Death, Taxes, and George W. Bush (taxation alert)

Business Week ^ | 2/8/06 | H Gleckman

[voletti]

The President aims to end estate taxes for the wealthiest Americans. He also wants to scrap a $255 death benefit for the poorest The contrast in President Bush's new budget could not be more stark. On one hand, he wants to eliminate what he likes to call the "death tax" -- a levy imposed on a handful of the nation's biggest estates. On the other, he wants to end Social Security's lump sum death benefit -- a $255 check that the families of many of the nation's poorest use to help pay for their funerals.

There is a lot more in Bush's $2.77 trillion budget than that, of course. He'd boost spending for homeland security and the Pentagon, trim many popular domestic programs, and control the growth of Medicare by boosting premiums for high-income seniors and freezing or cutting payments for health providers, such as doctors, hospitals, and hospices. At the same time, the President asked Congress to make most of his first-term tax cuts permanent.

ESTATE PLANNING. That includes permanently eliminating the estate tax, or what conservatives like to call the death tax. Like most of what happens these days in the tax world, the story is complicated, but it goes like this: Starting in 2001, Congress began to gradually increase the size of an estate that would be exempt from tax. By 2009, estates of $3.5 million or less ($7 million for a couple that does the smallest bit of planning), would be tax-free. By 2010 all estates would be exempt from the tax, but only for one year.

So President Bush wants to permanently free all estates from the tax starting in 2011. The estimated annual cost: in excess of $50 billion in 2012, rising to more than $70 billion by 2016.

[Your Nightmare]

Simple when it is purchased from contributions then passed on as charitable gift without a sale occuring.

A sale did occur. The Church bought a Bible.

So what is that $219 billion in the PCE table? Is that $219 taxable or not?

Furthermore, the not-for-profit is expressly exempt from paying taxes in connection with the purchase of goods purchased for furtherence of its charitable activities:

They aren't reselling it; they aren't using it to produce, provide, render, or sell taxable property or services; and it isn't a business purpose. The section you quoted only states that the nonprofit, just like a business, doesn't pay the tax if they are going to resell it, but then they have to charge the tax when they do.

If you don't tax nonprofits' non-resale purchases, you set up a huge bias toward nonprofits providing goods and services. They are providing items for consumption (the items they give away for free). The stated purpose of the FairTax is "To tax all consumption of goods and services in the United States once, without exception, but only once." When would the consumption of a food pantry handing out sandwiches for free be taxed?

[afnamvet]

If it ends the Gift Tax , sign me up.

[Your Nightmare]

No one has suggested the PCE counts business-use purchases. Quite, the contrary. It is precisely because the PCE excludes Business-Use purchases that the example works.

PCE expressly excludes Business use purchases by methodolgy. Any purchase by a business is considered to be business use and an investment not personal consumption by NIPA/

Uhhhh, isn't that exactly what he said?

The reality is you want to believe that the PCE accounts for all the evasion/avoidance under the FairTax, but it just flat out doesn't. There are so many examples and you stick with the one that you have a lot of cut and pasties for and ignore the rest.


[BTW, what "methodology" is used to exclude all business purchases from the PCE? I haven't been able to find any details. Have you? Or are you making assumptions the the PCE accurately eliminates business purchases for the PCE?]

[ancient_geezer]

A sale did occur. The Church bought a Bible.

A taxfree purchase occurred in the furtherance of the not-for-profit's bona fide business. Thus not taxable under the FairTax provisions of section 102 as referenced by section 706.

They aren't reselling it; they aren't using it to produce, provide, render, or sell taxable property or services

Oh, they aren't giving it away? As in provide such in furtherance of their bona fide business ends engaged in not-for-profit charitable activities?

If the organization is using those Bibles for resale, they must obviously collect a tax on the resale.

If they are handing those Bibles over to the members of the organization for their consumption, then they are required to pay either the tax on their purchase where consumed internally or collect the tax from the individual or share holder receiving the Bible and remit such to the state tax authority.

However if they are merely handing the Bibles out to persons not affiliated with the organization, in keeping with their bona fide business of charitable giving, there is no tax paid on the purchase of those bibles, no tax collected from the recipient of those bibles. The transactions occurring are merely the transformation of a money contribution into a property passed to another as a gift, a oneway transaction from original giver to a recipient of the charity passing through the conduit of the qualified not-for-profit organization.

That is how I read the provisions of HR25, especially in light of the principles of interpretation expressly stating that any ambiguities of interpretations construed in a light favoring the either the powers of the states or of the people, not the powers of federal government to collect whatever tax it can get away with.

If you don't tax nonprofits' non-resale purchases, you set up a huge bias toward nonprofits providing goods and services.

Yep, private charity is favored over government welfare and even business. I can accept that. For the only charity that can work that way is out of the resource freely given in the first place to the not-for-profit organization to be applied to specific ends, charitable works.

When would the consumption of a food pantry handing out sandwiches for free be taxed?

Never because no sale has occurred, any more than I choosing to share the fruits my apple tree with my neighbors without receiving compensation for the gift rendered to them.

What I do with my apples in a one way transaction is not subject to a retail sales tax. No sale or exchange of values has occurred merely the transfer of a gift, likewise estates are not taxed when they pass to another under this legislation. It is after all a retail "sales' tax, not a tax on mere transfer of wealth or property from one person to another outside the context of contractual exchange of value that a sale represents.

[Your Nightmare]

So what is the $219 billion for "Religious and welfare activities" in the PCE? Either the FairTax taxes these nonprofit expenditures in the PCE or you've got yet another big hole in your FairTax base.

I think you need to study this a little closer. I'm pretty sure you are wrong. A church is considered a "nonprofit institution serving households" and it's "output...is considered to be purchased by persons." Since the price (if any) an NPISH might charge for their output isn't a good gauge of it's worth, the PCE includes all operating expenses incurred by the NPISH (that would include the purchase of Bibles).

So, again, either the FairTax taxes these "operating expenses" of nonprofits or there is a huge hole in the FairTax base. If you need a hint, I'm pretty sure the authors of the FairTax were aware that the operating expenses of nonprofits was in the PCE when they left it in the FairTax base for rate calculation.

[ancient_geezer]

So what is the $219 billion for "Religious and welfare activities" in the PCE? Either the FairTax taxes these nonprofit expenditures in the PCE or you've got yet another big hole in your FairTax base.

Operating expenses of charitable organizations that represent consumption.

If you need a hint, I'm pretty sure the authors of the FairTax were aware that the operating expenses of nonprofits was in the PCE when they left it in the FairTax base for rate calculation.

I bow to your analysis after checking to make sure that such consumption was not removed from the FairTax base calculations for tax rate:

 

http://www.fairtaxvolunteer.org/smart/tax_system.html

 

Table two: national FairTax rate calculation: 2003
Line	Description	FairTax base	Source
	Taxable item	Billions
1	Personal consumption expenditures	$ 7,760.9	NIPA Table 1.1.5, line 2
2	Purchases of new single-family homes	$ 310.6	NIPA Table 5.3.5, line 20
3	Purchases of new mobile homes	$ 7.1	NIPA Table 5.4.5B, line 40
4	Improvements to single-family homes	$ 132.0	NIPA Table 5.4.5B, line 42
5	Less: imputed rent on owner-occupied housing	$ 859.6	NIPA Table 7.4.5, line 3
6	Less: imputed rent on farm housing	$ 11.9	NIPA Table 7.4.5, line 5
7	Additional financial intermediation services	$ 83.1	Financial & risk Intermediation greater than NIPA definition
8	Foreign travel by U.S. residents	$ 39.6	One half of NIPA Table 2.5.5, line 110
9	Less: expenditures abroad by U.S. residents	$ 6.6	NIPA Table 2.5.5, line 111
10	Less: food produced and consumed on farms	$ 0.5	NIPA Table 2.5.5, line 6
11	State and local government consumption	$ 1,058.5	NIPA Table 3.10.5, line 47
12	Gross purchases of new structures	$ 213.4	NIPA Table 3.9.5, line 24
13	Gross purchases of equipment	$ 51.5	NIPA Table 3.9.5, line 25
14	Federal government consumption	$ 658.6	NIPA Table 3.10.5, line 12
15	Gross purchases of new structures	$ 15.5	NIPA Table 3.9.5, line 9
16	Gross purchases of equipment and software	$ 78.1	NIPA Table 3.9.5, line 10
17	Less: state and local government sales taxes	$ 343.9	NIPA Table 3.3, line 7
18	Less: government education expenditures	$ 414.7	Table 255, SAOUS 2003
19	Less: private education expenditures	$ 151.7	NIPA Table 2.5.5, lines 105 & 106
20	Expenditures in U.S. by non-residents	$ 86.7	NIPA Table 2.5.5, lines 112
21	Travel to U.S. by non-residents	$ 33.3	One half, SAOUS 2003 Table 1280
22	National retail sales tax base	$ 8,740.0
Revenues to be replaced
23	Income tax	$ 927.7	Dept. of Treasury; derived from Table B-81 ERP 2004
24	Estate and gift tax	$ 22.4	Dept. of Treasury; derived from Table B-81 ERP 2004
25	Payroll taxes	$ 717.8	Dept. of Treasury; derived from Table B-81 ERP 2004
26	Excise taxes	$ -
27	Total	$ 1,667.9
Revenue-neutral rate calculation
28	Tax exclusive rate (no rebate)	19.1%
29	Tax inclusive rate (no rebate)	15.9%
30	Base reduction equivalent for rebate	$ 1,746.1	Total consumption allowance for 109 million rebate units
31	Net tax base	$ 6,993.8
32	Tax exclusive rate (with rebate)	23.8%
33	Tax inclusive rate (with rebate)	19.3%

 

 

 

Apparently the bill's language means, spending for consumption by a non-profit-institution must be taxed. And you are correct that all the internal consumption of even a not-for-profit organization must be taxed under the FairTax implementation of a retail sales tax. Once tax all taxable property and services once but only once as you have pointed out and as explictly stated in the principles of interpretation of the legislation.

[Dimples]

You still don't get it.

Now your torturing the example to make it fit your rather narrow view of the world.

First, there are not two examples involving the purchase of a PC. It's one example of how behavior under the income tax differs from behavior under the FairTax for ONE SPECIFIC INDIVIDUAL. If the individual is governed by the Income Tax, he buys the PC himself; if the individual is governed by the FairTax he works a deal with his employer to fake a business purchase. No individual, in any of my examples, has his employer buy his PC when governed by the Income Tax, yet you persist in pretending he does.

Second, the amount of Income Tax being replace by the FairTax is not hypothetical. It is and actual amount already specified (just like the PCE.) That number is not changed by my example of the income tax evader. He exists today ... and he bought himself a PC that was counted as in the PCE figure used by the AFFT to calculate its rate; it was not a business purchase; and it was bought with untaxed money; and his non-payment of tax resulted in the actual Fed tax receipts that are used in the AFFT calculation of the FairTax rate. No numerators were harmed in the example ... only the denominator was.

Third, you're completely in fantasy land to suggest that such altered behavior (conscious , with intent to evade, by an individual with a history of evasion) is "light" and "marginal". IT'S WHAT THE CONSCIOUS EVADERS DO !

And you're just grasping at straw to suggest this activity is offset by accidental under-declaration of expenses by businesses. If ANYTHING, business who under-declare will do so equally regardless of the tax system. The incentives are the same and unaltered by the FairTax.

You've got it EXACTLY BACKWARDS!

Did you actually read the explanation you posted about what the PCE does NOT measure? Are you now suggesting that the FairTax aims to tax the value of people cooking meals in their own homes or painting their own houses?

Man, your getting downright silly in your attempt to defend the AFFT tax base. In describing the PCE, you've gone from "everything is fully accounted for, so it can't be less" to "there's so much unaccounted for that it's quite probable it will even get bigger!"

What a crock of horse dung.

[Your Nightmare]

Apparently the bill's language means, spending for consumption by a non-profit-institution must be taxed. And you are correct that all the internal consumption of even a not-for-profit organization must be taxed under the FairTax implementation of a retail sales tax. Once tax all taxable property and services once but only once as you have pointed out and as explictly stated in the principles of interpretation of the legislation.

Thanks for being big enough to admit it. Now let's see if your cohort are that big.

[Jedidah]

"There's a bill before Congress titled "The Fair Tax Act" (H.R. 25 and S. 25)that will not only eliminate the death/estate tax but will also eliminate all federal taxes."

Does not. It eliminates the income tax and replaces it with other taxes. It changes the sources and collection of revenue.

I certainly would like to see serious consideration of the Fair Tax, but misrepresenting it like you did won't help the cause.

[Man50D]

There's a bill before Congress titled "The Fair Tax Act" (H.R. 25 and S. 25)that will not only eliminate the death/estate tax but will also eliminate all federal taxes."
Does not. It eliminates the income tax and replaces it with other taxes. It changes the sources and collection of revenue.
I certainly would like to see serious consideration of the Fair Tax, but misrepresenting it like you did won't help the cause.

You have not thoroughly read the bill or read the information at the Fair Tax website. http://www.fairtax.org Specifically question number two Fair Tax FAQ #2. To quote "The FairTax is replacement, not reform. It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes." That covers all federal taxes an individual or corporation could pay to the federal government. I am accurately representing the Fair Tax. I suggest you read more about the Fair Tax before you accuse anyone else about a subject with which you are poorly informed.

[Your Nightmare]

That covers all federal taxes an individual or corporation could pay to the federal government.

How about excise taxes? Hmm?

[ancient_geezer]

Thanks for being big enough to admit it. Now let's see if your cohort are that big.

The facts of the intent to tax not-for-profit consumption lays in the treatment of the tax rate calculation by AFFT's research folks in http://www.fairtaxvolunteer.org/smart/tax_system.html, and is consistent with the similar treatment of government consumption to assure all consumption is taxed once but only once.

[Principled]

How about excise taxes?

I wish hr 25 included ALL taxes - make them ALL visible!

[Jedidah]

I wrote: "It eliminates the income tax and replaces it with other taxes. It changes the sources and collection of revenue."

You quoted the Fair Tax website: "The FairTax is replacement, not reform. It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes."

Can you not see that what I wrote and what the FairTax site says are in agreement?

You are apparently trying to argue that the Fair Tax is not a federal tax.

For what it's worth, I'm probably on your side on this issue, but not if you're going to play silly semantic games.

[Man50D]

I wrote: "It eliminates the income tax and replaces it with other taxes. It changes the sources and collection of revenue."

What you wrote is a complete misunderstanding of the Fair Tax. My argument all along is the Fair Tax will be the only federal tax. The tax will be collected at the point of consumption. There are no other federal taxes, including the excise tax referred to in post #131.

The excise tax is paid when purchases are made on a specific good or service. The difference between the excise tax and the Fair Tax is that the former is embedded in the cost of the product or service while the Fair Tax has no embedded taxes. All embedded taxes will be eliminated by the Fair Tax. You are clearly not in agreement with me if you think the Fair Tax will involve more than one tax. The distinction between your interpretation of the Fair Tax and the facts is too great to be a matter of mere semantics.

[Your Nightmare]

The excise tax is paid when purchases are made on a specific good or service. The difference between the excise tax and the Fair Tax is that the former is embedded in the cost of the product or service while the Fair Tax has no embedded taxes. All embedded taxes will be eliminated by the Fair Tax.

Ummm, excise taxes aren't eliminated by the FairTax.

[lewislynn]

There are no other federal taxes, including the excise tax referred to in post #131.

Sad! It's sad you're falling for the lies and it's sad your friends(?) let you make a fool of yourself.

From HR25

SEC. 302. ADMINISTRATION OF OTHER FEDERAL TAXES.

(a) In General- Section 7801 (relating to the authority of the Department of the Treasury) is amended by adding at the end the following:

`(d) Excise Tax Bureau- There shall be in the Department of the Treasury an Excise Tax Bureau to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms.

`(e) Sales Tax Bureau- There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.'.

[pigdog]

Why should that bother you, Looey??? After all, we let you make a fool of yourself all the time - and time after time.

Man50D will probably realize that (presently) excise taxes are not removed ... I susp[ect he just misspoke in the heat of battle. Too bad they're not eliminated I think - but maybe they will be before passage.

[ancient_geezer]

Do you think that it would matter to lewislynn, that federal excises comprise less than 4% of federal revenues.

Hmmmm, then again that probably is a useless query, of course that would make no impact on lewislynn.

Talk about, arguing on the margins. :o/