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 Mind-numbed Robot,
"I apologize for the gratuitous questioning of your intentions. I had second thoughts about it when I wrote it."
Apology accepted.
You are far from the first insulting NSRTer.
You are far from the first to question my motives and intentions.
However, you are the ONLY NSRTer to have ever apologized for it.
For that, I have respect.
"However, do you consider this less offensive?"
LOL. You, in a long line of NSRTers, insult me, and you're offended that I might point out in strong language that there is something wrong with you folks for constantly questioning the motives of those with whom you disagree?
Sorry, no sale.
"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."
That's part of the point, Mind-numbed Robot.
To me, the whole thing really DOES seem half-baked, asinine, and hare-brained. It does.
It's tough for me to figure out why you folks think otherwise.
But:
1. Even though I think you favor a foolhardy system, I don't take you for fools; and
2. Even though I can't figure out WHY you would support this system, I don't think that you support it for dishonorable intentions.
It's inexplicable to me why you think it's a good idea, but that doesn't seem to me to be a reason to assume that you're either stupid or evil.
I wish you guys could acknowledge the same with us, and cut the insults.
Several of us, including a poster I've pinged, have come to these debates unsure what we think, looking for answers to our questions, and when it turns out that we're not buyin' what you're sellin', you NSRTers jump on us with denigration and insults. We're stupid, we have hidden agendae, we know nothing about the business world.
And then, should we say even 1/10 of what you say back at us, oh! My! WE're so nasty! LOL.
You guys have turned off more folks than you realize.
If you'd give the benefit of the doubt to your opponents, you might persuade more folks.
"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."
Maybe by this point. Nonetheless, what I say applies to everyone. I know folks with less income than me who have done very well with real estate. I know folks with less than me who have carefully nurtured retirement accounts to which they made tax-deferred contributions.
This stuff isn't rocket science, really.
"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."
I don't think so. Words have meaning. "Poor" doesn't mean someone who can't afford a new car this year, or the trip to Europe. At the very least, "poor" means someone who has need of some basic necessities in life, whether food, decent housing, decent clothing, basic healthcare, or whatever.
Although in my younger days, there were times I didn't have more than a dollar actually in my pocket, there were times when I couldn't "afford" to do otherwise than brown-bag my lunch, the fact is, I never wanted of plenty of good and nutritious food (even if sometimes it was lentils and chicken dogs), nor of adequate shelter (I told you, we always owned our own home), nor of decent clothing (I've always held professional jobs requiring professional clothing), nor of any other basic necessity.
There were years that vacation was at "porchville." There were lots of times when we couldn't do all that we wanted (Heck, that's STILL true today! I STILL haven't gotten my Grand Tour of Europe!)
But, it's a stretch to say that folks would live as if they were poor to put a little aside each year to invest.
"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."
Could be.
I haven't argued that the current system isn't needlessly complex.
Just that I don't think it's true that folks can't currently make significant tax-advantaged investments. That WAS what we were discussing.
" This is another area in which we disagree. Building wealth by avoiding taxes is like staying healthy to avoid death."
Hmmm, I didn't say that folks are building wealth BY avoiding taxes, only that current law permits folks to accumulate wealth while largely avoiding taxes.
Which makes it comparable to the proposed taxing regime.
Which was my only point.
"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."
Well, the depreciation is taken over a period of 27.5 years, and at any time during that period, one could do a Starker Exchange, and wind up with a new property to depreciate all over again. It isn't too tough to arrange 50 years' of tax-advantage income.
That's not too bad. Then, when you die, your heirs get a stepped-up basis. If you have a relatively modest estate, they pay no federal inheritance tax, and if Mr. Bush has his way, they will pay no federal inheritance tax at all. Works for me!
As for "playing the tax system," well, that's one perspective. Another perspective is that depreciation of structures is a legitimate expense of ownership, and the principle of INCOME taxation is to tax INCOME, not REVENUE.
"Why not eliminate that?"
Certainly, if we eliminated income taxes, we would.
But I know of no real estate investors who really have a problem with this.
"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."
Sorry, as someone who has owned rental property in the past, I can tell you that nearly all my costs came from two sources: the cost of the property, often as reflected in the property's mortgage; and property taxes.
I don't think my property taxes are going to go down. Just don't see it in the cards.
Although some of the more optimistic NSRTers think that mortgage rates will fall dramatically, I disagree with that analysis. So, I don't think I'm going to see that cost go down.
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.
For the real estate investor, PROFIT = INCOME (roughly speaking). For the real estate investor, because he's ALREADY paying little or no income tax on current income, he's not getting anything back from the implementation of the NSRT.
Thus, even WITHOUT lowering the rent, he's behind in this game, because he's not recapturing income taxes with which he can then pay the NSRT.
But now, you're suggesting that this landlord, who is ALREADY getting it in the backside, because he recoups no saved income taxes, but still must pay the NSRT on his personal purchases, must take it AGAIN in the backside, to lower his rent to accommodate the renter who will now have to pay 30% sales tax on his monthly rent.
I don't think this is working out so well for the landlord.
" I agree. I would think you would want to end that by ending the tax system which makes it appealing."
LOL. I expect that results right after human nature is changed entirely.
I have no doubt that we will come to see all sorts of modifications of the NSRT. Food will be exempted as the tax on the amount over $50,000 on vehicle purchases is increased from 30% to 45%. Healthcare (and health insurance premiums) will be exempted, as homes that sell for over $500,000 or $1,000,000 will be subject for amounts over the threshold to an additional 10% or 15% tax.
The general rate will be increased, as the "prebate" is increased, so that poorer folks won't be affected, but richer folks will.
It doesn't appear to me that there is anything inherent in the structure of this tax to prevent our politicians to appealing to class envy to favor the poorer classes over the wealthier classes. ESPECIALLY once folks understand just what a boon this will be to the very wealthy.
And then, we'll also get the call for a reintroduction of the federal income tax. For the wealthy, only, we'll be assured.
To me, to think otherwise is to suggest the repeal of human nature.
"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."
Well, the bottom line is that there are folks in the upper middle classes, who have household income in lower six-figures, who just don't pay anywhere near a total of 23% inclusive of their total compensation in federal income and payroll taxes. Because the payroll taxes top out at $90K, and because certain benefits like health insurance are tax-free and in some states can be very expensive (in my company, the average family policy is around $10,000 per year), and because currently mortgage interest is deductible, I know folks who have very much minimized their federal tax liabilities.
The new system would cost them dearly. They will not receive much back in saved federal taxes, but will have the full burden of the 30% NSRT to bear. This is especially true of my friends with bunches of kids in private schools. I know families who are currently paying in excess of $25,000 per year in tuition. They will now get to pay an extra $7,500 per year.
And then, folks who generate income from investments, whether passive or active, often don't pay payroll taxes, and have very light tax burdens, besides (real estate investors, folks who live off stock investments), these folks are also going to take it in the neck, because they're not going to see their incomes rise much as a result of recouping income taxes (that they're already not paying) but they're still going to the NSRT on their personal purchases.
Even if the effects of the tax are revenue neutral, if some folks turn up winners, some folks have to turn up losers.
"To my knowledge there are no exemption certificates in the Fair Tax."
For now. It won't be long. And even that's not quite true. Every business entity will require the equivalent of a sales and use tax license, that will exempt them from paying the tax for business expenditures. Based on some phony reasoning, it will be said that So-and-So, the friend of the Chairman of the Ways and Means Committee, needs something similar for his own personal purchases.
It's easy to bury this stuff, tougher to tease it out.
That's why Jim Wright got away with doing it with the income tax.
"Regrettably, the 1986 Tax Reform and Paperwork Reduction Act was an increase, not a tax cut."
I never claimed otherwise. I only claimed that it got rid of large numbers of mechanisms to shelter income from taxation, and that my accountant saw that his clients who previously paid little or no income taxes wound up paying signficant income taxes under the 1986 law.
"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."
Maybe. The rich buy a lot of little new things. They don't go to Goodwill, usually, to buy their Armanis. But they often spend very large chunks of their income to buy "used" estates, "used" yachts, and "used" artwork, antiques, classic cars, and the like. That's because some of these assets are not reproducible (God only made so much waterfront property, Van Gogh is dead, no one's making Deusenbergs), or age doesn't dramatically affect value (100-foot yacht), or may actually enhance value (17th century furniture).
"Notice I didn't say fair share because that is a greatly misused term."
I don't use the term, either, but nonetheless, I acknowledge that the idea is important in the head of most Americans, and will be abused by plenty of politicians.
"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"
Well, I've looked at the numbers in the aggregate, in a variety of ways, and they don't add up to me. There are experts who think they do, and experts who think they don't. I have enough knowledge to hazard my own rough guess, and my own rough guess is that we can't get there from here. At least not in the way that the NSRT's proponents claim.
I could be wrong, but in the absence of consensus on the subject, I gotta go with what I can see my way clear to.
Finally, although I'm dubious about the NSRT itself, I'm adamantly opposed to any sort of broad-based consumption tax being introduced until AFTER the repeal of the 16th amendment is accomplished. To me, it's insanity to do it the other way around.
"I will say, to be as pisssed as you were you remained amazingly cool when writing this."
Thank you.
There are advantages to this type of communication. One of them is the "Preview" button.
I try to use it wisely.
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