Posted on 08/15/2005 5:55:06 AM PDT by OESY
A major domestic battle looms this fall, when tax reform-- a centerpiece of the president's bold domestic agenda-- will finally be on the table. The President's Advisory Panel on Federal Tax Reform is expected to release its findings by the end of September. After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code.
Such a course would have perilous consequences, economically and politically. In fact, the administration has an opportunity here to boldly retake the initiative, to recover lost political support and thrust an already decent economy into high gear and, at the same time, make America better able to meet intensifying competition from China, India and others. How? By junking the entire federal income tax code and starting over with a flat tax. A growing number of countries are doing this -- and so should we.
The current system is beyond redemption, a beast whose complexity, confusion and outright unfairness have corrupted our economy and society. Americans waste more than $200 billion and over six billion hours each year filling out tax forms. They engage in all kinds of useless economic activity intended to take advantage of the code's complicated maze of deductions and to reduce taxes -- from deducting donations of old socks to making unwanted investments. The waste of brainpower -- at a time of increasing global competition -- is incalculable.
The code corrupts our system of government by encouraging the crassest political conduct and by creating a massive, intrusive federal bureaucracy. One-sixth of the private-sector employees in Washington are employed by the lobbying industry. One-half of their efforts are directed at wrangling changes in the tax code....
(Excerpt) Read more at online.wsj.com ...
My accountant will be just a busy as always, paying my 50 plus bills each week and tracking my business. Maybe a few less forms to file, but still has to report income of our employees to the SS office and still has to file and submit payments (much bigger payments I might add) to the tax collector. I would perfer the much smaller tax payments in exchange for the extra payroll forms.And if you purchase business items from resellers who also sell to the public, your accountant will spend a lot of time filing for the credits on the tax you paid.
"If a business went to Home Depot and bought some goods from Home Depot they would pay the tax at Home Depot which sells to both consumers and businesses. And they would keep their receipts and they'd use the value of those receipts as a credit against paying the tax in the future. So they would not be taxed and we would not ask the Home Depot to make the decision whether or not to raise the tax from them. Any business-to-business transfer will not be taxed at all."
Rep. John Linder
Testimony before the Ways & Means Committee
July 28, 2005
Service providrs are not "hit hard" at all. And the tax is not "23% of your gross" either. Your gross is the amount after segregating the amount of the sales tax since that is the government's money - not yours - and the customer pays it.
You are merely well-paid to collect it and forward it with the 2 line report. The government "taking" 23% of your gross from your bank account wouldn't work either as not everything is taxable nor does the bill have any provision that allows for that.
This will never happen. The ones calling the shots love all of the current tax loopholes. A nice thing to dream about though...
You may have "read" it, but you certainly didn't understand it since most of what you claim is quite incorrect and just the opposite of what the actual case might be.
The FaaairTax bill calls for the repeal of the 16th amendment and to see that this is a serious intent, just check this:
http://www.fairtaxvolunteer.org/smart/faq-main.html#42
The "agency" to collect the taxes are the existing state sales tax agencies.
Don't be so sure ... the FairTax support is now quite large and growing very rapidly.
Prior to the publication of The FairTax Book there were 600,000 active members of the group and this has now(greatly due to the book) by 5,000 additional members per day.
It is a burgeoning grassroots movement. We'd welcome you aboard.
I'm all for repealing the 16th. The problem is it could take years for the state legislators to ratify it. Our Texas legislators only meet every two years. That's my main concern.
Once a year, not every month.
Sorry, you're wrong. Businesses don't pay the tax.
The tax base is not who you tax but what you assess taxes on. If you are going to talk taxation get the terminology straight.
Bzzzzzzz! Wrong answer. ALL purchases; personal, business, governmental, would pay the tax on new items.
Perhaps you should read your bill sometime.
Here http://www.fairtaxvolunteer.org/pdf/FairTax_vs_flat_tax.pdf is a comparison of the flat tax and fair tax.
Dear rwrcpa1,
I understand that it could and WOULD take years.
But this is one time where patience really is a virtue. A very important virtue.
Only by revoking the constitutional authority to levy a federal income tax is it safe to encourage federal lawmakers to move to consumption-based taxes.
Once a broad-based consumption tax is introduced, the politicians will find excuses not to repeal the 16th amendment, and sooner or later, we'll have both: a hefty national retail sales tax AND a federal income tax.
I'm sure that the federal income tax will be re-introduced on a "temporary emergency basis" and will only apply to the top few percent of income earners, and will only be a very modest rate of taxation.
And, it'll be for something like paying for health insurance for poor children. "It's fer the CHILRUN!!"
All who oppose it will be painted as being in favor of permitting children to die in the streets without vaccinations, or other basic healthcare.
And, after all, the rates will be modest! Oh so modest!! And will only apply to the rich!!!
At first.
But, my gosh! It just isn't realistic to suppose that in another five or ten years, we won't be halfway back to where we were with an income tax!
In implementing the new tax without first driving the stake through the heart of the old one, we're doing Chappaquiddick Ted's work for him!
sitetest
I'd take a flat tax over a consumption tax...less strain on businesses. I don't see this happening any time soon. Does Forbes flat tax account for social security taxes?
The thing that appalls me about the current tax code is that everything is arbitrary. I wonder sometimes how they come up with dollar amounts and percentages. For example, how did they come up with $2,000 a year for IRA contributions? And what about the child tax credit? It ends when the child turns 17. What about my 18 year old? Do they think that child is not as expensive as the 17 year old? Ever had a child in college?
I think you're basically right. The average middle class guy like you or me will end up paying more taxes before it is all said and done.
When somebody starts talking about a flat tax or consumption tax with a rate around 10 percent... then I'll be willing to listen.
Sorry, 401(K), 403(b) and IRA contributions are all done AFTER payroll taxes are taken out, so are after tax as far as payroll taxes are concerned. But you are right that they are BEFORE income taxes.
I apologize for the gratuitous questioning of your intentions. I had second thoughts about it when I wrote it.
However, do you consider this less offensive?
What the hell is wrong with you national retail sales taxers?
Why must you assume nefarious motives for everyone who thinks differently than you think?
Did I accuse YOU of nefarious motives for supporting a tax scheme that I consider half-baked and half-assed?
Did I wonder whether maybe YOU might have a hidden agenda?
I can think of hidden agendae for support of this asinine system, but I don't impute it to those who disagree with me. I give you all the benefit of the doubt that you support this hare-brained scheme because you're honestly convinced it's a good idea.
What is wrong with you people that you cannot give the same benefit of the doubt back?
I plead guilty that the advantages to the Fair Tax seem so obvious to me that I can't understand those who don't support it. That you think it is a tax scheme that...(is) half-baked and half-assed? ...this asinine system, ...this hare-brained scheme is a puzzle to me. However, I am aware that I have been wrong in the past though not on things I have investigated as well as I have this. Still, I know I could be wrong and that is why I apologize.
Your situation in life, even from the start of your married life, is a little higher on the rung than I was imagining for the middle class in my argument. Although you were definitely middle class I was thinking a little lower on the rung.
However, this statement is a very important one. Well, it depends on what you mean by "live like the poor..." ...and often, we felt poor. You probably reacted to that as a challenge because of your nature, your nature being a combination of nature and nurture. Our reactions are abrbitrary and self-chosen. One can be really, really poor and choose not to consider himself such. It is strictly an attitude and values thing. However, you and those who react like you are the exceptions who make the rule.
Most are riding the wave they caught with little thought of other possibilities other than the next wave which might happen along. Few are goal setters and planners. Those are the ones who would benefit from an NRST because their knowledge and their natures are such that they can't or won't take advantage of the present system. The Fair Tax benefits them without their trying, without goals and plans. They benefit by just living and they are the majority by far.
Now, that wisdom is rare is a truism. That many will not bother to do what it takes to accumulate wealth is almost a tautology. But that's not an effect of tax law.
As you see from above, I think it is an unintended consequence of the tax law. However, since much of the current law is purposely hidden and complicated it may not be unintended. Regardless, its complexity causes many to seek expensive help, money better spent elsewhere, or misfile or not file at all, questioning whether the complexity achieves its purpose.
I've read that 50% of households have retirement accounts through which they invest in equities, either directly, or indirectly through mutual funds.
I suspect that most of that is taking advantage of 401Ks rather than individuals making independent investment decisions. If it weren't for the structure of the tax system there would be no need for them to be confused by the variety of IRAs, etc., to avoid or delay taxes. Those are developed to be attractive in the losses they avoid instead of the money they make.
My point remains, most all the ways by which the rich reduce their tax liability are available to the middle class. In fact, many middle class households are building wealth precisely through tax-advantaged retirement accounts, real estate investing, and other means.
This is another area in which we disagree. Building wealth by avoiding taxes is like staying healthy to avoid death. It is a good idea for the wrong reasons. Why not stay in good health just because it feels good and allows one to do more? Why not just build wealth for the purpose of building wealth and having more money with which to do it? How about making decisions based on business principles rather than tax avoidance?
People say eliminating the mortgage interest deduction would kill the housing market. Why? People have to live somewhere. Therefore, builders will build apartments if people didn't want houses. In reality, people will buy a house if that is what they want or live in an apartment if that is what they want. The interest deduction is a sop to the lending institutions to spur borrowing, or so they think.
What are you talking about (concerning rent as taxable income.)? For many real estate investors, the vast majority, or even all rental income is tax-advantaged, often to the point of paying no current taxes at all, due to the deduction for depreciation. It doesn't take much effort to avoid taxes on rental income, at all.
I suppose it is a matter of opinion as to whose point is being proved here. Rent IS taxable income but an investor can offset that with depreciation and other expenses applied to the property. Eventually, the property will be fully depreciated and that write off will be gone. In any case, a person is having to play the tax system in order to make it all work for him. Why not eliminate that?
Rent would be taxable under the NRST for residential property I agree, but it would be a rather straight forward process of collecting and remitting it. The elimination of all the embedded costs would also allow the landlord to lower his rent if he cared to or if competition forced it while still making the same margin.
Well, the problem is that the tax laws, which are SUPPOSED to be written for all, have often been written to penalize the most successful. It's difficult for me to offer a criticism of the most successful when they manage to escape those efforts.
I agree. I would think you would want to end that by ending the tax system which makes it appealing.
Regrettably, there is no tax system that is immune from that particular type of manipulation. The resident of that address could have been as easily granted, in a private bill or a nearly-hidden amendment to a larger bill, a sales tax exemption, complete with an exemption certificate issued by the Department of the Treasury (or whoever will issue these things at the federal level).
To my knowledge there are no exemption certificates in the Fair Tax. Politicians could create one but they can create anything, even unconstitutional things. We must work hard not to allow it.
...and the upper middle class - the folks who often have been most aggressive in the use of the current tax code to avoid federal income taxes, through things like large mortgage payments, acquisitions of cars & things using home equity loans, aggressive contributions to retirement accounts, preference for high non-taxed benefits rather than higher salaries (better health insurance, disability insurance, life insurance policies, etc., rather than higher salary), and who often school their children apart from public schools - these folks will get hit. They will often wind up being net losers.
That I don't understand at all. How can the loss of the ability to manipulate a tax that no longer exists be harmful? They will be made whole on the sales taxes for necessities and they can pick and choose what and how to buy the rest. If you are suggesting that the use of tax advantages makes that group nonpayers then that just adds to the number who pay no taxes, putting a greater burden on the rest. Even then they won't be able to avoid SS and Medicare taxes even if they are self-employed, thus negating a portion of their gain, or more correctly, adding back some of the costs they are avoiding.
My accountant, who has a fair number of folks with "unearned" income in seven figures, tells me that since the 1986 tax reform by Mr. Reagan, most of these folks average about 20% of their income in federal income taxes.
Regrettably, the 1986 Tax Reform and Paperwork Reduction Act was an increase, not a tax cut. To get Reagan to agree to that the Democrats agreed to cut $2 in spending for $1 in tax increase. They lied and they reneged, later blaming Reagan for the tremendous deficit that naturally ensued. The bill was so voluminous and complicated that I would n't be surprised what was hidden in there. It did eliminate a lot of deductions taken by the common folk.
Since it is unlikely that many of these folks will spend most of their income on new, taxable purchases, most of these folks are going to make out like bandits from the proposed national retail sales tax.
As I said earlier, who cares? I agree that the super rich are unlikely to spend most of their income on new purchases no matter how many mansions or yachts they buy. But they will still buy more new items than any other class and therefore carry their share of the tax load. Notice I didn't say fair share because that is a greatly misused term.
As far as the revenue neutral thing, that was determined by people a lot smarter than I am. Maybe someone else will cover that for you
I will say, to be as pisssed as you were you remained amazingly cool when writing this.
Dear rwrcpa1,
I don't know about individual IRAs, but with my SEP IRA, it was pre-payroll tax money that went into the accounts. I'm in the middle of setting up a 401(K) to replace the old SEP, and I'd have to double check, but I believe that through the "salary reduction," and with the employer contribution, both are pre-payroll tax.
sitetest
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