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Old 02-23-2011, 01:37 PM   #41
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DW and I were chuckling over the current tax code and it's odd side effects last night. We don't have any sort of official pension or retirement plan, and simply live off of our investments. DW has a part-time job, pretty much for fun.

This results in a really entertaining tax return. By the time I got done plonking in all the assorted deductions, including medical expenses (health insurance premiums), sales tax on a car purchase and home improvements, two daughters in college, and so on, I not only had an effective tax rate of 0%, but I was also eligible for a couple of tax credits. Yeah, the return paper stack is huge, but that's Someone Else's Problem. I figure the credits are compensation for generating all this paper for some poor soul in the IRS, between the fifth and sixth circles of Hell, to read and justify his existence.

So, I'm retired, living very comfortably on investment income, paid no Federal taxes, and am getting money for nothing. *SNORT* Tell me the current federal tax system isn't broken, when even a putz like me can zero out taxes perfectly legally.

(Our state taxes are simpler, without all the fancy deductions, so I have to pay them a little bit, except for income from gummint bonds, of course.)
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Old 02-23-2011, 03:21 PM   #42
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Originally Posted by Independent View Post
I fail to see any benefits of a national sales tax that can't be accomplished more easily by simplifying the FIT.
if i understand the FairTax website i think one of their suggested advantages is that since 22% (on average) of every new item's cost is federal tax (of 1 sort or another, including the FIT and payrole tax paid by the employees) eliminating all those federal taxes will lower the price of those items by that amount which would make our products and services more competative overseas, thus raising our exports. (switching to a national sales tax will also raise the price of imports.) for this to actually work though all working people would have to take a paycut (by the amount of their income and payrole taxes, since they are included in that "average 22% of each item's cost is federal tax") which i think is very unlikely. so the item's price can only be lowered buy the amount of fed tax the business is paying directly (which is not 22% of the original cost of said item) but the business is under no obligation to do that lowering. what might happen is that the cost of everything we spend money on just goes up 30%.

btw i dont really understand how the sales tax on interest will be collected in all situations. from what i have read there will be a sales tax on interest paid but who collects it? granted that is easy in the case of a mortgage to a bank or credit card interest but what about a mortgage to a private person (seller financing). who collects and how do they pay the feds? if the seller is responsible then this would be complicated for this individual. sounds like a tax return. and what about when an individual buys a bond, does he charge the bond issuer sales tax?

another thing, this sales tax applies to services too soo when you hire the kid down the street to mow your lawn that kid is supposed to collect the sales tax. i am thinking this "FairTax" wont make things all that simpler.
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Old 02-23-2011, 05:27 PM   #43
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Originally Posted by jdw_fire View Post
if i understand the FairTax website i think one of their suggested advantages is that since 22% (on average) of every new item's cost is federal tax (of 1 sort or another, including the FIT and payrole tax paid by the employees) eliminating all those federal taxes will lower the price of those items by that amount which would make our products and services more competative overseas, thus raising our exports. (switching to a national sales tax will also raise the price of imports.) for this to actually work though all working people would have to take a paycut (by the amount of their income and payrole taxes, since they are included in that "average 22% of each item's cost is federal tax") which i think is very unlikely. so the item's price can only be lowered buy the amount of fed tax the business is paying directly (which is not 22% of the original cost of said item) but the business is under no obligation to do that lowering. what might happen is that the cost of everything we spend money on just goes up 30%.
When they are talking about is the costs of compliance and the taxes the company pays, not the individual's payroll taxes which come out of his checks so salaries should not be impacted. By the time a company pays accountants, pays employees to help comply with tax code, (or in the case of a small business, spends time doing paperwork when he/she can otherwise be putting the time to product money making use), pays their own taxes, pays their portion of ss, etc, the costs are 22% on average. This is the embedded costs from the entire supply chain on average (materials, manufacture of parts, assembly, etc.). Of course it varies by industry but averages out to 22%. Some prices will go up slightly more than 1%, some prices will go down.

Now about businesses who don't lower costs due to savings: they are slitting their own throats. Business is competitive. If the guy down the street doesn't lower prices, all his customers will know it. If I, as his competitor, have just seen the cost of operating my business go down tremendously, you can bet your ass I'm going to undercut him. He'll lose in the market place if he doesn't lower prices, the competitor will win. First to drop prices (my bet): Walmart since they squeeze every penny in competitive efficiency they can. KMart and others will have to follow, as well as grocers. It'll cascade pretty fast.

Quote:
btw i dont really understand how the sales tax on interest will be collected in all situations. from what i have read there will be a sales tax on interest paid but who collects it?
There won't be tax on interest paid.

"No tax on initial spending up to the HHS poverty level for ALL households determined by number of dependents only. Paid for with before tax dollars, there is no tax on any used items, no tax on any and all savings or investment, no tax on any business profits, no tax on any education expenses, no tax on any existing mortgage or other loan payments both interest and principal, no tax on any charitable giving, no tax on any estate and gift giving, No tax on ALL State and Local taxes paid. No tax on business to business transactions. No filing of any kind is necessary at the end of the year to receive a tax refund on any of the tax exempt items, as no tax was
actually paid initially on these items when the purchase or saving, or giving took place."

New Goods & Services only at the point of end use retail.

Quote:
granted that is easy in the case of a mortgage to a bank or credit card interest but what about a mortgage to a private person (seller financing).
No tax on used items, including homes so seller financing is not taxed.

Quote:
who collects and how do they pay the feds?
No one, no tax on it.

Quote:
if the seller is responsible then this would be complicated for this individual.
Nope, seller is not responsible. New item sales only (ie, retailers).

Quote:
sounds like a tax return. and what about when an individual buys a bond, does he charge the bond issuer sales tax?
Nope, no tax return.

Quote:
another thing, this sales tax applies to services too soo when you hire the kid down the street to mow your lawn that kid is supposed to collect the sales tax.
Nope, he's just a kid mowing lawns, not a business. Same thing happens these days... some kid mowing lawns isn't paying taxes on it.

Quote:
i am thinking this "FairTax" wont make things all that simpler.
Only because you based that information about what is taxed, when they aren't taxed. It really is simple: new goods and services only, to the end consumer only.
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Old 02-23-2011, 08:24 PM   #44
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now i am thinking you have not done your research

Quote:
Originally Posted by missionfinder View Post
When they are talking about is the costs of compliance and the taxes the company pays, not the individual's payroll taxes which come out of his checks so salaries should not be impacted. By the time a company pays accountants, pays employees to help comply with tax code, (or in the case of a small business, spends time doing paperwork when he/she can otherwise be putting the time to product money making use), pays their own taxes, pays their portion of ss, etc, the costs are 22% on average. This is the embedded costs from the entire supply chain on average (materials, manufacture of parts, assembly, etc.). Of course it varies by industry but averages out to 22%. Some prices will go up slightly more than 1%, some prices will go down.
here is a quote (bolding is mine) from one of the coauthors, Neal Boorzt, of the fair tax book where he more fully explains the 22% (on average) fed tax in all goods and services here in the US. (and here is the link September 15, 2005 on boortz.com)
Quote:
As explained in The FairTax Book, there are taxes embedded in everything we buy. Every entity which provides a product or service in the design, production, marketing, distribution and sale of every consumer good or service will incur some tax liability as they perform their particular function. This tax liability will be incorporated into whatever these individuals or business entitles charge for their services, and will all passed through to become a part of the final cost of the product or service.
Now here's what we didn't explain well in the book. Every employee of any company involved in American commerce is also a provider of a service, and, as such, the employee incurs a tax liability as a result of his or her work. This tax liability is incorporated into what the employee charges the employer for their services, and is eventually incorporated into the final retail cost of the employer's product or service. Each employee is essentially a separate business entity providing a product, be it physical or mental labor, to the employer.
The extensive research behind HR 25, The FairTax Bill, shows that the average embedded taxes in every consumer product or service is about 22%.
your response to my discussion on this topic doesnt agree with the guy who thought up the FairTax, however my point is completely consistant with this. sooo i think my observation about what would happen if the fairtax was enacted stands as your rebuttal isnt based in fact.

Quote:
Originally Posted by missionfinder View Post

There won't be tax on interest paid.

"No tax on initial spending up to the HHS poverty level for ALL households determined by number of dependents only. Paid for with before tax dollars, there is no tax on any used items, no tax on any and all savings or investment, no tax on any business profits, no tax on any education expenses, no tax on any existing mortgage or other loan payments both interest and principal, no tax on any charitable giving, no tax on any estate and gift giving, No tax on ALL State and Local taxes paid. No tax on business to business transactions. No filing of any kind is necessary at the end of the year to receive a tax refund on any of the tax exempt items, as no tax was
actually paid initially on these items when the purchase or saving, or giving took place."
and here is a quote from another document on FairTax website which shows there is tax due on interest paid http://www.fairtax.org/PDF/Tax%20Not...0FT%20rate.pdf

Quote:
Implicit financial intermediation services are defined
by H.R. 25 as the difference between the basic interest
rate (as defined in section 805) and the rate paid on an
investment, account, or debt. The difference between
actual interest payments (for example, new home mortgage
interest) and basic interest payments (the 10-year
bond yield) is taxable. Thus, for example, a taxpayer with
a mortgage rate of 7 percent would have 29 percent of the
mortgage interest payment subject to tax if the Treasury
rate were 5 percent. Implicit financial intermediation
services are not included in the accounting of personal
consumption expenditures in NIPA. Consequently, we
have calculated our own values for implicit financial
intermediation services for home mortgage, nonprofit,


and personal borrowing.
5
and boy that sounds complicated. you need to do more research

Quote:
Originally Posted by missionfinder View Post


Nope, he's just a kid mowing lawns, not a business. Same thing happens these days... some kid mowing lawns isn't paying taxes on it.




Only because you based that information about what is taxed, when they aren't taxed. It really is simple: new goods and services only, to the end consumer only.

and here are quotes from HR 25 itself which show tax will be due on that mowed lawn.

Quote:
(12) TAXABLE EMPLOYER-

(A) IN GENERAL- The term `taxable employer' includes--

(i) any household employing domestic servants, and


(ii) any government except for government enterprises (as defined in section 704).



(B) EXCEPTIONS- The term `taxable employer' does not include any employer which is--

(i) engaged in a trade or business,


(ii) a not-for-profit organization (as defined in section 706), or


(iii) a government enterprise (as defined in section 704).

Quote:
(14) TAXABLE PROPERTY OR SERVICE-

(A) GENERAL RULE- The term `taxable property or service' means--

(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--

(I) intangible property, and


(II) used property, and



(ii) any service (including any financial intermediation services as determined by section 801).



(B) SERVICE- For purposes of subparagraph (A), the term `service'--

(i) shall include any service performed by an employee for which the employee is paid wages or a salary by a taxable employer, ...
Quote:

all the bolding is mine and it shows that tax is due on any wage paid to a domestic servant by a household. you were incorrect through your entire rebuttal of my post however in my research i have determined who is responsible for getting the tax to the US government in this last example and it is the taxable employer, not the kid mowing the lawn.
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Old 02-23-2011, 08:38 PM   #45
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Fair Tax, Flat Tax, Income Tax, Sales Tax, Value Added Tax, it makes no difference. Nothing is really going to change. The politicians will end up with a system to punish some and reward others. Nothing will be passed that does not increase current collections. There are not enough politicians that care more about the people that elected them rather than the people that can get the re-elected, and they won't change anything that is not in their favor. All this is going to do is generate more campaign contributions from all sides. It is one of they reasons the keep it alive, and never really do anything about it. When they can no longer milk the donors they will drop it or pass something.
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Old 02-23-2011, 08:46 PM   #46
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I fail to see any benefits of a national sales tax that can't be accomplished more easily by simplifying the FIT.
Though not a booster of the National Retail Sales Tax, I think the strongest arguments for it (compared to a simplified FIY) are:
-- The prospect of significantly enhancing US competitiveness in manufacturing. The reduced embedded labor costs, the reduced costs of US produced sub-materials that also won't have embedded tax costs, the incentives to bring capital to the US where it can be invested and produce returns for corporations tax free, are all benefits that would be hard to duplicate with any income-based FIT.

-- The opportunity to remove a means for government to manipulate behavior and shower gifts on favored constituencies via the tax code. Of course, this depends on keeping any NRST code free of carrots, sticks, and giveaways (e.g. the temptation to adjust tax rates on various favored products, the fiddling with the prbate/poverty level figure to make the system more progressive, etc). Good luck with that!

-- To the degree that any tax affects behavior, it seems a poor idea to tax something that benefits society (productivity). It's less clear that consumption has the same beneficial impact on society.
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Old 02-23-2011, 08:54 PM   #47
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Manipulate behavior, well we want people to eat more veggies and less cake, so we will adjust the sales tax to punish/reward. You can just about fill in any other thing you want, ethanol, oil, farm products, auto production equipment.... it just depends on who forks over the most cash.
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Old 02-23-2011, 09:10 PM   #48
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Fair Tax, Flat Tax, Income Tax, Sales Tax, Value Added Tax, it makes no difference. Nothing is really going to change. The politicians will end up with a system to punish some and reward others.
Do you remember this text box (or one like it) from Tongue and Quill? A favorite of mine.

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Circa 1920:

"For the following reasons I am unable to send you the check asked for:
I have been held up, held down, sand-bagged, walked on, sat on, flattened out and squeezed. First, by the United States Government, for Federal War Tax, the Excess Profit Tax, the Liberty Loan Bonds, Thrift Stamps, Capital Stock Tax, Merchants License and Auto Tax, and by every Society and Organization that the inventive mind of man can invent, to extract what I may or may not possess.

From the Society of John the Baptist, the G.A.R., the Women's Relief, the Navy League, the Red Cross, the Black Cross, the Purple Cross, the Double Cross, the Children’s Home, the Dorcas Society, the Y.M.C.A., the Boy Scouts, the Jewish Relief, the Belgian Relief, and every hospital in town.

The Government has so governed my business that I don’t know who owns it. I am inspected, suspected, and examined and re-examined, informed, required and commanded so I don’t know who I am, where I am, or why I am here. All I know is I am supposed to be an inexhaustible supply of money for every known need, desire or hope of the human race; and, because I will not sell all I have and go out and beg, borrow or steal money to give away, I have been cussed, discussed, boycotted, talked to, talked about, lied to, lied about, held up, hung up, robbed and nearly ruined; and, the only reason I am clinging to life is to see what in the hell is coming next."
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Old 02-23-2011, 09:20 PM   #49
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Have not seen it, thanks.
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Old 02-23-2011, 11:29 PM   #50
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Though not a booster of the National Retail Sales Tax, I think the strongest arguments for it (compared to a simplified FIY) are:
-- The prospect of significantly enhancing US competitiveness in manufacturing. The reduced embedded labor costs, the reduced costs of US produced sub-materials that also won't have embedded tax costs, the incentives to bring capital to the US where it can be invested and produce returns for corporations tax free, are all benefits that would be hard to duplicate with any income-based FIT.

-- The opportunity to remove a means for government to manipulate behavior and shower gifts on favored constituencies via the tax code. Of course, this depends on keeping any NRST code free of carrots, sticks, and giveaways (e.g. the temptation to adjust tax rates on various favored products, the fiddling with the prbate/poverty level figure to make the system more progressive, etc). Good luck with that!

-- To the degree that any tax affects behavior, it seems a poor idea to tax something that benefits society (productivity). It's less clear that consumption has the same beneficial impact on society.
I believe that you and I have both said in the past that one simplification of the existing FIT would be to increase taxes on dividends and capital gains up to the same rates as wages in exchange for a decrease/elimination/offset of corporate income taxes. That accomplishes the first goal (and I believe most economists would say that isn't even a worthy goal).

I agree with the part in the second that I bolded. A national sales tax is just as likely to look like swiss cheese as an income tax.

If we want to favor saving/investing over consumption, the current FIT already has financial incentives for saving. They can be expanded or modified as we desire. For most working Americans, we already have a consumption tax, since any savings go into tax deferred accounts like 401ks or IRAs.

OTOH, I don't why we want to skew the tax system to discourage consumption. I thought the whole point of an economic system was to provide economic goods to people. So I see consumption as the goal. I understand that we might increase consumption in the future if we trade off some consumption today in exchange for productivity gains. But, I don't see why we would believe that the market, which automatically provides incentives for saving/investing, is so far wrong that we need to design a tax system to "correct" some error.
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Old 02-23-2011, 11:50 PM   #51
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OTOH, I don't why we want to skew the tax system to discourage consumption.
I'd have to stew on that to build a case. The off-the-cuff answer is that increases in productivity are the only thing that increase societal wealth in the long term. Increases in consumption don't increase our wealth in the long run (so, they don't increase or standard of living). Nations that are productive succeed in this competitive world, they have the resources to protect their interests and to do important good things. Ultimately, increases in productivity enable increases in consumption, the reverse isn't true.


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Originally Posted by Independent View Post
But, I don't see why we would believe that the market, which automatically provides incentives for saving/investing, is so far wrong that we need to design a tax system to "correct" some error.
Interesting point. I'm not sure that net good accrues from trying to use taxes to encourage various uses of capital. But the thickness of the tax code sure indicates someone thinks such engineering is a good idea.
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Old 02-24-2011, 12:26 AM   #52
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Originally Posted by jdw_fire View Post
now i am thinking you have not done your research
Yes I did.

Quote:
here is a quote (bolding is mine) from one of the coauthors, Neal Boorzt, of the fair tax book where he more fully explains the 22% (on average) fed tax in all goods and services here in the US. (and here is the link September 15, 2005 on boortz.com)
And here's what I said above:

[b]When they are talking about is the costs of compliance and the taxes the company pays, not the individual's payroll taxes which come out of his checks so salaries should not be impacted. By the time a company pays accountants, pays employees to help comply with tax code, (or in the case of a small business, spends time doing paperwork when he/she can otherwise be putting the time to product money making use), pays their own taxes, pays their portion of ss,

For the self employed, that portion is 15.3% (SS and medicare, but I rolled them into one in the above, I do that with all my budgets since I'm self-employed and consider them part of the same entitlement I have to pay into) and for employers its SS/medicare 7.65%. I'm not sure what the rules are for FUTE, I believe that depends on company size and industry.

Quote:
your response to my discussion on this topic doesnt agree with the guy who thought up the FairTax, however my point is completely consistant with this. sooo i think my observation about what would happen if the fairtax was enacted stands as your rebuttal isnt based in fact.
Neal Boortz didn't think up the Fair Tax. He's a Libertarian talk show host simply wrote a book about it many years after the fact, and was not part of the research and formulation of the Fair Tax. He did a lot of study on it to write the book and wrote it with the Fair Tax bill's co-sponsor (John Linder), but neither wrote the Fair Tax.

Quote:
and here is a quote from another document on FairTax website which shows there is tax due on interest paid http://www.fairtax.org/PDF/Tax%20Not...0FT%20rate.pdf
You're quoting the other side of the equation. I thought you meant personal filings to pay tax on a personal level. Its entirely consistent: its the lender handling it, like any other retailer, since they are the retailer of the loan and you are purchasing money. How its calculated is determined differently than services and goods taxes, but its still handled by the retailer. No return by the person.

Quote:
and boy that sounds complicated. you need to do more research
Pot meet kettle.

Quote:
[LEFT]and here are quotes from HR 25 itself which show tax will be due on that mowed lawn.
Under current law that kid is supposed to pay taxes on it after a certain threshold. Generally, that's not done. He's just a kid earning a few bucks. Hardly a domestic servant, unless he's raking in more than $1700 annually doing it under current law. Its really stretching it equating a kid mowing some lawns to a full fledged business.

Quote:
all the bolding is mine and it shows that tax is due on any wage paid to a domestic servant by a household. you were incorrect through your entire rebuttal of my post however in my research i have determined who is responsible for getting the tax to the US government in this last example and it is the taxable employer, not the kid mowing the lawn.
You got it wrong when you said I didn't mention the taxes incurred by an employer on behalf of the employee. I did mentioned it, and then clarified the amounts in this post (they go down for 2011 temporarily). Equating some kid mowing a lawn to a full fledged business, another stretch unless he mows $1700 worth of grass for you! No one goes after kids raking leaves, selling lemonade and mowing grass... nor their customers - the government hasn't gotten that desperate (yet).
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Old 02-24-2011, 12:41 AM   #53
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Originally Posted by Rustic23 View Post
Fair Tax, Flat Tax, Income Tax, Sales Tax, Value Added Tax, it makes no difference. Nothing is really going to change. The politicians will end up with a system to punish some and reward others. Nothing will be passed that does not increase current collections. There are not enough politicians that care more about the people that elected them rather than the people that can get the re-elected, and they won't change anything that is not in their favor. All this is going to do is generate more campaign contributions from all sides. It is one of they reasons the keep it alive, and never really do anything about it. When they can no longer milk the donors they will drop it or pass something.
Time for a Constitutional Convention! Or move out and renounce citizenship! lol
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Old 02-24-2011, 01:16 AM   #54
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Yes I did.



And here's what I said above:

When they are talking about is the costs of compliance and the taxes the company pays, not the individual's payroll taxes which come out of his checks so salaries should not be impacted. By the time a company pays accountants, pays employees to help comply with tax code, (or in the case of a small business, spends time doing paperwork when he/she can otherwise be putting the time to product money making use), pays their own taxes, pays their portion of ss,

For the self employed, that portion is 15.3% (SS and medicare, but I rolled them into one in the above, I do that with all my budgets since I'm self-employed and consider them part of the same entitlement I have to pay into) and for employers its SS/medicare 7.65%. I'm not sure what the rules are for FUTE, I believe that depends on company size and industry.



Neal Boortz didn't think up the Fair Tax. He's a Libertarian talk show host simply wrote a book about it many years after the fact, and was not part of the research and formulation of the Fair Tax. He did a lot of study on it to write the book and wrote it with the Fair Tax bill's co-sponsor (John Linder), but neither wrote the Fair Tax.



[b]You're quoting the other side of the equation. You had posted about paying taxes on interest earned and having to file a return. But its not done that way. Its entirely consistent: its the lender handling it, like any other retailer, since they are the retailer of the loan. How its calculated is determined differently than services and goods taxes, but its still handled by the retailer.



Pot meet kettle.



Under current law that kid is supposed to pay taxes on it after a certain threshold. Generally, that's not done. He's just a kid earning a few bucks. Hardly a domestic servant, unless he's raking in more than $1700 annually doing it under current law. Its really stretching it equating a kid mowing some lawns to a full fledged business.



You got it wrong when you said I didn't mention the taxes incurred by an employer on behalf of the employee. I mentioned it, and then clarified the amounts in this post (they go down for 2011 temporarily). You got it wrong when you equate some kid mowing a lawn to a full fledged business. Technically its taxable under current law after a certain threshold, but no one goes after kids raking leaves, selling lemonade and mowing grass... the government hasn't gotten that desperate (yet). Maybe a little different if he's raking in big bucks (no pun intended), but that's an extreme exception. You got it wrong when about people filing complicated returns for interest - its not taxed at the personal level, the institution handles it like any other retailer, but with a different formula (btw, research shows interest rates will go down by about 1% under Fair Tax, so it negates a great deal of this).
it is obvious from your above post that you didnt really read mine.

1) all neal was talking about was taxes imbedded in each products cost and it included the taxes (FIT and FICA) paid by all employees involved the production of said product. he said nothing in that explanation about the cost of compliance. you should reread what i quoted in my last post.

2) now you agree that interest paid would be subject to this tax and you are correct that when paying a bank said interest the bank would take care of collecting the tax from you and sending it on to the US treasury but private mortgages (for example) are also subject to this tax and now you the payor are responsible for calculating, paying and getting it to the US treasury which i am sure will involve filling out some kind of form (tax return).

3) i never compared the kid mowing your lawn to some "full fledged business" you are the one who said that, i just pointed out that tax will be due and again it falls to you to calculate, pay and get it to the US treasury. it appears that if you pay your kids to do work around the house then tax is due and your responsibility. and since there is a provision for taxing barter in HR 25 maybe even if you dont pay them money, them doing work around the house may still be taxable.

HR 25 makes it clear that the payor of the tax is responsible for getting the tax to the US treasury unless the payor can get the payee to take that responsiblity and issue the payor a reciept that includes the tax and in 2) and 3) above, the payor could be charged with tax evasion if s/he doesnt get said tax to the US treasury.
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Old 02-24-2011, 12:30 PM   #55
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Originally Posted by samclem View Post
Interesting point. I'm not sure that net good accrues from trying to use taxes to encourage various uses of capital. But the thickness of the tax code sure indicates someone thinks such engineering is a good idea.
I definitely agree with the last sentence. But that someone isn't me.

I've been looking for evidence that tax preferences change the actual amount of saving (as opposed to moving existing saving from one bucket to another). As close as I can tell so far, the correct answer is "Not enough for anyone to measure".
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