Replacing income tax with a “fair tax” helps such “posturing” millionaires and billionaires.
A balance sheet is a financial statement as of a point in time, for example, at year end, where an income statement, or profit and loss statement (p & l statement) is a financial statement that covers financial activity over a period of time, for example, 1 year.
If I have a net worth of $10 million, that means on my balance sheet, my assets are $10 million greater than my liabilities. The basic presentation of a balance sheet is Assets - Liabilities = Equity (or net worth).
If I have net income of $200,000 per year, that would be represented on my personal “tax-basis” “p & l” (which is what is used primarily to fill out an income tax return) as, say, $400,000 Gross income, minus $200,000 in deductible expenses, yields a taxable income of $200,000.
A very wealthy person’s income is mostly income from investments: interest, dividends and capital gains (the increase in value of investments, i.e., selling price minus purchase price = gain/loss). Losses generally can only be used to offset gains, so taxable income can’t go negative. Capital gains on investments held over one year are considered “long-term” and are taxed at a lower rate than “short-term” investments (held less than one year). This is designed to produce more responsible investing and it has always worked - investors know that they need to have an investment that won’t go broke quickly, because they need to stay invested at least one year.
In addition, the taxable gain/loss is realized at the point where the investment is sold - but there are provisions for rolling the money over into a new investment in certain situations and not realizing the gain. For the economy - this keeps money / capital invested, so for the government it’s worth putting off charging the tax. Of course, eventually, the investor will want or need to exit an investment in order to spend some of the money. That’s the point at which they cannot escape the tax (legally).
Clearly, a person can live very nicely off of after-tax income of several hundred thousand dollars. If Congress eliminates taxes on investment income, someone who’s invesment income is much higher than that, say in the millions, will suddenly see their 15% long-term capital gains tax removed - and voila - it’s all profit. No differentiation between long and short-term gains. That could generate a lot of unintended consequences, like rampant speculation, since there would be no tax reason to hold on to investments for one year.
And don’t forget, to the wealthy, income from their job is only a small part of their income - or perhaps they don’t even have any W-2 regular income from a job. That is why they love the idea of raising income tax rates on REGULAR income - W-2 earnings. Woo-hoo ! Because they can simply stop earning W-2 income if they have any since they don’t need it.
Of course, a consumption tax like “fair tax” will be built into the price of all goods and services. Very smooth move by the “posturing” billionaires - pass off much more of the tax burden to everyone who buys food at the grocery store. And eliminate all taxes on themselves - other than on what they buy at the grocery store ? Most of their income IS REINVESTED, NOT SPENT. Come on.
A true “fair tax” includes all the taxes we have now - so NO ONE can COMPLETELY escape paying some tax. If anything is left as UNTAXED - the tax planners for the wealthy will legally funnel all the profits and income of the wealthy through that tax-free channel.
That is why the current system of a hodge-podge of taxes is not all that bad. There are taxes on consumption, income (both regular and investment) and wealth, in the form of real estate taxes. If any one of those were eliminated, enormous amounts of wealth would jump into the hold to avoid paying taxes. I’m always especially worried when they start talking about more and higher taxes on wealth (a balance sheet tax, not a p&l tax). That means if I sit on money I earned plus things I’ve bought over the years, the gubmit wants to simply take part of what I’ve got - and it’s up to me to use my assets to earn money. If I run a loss that year - the gubmint would still collect a wealth tax on what remains. That type of tax, IMHO, is confiscatory much moreso than a “p & l” based tax on income. It can lead to the elderly being stripped of their assets by the gubmint once they can no longer think and act sharp enough to make enough profit for themselves every year, whent they should be able to live off their assets accumulated. Their income would generally taper off a bit, so therefore their income tax should go down accordingly.
The bottom line is that Congress, the elites and the media have the populace arguing about who will pay tax and how much - and forgetting temporarily about government spending, which is what requires higher taxes.
For income taxes, the only true fair way is to have everyone at the same rate with no exclusions or deductions. I like the idea of long and short-term capital gains, with short term being taxed at the same rate as regular income the way it is now and long term getting a bit of a lower rate. Other than that, every dollar earned by a person should have the same x cents taken out for income tax, if income is to be taxed, whether a person makes $10,000 per year or $10 million. That way - everyone is paying the same x cents on the dollar for their income - everyone feels the same bite on their income. The dollar the rich person earns is taxed at the rate as the poor person. There is every incentive to make more income - since making more will not put anyone into a higher “bracket”. Since there are deductions and exclusions the rich can make use of, the real rate they pay can vary from the published rate of taxation for their income.
If I inherit $10 million - is that not income to me in the year I inherit it ? Why not have that at the same rate.
IMHO...
“...consumption tax ... built into the price of all goods and services. Very smooth move by the “posturing” billionaires “
Not really.
Think about it a minute. Consumption tax. Consumers. It’s not a production tax that the evil producers would be snaking out of paying.
“Most of their income IS REINVESTED, NOT SPENT. Come on.”
I find it disturbing that someone on FR would have a problem with that. Your ideas for a fair flat income tax are reasonable. Your comments on sales tax, on the other hand, sound populist and progressive.
“If I inherit $10 million - is that not income to me in the year I inherit it?”
No.
It is a wealth transfer. I do not think that the passing of one’s parent and the electronic move from dad’s account to mine is some voluntary act of interstate commerce worthy of full federal government intrusion taking their potentially HUGE cut for my trouble.
It’s a pot of money. Earned, taxed and saved by my dad. Why should I have to stop at the IRS on my way home from the funeral just because I’m carrying the pot of money from his house to mine?