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Old 11-15-2007, 05:31 PM   #41
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...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...
Exactly.
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Old 11-15-2007, 05:41 PM   #42
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Originally Posted by RetireeRobert View Post
..The "point" is income tax system has "more" cheating than sales tax system...
Funny how we can read the same words differently.

I read that section quoted from the IRS to mean when there is 3rd party reporting such as we have in our current system (via W-2 and 1099 forms) there is 6 to 7 times less cheating than when there is no 3rd party reporting (as would be the case under a sales tax system).

I guess we'll have to agree to disagree.
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Old 11-15-2007, 05:43 PM   #43
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Originally Posted by clifp View Post
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.
I must have a good imagination, although I havent thought these all the way out I'll throw 'em out.

- Could work and collect social security without worries about income tax implications.

- No inheritance or estate taxes to worry about

- No capital gains or income taxes on dividends/interest/etc.

- No need to deal with tax reduced or tax free investments that have lower yields/dividends/interest

- Dont have to worry about losing my house to increasing property taxes

I worked it out and it'd take about a 35% sales tax before I'd be paying more in sales taxes than I owe in the combination of income, property and investment taxes. But then again I dont spend as much as a lot of people.
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Old 11-15-2007, 06:41 PM   #44
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I think that replacing the income tax with a VAT or sales tax would be positive for those of us living on a small fraction of our income and who are still in the accumulation phase. Right now for example, we live on about 40% of our gross income and I would gladly trade paying taxes on our entire gross income for paying a sales tax on only what we consume. It would take a 50% sales tax for us to pay more taxes than what we pay right now in income taxes.

However, I don't think that a VAT tax system would be beneficial for people who are already retired. With the current system, if you retire on a modest income you can avoid paying a lot of taxes. For example you can take money out of a Roth or a taxable account with minimal tax implications. You can also use personal exemptions to minimize the taxes you owe on IRA withdrawals. Plus part of your SS benefits are most likely tax exempt. So a retiree could end up paying far less than 10% of his income in taxes with the current system. With a VAT system, it would be as if the retiree had to pay a flat tax on his entire income (I assume off course that the retiree spends all his income, since there is little need for a retiree to keep saving money for retirement). So if you introduce a VAT or a sales tax in the 15-20% range as it is in many parts of Europe for example, it would represent a substantial tax increase for retirees.
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Old 11-15-2007, 10:00 PM   #45
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. So if you introduce a VAT or a sales tax in the 15-20% range as it is in many parts of Europe for example, it would represent a substantial tax increase for retirees.
All true, but there are some significant offsetting factors:
-- Most people have significant savings that is in either a conventional IRA, a 401K or other non-Roth type accounts. We pay cap gains on all of this when we sell. It's a very high probability that the cap gains rate will soon be the same as the earned income rate for most people. None of that would be taxed if we had a NRST.
-- No taxation on dividends and interest. That stuff adds up over the years.
-- There will be a significant increase innational GDP from several factors (decreased offshoring or production, productivity increases from elimination of inefficient use of capital caused by our present tax code, etc). That productivity jump will increase dividends for retirees holding equities.
-- As people put more of their earnings into savings (to avoid the taxes on spending), stock prices will rise. Again, good for retires holding stocks.
-- The prebate goes to everyone, and it's not chump change.

-- Most importantly, the societal benefits of the tax will "lift all boats"--or at least most of them. Increased employment and having US industries capable of competing worldwide will reduce demand on government anti-paverty programs at local, state, federal level. That's worth something to retirees . . . and everyone else.
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Old 11-15-2007, 11:09 PM   #46
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Originally Posted by retire@40 View Post
Funny how we can read the same words differently.............

I guess we'll have to agree to disagree.
Yes, we'll have to agree to disagree. I was wondering why you took IRS's words as gospel on third party reporting and apply their words to the EU system. IRS must have credibility wuth you.

And it is funny how the two of us can look at the two amounts of studied tax underpayments (cheating) is both systems, $345 billion in US (population 300 million) and $100 billion in EU (population 500 million), and conclude differently as to whether EU's sales tax system produces the worst cheating or not.

Yes we disagree.
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Old 11-16-2007, 08:42 AM   #47
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Originally Posted by retire@40 View Post
Funny how we can read the same words differently.

I read that section quoted from the IRS to mean when there is 3rd party reporting such as we have in our current system (via W-2 and 1099 forms) there is 6 to 7 times less cheating than when there is no 3rd party reporting (as would be the case under a sales tax system).

I guess we'll have to agree to disagree.
R@40, aren't you comparing under-reporting of income tax when there is no 3rd party reporting, versus under-reporting of sales tax?

Part of the argument against income tax is that it is so complex, it fosters cheating. I'm not sure you can apply % of non-compliance of sole-prop directly to sales tax.

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Old 11-16-2007, 08:53 AM   #48
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- Dont have to worry about losing my house to increasing property taxes

I worked it out and it'd take about a 35% sales tax before I'd be paying more in sales taxes than I owe in the combination of income, property and investment taxes.
You need to pull property tax, state income tax, and state/local sales tax out of the equation. Those are local taxes that would be unaffected by a NST.

If every taxing body, national, state and local would go the Sales tax route, then your number would apply (maybe that is what you were inferring, for reference?).

Maybe I'll do the math on mine later. Of course there are many 'soft' numbers - how much would prices come down w/o embedded tax and cost-of-compliance, how much better would investments do if this improved our exports, etc, etc, etc.

Gut feel is that I would be hurting under NST at present- not collecting SS or pension yet, still have deductions, my fed taxes are low. But as someone said, maybe this would be a good thing long term for our children and grandchildren?

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Old 11-16-2007, 09:55 AM   #49
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R@40, aren't you comparing under-reporting of income tax when there is no 3rd party reporting, versus under-reporting of sales tax?

Part of the argument against income tax is that it is so complex, it fosters cheating. I'm not sure you can apply % of non-compliance of sole-prop directly to sales tax.

-ERD50
Based on what the IRS states, although the current income tax system has it's problems, the biggest problem withing that system is when there is no third party reporting.

In a sales tax system, there is zero percent third party reporting, so the entire system is subject to that problem.

Your employer "forces" you to report your entire wages because he gives you a W-2 at the end of the year and submits the same to the IRS. There is no similar set of checks and balances under a sales tax system. I'm sure there are people reading this that have cash businesses and know what I'm talking about, although understandably they will not admit to ever skimming off the top. Next time you buy a pizza or get a hair cut, see how often you get a receipt.
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Old 11-16-2007, 10:03 AM   #50
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Originally Posted by retire@40 View Post

In a sales tax system, there is zero percent third party reporting, so the entire system is subject to that problem.

Next time you buy a pizza or get a hair cut, see how often you get a receipt.
I always get a receipt, don't know where you get your hair cut or pizza from. Maybe the same place

Well, maybe some people who have done retail can chime in, since we are mostly all anonymous here. I do know some people who have small retail businesses, they are terrible with paperwork, procrastinate on everything, always file for extensions for income tax, yet, they seem to be VERY concerned about the state sales tax, and they make sure their i's/t's are dotted/crossed each and every quarter. That is just a few anecdotal data points though, I don't know the larger picture.

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Old 11-16-2007, 11:15 AM   #51
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When I ran a retail business every single customer got a receipt.
Also, every time I get a hair cut or pizza I receive a receipt.
I am sure that some businesses do this under the table. I know of the owners of one business that did this. A bunch of black vans from the FBI pulled up to their house, loaded up the family, computers, files, lots of other stuff too
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Old 11-16-2007, 11:41 AM   #52
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Must have something to do with what part of the world you live in. I cant recall the last time I got a receipt from anyone that was a small mom and pop shop or individual product/service provider. Every single small business owner I know has a little cash stash from here and there. I know a ton of contractors who will offer me a cash price and a higher price if I want to pay by check and get a receipt. Everyone skims a little, maybe for a little home grown "ira", gambling money to take up to tahoe that the wife doesnt know about...

Doesnt really matter though. Getting a receipt doesnt mean the transaction ended up on the books.

And all of this is guesses and suppositions. Ever system can be gamed and I'm sure is gamed. And somehow I feel that if you actually had a way to measure the various ways of doing taxation, included the costs of overhead and administration, paperwork and enforcement...that the amounts paid in per service level and the amount of cheating is pretty much the same no matter what.
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Old 11-16-2007, 05:06 PM   #53
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I know a ton of contractors who will offer me a cash price and a higher price if I want to pay by check and get a receipt.
Yep, an example of cheating under the present income tax system. That's the system with the effective third party reporting. Oh.

The present tax laws are so vague that lots of people take exemptions in the grey area. In my book, it's not cheating the interpret vague rules in the most favorable way if even the IRS can't reliably tell a taxpayer how to properly decide which things are allowable deductions (and they can't: the IRS leadership admits the laws and rules are so vague, subjective, and overlapping that a definitive "tax owed" cannot be calculated for most taxpayers). As much fraud as we have under the present system, I'd bet that far more money escapes capture due to claiming "grey area" exemptions than from deliberate underreporting of income. That's a key difference between the present system and the NRST, as evading the NRST requires a deliberate decision to break the law. At least that can be prosecuted, which is a significant improvement over a bunch of guessing, hoping, winking, and "creative accounting."

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Old 11-16-2007, 05:59 PM   #54
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Everyone skims a little, maybe for a little home grown "ira", gambling money to take up to tahoe that the wife doesnt know about...
That's ridiculous. Sounds like rationalization (of criminal behavior) to me.
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Old 11-16-2007, 08:00 PM   #55
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As to US Income Tax system, I remember some years ago Money Magazine used to run a project every year (maybe every other year), then report the results. They would contact 50 of "the best" tax professionals in the country. The magazine would set forth some "hypothetical facts" about some taxpayer. Income, marital status, kids, self-employment, various expenses, retirement saving----the whole gamut of "circumstances".

Then 50 pros would prepare the "tax return" to fit those "facts".

Every time the magazine ran the article time after time, there were 50 DIFFERENT answers.

That says it all about our current income tax system. No wonder the IRS figured there was $345 billion left on the table annually.
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