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 ...
The rules of a "Flat Tax" are so simple that it escapes me why anyone is opposed to this type of tax. Rich and poor are treated the same, you pay taxes at the same rate. Whatever you make you are taxed at 15%. You make $1000.00 per week your tax is $150.00. You make $1,000,000.00 per week your tax is $150,000.00. No special deals or favors.
But, you know, in the not-too-distant future, I'm thinking of buying run-down properties in Baltimore all-cash. In that scenario, if I buy pre-enactment of the NSRT, sorry, my money's already spent. There isn't even the "embedded cost" of mortgage interest to be reduced. Now, you're asking me to actually give up part of my PROFIT (which isn't currently taxed, so it's not like I'm getting back some money from the demise of the income tax) so that I can lower my rent.
There are transition accommodations for such things. You won't be hurt by that. It is obvious that you are very astute but ignorant of the details of the NRST. Learn and earn.
This stuff isn't rocket science, really.
Intended or not that is an insult from someone who abhors such interaction.
There is much more to this thread that I would like to discuss but I am exhausted from what I have done today. I would like to rest awhile and continue it later.
Still, a flat income tax seems less complicated and more private than a sales tax.
What it private about every individual citizen having to report thier income and swear to it to the government, and be open to audit if the IRS chooes not to believe you postcard statement of what your income is?
What is more complicated about a tax that is collected from the individual when the make a retail purchase as is common in virtually every state of the United States, and would be administered by the same folks? Especially considering the fact the Flat Tax retains payroll taxes and the FairTax repeals them as well as all income taxes where the Flat Tax just replaces one income tax with another and keeps the IRS in place besides.
I suggest you read Vern Hovens piece about just what the ramifications to the business and the individial of the flat tax proposals in Congress acutally do from a tax preparer's perspective:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
"Still, a flat income tax seems less complicated and more private than a sales tax."
I guess it's a matter of perspective. The FairTax bill is somewhere between 100 - 150 pages and it replaces a system that is more tha 60,000 pages, according to CCH. That 60,000+ page system started out as a flat tax. The leading flat tax bill in the house right now is the Burgess bill, which maintains the current system and adds a flat tax option to it. IOW, it keeps the 60,000 pages and adds a few thousand (or hundred, who knows?). It is hard to sell me on that as a form of simplification.
As for privacy, the federal government does not demand that you report every detail of your finanical life. They don't even receive reports which tie individuals back to tax receipts. They do receive annual reports of earnings, but that is for SS benefit determination. That's pretty hard to get away from.
I think that is a faulty analysis overall. While there are certainly many very wealthy that are given to living simply there are certainly many who are not and like to buy big and splashy. They'll probably continue to do so under the FairTax (and those who do not will benefit by buying used). That's not even the discussion.
Nor is the idea of buying property in a built-up area if that is what a person decides to do. By definition there will be a used purchase since a new one is not possible in the chosen location. Despite what you observe I know of instances where some of the quite well to do (megamillions) have purchased existing homes for several million, torn them down and then built anew because they wished to do so and could afford it. These sorts of things will certainly continue with the FairTax. I'd be very surprised if in your area as you describe it that there is not some amount of this tear-down/rebuild activity that goes on. There are certainly areas of the country where is does go on.
As an example of how the rich could control their taxes presently, you used the example of indefinitely putting off capital gains taxes as to how "the rich" could escape taxation as the way in which this would be done - which led to the paragraph that you questioned the meaning of. You also claimed "I think the rich will pay a lot less under the new system than the existing system." and It may not be clear to you but it was challenging your assertion that the rich would do better under the FairTax than at present since the example of indefinite capital gains "putting off" was an example of how they could pay little or nothing presently. If they pay little or nothing now, big guy, due to manipulation of the income tax system, they certainly won't "do better" that that under the FairTax and to claim otherwise is silly.
I think the point here really is that to escape taxation in this manner is only due to the manipulation of the tax laws in a way that, while sometimes legal, is not necessarily always so while with the FairTax buying used goods is quite within the law and amounts to no manipulation of the system at all. If you're trying to claim that all of the tax-escape angles used presently are within the law or do not end up costing the taxpayer (who sometimes runs across the IRS with a different interpretation) then I'd really have to wonder. In addition, income tax laws do change relative frequently and whatever angle may have been used may very well change greatly making your tax scheme not so great alter all. It's a chancy game, that, and it can come back to bite you as some have discovered.
The used $3 million dollar house and property you use an example is also a "so what" since you merely claimed that the buyer had to pay "a bit of tax on the income". If so (and you are probably merely asserting this for argumentation purposes), then the buyer could certainly have gotten even this "little bit" with a bit of "creative" tax work. There are all sorts of exchanges that might be worked. Setting that aside, if he spends $200,000 on renovations he'd pay $46,000 in FairTax. Sounds fair to me.
The used cars and used furniture (classics or antiques or not) is also not the issue. If that's what a person prefers with the FairTax - that's great. At present it's a bit hard to get an income tax break on those unless you're in the business (and then even then Briggs Cunningham tried that a few years ago and it backfired due to - guess what - change in tax laws/IRS interpretations).
Your observation about untaxed money under the FairTax isn't correct since whether a great amount or not, it accumulates more rapidly when untaxed and helps one get started quicker and at a higher level. Also your observation:
"Since this is SUPPOSED to be revenue neutral, most folks are likely not to have a lot more income than under the old system, when one takes into account that they'll be paying 30% sales taxes."
is also off the mark in that the FairTax IS revenue neutral and has been found to be so be several different economic studies. The fact that it is, though, means nothing at all about whether they will have more income (enen considering the FairTax). Certainly they will since not only will they be receiving the prebate, but the present embedded tax costs component will be removed from prices - and the FairTax will merely boost prices back up to about where the were before the FairTax (which would now include the sales tax). This is in view of the fact that wages will be higher due to the elimination of the withholding taxes (net=gross now) so that most wage earners will have more money in hand to either spend or invest. Some will invest and it will be with untaxed dollars which is certainly preferable to the rigamarole one must now go through to use after-tax dollars for the same sort of investment (if there are no investment restrictions under the present system - which there may be).
Sorry, but I think that morality DOES enter into things since avoidance under the income tax means a knowing manipulation of the tax laws to try to favor yourself while following the FairTax law with used goods does not have the same aura of manipulation of the laws. Then, too, do you not know of some who have chosen to avoid present day taxes and then to their sorrow discovered that the rules had been changed and what was formerly avoidance is now dissallowed? I certainly do, but perhaps in your circle you have never encountered this situation. The point here is that the present system requires avoidance to get around some taxes while the FairTax does not since untaxed items are not taxed - no artificial maneuvering at all.
Most economists interested in the subject would, if being honest, tell you that a cohort's lifetime is perhaps a better measure of what can be taxed since eventually (and it may even be a generation or two down the road in a few cases, but not most) that wealth would be taxed when spent for consumption.
Since you seem to be fairly well-to-do, you may not have much contact with the illegal economy but it is much larger than most people seem to think. Not only with the huge amounts untouched in the drug and sex trades but also illegal aliens, cash sports betting, etc. and also (though hardly illegal) foreign tourists. All of these are greatly larger than any of the government estimates I've seen. The most recent detailed stuey of illegal immigrants derived the number of 20 million or more - about twice (or more) than the government number.
Since no income-based taxes even begin to touch these sources, it is clear that the FairTax will raise huge amounts of tax revenue not now addressed. Also, compliance costs which you try to minimize are actually much larger than the government figures. There have been derivations on these threads that show such costs to be over $600 billion - hardly a sum to treat like nothing. And don't forget the IRS budget of $11 billion will be gone under the FairTax.
Since you believe comlpliance costs and illegal economy collections are so minimal, let us see your derivations, please, rather than just your assertions. Your concluding 2 sentences are completely unfounded also so you might as well show us your figures there, too ... where you say:
"1. Upper middle class folks, and certain types of investors, are still going to get crushed; and
2. It may be that rates may have to be higher than 30%, anyway, in which case, it's gonna get ugly."
For your own edification about the effects of the FairTax on the costs of home ownership, you might find this of interest:
http://www.fairtaxvolunteer.org/smart/TaxNotesRebuttal.pdf
and, in a bit different light, you might discover "What's So Fair About a Tax on Income?" here (if you'll read both parts):
http://www.freerepublic.com/forum/a388d0748789d.htm
And I believe they'd also pay payroll w/h would they not???
That is very clear from the bill as is the language that describes the normal case:
In the case of any taxable property or service which is sold untaxed pursuant to section 102(a), the seller shall be relieved of the duty to collect and remit the tax imposed under section 101 on such purchase if the seller-- `(1) received in good faith, and retains on file for the period set forth in section 509, a copy of a registration certificate from the purchaser, and `(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 502. ""`(d) Seller Relieved of Liability in Certain Cases-
This has been pointed oput to you before Nightie, so you cannot honestly pretend you didn't know it.
You're posting to the wwrong guy. I favor completely eliminating the income/payroll taxes, the IRS and repeal of the 16th amendment.
No "tweaks" will ever correct for the sort of system we now have. If you really can't see that after making an honest study of the FairTax website and the bill itself, probably no one would ever be able to sway your opinion.
For our business, the sales tax calculations actually take more time than the income tax calculations.
For sales tax we have to go through every sales transaction we make. We have to seperate the taxable transactions from the the non-taxable. For every non taxable transaction we have to make sure we have the proper and complete exemption information for every customer or vendor. We have to keep copies of their certificates on file (which takes up space).
We also have to make sure that out of state vendors are applicable for sales tax exemptions if they ask for it.
For every taxable transaction, we have to account for the sales tax taken in and many of us open seperate bank accounts for those funds (since they are not ours, we do however get the pathetic little bit of interest from them). So we also have to make sure those bank accounts mesh with our book figures.
We have to file regularly (monthly and pay quarterly) even if we don't have any sales tax income to report. We have to go through the whole process over again when we sell out of state at trade shows and it becomes a real mess when you have sales tax due to several jurisdictions and you have to sort out which transaction goes to which jurisdiction and when it is due.
If we go to a trade show where there is a tax inspection and we forgot our certificate, we can be forced to close until we provide the certificate (if it's 100 miles away back at the office, we have to drive back and get it). If the inspector determines that you have missed a payment or forgot to file at any time, you can be asked to close until you straighten things out. Luckily this rarely occurs but it does happen.
If the state thinks you are withholding sales tax, you are in deep sh*t and you will likely have every transaction audited for the period in question, so you better have every receipt, every voucher, every i dotted and t crossed.
But it's my understanding that the flat tax would also eliminate withholding, which to my mind is the biggest culprit in reducing productivity for the average American.
All of them leave the SS/Medicare side of taxes in place as is. None that have been introduced in Congress that I have seen proposes eliminating withholding on individual income taxes even.
Which system do you think would make it easier for the average American to make Congress accountable for it's spending?
The Fair Tax as it places the cost of government squarely in front of each voters perceptions instead of hiding a third to half of the federal taxes collected from their view in higher prices, lower wages and lower returns on investments.
"In 1997 the top 50 percent ($36,000 and over) paid 96 percent of income taxes. Guess what the bottom 50 percent of income earners paid?
...
--- Walter Williams
Bush touts relief as tax day looms
Another 3.9 million Americans will have their income tax liability completely eliminated, officials said.
That's 3.9 million Americans more added to the spending constituency of 70% of the public clamoring for more from government, expecting someone else to foot the bill.
It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"
--- Walter Williams
The "filing" of the FairTax amounts to a 2 line report each monthThat's right...nothing to it.
`SEC. 501. MONTHLY REPORTS AND PAYMENTS.
`(a) Tax Reports and Filing Dates-`(1) IN GENERAL- On or before the 15th day of each month, each person who is--`(2) CROSS REFERENCE- See subsection (e) relating to remitting of separate segregated funds for sellers that are not small sellers.`(A) liable to collect and remit the tax imposed by this subtitle by reason of section 103(a), or
`(B) liable to pay tax imposed by this subtitle which is not collected pursuant to section 103(a), shall submit to the appropriate sales tax administering authority (in a form prescribed by the Secretary) a report relating to the previous calendar month.
`(2) CONTENTS OF REPORT- The report required under paragraph (1) shall set forth--
`(A) the gross payments referred to in section 101,
`(B) the tax collected under chapter 4 in connection with such payments,
`(C) the amount and type of any credit claimed, and
`(D) other information reasonably required by the Secretary or the sales tax administering authority for the administration, collection, and remittance of the tax imposed by this subtitle.
`(b) Tax Payments Date-
`(1) GENERAL RULE- The tax imposed by this subtitle during any calendar month is due and shall be paid to the appropriate sales tax administering authority on or before the 15th day of the succeeding month. Both Federal tax imposed by this subtitle and confirming State sales tax (if any) shall be paid in 1 aggregate payment.
`(c) Extensions for Filing Reports-`(1) AUTOMATIC EXTENSIONS FOR NOT MORE THAN 30 DAYS- On application, an extension of not more than 30 days to file reports under subsection (a) shall be automatically granted.
`(2) OTHER EXTENSIONS- On application, extensions of 30 to 60 days to file such reports shall be liberally granted by the sales tax administering authority for reasonable cause. Extensions greater than 60 days may be granted by the sales tax administering authority to avoid hardship.
`(3) NO EXTENSION FOR PAYMENT OF TAXES- Notwithstanding paragraphs (1) and (2), no extension shall be granted with respect to the time for paying or remitting the taxes under this subtitle.
`(d) Telephone Reporting of Violations- The Secretary shall establish a system under which a violation of this subtitle can be brought to the attention of the sales tax administering authority for investigation through the use of a toll-free telephone number and otherwise.
`(e) Separate Segregated Accounts-
`(1) IN GENERAL- Any registered seller that is not a small seller shall deposit all sales taxes collected pursuant to section 103 in a particular week in a separate segregated account maintained at a bank or other financial institution within 3 business days of the end of such week. Said registered seller shall also maintain in that account sufficient funds to meet the bank or financial institution minimum balance requirements, if any, and to pay account fees and costs.
`(2) SMALL SELLER- For purposes of this subsection, a small seller is any person that has not collected $20,000 or more of the taxes imposed by this subtitle in any of the previous 12 months.
`(3) LARGE SELLERS- Any seller that has collected $100,000 or more of the taxes imposed by this subtitle in any of the previous 12 months is a large seller. A large seller shall remit to the sales tax administering authority the entire balance of deposited taxes in its separate segregated account on the first business day following the end of the calendar week. The Secretary may by regulation require the electronic transfer of funds due from large sellers.
`(4) WEEK- For purposes of this subsection, the term `week' shall mean the 7-day period ending on a Friday.
`(f) Determination of Report Filing Date- A report filed pursuant to subsection (a) shall be deemed filed when--
`(1) deposited in the United States mail, postage prepaid, addressed to the sales tax administering authority,
`(2) delivered and accepted at the offices of the sales tax administering authority,
`(3) provided to a designated commercial private courier service for delivery within 2 days to the sales tax administering authority at the address of the sales tax administering authority, or
`(4) by other means permitted by the Secretary.
`(g) Security Requirements- A large seller (within the meaning of subsection (e)(3)) shall be required to provide security in an amount equal to the greater of $100,000 or one and one-half times the seller's average monthly tax liability during the previous 6 calendar months. Security may be a cash bond, a bond from a surety company approved by the Secretary, a certificate of deposit, or a State or United States Treasury bond. A bond qualifying under this subsection must be a continuing instrument for each calendar year (or portion thereof) that the bond is in effect. The bond must remain in effect until the surety or sureties are released and discharged. Failure to provide security in accordance with this section shall result in revocation of the seller's section 502 registration. If a person who has provided security pursuant to this subsection--
`(1) fails to pay an amount indicated in a final notice of amount due under this subtitle (within the meaning of section 605(d)),
`(2) no Taxpayer Assistance Order is in effect relating to the amount due,
`(3) either the time for filing an appeal pursuant to section 604 has passed or the appeal was denied, and
`(4) the amount due is not being litigated in any judicial forum,
then the security or part of the security, as the case may be, may be forfeited in favor of the Secretary to the extent of such tax due (plus interest if any).
`(h) Rewards Program- The Secretary is authorized to maintain a program of awards wherein individuals that assist the Secretary or sales tax administering authorities in discovering or prosecuting tax fraud may be remunerated.
`(i) Cross Reference- For interest due on taxes remitted late, see section 6601.
A good bit of your state sales tax problem stems from the fact that it IS a state sales tax. Sales taxes like that typically have olots of differing rate on different things and are replete with many exemptions, exceptions. These would be a terrible nuisance (or worse) as you observe.
Under the FairTax the situation is altogether different - and much simplified. You are required to give the buyer (and retain) a specified receipt. At the end of ecah month, there is a 2 line report - also very simplified - that you could pull off your cash register if you use one. You submit this report and the payment to the state monthly and are well paid for doing so.
All of these things including the report content and the receipt required is specified in the bill starting at Sec. 510 for the receipt required. Here's the bill:
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:
The required work is much less with the FairTax and, unlike at present, you are paid to do it.
The salient points are the description of the two lines really required - gross payment and tax collected. Is that so tough to grasp?
Says the bill.
The rules of a "Flat Tax" are so simple that it escapes me why anyone is opposed to this type of tax. Rich and poor are treated the same, you pay taxes at the same rate. Whatever you make you are taxed at 15%. You make $1000.00 per week your tax is $150.00. You make $1,000,000.00 per week your tax is $150,000.00. No special deals or favors.
Show me one single Flat Tax proposal before either house of Congress that does that. Not one has ever been proposed. EVER.
You had better read the actual proposals for flat tax out there.
Not one of them does as you say it does. They all have large personal exemptions, they all treat wage earners differently from business, none of them tax the individual for capital gains, dividend or bond interest.
Bottomline the Flat Tax in all its forms still is an income tax, still leaves the IRS in place just as powerful and voracious as ever, more so as postcard type returns leave alot of requirement for an IRS to audit to assure accuracy of what goes onto those forms. Futhermore not one single Flat Tax proposal removes the most regressive tax of all. the SS/Medicare tax on wages.
As well as investigating current proposals actually before Congress today, I suggest you read the following two articles concerning flat tax proposals in general, they are indeed eye openers.
Why Flat Tax Isn't A "True" Flat Tax
http://www.cac.psu.edu/ur/archives/BUSINESS/flattax.html
2-23-96
Charles R. Enis, Associate Professor of Accounting
Penn State's Smeal College of Business Administration
The idea of replacing the income tax with a flat tax has had its proponents and detractors for at least 15 years, but a Penn State researcher says that the flat tax concept making news now falls short of the real thing.
and
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
Of course not wages and even self-employment income (which are the equivalent of wages for a self-employed person) do not necessarily make up all of a person't income.
If you try REALLY HARD, I'll bet you could think of a few types of income that are not wages. Wages can be income but income can be composed of more than just wages.
self-employment income and income in general are different things.More brilliance from the Fairtax clown.
To see why this might be so, please read #101 on this thread.
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