NUMBER ONE ---- AGAIN!(The Fair Tax Book)

Nealz Nuze ^ | 8/18/05 | Neal Boortz

[ancient_geezer]

Compliances costs and business taxes don't even add up to $1 trillion.

Ahhm "compliance costs" are only the smaller portion of the total tax related overhead burden and productivity loss experienced by businesses under the federal income/payroll tax system.

The full tax related economic burden is substantially more than merely "compliance costs" that are normally focused on by flat tax and trim around the edges income tax reform proponents. Mainly because both leave income and payroll tax systmen infra-structure in place and do nothing that would effect the total tax burden picture goes with repeal of all federal business remitted income and payroll taxes.

 

http://www.taxfoundation.org/compliance2002.html

Overhead Compliance Costs

The complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers.

• The first type of overhead is tax planning, which in this context refers to all the economic decisions that individuals and firms make to maximize their benefits in the tax code.

• The second type of overhead, tax compliance, refers here to the basic actions required to file the federal income tax, including record keeping, education, form preparation and packaging/sending.

• The third type of overhead is tax audits and litigation, referring to the cost of the IRS and the Tax Court, as well as all the legal costs that taxpayers incur while dealing with these two government institutions.

Of these three costs, the second, tax compliance, is the only one estimated in this report. It is for this reason that the data presented here should be viewed as extremely cautious estimates of the federal income tax compliance burden on taxpayers.

*** snip ***

 

The Burden of Compliance Costs

As shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion. Therefore, the overall compliance cost surcharge alone amounts to nearly 20.4 cents for every $1 collected by the federal income tax.

 

 

Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf

• "Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "

You little example is meaningless because you ignore what is going on from the business side of things.

Indeed the business side of tax system burdend under an income tax whatever its flavor (corporate income, payroll excise or flat tax) is significantly greater than that under a retail only sales tax.

There is substantially more gained from repeal of all business income and payroll taxes than mere accounting and filing costs under income taxes flat round or square that income tax proponents overlook as the do not remove or repeal the underlying mode of taxation that imposes these burdens on economic activity.

[ancient_geezer]

The purpose of this "Fair Tax" is to get at the massive savings that the boomers have accumulated,

Sure, they are going to tax my non-existant savings and the government will boom.

 

Grandfather Family Income Report - pg 1 - by MWHodges
http://mwhodges.home.att.net/family_a.htm#saving

 

Rate of Personal Saving Plunges 100% - to new record low - $985 Billion missing

If families have less inflation-adjusted income, despite mother working, then family personal savings must suffer as a consequence - unless, of course, families reduce their consumption. But, families increased consumption spending and, to cover this, they reduced savings to historic lows and increased household debt to historic highs. Dangerous Trend !!!

The chart at the left shows a 45 year trend of that part of disposable income that has been saved - - called 'personal savings rate'.

Note: prior to 1970 the rate of personal savings was rising smartly - - as were family incomes per the first chart above - despite most families then having but one wage earner while also living without increasing debt ratios (chart below).

Then, family incomes stagnated - - and the saving ratio stopped rising as seen in the left chart - - then started falling rapidly - - plummeting since 1992. As of June 2005, savings were at an all-time record low of zero percent !! $985 Billion in savings missing in 2004 compared to savings ratio of 2 decades ago. (realized capital gains, not calculated in the savings rate, mitigate this chart somewhat if one wishes to call such savings - - but the trend with and without is at all-time record lows).

But there is a weak group with bucks to hit - that is the boomer retirees. Sock it to 'em, with a "Fair Tax".

“It is amazing how many people think that they can answer an argument by attributing bad motives to those who disagree with them. Using this kind of reasoning, you can believe or not believe anything about anything, without having to bother to deal with facts or logic.”
--Dr. Thomas Sowell

[pigdog]

Your reasoning is a bit out of whack in that under the present tax system those savings will be taxed, in some cases, when withdrawn and certainly when spent in the form of exmedded tax costs that amount to something like 20-25% of prices. The FairTax is actually no worse and in fact quite a bit better in that every family receives a prebate and the family controls how, when, and if what they buy is taxable or not.

Under the FairTax, not all things are taxed while under the present system they are as just mentioned and the family has no such set of choices when they buy. All items are boosted in price. In addition, under the FairTax income on savings and investment are not taxed and may accumulate tax free. The prebate, control of your own taxation and tax-free earnings make for a much better system for those with accumulated savings than at present.

In addition, prices will be decreasing due to the effects of the FairTax so that also helps as well. There is also the increased economic activity that will occur which will help offer new opportunities for many taxpayers. All in all you and your acquaintances should be quite a bit better off under the FairTax.

[lewislynn]

You haven't read the plan...that gov't check is sent to cover the tax on the "basics" that everyone whines about when a sales tax is involved (i.e. food and medicine).

Who hasn't read the plan? You're the one who said the spendable/disposable income would be more than the earnings

Fledermaus:

"Under the Fair Tax plan he will have his $30,000 income plus a monthly check to cover basic living expenses (they use $400 a month but it's based on where you live); for this example let's say $3,600 a year. This leaves $33,600 a year in disposable income"....

My question for you and pigdog who praised your post is, where does the extra "disposable income" for everyone come from?

[ancient_geezer]

The FCA sales tax rebate is based on the HHS Poverty Guidelines published annually in Federal Register which is 3 times the cost of a healthy diet in 1965 adjusted annually for CPI.
The FairTax legislation adjusts the Poverty Level amounts treating married couples the same as to independant single persons to remove any marriage penalty as regards the FairTax NRST treating all adults the same as single persons for purposes of the sales tax rebate.
For example, based on 2005 Poverty guidline table, each adult in the contiguous States & D.C. would receive the taxrate times $9,570 and for each dependant child, a household would receive and additional taxrate times $3260 per year per the legislation in regard to:
2005 HHS Poverty Guidelines
SOURCE:  Federal Register, Vol. 70, No. 33, February 18, 2005, pp. 8373-8375.
http://aspe.hhs.gov/poverty/05poverty.shtml

As presently applied generally as federal indexing for poverty level indexing, legal residents of Alaska & Hawaii would receive the FCA corresponding to the Poverty Guideline levels for those areas of the U.S.

[Always Right]

The Burden of Compliance Costs
As shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion

Thanks for posting that. That was my exact point. Compliance costs are overstated. That $194 Billion is mostly costs to individuals. Thanks again.

[Always Right]

It is amazing how many people think that they can answer an argument by attributing bad motives to those who disagree with them. Using this kind of reasoning, you can believe or not believe anything about anything, without having to bother to deal with facts or logic.”
--Dr. Thomas Sowell

Pretty ironic that a fair taxer would post that quote. I can not count the number of times fair taxers have attacked dissenters motives.

[ancient_geezer]

Compliance costs are overstated. That $194 Billion is mostly costs to individuals. Thanks again.

You're welcome, note that Tax Foundation report was in 2000, current number for "compliance cost" alone is closer to $235 billion.

Not also the caveat of the TaxFoundations number on the "tax compliance" numbet

"Of these three costs, the second, tax compliance, is the only one estimated in this report. It is for this reason that the data presented here should be viewed as extremely cautious estimates of the federal income tax compliance burden on taxpayers."

As you have obviously read at least the excerpt, you are obviously aware that "compliance cost" is merely the bookeeping part of the total tax related overhead costs and does not include the costs associated with tax planning, tax research regarding continuous changes in the tax code, income sheltering and tax avoidence schemes such as costs relocation of facilities in tax advantage areas etc. Nor does it include the legal costs associated with controversies with the IRS, audit, fees, fines and penalties when buisinesses lose their case with the IRS.

Perhaps you should look over post #441 and the information posted that covers the other burdens on the economy which affect buiness to a much greater degree than just "compliance costs." That Short term economic burden around $2.75 and long term as much as $4.50 per additional dollar of revenue collected currently which we are headed back to as the bush tax cuts expire over the next five years.

[ancient_geezer]

Pretty ironic that a fair taxer would post that quote. I can not count the number of times fair taxers have attacked dissenters motives.

Interesting how folks just naturally seem to fall in to the trap of exchanging insults when goaded isn't it? I would suggest both sides of this debate exercise a bit more common curtesy and intellectual honesty.

Or is that too much to expect of flat tax and income tax supporters as well as the fair tax supporters?

[Always Right]

As you have obviously read at least the excerpt, you are obviously aware that "compliance cost" is merely the bookeeping part of the total tax related overhead costs and does not include the costs associated with tax planning, tax research regarding continuous changes in the tax code, income sheltering and tax avoidence schemes such as costs relocation of facilities in tax advantage areas etc.

Merely the bookkeeping costs?? Unfortunately this often quoted stat mostly concerns individual and has absolutely no bearing on costs of goods. And the small portion that is attributed to businesses is by far their biggest expense towards tax compliance. Most companies don't spend much time pondering over how to beat the tax code, although I am sure there are exceptions. But most companies just worry about making their business work and don't spend much time tax planning. The Bookkeeping is by far the biggest tax compliance cost for businesses, but it is only a small fraction of the $194-235 billion number.

[lewislynn]

Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—

The red part is the part purposely left out.

That's where they attribute $30.00 an hour for tinkering in the garage, watching TV or a second job when you had to do "tax compliance" instead.

[ancient_geezer]

Merely the bookkeeping costs?? Unfortunately this often quoted stat mostly concerns individual

"Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion."

Introduction of the Tax foundation report: Cost of Complying with Federal Income Tax

"In 2002 individuals, businesses and non-profits will spend an estimated 5.8 billion hours complying with the federal income tax code (henceforth called “compliance costs”), with an estimated compliance cost of over $194 billion. This amounts to imposing a 20.4-cent tax compliance surcharge for every dollar the income tax system collects. By 2007, the compliance cost is estimated, conservatively, at $244.3 billion. However, this estimate does not take into account the recently enacted Economic Growth and Tax Reform Reconciliation Act (EGTRRA) of 2001. Taking EGTRRA into account shows that the compliance cost could soar as high as $350.2 billion by 2007.

In addition, the compliance cost does not impact all taxpayers in the same way—it varies by type of taxpayer, by income level and by state. In 2002, businesses bear the majority of the compliance cost with 52.8 percent of the cost, or $102.5 billion. Individuals and non-profits account for the remaining compliance cost—at 44.4 percent ($86.1 billion) and 2.8 percent ($5.4 billion), respectively. By 2007, the percentages remain virtually the same: businesses at 52.4 percent, individuals at 44.8 percent, and non-profits at 2.9 percent."

 

and has absolutely no bearing on costs of goods.

If it affects businesses it affects production and price of goods and services.

 

And the small portion that is attributed to businesses is by far their biggest expense towards tax compliance.

Seeing as the greater portion of the "tax compliance" number is actually business related that is abit off mark; Especially considering that "tax compliance" is but a fraction of the total tax related overhead burden which includes planning and litigation costs as well as just "tax compliance costs"

 

http://www.taxfoundation.org/compliance2002.html

Overhead Compliance Costs

The complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers.

• The first type of overhead is tax planning, which in this context refers to all the economic decisions that individuals and firms make to maximize their benefits in the tax code.

• The second type of overhead, tax compliance, refers here to the basic actions required to file the federal income tax, including record keeping, education, form preparation and packaging/sending.

• The third type of overhead is tax audits and litigation, referring to the cost of the IRS and the Tax Court, as well as all the legal costs that taxpayers incur while dealing with these two government institutions.

Of these three costs, the second, tax compliance, is the only one estimated in this report. It is for this reason that the data presented here should be viewed as extremely cautious estimates of the federal income tax compliance burden on taxpayers.

 

Most companies don't spend much time pondering over how to beat the tax code, although I am sure there are exceptions. But most companies just worry about making their business work and don't spend much time tax planning.

No they are just spending time trying to figure out how to survive the tax code by trying to minimize that income tax bite, however they may. The costs on business being as much as $724 for every $100 in income tax paid by small businesses, $27 for every hundred income tax paid for the largest of firms that can take advantage of efficiencies of scale to minimize the effect (tax related overhead costs are more akin to fixed costs, a part of the business cost structure even if not one dollar in income taxes is actually due or remitted to government.)

The Bookkeeping is by far the biggest tax compliance cost for businesses, but it is only a small fraction of the $194-235 billion number.

Ahmm, Bookkeeping is all there is in "tax compliance costs" that number represents.

• The second type of overhead, tax compliance, refers here to the basic actions required to file the federal income tax, including record keeping, education, form preparation and packaging/sending.

 

Too bad "tax compliance costs" are only a small portion (on average 20% in relation to taxes paid) of the total burden on businesses imposed by the complexity of the income/payroll tax system isn't it?

Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf

• "Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "

 

Business would not have near the problems with corporate taxation that we do but for that fact.

We are also putting aside, of course, the issues of the effect of burying a large and growing factor of the total federal tax burden behind the veil of business hiding government impositions away from the view of ever larger segments of the electorate.

The Honorable James DeMint (R-SC)
United States House of Representatives
APRIL 5, 2001

• "There has been a shift in the relationship between individuals and government, he argues, such that fewer and fewer are paying taxes at the same time that more and more are receiving increasingly generous benefits. If it becomes the case that most voters do not bear a financial burden for this largess, then there will be little to restrain--and significant political incentives to encourage--the continued growth of government.

 

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, believing someone else foots the bill.

[lewislynn]

I would suggest both sides of this debate exercise a bit more common curtesy and intellectual honesty.

That's choice...

note that Tax Foundation report was in 2000, current number for "compliance cost" alone is closer to $235 billion.

Actually it was from 2002, but why didn't you post the current (made up?) figures? Wouldn't posting the current (made up?) numbers be more "intellectually honest"? Where's your "intellectual honesty" in posting what was meant to be an intellectual honest fact then changing the date and numbers (without reference) as the actual fact because it suits your argument?

Would you like to discuss your "intellectual honesty" in your two faced stance on what wages would do?

[Always Right]

"Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion

That is good to know. I usually grant you an overstate $250 billion in my calculation, but a $100 billion is probably the more realistic number for compliance costs to businesses. The other numbers seem to be a slight of hand that are extracted from the rear. The idea that businesses are spending $724 for every $100 of taxes paid is just crazy. You would have to believe that all people do is work related to comply with the tax code. That number is just wrong on its face.

[ancient_geezer]

. I usually grant you an overstate $250 billion in my calculation, but a $100 billion is probably the more realistic number for compliance costs to businesses

For tax compliance, (i.e. accounting costs) probably.

Unfortunately the total burden which includes litigtation/audit and planning/avoidance related costs as well as "tax compliance" as estimated by the Tax Foundation are much greater, having a full impact greater than $2 dollars for every business income tax dollar remitted to government.

Taking just the corporate income tax alone $217billion in 2004, the impact on average business productivity and efficient use of capital in relation to the dollars taxes remitted comes out more $417billion using the less than lowest determination of such effect found here:

Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf

 

The idea that businesses are spending $724 for every $100 of taxes paid is just crazy.

I know of many businesses that do not pay one cent in income tax yet have a very large bill for expenses related to tax accounting, filing and unfortuately for some of them litigation and audit because the IRS took exception to how they were handling deductions and their claimed depreciation. Lots of fines, penalties and interest got tack on for all their effort in trying to minimize their tax bite.

I suspect $724 per $100 for small businesses as determined by the Tax Foundation, especially knowing that small businesses tend to expose themselves to taking rather large risks regarding tax avoidence and outright evasion, is rather on the low side.

would have to believe that all people do is work related to comply with the tax code. That number is just wrong on its face.

Not at all. All one needs to know is that 4 out of 5 small businesses go bankrupt in their first years of existance, paying no income tax at all but still incurring the costs of the income tax system.

The tax related costs are there whether or not a business even has a penny in taxable income on their income tax returns. Same is true for large businesses as well, for them economies of scale reduce the hit in relation to the dollars of large business taxes remitted as a whole.

Take for example a new business with a large capital depreciation and low profit if any. No net tax is due or paid by such a business yet the tax related cost are still there. That is what hike the cost per dollar taxes paid to such levels. The costs are not dependant on the taxes paid, the cost continue regardless of any tax due at all.