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Old 10-25-2011, 02:20 PM   #21
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Originally Posted by M Paquette View Post
The tax rate is the trivial part of income tax complexity. The real fun comes into working through the thousands of rules related to what constitutes income, what's ordinary income, what bits fall into special categories (Payment for Widows of the American Civil War...), and what sort of things offset income, can be claimed as an expense, for a tax credit, or both.

Note that attempting to simplify the tax code will likely be represented as the "Job Killing Tax Act" by the Usual Suspects, representing tax accountants, tax law specialists, tax shelter construction agencies, and so on.
Bingo, give that man a cigar. I don't see any major changes to our tax code in my lifetime. Just too many tentacles of special interest groups/lobbyists that have written the code and have a vested interest in not simplifying it. Politicians can run off at the mouth till the cows come home but the code ain't gonna change substantially, regardless. Does make for good political rhetoric though.
Just my two cents.
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Old 10-25-2011, 02:55 PM   #22
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Also, the people who think that the IRS would go away with a simple tax.... or that tax attorneys would not look hard for loopholes and stay employed are fooling themselves...

Even back when Reagan simplified the tax code, there was no reduction in employement in these sectors...

Simplifying it also means getting rid of all those refundable tax credits that is basically welfare.... that is not going to go over well with a certain party either....

To really simplify the tax code, you need to fundamentally change how taxes are charged and collected.... IOW, if you get a payroll check, interest, dividends etc. etc., you collect a tax on that amount and do not worry about other income... you can have a flat amount for the interest etc. and a graduated scale for salary if you want... or just a flat amount for all income... the problem is that there becomes a class warfare that the rich don't pay their fair share.. and on it goes...

Heck, the IRS could probably fiqure out the tax return for at least 50% of people out there with just the info they get... and probably closer to 75%... except for the people who cheat, there is not much out there that is not being reported...
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Old 10-25-2011, 03:41 PM   #23
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Heck, the IRS could probably fiqure out the tax return for at least 50% of people out there with just the info they get... and probably closer to 75%... except for the people who cheat, there is not much out there that is not being reported...
Absolutely correct. For the majority of income tax payers, the annual rites of tax form preparation represent an opportunity to overpay taxes compared to what the algorithms implementing the tax code within the IRS computers say is permitted. That is, folks are likely to do things like just take the standard deduction and skip Schedules A, C, E, and friends, rather than pull together the hoary details of every allowed deductible medical expense, log miles to that jazz gig, or remember that $1.80 spent on a new sink trap for the rental.

I'd bet (based on reviewing years of deceased parents and relatives tax returns) that there's more individual tax returns with an overpayment rather than underpayment. Of course, some of those underpayments may be whoppers.
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Old 10-25-2011, 03:52 PM   #24
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IMO, the greatest complexity with our current system (and where the greatest amount of fraud is, and where the policymakers most seek to manipulate behavior) is in the calculation of taxable income. Once that is accomplished, having one bracket or several is relatively minor thing.
Exactly. I recall watching a great debate on "The Firing Line" back in late 1995 and this point was brought out by the panelists.
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Old 10-25-2011, 04:25 PM   #25
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I don't dispute the fact that IRS tax laws can be confusing, but I bet for the vast majority of people, including me, spending about $50 a year on turbotax (or other software) takes the vast majority of the complexity out of the equation - my returns are generally pretty simple, though I am an active trader and my Schedule D is sometimes 50 pages long, but none-the-less I can usually complete my taxes every year in under 90 minutes from start to finish. Every year the software gets smarter and my return gets easier.

As far as a flat tax with no deductions, I can pretty much guarantee you it will NEVER happen. Even cain with his 999 plan is now talking about deductions for the first 50K of earnings (for a family of 4), if politicians can't play favorites with the tax code, what will they do all day? There is NO WAY they are ever going to give that up - that's my opinion anyway.
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Old 10-25-2011, 04:49 PM   #26
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Shouldn't a true "flat tax" at least tax dividends and cap gains at the same rate as wage income? Seems to me that all of these tax "reform" proposals seek to eliminate taxes on dividends, cap gains, estates, and greatly lower the top rate(s) on earned income. So either you end up with less revenue than before, or others who do not benefit from those big rate reductions will have to pay more to make up the difference.
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Old 10-25-2011, 05:16 PM   #27
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I've always felt that calculating your taxable income was complicated and calculating your tax is easy. The candidates seem to be proposing a flat tax with a few deductions. If the deductions are relatively few and easy to understand then I think this would constitute tax reform. The problem is that every deduction reduces revenue which then has to be balanced by taking it from somewhere else, either people or programs. These candidates are in for a vicious circle. Notice that it is presidential candidates who are making these promises. Let's see how many Congressional candidates climb on this bandwagon. Shouldn't the measure of these presidential candidates be how much Congressional support they can muster during the campaign when they make these promises?
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Old 10-25-2011, 05:49 PM   #28
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Shouldn't a true "flat tax" at least tax dividends and cap gains at the same rate as wage income?
It depends what the goal is. If we want "simple," then taxing all income (wages, Cap gains, dividends, etc) at the same rate is very simple, and that is appealing. It also strikes most people as "fair"--no matter how you earned it, once you get it you pay the same tax rate on it. There are at least a couple of problems in implementation:
Cap Gains: If you bought an asset 20 years ago and sell it today for 10% more dollars than you paid, you really didn't earn 10% in income. Due to inflation and the decreased values of today's dollars, you really had a tremendous loss --of approximately 36%. So, to truly tax the value of the income, any Cap Gain tax should be indexed to inflation. That increases complexity (I can see the voter's eyes glazing over). In addition, a significant portion of the cap gains of most stocks is due to retained earnings--the stock went up in price because the company held back some earnings to invest in the company. Those earnings were already taxed when the company earned them, to tax them again when the stock is sold violates the principle of fairness for which we are striving.

Equitable treatment of capital: Is there any inherent reason that income produced by putting your money at risk should be taxed at the same rate as income produced by your labor? After all, you are taking a risk. Will the government treat the results of your risk equitably--treating losses just as they treat gains? So, if you put $1000 at risk and earn $100, they take $10, but if you lose $100 ("earn a negative $100") they pay you $10? I don't think so.

Practical impact on the economy: The US has had the same tax rate on wages as it had on investment income (capital gains, interest, dividends, etc) several times in our history. For example, the 1986 Tax Reform Act made the cap gains rate the same as the rate for earned income (up to the 28% rate). The impact of this policy is (frequently) that business slows down as capital availability dries up. In 1997 President Clinton signed another piece of tax reform legislation lowering the top cap gains rate to 20%, and this had a positive impact on the economy.

So, in some cases, the appearance of fairness really isn't, and in some cases simplicity brings neither equity nor prosperity.

But I still think the tax code can be very simple, fair, and promote prosperity (largely by turning the tremendous energies now devoted to "gaming the system" of our bizarre tax code to producing things instead)
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Old 10-25-2011, 09:07 PM   #29
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Samclem, I actually agree with you about the indexing element of cap gains treatment. I have no problem with some form of mild indexing even though it would make Schedule D more complicated, then tax any remaining gain as ordinary income. But the alternative of zeroing out the cap gains tax just to "simplify" the tax code is totally unacceptable and unfair IMHO. As for dividends, I have no problem with any so-called "double-taxation" because there are many other places in the tax code in which there is double-taxation. Why is only this type singled out as being so unfair?

Tax simplification and tax fairness do not necessarily go hand in hand. Whenever I hear some politician spout "simpler, flatter, fairer," I hear more BS and talking points and slogans than a real workable solution which may pit those goals against each other.
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Old 10-25-2011, 09:18 PM   #30
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It's estimated that compliance with the tax code costs 30 cents for each $ collected. A very simplified method for determining taxable income would presumably cut into this compliance cost (be it, IRS agents, CPA's, corporate tax lawyers...). So in theory it's possible to net more $ overall, while not lowering the gov'ts overall take.

But there are many other benefits:
1. To the extent that you believe in "dynamic scoring", there could be additional benefits by changing behavior -- i.e. gov't probably shouldn't be subsidizing large mortgage debt. It does nothing but distort what the market would be without the subsidy. Likewise, many charities are worthy. But should the fed gov't be subsidizing ballet or opera -- or should those that wish to see these low attended arts pay the full cost of the performance? I lean toward subsidize as little as possible and let the market decide what it wants, and in what quantity, and at what price.

2. To the extent that this greatly eliminates the power of Congress to dole out special favors, who knows how much benefit there could be. Eventually the exceptions would crawl back in, but for a while there would be much less reason to lobby.

Since 50% of the people end up paying no fed income tax, and there are many that file a 1040EZ or a less complex 1040, I don't see an impetus for change. ...at least not one remotely big enough to combat all the vested interests in the status quo.
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Old 10-25-2011, 09:57 PM   #31
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In and of itself, a flat tax isn't any simpler than the current system, right? That is, the returns could involve exactly the same 1040 forms, schedule A's, schedule C's, etc., but in that last step, everyone multiplies their AGI by the same percentage.

I realize that many flat-tax proposals would also involve other simplifications. I'm guessing that "flat-tax" has come to mean "flat and simplified" in the same way that "fixed income" often means "fixed and low income."
i apologize for the fact that i haven't contributed for a while.

here's robert reich's concise article:

The flat tax fraud - CSMonitor.com

best to all...
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Old 10-25-2011, 10:39 PM   #32
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i apologize for the fact that i haven't contributed for a while.

here's robert reich's concise article:

The flat tax fraud - CSMonitor.com

best to all...
Great article. Thanks for the link and looking forward to seeing you post more.
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Old 10-26-2011, 12:40 AM   #33
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I've stopped reading most articles about a "flat tax". It's rare that I have taken such an atitude. IF a Federal Income flat tax ever gets implemented, I expect it will be about 1/2 to 2/3rds as convoluted as our present tax system. Then it will be modified over a few years to become just as convoluted. And I will probably get screwed by it.

It's the "devil you know, versus the devil you don't know" story. I'll stick with the present devil, thank you.
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Old 10-26-2011, 09:15 AM   #34
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I'm really surprised nobody has ever talked about scrapping the entire tax code as it relates to individuals and implementing a national real estate tax.

I can't think of any negatives in having a national real estate tax, but here are some positive points:

  • Everyone pays some tax, except for the homeless. Even renters would have this tax built into the rent they pay to the landlord.
  • The tax can be made progressive in $100K assessed value increments. For example, a 0.10% tax on the first $100K value ($100), 0.20% on the next $100K value, 0.40% on the next $100K value, etc. I just made these numbers up for example purposes, but with everyone paying something, we would all pay less.
  • The assessed property values and associated taxes would be transparent since they would be in the public domain. Hence, very little or no cheating.
  • No tax forms to complete.
  • No April 15 deadlines.
  • No audits.
  • No need to keep receipts to justify income/expenses under an audit.
  • All wages and other income are tax-free, so make as much money as you want without worrying about being taxed at a higher bracket.
  • Efficient collection if the IRS uses the same method as each town already uses. Maybe the IRS could even have the towns collect the tax and keep a small amount for admin purposes.
  • There could be a "special assessment" in areas prone to natural disasters where it may cost the government (aka other taxpayers) money to keep saving people from themselves when they build in these areas.
  • There could be tax-free zones where the government wants to stimulate population growth, or needs workers for a specific military need.

Bottom line, this is the easiest tax plan to understand, implement, and collect.
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Old 10-26-2011, 09:32 AM   #35
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I'm really surprised nobody has ever talked about scrapping the entire tax code as it relates to individuals and implementing a national real estate tax.

I can't think of any negatives in having a national real estate tax, but here are some positive points:

  • Everyone pays some tax, except for the homeless. Even renters would have this tax built into the rent they pay to the landlord.
  • The tax can be made progressive in $100K assessed value increments. For example, a 0.10% tax on the first $100K value ($100), 0.20% on the next $100K value, 0.40% on the next $100K value, etc. I just made these numbers up for example purposes, but with everyone paying something, we would all pay less.
  • The assessed property values and associated taxes would be transparent since they would be in the public domain. Hence, very little or no cheating.
  • No tax forms to complete.
  • No April 15 deadlines.
  • No audits.
  • No need to keep receipts to justify income/expenses under an audit.
  • All wages and other income are tax-free, so make as much money as you want without worrying about being taxed at a higher bracket.
  • Efficient collection if the IRS uses the same method as each town already uses. Maybe the IRS could even have the towns collect the tax and keep a small amount for admin purposes.
  • There could be a "special assessment" in areas prone to natural disasters where it may cost the government (aka other taxpayers) money to keep saving people from themselves when they build in these areas.
  • There could be tax-free zones where the government wants to stimulate population growth, or needs workers for a specific military need.

Bottom line, this is the easiest tax plan to understand, implement, and collect.
There will be a tidal wave of complaints over what is a 'fair' assessment, and there will be fraud.

Why should the govt promote population growth in any specific area?

If they need workers - pay 'em.

People in high cost housing areas will complain. SS payments are not changed for geography, but this tax would be sensitive to it. That would hurt them.

-ERD50
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Old 10-26-2011, 09:36 AM   #36
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I didn't have to think very long to come up with some big negatives.

The distortion of the real estate market by this system would be extreme. If people are taxed on the value of their house and other real estate exclusively, they will go to some pretty extreme lengths to reduce their property ownership. I can see people in places with no shortage of space living in those little pods that the Japanese use for travelling.

I suspect that you would see an awful lot of real estate become government owned as people try to ditch their tax liability.

Businesses would contract their property use to reduce their tax liability. A sit-down restaurant would become a luxury only the very wealthy would indulge in. Most fast food places would become kiosks.

Millionaires would stop building fancy houses. The ultra-high end RV, plane, and yacht markets might explode depending on whether they were categorized as "real estate" for tax purposes.



Quote:
Originally Posted by retire@40 View Post
I'm really surprised nobody has ever talked about scrapping the entire tax code as it relates to individuals and implementing a national real estate tax.

I can't think of any negatives in having a national real estate tax, but here are some positive points:

  • Everyone pays some tax, except for the homeless. Even renters would have this tax built into the rent they pay to the landlord.
  • The tax can be made progressive in $100K assessed value increments. For example, a 0.10% tax on the first $100K value ($100), 0.20% on the next $100K value, 0.40% on the next $100K value, etc. I just made these numbers up for example purposes, but with everyone paying something, we would all pay less.
  • The assessed property values and associated taxes would be transparent since they would be in the public domain. Hence, very little or no cheating.
  • No tax forms to complete.
  • No April 15 deadlines.
  • No audits.
  • No need to keep receipts to justify income/expenses under an audit.
  • All wages and other income are tax-free, so make as much money as you want without worrying about being taxed at a higher bracket.
  • Efficient collection if the IRS uses the same method as each town already uses. Maybe the IRS could even have the towns collect the tax and keep a small amount for admin purposes.
  • There could be a "special assessment" in areas prone to natural disasters where it may cost the government (aka other taxpayers) money to keep saving people from themselves when they build in these areas.
  • There could be tax-free zones where the government wants to stimulate population growth, or needs workers for a specific military need.
Bottom line, this is the easiest tax plan to understand, implement, and collect.
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Old 10-26-2011, 09:38 AM   #37
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Just too many testicles tentacles of special interest groups/lobbyists that have written the code and have a vested interest in not simplifying it...


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Originally Posted by samclem View Post
Cap Gains: If you bought an asset 20 years ago and sell it today for 10% more dollars than you paid, you really didn't earn 10% in income. Due to inflation and the decreased values of today's dollars, you really had a tremendous loss --of approximately 36%. So, to truly tax the value of the income, any Cap Gain tax should be indexed to inflation. That increases complexity (I can see the voter's eyes glazing over).
Can we stipulate that if you aren't intelligent enough to use a table to index your cap gains, you are to be deported...

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I can't think of any negatives in having a national real estate tax, but here are some positive points:
In Texas, if you fence your property, and keep a couple of goats horses, you pay the "agricultural" property tax rate.
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Old 10-26-2011, 09:44 AM   #38
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Goodbye McMansions!

Any change will be so bitterly opposed by those who pay more, so I'm sure change is impossible.
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Old 10-26-2011, 09:59 AM   #39
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I'm fine with paying more if they pass reform like they did in 1986.

My wife and I are paying a much lower percentage in federal taxes than a lot of people making much less money than us.

I was bitter about the system when I was a single renter, because I felt that I was getting shafted. Now I feel like I'm the one doing the shafting.

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Goodbye McMansions!

Any change will be so bitterly opposed by those who pay more, so I'm sure change is impossible.
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Old 10-26-2011, 10:18 AM   #40
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Flat tax is one of those ill defined terms that means different things to different people, much appreciated by media and candidates because it is so flexible. I'm guessing that responses on this thread will reflect that.


Once again 'The Red bead Experiment' proves too difficult for the media.

Stand in front of the camera,look pretty or maybe serious, pronounce a short zinger and move on.

Rant, rant, rant.

heh heh heh - heck I might even do something silly - like start reading books again.
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