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The GOP's little rule change they hoped you wouldn't notice


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#81 juslen

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Posted 16 October 2013 - 05:47 PM

Its a tough question, the first thing we need to agree on is what the goal of taxes ought to be. Do we just want revenue to provide for government functions(and how many government functions/what size of government), or do we want the tax code to be part of government social engineering. If we want the latter and we want to use taxes to encourage behavior and punish people, then we shouldn't really change much aside from probably fixing/changing the loopholes available to further punish the rich for making too much money or whatever the current flavor of angst is.

If we want a good and "fair" tax code from the sense that we don't want political favoritism the first thing we need to do is simplify, there are a lot of ways we can do this, but the major reason our tax code doesn't get fixed is because it benefits existing politicians who are able to pander to a population that quite honestly has no idea how taxes work or what they pay.

If we can make taxes simple enough that the overwhelming majority of people can file and pay their own returns, and understand how it works, then they won't be duped by politicians or bad media stories, they will know what they pay (if anything) and whether their taxes actually went up or down based on legislation.

Along those lines there are a number of things we can do and we have to determine what values we want in the system(for example do we want progressivity and how much).

A few things I would do

I would get rid of the corporate income tax altogether. Make corporations continue to do their normal SEC filings (for public companies), or informational filings for private companies, and keep an accumulated earnings tax in place to react to people abusing S-Corps to avoid tax altogether. This is one of the areas where people constantly complain that the system doesn't work, taxes end up being higher on domestic companies with large multinationals using the rules to avoid much of their tax. This disappears really quickly if they have no taxes anymore, and then income gets repatriated to the US if that makes sense because there is no penalty to do so. Having no corporate tax also makes the US a better place for investment and brings us economic activity.

For individuals I would say we should do a simplified income tax where we take a wide definition of income (wages, dividends, interest, capital gains, royalties, rental income etc.) and treat it largely the same. So your typical taxpayer adds up all of their income from various sources, puts it in one basket, then have a handful of credits, I think a 25% credit for charitable giving, 50% for contributions to retirement accounts up to a limit, and a general credit of varying percentages for cost of living based on age and number of people in your household. Then apply lower rates across the board so maybe the top rate would be 25% but it would be on generally larger incomes. This keeps progressivity and also encourages things like investment amongst the poor because corporations would have more money to give out in dividends and their marginal rates would be lower. Also having a credit for charitable contributions levels the board so everyone gets the same benefit per dollar of contribution.

The key is keeping things simple, and using broad definitions with low rates to have a large base but not discourage good activities.

Alternatively you could do some sort of consumption tax like a sales tax but with a refund given to families or individuals to try to keep things from becoming regressive, although that is a harder sell for a lot of people.

Also on the corporate tax side if people are unwilling to repeal entirely, I would at least go in the direction that Ohio and Washington have gone, with a gross reciepts tax, how that works is instead of a complicated income tax Ohio will take your total gross reciepts (generally sales of goods and services) into the state, and they apply a very low rate. .26% for example.

So a company with $1 million in sales would pay a few thousand in tax. This way you reduce compliance burdens, make the tax easy to understand and generally avoid taxing people when they can't afford to pay the tax. They also provide a general exemption to lower the rates on small companies (often to zero if their sales are low).

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#82 Lord GVChamp

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Posted 16 October 2013 - 06:03 PM

Good lord, why do you think not approving a budget is extreme? Extreme would simply be arresting your party leaders for lying to the American party for years, looting the Medicare piggy-bank in order to buy off your supporters, and then having the audacity to set up a website that doesn't even work. 

 

I never even said I agreed with the shut-down. I think it's dumb. Your definition of "extreme" is skewed nonsense to support your political agenda. The Tea Party Republicans are acting within the constraints of a pluralistic, republican, parliamentarian system. That is not extreme, not even close. 

 

It's like calling Taylor Swift a rebel because she wears red lipstick or something. 


Edited by Lord GVChamp, 16 October 2013 - 06:03 PM.


#83 Teddyyo

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Posted 16 October 2013 - 06:53 PM

GVC it's those types of things why I refuse to confront him.

#84 SpacingOutMan

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Posted 17 October 2013 - 07:40 AM

Its a tough question, the first thing we need to agree on is what the goal of taxes ought to be. Do we just want revenue to provide for government functions(and how many government functions/what size of government), or do we want the tax code to be part of government social engineering. If we want the latter and we want to use taxes to encourage behavior and punish people, then we shouldn't really change much aside from probably fixing/changing the loopholes available to further punish the rich for making too much money or whatever the current flavor of angst is.

If we want a good and "fair" tax code from the sense that we don't want political favoritism the first thing we need to do is simplify, there are a lot of ways we can do this, but the major reason our tax code doesn't get fixed is because it benefits existing politicians who are able to pander to a population that quite honestly has no idea how taxes work or what they pay.

If we can make taxes simple enough that the overwhelming majority of people can file and pay their own returns, and understand how it works, then they won't be duped by politicians or bad media stories, they will know what they pay (if anything) and whether their taxes actually went up or down based on legislation.

Along those lines there are a number of things we can do and we have to determine what values we want in the system(for example do we want progressivity and how much).

A few things I would do

I would get rid of the corporate income tax altogether. Make corporations continue to do their normal SEC filings (for public companies), or informational filings for private companies, and keep an accumulated earnings tax in place to react to people abusing S-Corps to avoid tax altogether. This is one of the areas where people constantly complain that the system doesn't work, taxes end up being higher on domestic companies with large multinationals using the rules to avoid much of their tax. This disappears really quickly if they have no taxes anymore, and then income gets repatriated to the US if that makes sense because there is no penalty to do so. Having no corporate tax also makes the US a better place for investment and brings us economic activity.

For individuals I would say we should do a simplified income tax where we take a wide definition of income (wages, dividends, interest, capital gains, royalties, rental income etc.) and treat it largely the same. So your typical taxpayer adds up all of their income from various sources, puts it in one basket, then have a handful of credits, I think a 25% credit for charitable giving, 50% for contributions to retirement accounts up to a limit, and a general credit of varying percentages for cost of living based on age and number of people in your household. Then apply lower rates across the board so maybe the top rate would be 25% but it would be on generally larger incomes. This keeps progressivity and also encourages things like investment amongst the poor because corporations would have more money to give out in dividends and their marginal rates would be lower. Also having a credit for charitable contributions levels the board so everyone gets the same benefit per dollar of contribution.

The key is keeping things simple, and using broad definitions with low rates to have a large base but not discourage good activities.

Alternatively you could do some sort of consumption tax like a sales tax but with a refund given to families or individuals to try to keep things from becoming regressive, although that is a harder sell for a lot of people.

Also on the corporate tax side if people are unwilling to repeal entirely, I would at least go in the direction that Ohio and Washington have gone, with a gross reciepts tax, how that works is instead of a complicated income tax Ohio will take your total gross reciepts (generally sales of goods and services) into the state, and they apply a very low rate. .26% for example.

So a company with $1 million in sales would pay a few thousand in tax. This way you reduce compliance burdens, make the tax easy to understand and generally avoid taxing people when they can't afford to pay the tax. They also provide a general exemption to lower the rates on small companies (often to zero if their sales are low).

Very informative. Thanks! It just seems like the entire tax system is so convoluted that it makes it damn near impossible to fully comprehend.

#85 commander thrawn

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Posted 17 October 2013 - 08:00 AM

Very informative. Thanks! It just seems like the entire tax system is so convoluted that it makes it damn near impossible to fully comprehend.

yeah unfortunately that is by design.

#86 Icewolf

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Posted 17 October 2013 - 08:58 AM

I like how people somehow believe that a sales tax is a simple form of taxation. It isn't. The rule book on value added tax is enough to make a tax lawyer leap for joy and the average business weep. 

Say you are a dealer in cars.

 

1. You import a car from Germany-do you pay tax at this point? If so who to? Germany or your local government? Do you pay it or the person you import from? 

2. You sell a car-Do you pay tax at this point? If you already paid tax when you purchased it does the new purchaser also have to pay tax? If you paid tax when you purchased it and then sell it for more than purchase price do you pay tax on the difference or the entire price?

3. You buy a car from an individual-Does he have to pay the sales tax?

4. You then export the car-Do you have to pay sales tax on this? Should you be able to reclaim any tax that you paid for the product?

Even if you go for a simple "tax is only paid by consumers" you still run into the issue of a dealer selling a car for $10 000, charging $2000 tax and handing it to the government, buying it back and then selling it abroad-effectively you've added $2000 onto the price of an export good unless you allow for a tax rebate. 

By comparison income tax is relatively simple. 



#87 Lord GVChamp

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Posted 17 October 2013 - 09:02 AM

I was going to suggest a receipts tax as well. Though that's not always the best thing in terms of efficiency, it's better than the current profit-based tax system. I believe Illinois imposed a .5% tax briefly, or at least it was imposed, but I don't remember all the details.

 

In terms of capital income, I would prefer a generous standard deduction and then a low progressive tax rate that curves up more steeply than the general income tax. So you would be taxed not at all on, say, the first $30,000 of capital income you have, then 5% on the next $20,000, and escalating from there, until your $70,001st dollar is taxed at the normal income tax rate, for instance.



#88 commander thrawn

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Posted 17 October 2013 - 10:00 AM

I like how people somehow believe that a sales tax is a simple form of taxation. It isn't. The rule book on value added tax is enough to make a tax lawyer leap for joy and the average business weep. 

Say you are a dealer in cars.
 
1. You import a car from Germany-do you pay tax at this point? If so who to? Germany or your local government? Do you pay it or the person you import from? 
2. You sell a car-Do you pay tax at this point? If you already paid tax when you purchased it does the new purchaser also have to pay tax? If you paid tax when you purchased it and then sell it for more than purchase price do you pay tax on the difference or the entire price?
3. You buy a car from an individual-Does he have to pay the sales tax?
4. You then export the car-Do you have to pay sales tax on this? Should you be able to reclaim any tax that you paid for the product?

Even if you go for a simple "tax is only paid by consumers" you still run into the issue of a dealer selling a car for $10 000, charging $2000 tax and handing it to the government, buying it back and then selling it abroad-effectively you've added $2000 onto the price of an export good unless you allow for a tax rebate. 

By comparison income tax is relatively simple. 

vat and sales taxes have important differences and while sales and use tax rules are complex they are much lesw complex than our current income tax. A gross reciepts tax is also different and generally simpler.

Income tax is more complex by far. The simplest set up uses either destination or origin sourcing and if destination sourcing is used then tax is paid going through customs. And the tax applies only to final goods and services.

Compare that to doing deemed sales and inside outside basis calcs or deciding what type of income you have even a complex vat is easier.

Edited by commander thrawn, 17 October 2013 - 10:05 AM.


#89 Hereno

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Posted 17 October 2013 - 07:36 PM

The thing about the "follow the law" tax code argument is that the only people who actually know the law are those who pay people like Thrawn to do their taxes for them. It is purposely set up to be complicated by the rich, for the rich.



#90 commander thrawn

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Posted 17 October 2013 - 08:23 PM

The thing about the "follow the law" tax code argument is that the only people who actually know the law are those who pay people like Thrawn to do their taxes for them. It is purposely set up to be complicated by the rich, for the rich.

of course. But each voting block has loopholes.

#91 Delta1212

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Posted 18 October 2013 - 10:42 AM

Its a tough question, the first thing we need to agree on is what the goal of taxes ought to be. Do we just want revenue to provide for government functions(and how many government functions/what size of government), or do we want the tax code to be part of government social engineering. If we want the latter and we want to use taxes to encourage behavior and punish people, then we shouldn't really change much aside from probably fixing/changing the loopholes available to further punish the rich for making too much money or whatever the current flavor of angst is.

If we want a good and "fair" tax code from the sense that we don't want political favoritism the first thing we need to do is simplify, there are a lot of ways we can do this, but the major reason our tax code doesn't get fixed is because it benefits existing politicians who are able to pander to a population that quite honestly has no idea how taxes work or what they pay.

If we can make taxes simple enough that the overwhelming majority of people can file and pay their own returns, and understand how it works, then they won't be duped by politicians or bad media stories, they will know what they pay (if anything) and whether their taxes actually went up or down based on legislation.

Along those lines there are a number of things we can do and we have to determine what values we want in the system(for example do we want progressivity and how much).

A few things I would do

I would get rid of the corporate income tax altogether. Make corporations continue to do their normal SEC filings (for public companies), or informational filings for private companies, and keep an accumulated earnings tax in place to react to people abusing S-Corps to avoid tax altogether. This is one of the areas where people constantly complain that the system doesn't work, taxes end up being higher on domestic companies with large multinationals using the rules to avoid much of their tax. This disappears really quickly if they have no taxes anymore, and then income gets repatriated to the US if that makes sense because there is no penalty to do so. Having no corporate tax also makes the US a better place for investment and brings us economic activity.

For individuals I would say we should do a simplified income tax where we take a wide definition of income (wages, dividends, interest, capital gains, royalties, rental income etc.) and treat it largely the same. So your typical taxpayer adds up all of their income from various sources, puts it in one basket, then have a handful of credits, I think a 25% credit for charitable giving, 50% for contributions to retirement accounts up to a limit, and a general credit of varying percentages for cost of living based on age and number of people in your household. Then apply lower rates across the board so maybe the top rate would be 25% but it would be on generally larger incomes. This keeps progressivity and also encourages things like investment amongst the poor because corporations would have more money to give out in dividends and their marginal rates would be lower. Also having a credit for charitable contributions levels the board so everyone gets the same benefit per dollar of contribution.

The key is keeping things simple, and using broad definitions with low rates to have a large base but not discourage good activities.

Alternatively you could do some sort of consumption tax like a sales tax but with a refund given to families or individuals to try to keep things from becoming regressive, although that is a harder sell for a lot of people.

Also on the corporate tax side if people are unwilling to repeal entirely, I would at least go in the direction that Ohio and Washington have gone, with a gross reciepts tax, how that works is instead of a complicated income tax Ohio will take your total gross reciepts (generally sales of goods and services) into the state, and they apply a very low rate. .26% for example.

So a company with $1 million in sales would pay a few thousand in tax. This way you reduce compliance burdens, make the tax easy to understand and generally avoid taxing people when they can't afford to pay the tax. They also provide a general exemption to lower the rates on small companies (often to zero if their sales are low).

Much of this sounds reasonable, with the caveat that I'd want to see what kind of revenue would be generated from various rates in comparison to spending. I'd be willing to go higher on rates than you, I think (relatively comfortable with a 30-35% top rate if needed, very uncomfortable with 50%+) but that would largely depend on weighing income against expenses. Obviously, I'm in favor of taxes being as low as we can afford.

In terms of social engineering, I can see some beneficial uses for taxes in that regard, but I think it should be a revenue source first and I'd forgoe using it as a tool for anything else if it'll minimize the number of loopholes so big that you could drive an annual income through.

The tax code really does need reform, though, and not in the way Republicans (leave the same but with lower taxes) or Democrats (close one loophole and open another) mean when they talk about tax reform.

We also need serious budget cuts if we aren't going to raise taxes drastically, but nobody wants to cut the things we're actually spending most of that money on, so good luck getting that to happen.




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