Posted on 02/20/2006 3:30:35 PM PST by Bigun
Written by Jan Larson
Sunday, February 19, 2006
The Internal Revenue Service reported [1] last week that $345 billion (not a misprint) in taxes owed for 2001 has not been collected. Not to worry, the report also indicates that IRS enforcement efforts will recover approximately $55 billion of this “tax gap.” Bully for the IRS.
Even if the IRS is successful in recovering the amounts they seek, there is simply no way that a $290 billion shortfall can be justified regardless of how it is spun. There are several reasons why taxes rightfully owed are not collected. Many taxpayers underreport income and/or claim undeserved deductions. In other words, a lot of people cheat on their taxes. Is anyone surprised?
Another factor that significantly affects tax compliance is the complexity of the tax code. According to a report [2] from the Americans For Fair Taxation [3], the federal tax code, rules and IRS rulings comprise more than 60,000 pages. While complexity undoubtedly leads to some paying more than they rightfully owe, that complexity also results in billions in unpaid taxes.
The report also indicates that individuals and businesses spent over six billion hours at an estimated cost of $265 billion dollars attempting to comply with the maze of tax rules and regulations. This is equivalent to a workforce of over 2.8 million people spending the entire year doing nothing but tax compliance.
To cover the uncollected taxes, the 130 million U. S. taxpayers are effectively subsidizing the tax cheats to the tune of over $2600 each. In other words, if the cheaters were prevented from cheating, the average taxpayer would see reduction in his or her tax bite by over 30%.
If the tax gap and compliance costs were in and of themselves not sufficient reason to scrap the tax code, the tax code also hurts the U. S. in other ways. The income and payroll taxes ostensibly paid by businesses (but are in fact simply passed along to consumers) make U. S. products less competitive on world markets. This leads to job losses in the U. S. and, as we also saw last week, record trade deficits. The complexity of the tax code also enables politicians to reward and punish via the tax code. This is probably the single worst aspect of the U. S. tax system.
The sheer lunacy of a tax system that fails to collect billions owed, enables political manipulation, hurts the economy and in general works against the taxpaying public is astounding.
There is a solution however. It is a solution that would eliminate individual compliance requirements and make April 15 just another day. This solution would greatly reduce business compliance costs and similarly reduce the size and scope of the IRS. This solution would lead to job growth and economic expansion. This solution would eliminate most of the opportunities for tax cheats and political manipulation. The solution? The Fair Tax.
The Fair Tax would eliminate all income and payroll taxes and would replace them with a national sales tax paid on the retail purchases of new goods and services. The Fair Tax protects low-income individuals and families by rebating taxes paid up to the poverty level.
The first reaction by many people to the idea of a national sales tax is that prices of goods and service would go through the roof. Under the Fair Tax, this is not the case. Consumers are already paying for the corporate income and payroll taxes embedded in the price of virtually all goods and services. It is estimated that these embedded taxes average approximately 22% of the retail price of goods and services. Make no mistake; you are paying these hidden taxes.
Under the Fair Tax individuals would incur no compliance costs and businesses would remit Fair Tax receipts similarly to the way state sales taxes are remitted today. No more armies of lawyers and accountants to figure out IRS regulations. The IRS (or some similar agency) would need to ensure compliance from just the approximately 25 million businesses instead of 155 million businesses and individuals, as is the case today.
Maybe most importantly, the Fair Tax would eliminate the patently unfair manipulations of the tax code that Congress uses to hand out favors to wealthy constituents and lobbyists. The elimination of the incentive and ability to tinker with the tax code would go much farther toward making members of Congress more “ethical” than any other type of reform.
The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The House version already has 48 cosponsors. The Americans for Fair Taxation estimate that it would require just 3000 active supporters in each congressional district to make the Fair Tax a reality. Each of the 435 districts represents approximately 300,000 taxpayers. That means that if just one percent of taxpayers became vocal supporters of the Fair Tax and took the time to write and/or call their representatives in Washington, the Fair Tax could become law.
The Fair Tax would be the most significant tax reform since the Boston Tea Party. Don’t leave this reform to others. Take a few minutes to let those in Washington know that the time for the Fair Tax is now. Think about that as you pore over your 1040 this year.
[1] http://www.irs.gov/newsroom/article/0,,id=154496,00.html
[2] http://www.fairtax.org/pdfs/Tax_compliance_facts.pdf
About the Writer: Jan A. Larson is currently employed in private industry in Texas. He holds a bachelor of science degree from the University of Nebraska, a master of science degree from the University of Kansas, and an MBA from Colorado State University. jan@pieofknowledge.com.
Ahh but they are required to collect the tax from retail customers and they are required to be certified as a business and open to audit justifying eligibility for exemption of their business purchases and remittence of sales taxes collected.
You didn't figure on just pretending to be a business and getting away without state tax administrators verifing the claim and assuring that you remit the taxes collected did you?
Silly person.
... Interesting that the IRS doesn't allow the employee a deduction from his wages for the use of the family car in gettng to and from work or hobby. Even where that is the only use of said vehicle ...Actually, under certain circumstances, it does. If you use your personal vehicle for travel to/from a work destination other than your regular location (offsite travel, site to site travel, conferences, customer visits, etc.) either you or your company are entitled to fuel, mileage, parking, tolls and other transportation related cost deductions, depending on who bears the expense. If your employer does not reimburse the expense, the individual is entitled to deduct the expense from his taxable wages.
You didn't figure on just pretending to be a business and getting away without state tax administrators verifing the claim and assuring that you remit the taxes collected did you?I don't really care what your Gestapo state auditors turned federal officials do. There's nothing that says I have to collect taxes unless I sell retail. Where does it say my business has to have "revenue" (if it didn't I wouldn't be able to make tax free purchases) or profit to be exempt from your stupid sales tax?
There's nothing that says I have to collect taxes unless I sell retail.
You're absolutely right, selling retail is totally voluntary. Your choice to do so or not as you will. Sell to another business providing you a copy of their tax exemption certificate. You are off the hook for tax collections.
Where does it say my business has to have "revenue" (if it didn't I wouldn't be able to make tax free purchases) or profit to be exempt from your stupid sales tax?
You are right no sales revenue = no business, thus no need for certification for tax exemption.
You are right no sales revenue = no business, thus no need for certification for tax exemption.Wrong! Unless you can show me where it says you have to have a certain amount of revenue FROM SALES before a certificate would be granted. You can have a business with no sales revenue and still get certification for tax exemption...
According to you a startup company can't buy tax exempt because they have no sales...and they may have no business because they can't buy tax exempt...Pretty idiotic theory isn't it.
Oh you can start up alright, just be stand prepared to demonstrate you are actually a business, and not just a paper shell looking to purchase business use exemptions for personal use.
Easy to do actually, real businesses have clients and real sales and state tax administrators are quite experienced in recognizing one.
Of course if you should be challenged, you do have the affirmative route of demonstrating the criteria of Section 701, to preserve your tax exempt status.
Otherwise, I have no doubt you will be able explain why you are unable show sales and activities commensurate with being the business you would like to claim you to be to maintain your tax exempt purchases.
Yep, a retail sales tax system actually does have enforcement efforts, and really does require you to be the business that you claim to be.
However, you can always try to scam the system if really want to.
Who knows, you might even be able to get away with it, just like many do under the income tax system today, in declaring personal purchases as business expenditure. An activity that hardly unknown in the current system. No reason why one couldn't try the same under a sales tax.
Same business, same MO ought to work so go for it.
LOL! We are starting to see that the FairTax would really be one hairy POS for home businesses and small startups.
Especially for those that are looking to maintain their ability to tax exempt expenditure for personal/business use items.
It is indeed interesting to watch the panic of folks who say a retail sales tax will increase tax evasion because it cannot be enforced are also the same ones who also claim how horrible it will be to actually be required to able to demonstrate they are a business for-profit and not a hobby.
Clear enough to see why one might prefer dealing with an income tax system with 10 times as many filers to hide from an overburdened IRS.
If anyone is panicky about the ease of scamming the tax system it's you. You're twisting into a pretzel with your lies about having to prove income/revenue/profits to prove eligibility. It just so happens I have a sellers permit and all they need to know is my business name, address, etc. I only have to file once a year and if there were purchases but no resales...then there were purchases and no resales.
I know you're lying because you haven't posted any irrelevant links or wording from the bill to try and prove you're right about revenue and profits...you know you aren't right.
As to "state auditors" enforcing federal laws, their consistency would be as incoherent as you and your phoney tax plan times 50.
...(aren't you the one who told me Clinton was pay'n you $1300 a month? I thought so.)
LOL lewis, I have no problem with my veteran's disability paycheck. I'm sure it torqued down ole Clinton's crank to have to pay it out to me, as much as it torques you down.
As far as being worried about living under a retail sales tax system. I welcome it, ought to cure alot of systemic problems that the current system creates, tax evasion by selfemployment and small business types being one of the biggies.
Glad you have a state seller's permit, good for you. Enforcibility under the lax certification requirements for tax exemption of traditional sales tax systems is one of the ever present gripes of sales tax opponents. To meet those fears FairTax retail sales tax system includes a business to actually be bonafide to be able to assure tax exempt purchasing is indeed for business use only.
Your panic reaction to actually being required to be able to demonstrate being a business instead of merely being handed a paper supporting tax exemption for bogus as well as legitimate business use lets me know the FairTax provisions for certification are right in the ball park of where they need to be.
As to "state auditors" enforcing federal laws, their consistency would be as incoherent as you and your phoney tax plan times 50.
In which case you have nothing to worry about, being so incompetent I'm sure you will never hear from them.
Especially for those that are looking to maintain their ability to tax exempt expenditure for personal/business use items.What you are saying to me is that, even though my freelance work was a legitimate business and not a "hobby", under the FairTax I would have had to show a profit for 2 out of 3 years before I would qualify for the "business use" tax exemption - and then only if I use the item I bought almost exclusively for business.
What you are saying to me is that, even though my freelance work was a legitimate business and not a "hobby", under the FairTax I would have had to show a profit for 2 out of 3 years before I would qualify for the "business use" tax exemption -
No, what the statute states, that if your exemption is ever challenged, the 701 provision is the affirmative criteria you can use to show you are not a hobby.
Getting certification in the first place requires little more than being able to demonstrate you do have a business.
and then only if I use the item I bought almost exclusively for business.
I would say that 95% business use is a pretty strong case of exclusive use for business. Yes.
The reason the FairTax would have to be so Draconian toward small business is that a NRST is inherently easy to evade.
An inherent flaw in past state implementations of retail sales taxes and indeed the income tax the FairTax system replaces.
So the FairTax screws honest people trying to avoid being ripped off by the dishonest ones.
Hmm, more like encourages honest people to stay honest. I've listened to more than one sales pitch for entering small business schemes involving the advantages that tax exemption of mixed use assets allows in minimizing personal income taxes. Whole marketing schemes are based on that one.
If a strong majority of people were actually honest in tax exempt purchasing no such provisions would even be necessary, the only ripoff has been the lax enforcement of business use rules to begin with enabling and in many ways encouraging such activity undermining tax compliance among small businesses as a whole.
Keeping one's business clearly separated from one's personal finances is a significant plus in my view and experience.
The FairTax would be the end of the (legitimate) home business.
More like it would be the end of fraudulent use of a marginal business to evade taxes, as is done under the current tax systems.
Huh? That doesn't make sense. I get the exemption whether or not I've made a profit in 2 of the last 3 years, but if I'm challenged on my exemptions I must have made a profit in 2 of the last 3 years to qualify for the exemptions.What you are saying to me is that, even though my freelance work was a legitimate business and not a "hobby", under the FairTax I would have had to show a profit for 2 out of 3 years before I would qualify for the "business use" tax exemption -No, what the statute states, that if your exemption is ever challenged, the 701 provision is the affirmative criteria you can use to show you are not a hobby.
Getting certification in the first place requires little more than being able to demonstrate you do have a business.
I would say that 95% business use is a pretty strong case of exclusive use for business. Yes.Like I said, the FairTax would be the death of the legitimate home business. Looks like they won't be lowering their prices after all...
Keeping one's business clearly separated from one's personal finances is a significant plus in my view and experience.Well, golly. If AG has that view based on his experience, let's just pull the plug on all home businesses.
No, what the statute states, that if your exemption is ever challenged, the 701 provision is the affirmative criteria you can use to show you are not a hobby.You're full of your own $hit.
The 701 provision is to determine what IS NOT a hobby not to determine what is a business.
There's nothing in the bill that determines what is a legitimate business using income, revenue, profit...It only uses it to determine what IS NOT a hobby.
Following the letter of the law, I can buy a new vehicle tax free with the "intent" of customizing it for resale later. Nothing says I can't drive it in the mean time....
BTW, nothing would prevent me from selling it wholesale (tax free) to another customizer who could do the same.
Following the letter of the law, I can buy a new vehicle tax free with the "intent" of customizing it for resale later. Nothing says I can't drive it in the mean time....
BTW, nothing would prevent me from selling it wholesale (tax free) to another customizer who could do the same.
BTW there is nothing at all to "prevent" you from evading income taxes through the invalid use of business tax deductions. For that matter nothing to "prevent" you from shooting your next door neighbor either.
There is however always the little problem with dealing with the courts and enforcement requirements when discovered.
The tax, afterall, is imposed on your "use or consumption in the United States of taxable property or services." Not what you might say you "intend" to do.
The general collection point is retail sales, that however does not "prevent" state tax authorities from going after you for the invalid use of exemption, or evading the tax on your personal use of new products without paying the tax due.
In fact there is a whole range of possible ways to make the point for those who need a reminder as to what is business purpose which provides exemption,
SEC 102(b) Business Purposes- For purposes of this section, the term `purchased for a business purpose in a trade or business' means purchased by a person engaged in a trade or business and used in that trade or business--
- `(1) for resale,
- `(2) to produce, provide, render, or sell taxable property or services, or
- `(3) in furtherance of other bona fide business purposes.
and what is personal use or consumption of taxable property which requires the tax to be paid.
`SEC. 505. PENALTIES.`(a) Failure to Register- Each person who is required to register pursuant to section 502 but fails to do so prior to notification by the sales tax administering authority shall be liable for a penalty of $500. `(b) Reckless or Willful Failure to Collect Tax-
`(c) Reckless or Willful Assertion of Invalid Exemption-
`(d) Reckless or Willful Failure to Remit Tax Collected-
`(e) Reckless or Willful Failure to Pay Tax- Each person who is required to and recklessly or willfully fails to pay taxes imposed by this subtitle shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not paid.
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If your feeling lucky, have fun, its only your money and liberty laid out as the stakes in that game.
I've never pretended that the cascading embedded tax example I've given many times represented anything other than the mechanism of how such taxes become hidden. You (and your sidekick Nightie) are the ones trying to "prove" something about the (as you define it) "real world" where not only do a high percentage of the businesses either break even or lose money, but the "net profit margin" you've selected is artificially cut in half to boot from information you yourselves have posted.
If your "real world" example were indeed descriptive of the real world and used your 6.24% you would have shown that there is ample room in prices due to the income tax (well above 15% of prices) to lower prices when the income tax is eliminated. In fact, you showed that with your artificially skewed and unrealistic example (the one you claim as "realistic" - which it is not) that the 15% decrease is within reason even with your intentionally biasing the example with unrealistic markups and with the assumption that these large companies are representative of margins in smaller companies (which I find unlikely in the extreme).
In any event your "example" that shows about a 15% price reduction range for the FairTax uses an average net profit of only about 1/2 that you represent as "real". In addition, using 1/3 of the businesses as marginal in the chain is three times the rate of those in the very set of companies you hold out as "real" with the 6.24% rate since for those companies the failing rate (zero or a loss) is less that 1/3 of the number you presented in your "real" example, thereby biasing it downward as well.
So a more-likely "real" example using your spreadsheet (which graded as F- for these and other reasons as I said earlier), you'd easily exceed a 20% embedded tax rate which could be eliminated with the advent of the FairTax. So you see, despite cheerleading by both you and Nightie, your example is not realistic at all despite the pretense of both of you.
My example clearly indicates the cascading embedded tax mechanism while yours merely (intentionally) obscures ... but still proves that a 15 - 20% or more embedded tax can be removed from prices when the income tax dies. You guys have done nothing but shoot yourself in both feet.
Thanks for confirming what I have been illustrating all along about a probable substantial price reduction with the advent of the FairTax even though I made no "real" claims as you yo-yos have done. Your example is hardly real as we've seen, but merely an illustration of the old saying about "figures don't lie, but liars figure".
The "real world" example given by Nightie and backed up by Dimp-Dimp actually show a hidden cascading embedded tax cost increase due to business taxes of from 15% to upwards of 20% - and these are your fellow Squirrels; not me. So go combat them and help save the rest of us from eyestrain.
Even your own cohorts are now putting up (what they claim are) "real" examples that support the FairTax price decreases. Your good bud Robbie will be crushed. Or maybe you'd like to show those persons that they've created a "straw man" like you enjoy doing. They obviously think the real world has ample room to drop prices when the FairTax becomes law.
Priceless!!!
"... it's very clear who has a better understanding of business in the real world ..."
You shouldn't keep inflating your own ego by blowing through your little finger so much; might enlarge your bald spot! Your example is not real at all as I've shown in #496.
All you've done is completely destroy your own "SQL debating standard" that the FairTax will not reduce prices when you clearly show substantial room for such reduction due to removal of the income tax ... is there an echo in here??
You have no idea what your talking about.
The "real world" example given by Nightie and backed up by Dimp-Dimp actually show a hidden cascading embedded tax cost increase due to business taxes of from 15% to upwards of 20% - and these are your fellow SquirrelsNo it doesn't. You are delusional.
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