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Old 11-14-2007, 12:33 PM   #21
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makes income tax collection look like a breeze. The tax code is complex not due to collection but as a way to not pay. Any single tax is a lost cause as people work around it. Only by taxing everything making it pointless to shift taxes can they collect.
I strongly disagree. As a retired CPA who helped clients in WA with sales tax accounting and remittance, and who dealt with tax return preparation, in my experience the sales tax collection systems are SO much more effective and efficient and "evade-resistant" than income tax system. There is absolutely no comparison that way.

Not to mention the "understanibility" by all involved---income tax code is more complicated by a factor of ten in comparison to sales taxes.

Talk to some of the Depts of Revenue agents (like I have) in states with both sales and income taxes if you want more evidence.
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Old 11-14-2007, 01:12 PM   #22
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I strongly disagree. As a retired CPA who helped clients in WA with sales tax accounting and remittance, and who dealt with tax return preparation, in my experience the sales tax collection systems are SO much more effective and efficient and "evade-resistant" than income tax system. There is absolutely no comparison that way.


You may be right when dealing with larger retailers like Walmart, but you're kidding yourself if you think the same applies for the average small business, especially "cash" businesses.

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Not to mention the "understanibility" by all involved---income tax code is more complicated by a factor of ten in comparison to sales taxes.
This part is true. I would even say a factor of 100.
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Old 11-14-2007, 01:21 PM   #23
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I don't think an income tax system is inherently more complicated than a VAT tax. Our system is complex because we keep adding exceptions and special deals. For example, think of how much complexity we have because the gov't tries to encourage people to save for retirement (rules for contributions, withdrawals, inheritance, for IRA, Roth IRA, 401k, SEP, Keogh, annuities, DB pensions ....).

Enforcement is expensive because the code is complex and the rates are high. If the maximum income tax rate were 3% and it applied to all income, hardly anyone would think about tax avoidance.

Similarly, a really simple sales tax with a low rate is easy to collect. A complex sales tax with lots of exceptions and special deals and a very high rate would be hard to collect. We could say "we'll do a VAT and not let it get complicated" (we can't avoid a high rate if we plan to raise as much revenue as the FIT). I think it's easier, because of much lower transition costs, to say "let's simplify the current income tax".
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Old 11-14-2007, 05:20 PM   #24
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You may be right when dealing with larger retailers like Walmart, but you're kidding yourself if you think the same applies for the average small business, especially "cash" businesses.
.
It was exactly the small cash business types that I dealt with, and formed my opinion from. Nice to know it gets even better with the large stores. Like I said, talk to the Revenue agents in the states with both sales and income taxes like I have. They will tell you the sales tax compliance and collection system is so much easier, better, understandable than income tax system, it ain't funny.
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Old 11-14-2007, 07:11 PM   #25
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We've been talking VAT and NRST as though they are interchangaeble. The compliance costs and paperwork with VAT are quite a bit higher, since every step of production is taxed. (What constitutes a step? What about when one division of a company transfers a product to another division? How about transfers between companies owned by the same company? What if one entity is foreign owned? What about services (as opposed to goods))? Finally, a VAT drives up the cost of the manufactured goods or the services, which is exactly what the US doesn't need if we are to remain competitive in the world market.

A retail sales tax is simpler and better. No deductions or exemptions, just a hefty "prebate" to eliminate the regressive nature of it. It disincentivizes consumption and incentivizes savings, a lot of folks on this board should appreciate the value of that. A by-product of these savings will be an increase in the capital available for industrial investment. Oh--and the market prices of the stocks already owned should increase as more money gets added to the market (that's good!) and as dividends increase due to increased sales resulting from decreased embedded labor costs (payroll taxes, etc).

But, I agree it is an uphill struggle. On a related note--I saw press reports that Huckabee is gaining in the Iowa poll numbers. Whether you like him or not based on the "entire package", his candidacy is puting a spotlight on the idea of the Fair Tax (I prefer the term "National Retail Sales Tax").
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Simpler to comply with
Old 11-14-2007, 07:57 PM   #26
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Simpler to comply with

also ends up being simpler to evade.
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Old 11-14-2007, 09:08 PM   #27
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also ends up being simpler to evade.
How many umpteen gazillion ways are there to obfuscate net taxable income? How many ways are there to obfuscate "gross sales"----very few.

Revenue auditor to compute sales tax due: Gross sales = bank deposits
tax due = % rate x gross sales

Revenue auditor to compute income tax:
net taxable income = what the hey?
income tax = what the hey again

Income tax way easier to evade than a sales type tax, if you ask me.

From the standpoint of the tax reporting being understandable, the sales type tax is much easier to understand than our income tax reporting.

Even honest people who want to comply have a very difficult time being fully and accurately compliant with our income tax because it is so complex.

Honest people could easily and accurately comply with a sales type tax.

And the more complexity, the easier for dishonest people to "misreport" their income tax due, and the harder for the Revenuers to catch them.

With simple system in a sales type tax, it is harder for dishonest people to misreport, and easier for revenuers to catch those who try, in my view.
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Old 11-14-2007, 09:18 PM   #28
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What I have a hard time understanding is why we look at every one of these "new ideas" as though they're not already implemented in a bunch of other countries and have been for years...

The advantages, problems and how to optimize those issues are already worked out.

But sure, it'll always be different here in the USA...
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Old 11-14-2007, 09:20 PM   #29
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For those yet to retire, a VAT/FAIR/Sales tax may aid them to FE, however, I faith in our politicians that they will find a way to separate you from an adequate amount of your cash that it will make little or no difference.

However, for those of us who have retired, I think it would hurt. The VAT/Sales tax would have to be substantial to replace both income and SS tax. While they say that there would be some sort of offset for old/poor folks, I doubt it would be large enough. Currently the majority of my retirement income is spent each year. If you were to add a 17-25% sales tax to the things I purchase, I am not sure where the money would come from.
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Old 11-14-2007, 09:23 PM   #30
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...Like I said, talk to the Revenue agents in the states with both sales and income taxes like I have. They will tell you the sales tax compliance and collection system is so much easier, better, understandable than income tax system, it ain't funny.
I deal with them, I talk with them, and I drink with them.

It's easier to administer and understand a sales tax system, but there's just as much if not more cheating than the income tax system. Unrecorded sales, underreporting sales, recording taxable sales as nontaxable, register manipulation, double receipts, etc. You were in the business and you've never seen this?

Here's an example from one of your favorite magazines...Annual fraud on European sales tax to exceed $100b Accounting Today - Find Articles
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Old 11-15-2007, 12:18 AM   #31
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I deal with them, I talk with them, and I drink with them.

It's easier to administer and understand a sales tax system, but there's just as much if not more cheating than the income tax system.
I have no doubt there will be cheaters whatever the system. I find it very arguable an "easier to administer and understand" system would have *more* cheating dollar wise than our current income tax system.

My experience was with small businesses, and perhaps the cheaters went elsewhere than come to me.

You mean the revenue agents you know drink?:confused: Is that what our income tax system does to them?
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Old 11-15-2007, 12:25 AM   #32
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Per the IRS-----Tax gap on under reported or misreported or non reported US income taxes for 2001 was $345 billion.
IRS Updates Tax Gap Estimates
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Old 11-15-2007, 05:38 AM   #33
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RetireeRobert[/left];578625]Per the IRS-----Tax gap on under reported or misreported or non reported US income taxes for 2001 was $345 billion.
IRS Updates Tax Gap Estimates
That article proves my point. If you read the entire article you will see the IRS says...

“Simply stated, compliance is highest where there is third-party reporting.” For example, one percent of all wage, salary, and tip income is misreported, contributing an estimated $10 billion to the tax gap. In contrast, nonfarm sole proprietor income, which is reported on a Schedule C and is subject to little third-party reporting or withholding, has a net misreporting percentage of 57 percent, contributing about $68 billion to the tax gap."

IOW, "cash" type businesses have a tendency not to report all sales. These are the words of the IRS, not just what I think.
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Old 11-15-2007, 10:54 AM   #34
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That article proves my point. If you read the entire article you will see the IRS says...

“Simply stated, compliance is highest where there is third-party reporting.” For example, one percent of all wage, salary, and tip income is misreported, contributing an estimated $10 billion to the tax gap. In contrast, nonfarm sole proprietor income, which is reported on a Schedule C and is subject to little third-party reporting or withholding, has a net misreporting percentage of 57 percent, contributing about $68 billion to the tax gap."

IOW, "cash" type businesses have a tendency not to report all sales. These are the words of the IRS, not just what I think.

@@@The "point" is income tax system has "more" cheating than sales tax system---IRS reports there is a $345 billion gap with income tax system (as compared to $100 billion gap in EU with sales tax system). Last I heard the EU had a slightly larger GDP than US, so looks like sales tax system "problem" with cheating is 1/3 or maybe only 1/4 the problem of income tax system.

Bye.
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Old 11-15-2007, 11:18 AM   #35
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Or the processes used to gauge the $100B shortfall and the $345B shortfalls were incompatible or incorrect.

For example...how does the IRS actually have any idea as to what hasnt been reported? It'd have to be some sort of sample and guess. And I'm betting that number was produced by the same folks that stood to gain further funding by showing a huge potential problem.
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Old 11-15-2007, 11:28 AM   #36
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Or the processes used to gauge the $100B shortfall and the $345B shortfalls were incompatible or incorrect.

For example...how does the IRS actually have any idea as to what hasnt been reported? It'd have to be some sort of sample and guess. And I'm betting that number was produced by the same folks that stood to gain further funding by showing a huge potential problem.
I wondered about that too. But then I wondered the same thing about the report on the EU sales tax cheating. In either case whether US or EU, if they didn't collect it, how do they know how much they left on the table?
Like you say, people likely make these projections based on audit samples of what they found when compliance auditing.

But one thing we can be pretty sure, the current US income tax system is a terrible mess. Seems we'll just have to deal with it for good or bad.
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Old 11-15-2007, 11:54 AM   #37
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I'd look for the original sources of both reports, who created them, their sampling and methods of estimation, and who the reports were intended to be presented to. From that one could determine if the methods were reasonably sound, what was in or out and what if any inclination there may have been to push the numbers higher or lower.

The current system IS a terrible mess. I guess the good question is do other methods used in other countries produce simpler, better results in terms of funds collected, distribution of collection and fairness of redistribution.

I honestly like the idea of a national sales tax on everything, with low rates and lots of exemptions on staples and low income families and huge rates on luxury items.

As far as FIREing, LBYMers would do well in such an environment, since they dont spend as much and probably wouldnt spend as much after retirement. People raking in huge amounts of money and spending like drunken sailors would be handicapped. There'd be a huge market in cheap used stuff that would duck under the sales tax radar, recycling a lot of stuff that gets thrown out now and creating a whole tier of 'employment'.
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Old 11-15-2007, 01:35 PM   #38
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For those yet to retire, a VAT/FAIR/Sales tax may aid them to FE, however, I faith in our politicians that they will find a way to separate you from an adequate amount of your cash that it will make little or no difference.

However, for those of us who have retired, I think it would hurt. The VAT/Sales tax would have to be substantial to replace both income and SS tax. While they say that there would be some sort of offset for old/poor folks, I doubt it would be large enough. Currently the majority of my retirement income is spent each year. If you were to add a 17-25% sales tax to the things I purchase, I am not sure where the money would come from.
25 years ago, I would have loved to see a FAIR tax system in place. Even back in the mid 90s, when my Congressman Tom Campbell was pushing for it I was a big fan. However during the 90s I forked out over a million dollars in income taxes. Now as retired person, I have figured out how to take advantage of the tax system exploit loopholes, hence my tax burden is minimal.

At this point it seems anything but "FAIR" to tax me for earning income and then change the rules and add a 20+% consumption tax. I find it hard to imagine how any retired person would come out ahead under FAIR tax.

Now I won't be hypocrite and say that the current system is fair one just because I don't pay income taxes. Like Warren Buffett, I don't think I pay my fair share of taxes, but a switch over to the FAIR tax would screw me and other retirees big time.

"Don't tax you ,don't tax me
tax the guy behind the tree"
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Old 11-15-2007, 01:36 PM   #39
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I'd look for the original sources of both reports, who created them, their sampling and methods of estimation, and who the reports were intended to be presented to.
Sounds like.... w*rk!


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I honestly like the idea of a national sales tax on everything, with low rates and lots of exemptions on staples and low income families and huge rates on luxury items.
Well, the 'pre-bate' is supposed to accomplish that. Below a certain spend level (around the 'essential' level) you effectively are pre-bated as much as you would pay in taxes.

The problem I see in allowing diff rates for 'luxuries' and 'essentials' is you go down the slippery slope of Congress deciding all this, and then the loopholes start....

Is lobster a healthy low-fat food, or a luxury? Are potato chips junk food, 'food', or ? One of the points in all this is that Congress should be dealing with real issues, not trying to put everything we buy/sell in some sort of 'bucket'.

Snowballs chance of passing and all that, but if I were president, I'd say - I'm going to veto any bill that doesn't include eliminating 100x more tax code than it adds.

-ERD50
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Old 11-15-2007, 04:57 PM   #40
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.........Snowballs chance of passing and all that, but if I were president, I'd say - I'm going to veto any bill that doesn't include eliminating 100x more tax code than it adds.

-ERD50
I'll vote for that!
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