around 20%. Someone making $100,000 in this scenario pays 15.2%, not an unreasonable sum, IMHO.

Create the top bracket above $200K in income, and establish the law so that any future tax cuts come in here, first. At the beginning, set this rate to meet current revenue needs, and fiddle with it from there.

Create a similar structure for business and capital gains, with the rates at the beginning established to meet the current government revenue stream, and move them from there.

The current tax code is a monument to rich white guys writing rules so rich white guys get richer and whiter, if that is possible. There is no reason in the world I should wonder who I’m cheating every year (myself, or the government?) due to the complexity of the damn thing, and my return is relatively simple.

The actual rates and brackets can be discussed by reasonable people, and are open for debate as far as I’m concerned. But the concept seems sound.

To me, this is the best of both worlds.

2

The system you describe is pretty much that currently in use in the UK. The tax bands are set at much lower levels than the ones you propose, but the basic structure is the same, with an untaxed basic allowance, a flat rate for most incomes and a higher flat rate for higher incomes. (These may, of course, change when the Chancellor of the Exchequer makes his Budget statement later today.) And you know what, lots of people still whine about it favouring the rich and about it being regressive. Many British taxpayers would regard their current income tax structure, which largely dates from the years of the Thatcher governments, as a monument to rich, Tory guys writing rules so rich, Tory guys get richer and more Tory. The structure of any tax system is always open to debate.

3

A flat-rate tax was in place in Hong Kong when I lived there (92-95) across the board - there was a tax-free income band (around HK$70,000 - just under US$9,000), and everything above that was taxed at 15%. No more bands, nothing else. It worked to a large extent, leveraged by low corporate taxes (again at a flat rate) to stimulate commerce, with big budget surpluses in the boom years. They didn’t have welfare payments or publicly-funded pensions (though they do have a National Health Service), so the rate might have to be higher to fund such things.

4

I’m not sure how jonorato’s proposal differs from a graduated income tax. It just has three tiers instead of five, or seven, or nine, or . . .

A flat rate tax has one tier (or, at most, two tiers, one of which is taxed at a rate of 0%). Anything more, and I don’t see how you can call it a flat-rate tax. You’re just arguing about how income should be tiered, and what rate each tier should be taxed at.

5

Now I am not arguing that the current tax code is good and doesn’t need to be changed but I have a big problem with the OPs statement:

The current tax code is a monument to rich white guys writing rules so rich white guys get richer and whiter, if that is possible. There is no reason in the world I should wonder who I’m cheating every year (myself, or the government?) due to the complexity of the damn thing, and my return is relatively simple.

I personally have been on both ends of the income spectrum. When I left the military 10 years ago I enrolled in college and applied for a student loan. (I remember this quite well because the student loan people really pissed me off) My income for the year before was a whopping total of $13,000 gross and the kicker is that about 1/4 of that was nontaxable income.

I just finished my taxes for this year and I payed in more than some people make and I STILL had to pay in so you tell me how the current tax code benifits rich white guys. I am still waiting for Uncle Sam to knock on my door and tell me that I make enough money to exempt me from paying taxes.

If you want to argue for something argue for a national sales tax. Tax me on what I consume not what I make.

6

To UDS: It seems to me it needs to be progressive to be feasible, in terms of revenue. I have no problem with a FEW other tiers, but the point of it should be to keep relatively simple. We’re dealing with a fairly simple concept at its baseline: The government needs money to pay for services rendered. The idea that paying them needs to entail 2+MILLION words and tens of thousands of pages of code is absurd. I’m talking about a PROGRESSIVE, FLAT tax. Why should I have to invest so much time and anxiety and effort to write my own govenment a check?

To nswgru1: Enron managed to avoid income taxes 4 out of the last 5 years. Doesn’t that piss you off at all? They did it because they can, or could. And they’re not alone. Hire yourself a clever enough tax attorney, and I’ll bet you could lower your effective rate with some advanced planning and some flexible ethics.

The problem I have with the sales tax is that it IS truly regressive, without a similar layer of (no doubt) increasingly complex “deductions” (It doesn’t hurt Bill Gates to buy a gallon of milk as much as it does someone making $10K, and the same is true for all of life’s necessities. Exempting a liveable income from tax eliminates this problem.)

To APB: Yes, of course a tax system can always be debated. But what say we have one that can be understood TO be debated. The current one is incomprehensible; even if you spent your lifetime studying it, the changes every year would make it very hard to master. I have no problem with debating it, but to me people have given up in a way much like the way they have in terms of voting…they just don’t think they can do anything about anything anymore. The Man is just too strong.

And TONS of our problems, Enron a notable recent example, can be traced directly to the tax code as the ultimate source of their ability and resources to circumnavigate it.

I would venture to guess that 80% of white collar crime can be traced directly or indirectly to the tax code.

7

Well first of all to cite Enron as an example of the run of the mill type of people that do not pay taxes is absolutely absurd. Why do you think they have been in the media for so long and with such coverage? I’ll tell you because THAT degree of coruption is relativly rare.

To address the idea that corporations (read rich white guys) don’t pay taxes…I will have to disagree with that statement also. I had my own business (C-corp) for 4 years. Yes there are ways to REDUCE the amount of taxes that a corporation pays…but if a corporation is sucessful (making a profit) and not investing that profit back into the corporation (capital equipment expenditures etc etc) you still pay taxes. That is just the simple truth of the matter. Heck if you don’t believe me just try starting your own bussiness and see for yourself. It will open your eyes to a few things.

You also bring up the fact that Bill Gates can buy more milk than you can but then on the other hand you insinuate that he doesn’t pay taxes because Enron didn’t. Well don’t you think it would be more fair to tax Bill on the MILLIONS that he SPENDS each year than to not tax him on the MILLIONS that he EARNS each year? You also totally ignore the fact that a national sales tax could:

a. not collect taxes on food items
b. tax food items at a lower rate
c. tax “luxury” items at higer rates
etc
etc
etc
you see where I am going with this.

So what do you think now?

8

I think in no time we would have a tax code that is similar to the one we have now in terms of complexity. Is liquor deductible? How much, over what period of time? What’s food? Are cookies and Crisco food? And on and on and on.

Same with luxury items. Is your second car a “luxury item?” In what circumstances? What about your engagement ring? The list is endless, and with government working like it does, it would lead to the same madness we all seem to agree we’re dealing with today.

Lots of huge corporations have managed to post massive incomes without paying income tax. Yes, Enron is a gross example, but I don’t hear anything about charges of tax evasion or fraud. Not a peep. It isn’t “corruption,” it’s right there in the code.

Bill Gates may be able to buy more milk than me, but that wasn’t my point. My point is that the tax Bill pays on the milk he and his family are likely to consume doesn’t hurt him as much as it does someone in the lower income brackets. I do NOT insinuate that Bill doesn’t pay taxes; quite the contrary, I’m suggesting that Bill needs a small army of people to figure out what he should pay, and that is patentedly ridiculous. And in the proposal I put forth, Bill gets to pay the same income tax on his first $24K and first $200K that everyone else does…and I’m not suggesting he would care, either.

And remember, as revenue needs drop, the top bracket gets first dibs on future cuts, the way I see it.

So, I’m only suggesting that it would be simple and reasonably fair and just, and could be set to provide, at least as a starting point, as much revenue as we take in today.

9

I think what you mean to say by this moronicly racist statement is that the tax code is generally written by wealthy people and hence tends to favor people in the same income bracket.

10

nswgru1

I disagree that you should exempt anything. In fact, exemptions would be the most insidious of conditions and would ruin the purity, equitability and simplicity of such a system.

The rich spend more on more expensive items and pay more taxes. It is more equitable. Basic items are relatively inexpensive. If the poor spend their money on staples, they are buying the least expensive items and their tax bite is in line. (The markup on a Cadillac is more than on a Cavalier).
The rich, spending megabucks for yachts, luxury cars and the like are paying more real dollar taxes and paying them on items with higher markup.

If everyone pays the same percentage, with no exceptions, it reflects the same ratio of buying power for each group.
With a 20% flat tax:
If Guy A makes 30,000 and spends 80% of it, ($24,000), he will have a tax nut of $4800. He keeps $1200 or 4% of his income.

Guy B makes $300,000 and spends 80% of it, ($240,000). His nut is $48,000. He keeps $12,000 or 4% of his income.

(In reality, though, I suspect Guy B would spend more than 80%.)

It’s true that Guy B could live more frugally and pay less taxes. (Guy A doesn’t really have this option). If they both save the excess, Guy B has a larger base on which to build wealth. He will get ahead more readily than Guy A. This will have the undesirable effect of widening the poverty gap, but it’s happening now for other reasons.

For consumers, income is the wrong “base” to use, because it doesn’t reflect a real value. The rich have more opportunities to shelter income and therefore, pay proportionately less taxes. The poor have no shelters. They pay on a real income number. With a spending-based system, there are no shelters, unless you’re stealing, bartering or scamming.

As for Corporations (suppliers), taxes should be based on what they provide. The measure of this is profit. The current system uses the right base, but it’s just too screwed up its practice.

11

jonorato wrote:

It sounds like you’re not talking about a “progressive flat tax” at all (which is a contradiction anyway).

You’re really talking about simplifying the tax code.

Imposing a flat tax will not necessarily simplify the tax code. A flat tax can still have deductions, depreciation rules, separate capital gains rates, etc. (although it would probably eliminate the need for Alternative Minimum Tax).

Nor, for that matter, will simplifying the tax code necessarily require a flat tax. The first post-16th-amendment Federal income tax was pretty darned straightforward, even though it was a graduated income tax with tax-brackets.

So … which parts of the curret Internal Revenue Code do you find the most overly complex, and how would you simplify them?

12

NutMagnet:

Thank you Thank you. You put it more eloquently than I ever could. (I am not a economist) I also agree that the tax system should be equal no different taxation level dependent upon whether an item is considered luxury or not. I just said that to try to appeal to Jonorato to stimulate him into thinking about the idea of a national sales tax.

Jonorato stop with the deduction bit ok. Under a national sales taxs system there would be NO deductions. Heck there wouldn’t be any paperwork for you personally to fill out. Everything would be taxed I only threw out the idea of taxing different items at different rates to get you to think about the implications of a national sales tax.

NutMagnet I like your idea about keeping the system for taxing corporations based on profits. The only thing that I might have a problem with would be the corporation structure. HMMM let me think about this for a minute but you know a S-Corp is taxed differently than a C-Corp. HMMM What say you?

13

NutMagnet wrote:

Your suspicions would be wrong. At least on average.

People who make more money tend to spend a smaller percentage of it. Sure, they buy yachts and private planes, but even so, the percentage of their total income that they spend on these things tends to be less than it would if they were making less money.

The “spending” of upper-income individuals tends to be on investment vehicles like stocks or commercial real estate. These types of “purchases” are not and probably never will be subject to a sales tax. Sales taxes tend to hurt lower-income individuals more, because a larger percentage of their income goes to personal purchases (e.g. cars, food, clothing, etc.).

14

The wealthy also shuttle their purchases out of the country. Sure every last one of them goes through customs when they get home and claim everything…and I’ve got a bridge in Brooklyn to sell you.

I used to work for a guy who went suit shopping in the Far East and made sure all the suits had been worn before he got back. “I had these with me all along.”

(Course, don’t bother anyplace there is VAT).

15

It sounds like you’re not talking about a “progressive flat tax” at all (which is a contradiction anyway).

It is NOT!!! This idea of mutual exclusivity is absurd. What are you people going to do about the basics of life? Tax them at the same rate for Bill G. as you do everyone else? Bogusly regressive.

And to eliminate the regressive-ness of it means another wildly complicated tax scheme.

“You’re really talking about simplifying the tax code.”

“So … which parts of the curret Internal Revenue Code do you find the most overly complex, and how would you simplify them?”

I find 2+million words and some 15K pages a bit much to handle for the average taxpayer. To write a check. Or cash a check.

“Jonorato stop with the deduction bit ok. Under a national sales taxs system there would be NO deductions. Heck there wouldn’t be any paperwork for you personally to fill out. Everything would be taxed I only threw out the idea of taxing different items at different rates to get you to think about the implications of a national sales tax.”

This COMPLETELY ignores the fact that there are things we ALL have to pay for; namely, food, shelter, education (for the betterment of us all), power, clothing, etc…

Eliminating a break here just SCREWS the lower income folks (see gallon of milk example; person A earning 20K spends a WILDLY higher tax rate than does Mr. Gates for said gallon/milk). Bill would spend a teeny tiny fraction of what Taxpayer Poor does for everything else they HAVE to spend money on. And to exempt this stuff leads to the problems I noted earlier. Infiinite “exceptions.” And their corrsponding lobbies, i.e., where we are today.

I note that NOBODY addressed these points:

"Is liquor deductible? (you can bet the liquor industry would say some of it is) How much, over what period of time? What’s food? Are cookies and Crisco food? And on and on and on.

Same with luxury items. Is your second car a “luxury item?” In what circumstances? What about your engagement ring? The list is endless, and with government working like it does, it would lead to the same madness we all seem to agree we’re dealing with today.

Lots of huge corporations have managed to post massive incomes without paying income tax. Yes, Enron is a gross example, but I don’t hear anything about charges of tax evasion or fraud. Not a peep. It isn’t “corruption,” it’s right there in the code."

C’mon, folks. You can do better than this.

16

jonorato wrote:

Is too! :stuck_out_tongue:

A “progressive” tax is, by definition, an tax where the tax rate increases as the amount of whatever-it-is-being-taxed increases. A sales tax that taxes sales of $1000 or less at 7% and sales of over $1000 at 9% would be a progressive sales tax. An income tax that taxes income under $20,000 at 15% and income over $20,000 at 28% would be a progressive income tax.

A “flat” tax is, again by definition, a tax where the tax rate does not change, regardless of the amount of whatever-it-is-being-taxed that is involved. A sales tax that taxes all purchases, no matter how big or how small, at 8% would be a flat sales tax. An income tax that taxes all income at 20% would be a flat income tax.

Therefore, “progressive flat tax” is a contradiction in terms.

17

scoff OK, have your semanitics-way. What it is called does not particularly interest me much, mostly because its name doesn’t have anything to do with anything of substance.

It is flat within the progressive bands. IOW, NO deductions in the agreed-upon bands. That seems flat to me. The idea that there is more than one band seems progressive to me. Thus, for lack of a better term, I call it a progressive flat tax.

A “pure” flat tax screws the poor, because there are a fixed number of items EVERYONE has to pay for, and they are taxed at a proportionately higher amount for those items under a pure flat tax, without going down the deduction road that got us into this mess in the first place.

The tax code we have now is asinine in its detail and complexity. Have you folks heard of tax rule Section 280A (g)), affectionately known as the Augusta rule? It allows people to rent their own houses at whatever price they can get tax free, as long as it is for less than 15 days, and it provides those who live near Augusta National golf course to charge whatever they want to rent their pads. Legend has it that Clifford Roberts, Mr. Augusta National for decades, lobbied Gerald Ford to get it in.

And what a surprise! There it is, along with LITERALLY thousands of others!

Can anyone offer some legitimate rationalization for why my proposal wouldn’t slightly offend everyone, the true definition of a good compromise?

18

(First of all thanks for the thanks.) This is a toughie. S-corps are taxed differently than C-corps. S-corps are considered “closely held” and any profit adds to the personal gross income of the owner(s). [aside]As an S-corp “owner” I think this is inequitable, and discourages the accumulation of any profits for say, R&D or future growth. And don’t get me started on things like having to pay for Unemployment Insurance (employer and employee), but not being able to collect. :mad: [/aside]

Corporate taxes are clearly in favor of large corporations. Small corps don’t get much of a break and some taxes are flat, resulting in just the kind of inequity jonorato argues against. I think the problems with corporate tax are largely rooted in the kickbacks, “favors” and pork. This makes it incredibly more difficult to disassemble than personal taxes. I don’t really have any good answers on this front.

Well well I am surprised. From whence cometh this info?

jonorato:

With no deductible, there are inequities, as you and others point out, but they are less so than the inequities in existence today. The rich find loopholes because it’s worth it for them to do so and because they can afford the cost of finding them. But, the simpler the system, and the more it is based on a number which can’t be fuddled, the fewer opportunities there will be to find loopholes. This makes the deal better for everybody.

I think you’re right that if they start tinkering with a flat tax, it’d become the quagmire it is today, so I’m disinclined to favor any bands or progression. They’re the start of the slippery slope.

People who are buying suits overseas and scamming customs and doing similar things to avoid taxes, and will continue to do so under any system.

Like most of you, the attraction of a national sales tax for me, is in its simplicity. By and large, simple systems are better than more complex ones. But then what do we do with all the tax lawyers and accountants?

(BTW I believe I read an editorial proposition once that postulated that a 20% sales tax would bring in more revenue than the current system.)

19

I expect many creative answers to this have occurred to everyone. Though the Geneva Conventions might not permit some of them.

20

jonorato, if you have any interest in communicating then it is useful if you have a common vocabulary and it is convenient if that vocabulary is what is already in common use. But if you came in and say “I want to outlaw pitbulls” and later explain that by pitbulls you mean breasts implants, it does not help the discussion.

As has been pointed out to you, a flat rate is a flat rate and not what you are describing which is not a flat rate. If I told you a piece of land is “flat” and you find out it is a stair I do not think you would agree it can be describet as “flat” just because each step individually can be described as flat.

If you want people to undertand you then you better use a good vocabulary. Anyone will tell you that you are not expressing yourself well.