Why wouldn't this work? (Change in US tax law)

For the longest time I’ve been wanting to do away with the annoying practice of filing tax returns every year. I’ve thought of a way to do it, but have a feeling that since it isn’t done this way, then maybe there are good reasons for it.

What if, taxes were only one what we earned at the time that we earned it? This could be paychecks, stock options, earned interest, whatever. Of course we would have to change the way deductions are done, but I think that if we kept it limited to personal income then such a situation could work.

ETA: To further explain, this would mean that it wouldn’t matter what you made over the course of the year, the tax rates would only apply to what you get paid, each time you get paid.

Of course there are also probably a million reasons why it wouldn’t work, and that’s what you’re here for. So go ahead, blow holes in my idea. I’m interested in hearing what the flaws would be.

Assuming you’re talking about a flat tax, I don’t see why it would be a problem.

If you want to preserve the current progressive tax structure, where richer people are taxed more and poorer people less, then you run into problems where irregular work, bonuses, etc. would be taxed at a higher or lower rate than the yearly income justified.

Imagine, for example, that you want to tax people who make below $26,000 15%, $26,000-$104,000 25%, and $104,001+ 35%, so you’d tax a weekly paycheck of $500 15%, $500-2000 25%, and more than $2000 35%. Then imagine that I make $23,400, but I make it working one week at a time for $900 and taking one week off. I get taxed at the 25% rate but at the end of the year I really only owe at the 15% rate.

Sounds like you are proposing a flat tax. Which has numerous proponents and opponents. Google “Flat Tax” and you’ll get lots of pros and cons.

People would still have to fill out returns as we don’t all have tax withheld from our income. See waitresses, businesses, etc.

Your second paragraph is not a flat tax.

Yeah, it would probably have to be a flat rate, which most dopers think is a bad idea, so there’s a flaw right there. Although personally I have no problem with a flat tax, and if it doesn’t bring in enough money, hell, throw in a national sales tax. But I’m getting off track.

So, it would work we used a flat rate, but a flat tax is considered a flaw by most dopers.

Forget Googling, from past flat tax discussions it’s clear a majority of dopers are against flat taxes, and it’s dopers opinions that I’m interested in.

Well, if I had my way, no-one would rely on tips.

Wow, I was not thinking when I replied to this post earlier. The whole idea of my tax proposal would be that you wouldn’t take into account what their salary or wages, or whatever, adds up to. The taxes would be based on the pay that the person received. So for a progressive tax rate, if you receive a check for $900 it get taxed at x%. If you receive a check for $1,500 it gets taxed at Y%, and so on. It doesn’t matter what it will add up to in a week, in a month, in a year, etc…

A lot of people get X deducted from each paycheck, and when they total up their taxes in April, their withholding pretty much equals their tax bill. So for that group, your plan would be just fine.

But for millions of people, the mixture of deductions, tax credits, unearned income, etc., etc. winds up making a substantial difference in their total tax bill. How can you reconcile that on a weekly or monthly basis.

For people who work on commission (think of a real estate agent) they can make thousands of dollars one month and nothing the next. Should their tax for the month be based on the assumption that they’ll make that same amount every month? What about the months they don’t have any income, but still have all the expenses associated with their job? How would they have a chance to write off those expenses?

Well, I did admit that deductions would have to be changed. How about you send in receipts or other proof of deductions and if you already paid taxes, you’d get a refund, or if you haven’t paid yet, then you’d get that amount of on future taxes?

You couldn’t have a progressive tax rate. If you did, there’d be a really big loophole.

Say you used the rule: If you make $900, it gets taxed at 5%. If you make $1800, it gets taxed at 6%.

Jane makes $1800/month. If she were paid monthly, she’d be taxed at 6%. Jane thinks this through, and goes to her boss and says “Look, can you pay me four times a month?” Jane’s boss agrees, and with each paycheck of $225, Jane is now back down to 5% (if not lower. If Jane can get paid frequently enough, her paycheck will be low enough that she’ll be below the tax threshold and no tax for Jane!)

You’d need a flat tax.

Whether people rely on them or not, it is still taxable income.

So in your king for a day idea, you would eliminate giving tips to wait staff? You would dictate not only how people pay taxes, but how they earn money as well? All hail King Nobody!!! :rolleyes:

This is (roughly) how income is taxed currently, for federal income tax. The income tax deduction schedules take into account the total pay in a pay period, and your pay year-to-date, in order to calculate the % for that pay. That’s why a normal paycheck (say, $2000) might get taxed at 14%, while a large annual bonus check (say, $10,000) might get taxed at 38%.

It never fails to amuse me what posters will get upset over. I throw out an idea I have and how things would work if it was implemented and you get your panties all up in a bunch about it. Don’t worry, this is all hypothetical. I’m not going to force my will upon anybody. It’ll be alright.

And then at the end of the year you have file paperwork, or hire an accountant, to see if you paid too much or too little. It sucks if you have to pay the IRS and/or your state government, and while refunds are nice, it would be even nicer if we would just get bigger paychecks to begin with. In my personal opinion anyway.

I’m not sure how this is that much different than what we have now, except you don’t have to provide receipts. (Unless you’re audited. Then you better have them available).

In that case, instead of getting paid twice a month, I’d just have my employer pay me at the end of each day. Instant lower tax bracket!

How is that different than filing a tax return?

Also, are you going to eliminate all deductions and credits? How does my employer know how much I contributed to charity or paid in mortgage interest? How will I get tax credit for having two kids or buying a house?

Yeah, I guess my idea would only work on a flat tax system. Which is fine with me because I have nothing against flat taxes. But I guess then the debate moves to the idea of a flat tax itself.

OK, well, I think my question has been answered. Thank you.

And actually, just my personal opinion and not a royal decree :cool:, I’d love to get taxes low enough that we could get rid of most or all deductions. I know, a pipe dream, but that’s how I’d prefer to handle the subject of deductions in my new tax scheme.

If you could win the election and guarantee a flat tax system of say 15%…I would vote for you.

However, arbitrarily mandating pay increases, and the manner in which people are paid should be off limits, and left to the market to decide. This should not be the function of government. Tax policy should be about raising the necessary funds to run the government, not driving other social policies.