Are you afraid that the tax system will be changed to VAT, making a Roth a bad deal?

[Rustic23]

I look for no major changes. Our law makers have to find a way to game the system and purchase votes. In order to do this, they will have to maintain high income tax on the 'rich' and lower the tax on the poor. However, to the extent the rich invest and spend outside the US, they will lower their VAT/NRST. The poor on the other hand do not have this option. So the politicians will begin to exempt things from the VAT/NRST, food, clothing, housing, kids cloths, or higher give backs based on income. The end results, the 'rich' will pay. I also expect to se many early retirees classified somehow as 'rich'. It is a small group with little or no political clout, and generally with money. A perfect target for greedy politicians.

 

[FIREd]

I think it's only a matter of time before we get a VAT. More than 90 countries have some kind of VAT in place and the list is not getting shorter. In most countries, the VAT was introduced in addition to an income tax. Because of the regressive nature of the VAT, the income tax usually has to be made more progressive in order to keep an overall progressive tax system. A VAT is a very efficient way to collect revenues for governments and that's why it is gaining popularity around the world. And while it is generally politically difficult to increase income taxes, small increases in the VAT rate overtime usually go unchallenged which gives governments (IMO) a lot less incentive to control spending because they can always bump the VAT rate when they need to.

 

[MasterBlaster]

Income taxes started out low. They started at 1 percent of millionaires income.

We now all know how that "small" tax ended up.

 

[Texas Proud]

Some are mentioning that the rich can buy stuff 'over there'... but if it is like most of them, if you bring it back 'here' you are supposed to pay your VAT tax.... not that cheating does not go on...


I bought something online when I lived in London... and the post office would not deliver it to me until I went in and paid my VAT tax on the item... learned my lesson on that one....

 

[IndependentlyPoor]

Alan beat me.... but you can drive 11 to 12 hours and not get through the state... As the saying goes 'the sun has risen and the sun has set and you have not left TEXAS yet'....

Thanks for posting this. It reminded me of a postcard in the rack by the cash register of the only restaurant in the town I grew up in. It said, "The sun has riz, the sun has set, and here we is, in Texas yet!".

The internets is wonderful. Google and yea shall receive.

 

[Hamlet]

I think a VAT is a horrible idea. I dislike paying taxes, but I truly despise paying hidden, complicated taxes.

There is nothing particularly wrong with the basic structure of our current tax system except that we've layered a ridiculous amount of complexity onto it, and that we've allowed a whiny, child-like electorate to demand a high level of government services at a tax-rate too low to sustain those services.

Some basic tax changes that I would be in favor of--

1. Remove the AMT and increase the top income tax bracket by enough to make it revenue neutral. The AMT is a pointless addition to our system. Get rid of it.

2. Start removing deductions instead of adding them. We keep giving these "targeted" tax breaks to encourage behavior, but at the end of the day we are just shifting the tax burden around. Now that I am married with a house, it benefits me, but I think it is completely unfair to the single childless renter. Simple is better.

3. Start shifting FICA from a wage-based tax to an energy sales tax. Start reducing the employer side of FICA (another sneaky hidden tax) and start replacing that revenue with a gas/oil/natural gas federal sales tax. It makes sense to reduce taxes on something we want more of (employment), and increase taxes on something we want less of (energy consumption).

4. Start mocking any politician that talks about tax cuts without discussing the spending cuts that must go along with them. We're currently digging a hole that could bankrupt us as a nation. We must stop pretending that we can get something for nothing.

 

[Nords]

Thanks for that...now cash will be on the illegal list too.

OMG, my ATM is already limiting me to $600 per day!

I usually do not buy clothes (they are exorbitantly expensive here - case in point, many Europeans go to the USA to go shopping, specifically for clothes and electronic goods) and never buy electronics (except for cheap cell phone).

I wonder how much of that is a declining dollar. Hawaii has the same "shopping trip" pipeline with Japanese visitors, to the point where our local Home Depot carries a line of 240V appliances and even used to offer free shipping.

 

[clifp]

Personally, I'd love to see a VAT tax. I think it would solve many problems and make the system much simpler (although not nearly a simple as the FAIR tax folks say.)

That being said since I am not earning and only spending so I hate to see them change the rules on me now. (Hawaii just changes the rules on Nords and I today damn)

I am counting on Congress not making any changes for a few hundred years. By that time I expect to be in my 3rd or 4th reincarnation and look forward never having to learn about AMT, MLPs, K1, education exemption of IBonds and bunch of other useless stuff I've been forced to learn over the years.

 

[harley]

I look for no major changes. Our law makers have to find a way to game the system and purchase votes. In order to do this, they will have to maintain high income tax on the 'rich' and lower the tax on the poor. However, to the extent the rich invest and spend outside the US, they will lower their VAT/NRST. The poor on the other hand do not have this option. So the politicians will begin to exempt things from the VAT/NRST, food, clothing, housing, kids cloths, or higher give backs based on income. The end results, the 'rich' will pay. I also expect to se many early retirees classified somehow as 'rich'. It is a small group with little or no political clout, and generally with money. A perfect target for greedy politicians.

I think you have this exactly backward. In the first place, politicians are rich people. If they aren't at first, they are by the time they're finished. Also, they have by far the most political clout in the country, since they [-]pay the bribes[/-] make the donations required to get elected. The politicians make promises to the poor, but they don't follow through. But they need advertising time to make the promises, and the rich buy that for them. Any tax changes may have the appearance of taxing the rich, but there will be tons loopholes and exceptions. It will be the middle class that continue to pay the taxes.

Of course, if you want to become one of the rich, just go out and buy a lottery ticket.

 

[Nords]

(Hawaii just changes the rules on Nords and I today damn)

Gonna be an interesting membership lunch discussion tomorrow. If anyone still wants to be a member...

 

[Rustic23]

Harley,
I don't totally disagree with what you said, in fact, I agree that they promise the poor, however, with almost 50% of the population paying no taxes, they do seem to have delivered. Your comments on having to get advertising funds from the rich is true, however, that is one of the reasons campaign finance reform is so popular. If they can get funds from the government and other sources, then they can continue to buy votes from the poor and lower middles class working their way up to the 'rich'. My guess is many in congress have taken full advantage of the loopholes they provide themselves and others to pay little, comparatively, in income taxes. I have long felt the heaviest tax burden is on the guy making a higher than average salary with little or no way to shelter it.

You can bet if a VAT tax is enacted, funds spent from campaign accounts will not be taxed. I have first hand knowledge as to how some of these are spent. One local official never goes out to eat without another guest. The campaign picks up the entire tab. His car was purchased by the campaign, part of his house payment, most of his travel, and it goes on.

 

[ERD50]

Any tax changes may have the appearance of taxing the rich, but there will be tons loopholes and exceptions.

Those loopholes don't seem to be working very well. The top 20% of earners pay ~ 80% of the taxes. And the top 1% paid ~ 34% of the taxes. (FIT)

It will be the middle class that continue to pay the taxes.

Well, if you consider the 40-80 percentile the middle class, they are paying most of that remaining 20%. It isn't clear to me that that is such a bad deal.

-ERD50

 

[FIREd]

Those loopholes don't seem to be working very well. The top 20% of earners pay ~ 80% of the taxes. And the top 1% paid ~ 34% of the taxes. (FIT)


-ERD50

Yeah, I would love to know about all those loopholes. I pay more in federal income taxes than 150 million Americans... combined.

 

[MichaelB]

Yeah, I would love to know about all those loopholes. I pay more in federal income taxes than 150 million Americans... combined.

Not counting payroll taxes, of course...

 

[FIREd]

Not counting payroll taxes, of course...

Well I did say Federal income taxes, didn't I...

But let's look at this tired argument: lower income people pay payroll taxes. They also pay sales taxes and property taxes. Guess what. Higher income people do too! And on top of that higher income people, unlike 47% of people in this country, also have to pay a Federal income tax. So let's compare apples to apples here. But it's even worse than that: about 40% of Americans not only pay $0 in FIT, they actually receive money [-]back[/-] from the government which helps offset some of the other taxes they pay such as payroll taxes. So give me a break would you?

Sorry, I'm cranky. I just sent a big check to the IRS this morning.

 

[MichaelB]

Well I did say Federal income taxes, didn't I...

Of course.

But let's look at this tired argument: lower income people pay payroll taxes. They also pay sales taxes and property taxes. Guess what. Higher income people do too! And on top of that higher income people, unlike 47% of people in this country, also have to pay a Federal income tax. So let's compare apples to apples here. But it's even worse than that: about 40% of Americans not only pay $0 in FIT, they actually receive money back from the government which helps offset some of the other taxes they pay such as payroll taxes. So give me a break would you?

I didn't argue anything. You're arguing both sides - so I'm sure you will get your point across. My point - it's so very convenient to argue about the distribution of income taxes while at the same time omitting a large part of the tax paid on income.

 

[ERD50]

Not counting payroll taxes, of course...

Payroll taxes get tricky, so to avoid 'omitting a large part' of the story, one must also consider that lower income people will get a much better return for their SS dollar than do high income people.

Taxes are so complex, that if we try to include every nuance, we couldn't ever get a post written before things change and we'd have to edit it.

-ERD50

 

[Rustic23]

IMHO, bringing up Pay Roll Tax in a discussion on payment of Federal Income Tax is disingenuous. The pay roll tax is payment for, or call it a purchase of. a retirement/insurance benefit. It is not paid to run government programs, fund defense, promote interstate commerce or build bridges to no where in Alaska. For too long, IMO, this has been thrown in when ever someone points out that not only do 50% of the population not pay their fair share they don't pay anything at all and in many cases get a refund, pure redistribution of wealth.

 

[audreyh1]

Well I did say Federal income taxes, didn't I...

But let's look at this tired argument: lower income people pay payroll taxes. They also pay sales taxes and property taxes. Guess what. Higher income people do too! And on top of that higher income people, unlike 47% of people in this country, also have to pay a Federal income tax. So let's compare apples to apples here. But it's even worse than that: about 40% of Americans not only pay $0 in FIT, they actually receive money [-]back[/-] from the government which helps offset some of the other taxes they pay such as payroll taxes. So give me a break would you?

Sorry, I'm cranky. I just sent a big check to the IRS this morning.

I think the 50% paying no Federal income taxes bothered me too, until I learned that these filing households are making $34K or less a year. That put some things in perspective for me.

I don't know about the credits side. But those are some really low income households.

Audrey

 

[FIREd]

I think the 50% paying no Federal income taxes bothered me too, until I learned that these filing households are making $34K or less a year. That put some things in perspective for me.

I don't know about the credits side. But those are some really low income households.

Audrey

Oh, I am sure that most people who pay no FIT earn modest incomes. But when I look at my own tax records, earning a modest income never prevented me or my wife from paying some amount of FIT:

For me:
1998: $10,546 in wages, I paid $1,155 in FIT
1999: $10,696 in wages, I paid $1,158 in FIT

For DW:
1997: $15,186 in wages, she paid $1,046 in FIT
1998: $20,483 in wages, she paid $1,954 in FIT
1999: $30,295 in wages, she paid $3,559 in FIT

Those were modest to low incomes, even in 1997-1999. I think I was close to the poverty level at the time.

 

[Rustic23]

47% of Americans pay no income taxes - Fundmastery Blog - MarketWatch

This is an interesting chart. 21% of folks making between $50 and $75 thousand pay not income tax! Not sure if it is cricket to add up the percentages over 50 thou. but it is close to 40% not paying taxes!

 

[ERD50]

I think the 50% paying no Federal income taxes bothered me too, until I learned that these filing households are making $34K or less a year. That put some things in perspective for me.

I don't know about the credits side. But those are some really low income households.

Audrey

Well, in 2008 the credits reduced my total FIT bill to $24, that's pretty close to zero. That is on an AGI ~ $84,000 ( divs, int, cap losses, and DW income).

And I think that is ridiculous. A person with an AGI of $84,000, and living the comfortable lifestyle I do should be paying more than that to support what needs to be done in this country. No, I'm not giving it back, as I've paid far more than what I consider my fair share in other years.

I don't know the details exactly, but a friend of mine who lives a pretty high lifestyle says he did get a credit this year. I'd guess that his AGI exceeds what I reported here. He also thought that this country cannot do this - it is crazy.

-ERD50

 

[samclem]

http://blogs.marketwatch.com/fundmastery/2010/04/08/47-of-americans-pay-no-income-taxes/
Not sure if it is cricket to add up the percentages over 50 thou. but it is close to 40% not paying taxes!

No, your hunch is right--adding up the numbers doesn't give an accurate representation of non-taxpayers over $50K since the number of people in each income "box" isn't the same. It would work if the number of people earning over $1 million was the same as the number earning between $50K and $75K, but that's clearly not so.

 

[MasterBlaster]

but it is close to 40% not paying taxes!

too low, CBS clocks it at 47% pay no income tax:

Nearly 50% Will Pay No Fed Income Tax for 2009 - CBS News

 

[Gone4Good]

http://blogs.marketwatch.com/fundmastery/2010/04/08/47-of-americans-pay-no-income-taxes/This is an interesting chart. 21% of folks making between $50 and $75 thousand pay not income tax! Not sure if it is cricket to add up the percentages over 50 thou. but it is close to 40% not paying taxes!

Most of that is due to child related deductions combined with 401(k) type plans. ERD50 (who just a couple of posts above this one claims only $24 on an ~80K AGI) has another thread where he explains all the credits and deductions he takes advantage of. I think he's an exception, rather than the rule, but it can be done. I'd be in favor of getting rid of all of that nonsense but that will never happen.

I wouldn't feel too bad for the "rich" though. While they pay a large amount in taxes, their tax burden as a percentage of their income has fallen too over the past 30 years or so.

Guns and butter, baby!