Presidential candidates taxation policies

[Trek]

I ran across this guys blog when I was Googling for some estate planning information. He takes a look at some of the major players taxation policies. Might be of some interest to people.

Kevin A. Pollock BLAWG

 

[Wags]

I ran across this guys blog when I was Googling for some estate planning information. He takes a look at some of the major players taxation policies. Might be of some interest to people.

Kevin A. Pollock BLAWG

Good read it at least it gives us an ideal on where they stand on taxation.

GOD BLESS

 

[TromboneAl]

I used to like the simplicity of a national sales tax, but got a quick education from this forum, and I realize that it would never work, and isn't desirable.

My guess is that Huckabee would be wasting his time on this if he got elected and tried to get it through.

 

[aaronc879]

I used to like the simplicity of a national sales tax, but got a quick education from this forum, and I realize that it would never work, and isn't desirable.

My guess is that Huckabee would be wasting his time on this if he got elected and tried to get it through.

Do you have a link to a previous discussion on the topic?

 

[Trek]

I used to like the simplicity of a national sales tax, but got a quick education from this forum, and I realize that it would never work, and isn't desirable.

My guess is that Huckabee would be wasting his time on this if he got elected and tried to get it through.

I think it would be hard to get any serious tax reform through. Too many influential people make a fat living off our ridiculously complicated system.

Plus, I think the IRS (assuming it oversaw some kind of simplified tax system) would see an increase in compliance and quite possibly higher annual tax revenue.

"The tax code now exceeds a staggering 60,000 pages, prompting Americans to waste 6.2 billion hours just completing their returns every year. Deciphering it costs the country $203.4 billion a year, according to the Tax Foundation. Its complexities generate additional job-killing distortions throughout our economy."

"The answer, quite simply, is the flat tax. It has a single, low rate that treats all Americans fairly and has no deductions or special-interest loopholes. The flat tax is clear, honest and easily understood, and passing a flat tax would liberate taxpayers and jump-start the economy."

USATODAY.com - Scrap the tax code

60,000 pages?? It's beyond insane. The tax code shouldn't be more than 6 paragraphs!

 

[Independent]

I'll agree that the current code is ridiculously complex. We should eliminate all "intentional" special deals, including all individual deductible expenses.

However, there is no reason to go to a single tax rate. If there are 60,000 pages of tax code, then 59,999 pages are used to determine your taxable income, and 1 page has the table of graduated rates that we apply to that income. I would keep the 1 page and get rid of as many of the 59,999 as possible.

 

[Arc]

Nice list of all the things they would like to do. I'm scared of what will happen if they don't do anything and just let Bush's tax cuts expire.

 

[starter82]

Just looking at it on the surface, I think Paul's ideas are the soundest.

 

[HFWR]

Just looking at it on the surface, I think Paul's ideas are the soundest.

Although there could be some benefit to more closely linking use of government services to funding said services, "fee" is just another word for "tax"...

President Paul: That'll be $12,000 please.

HFWR: Grumble, grumble...

President Paul: But it's a fee, not a tax.

HFWR: Oh, in that case...

 

[Notmuchlonger]

I love the idea of a consumption tax.

 

[TromboneAl]

Do you have a link to a previous discussion on the topic?

http://www.early-retirement.org/forums/f28/new-national-sales-tax-15380.html

http://www.early-retirement.org/forums/f28/fairtax-gaining-steam-17556.html

 

[starter82]

Although there could be some benefit to more closely linking use of government services to funding said services, "fee" is just another word for "tax"...

President Paul: That'll be $12,000 please.

HFWR: Grumble, grumble...

President Paul: But it's a fee, not a tax.

HFWR: Oh, in that case...

I get that I'd still pay a lot, potentially more. I think the benefit just what you said, that what we pay would be more closely linked to what we use. Right now, people with children pay less. Why? They use more services. Mortgage interest deduction? Anyone wanna buy a bigger house, let the government help you pay for it!


I think we should more greatly bear responsibility for decisions we make.

 

[ERD50]

I used to like the simplicity of a national sales tax, but got a quick education from this forum, and I realize that it would never work, and isn't desirable.

My guess is that Huckabee would be wasting his time on this if he got elected and tried to get it through.

I mostly agree, but at least Huckabee is talking up simplicity. Maybe he would really push for some compromises that would lead to some real simplification.

Here's one crazy, stepping-stone idea I thought of recently:

OK, I've mentioned eliminating corporate taxation before, because the consumer just pays it anyhow in the price of the goods sold, plus they pay the cost of compliance and avoidance. That would simplify the tax code tremendously. But, we would need to replace that tax revenue. So, how about a tax on corporate sales? Shouldn't be too hard to figure what the rate would need to be to capture as much revenue as the current corporate income tax does. Let's say it's 5% of sales (note1). A company has $1M in sales, they owe $50,000 in tax. Period. No deductions, no calculation of profits/loss, etc.

That would 'test the waters', and maybe warm people to the idea of point-of-sale type sales tax to replace income tax.

(note1) - Ballpark number, if you guesstimate that corporations on average were making 15% profits on sales, a 5% sales tax would be the equivalent of 33% income tax. Could phase it in over 5 years to give companies time to adjust pricing if needed.

-ERD50

 

[FIRE'd@51]

So, how about a tax on corporate sales? Shouldn't be too hard to figure what the rate would need to be to capture as much revenue as the current corporate income tax does. Let's say it's 5% of sales (note1). A company has $1M in sales, they owe $50,000 in tax. Period. No deductions, no calculation of profits/loss, etc.

The problem with this approach is that profit margins are vastly different in different industries.

 

[ERD50]

The problem with this approach is that profit margins are vastly different in different industries.

True, but would it really be a big deal? Maybe, I don't know.

Let's see - high tech companies might be riding at 30% profit margin or so for a while. So 5% of sales would be lower than their corporate income taxes most likely (depending on what kind of clever accountants and write offs they have).

What's at the other end of the spectrum? I've always heard that grocery stores have low profit %, but they turn over so much inventory that it adds up. So, a 5% increase in food prices might be bad.

But, it is essentially the same deal with the NST, just at the point-of-sale versus the corporation. I suppose it could be dealt with the same way - raise the standard deduction to offset 5% on essentials?

I guess that's why I think this might be a good idea - it's a way to provide a test bed w/o converting whole hog?

-ERD50

 

[starter82]

What's at the other end of the spectrum? I've always heard that grocery stores have low profit %, but they turn over so much inventory that it adds up. So, a 5% increase in food prices might be bad.

I often wonder how much food is marked up. One store has a certain product for $4 something. I think it's $4.4X, but I'm not sure. Another store sells the same thing for, no joke, $8. These are everyday prices. The second store will occasionally put the item on sale for $7 (6.99). How much profit is in food?

I'd support higher food prices if the clerks, etc. get paid more. I don't support greater profits.

 

[REWahoo]

I often wonder how much food is marked up.

If you are talking about the retailers, not very much.

Nov 30, 2007, Supermarket News

"Food retailers overcame sharp increases in energy, health care and other costs to post a median after-tax net profit of 1.91% in fiscal year 2006-2007, up from 1.46% the previous year, according to Food Marketing Institute’s Annual Financial Review 2006-2007, released yesterday."

 

[starter82]

If you are talking about the retailers, not very much.

Nov 30, 2007, Supermarket News

"Food retailers overcame sharp increases in energy, health care and other costs to post a median after-tax net profit of 1.91% in fiscal year 2006-2007, up from 1.46% the previous year, according to Food Marketing Institute’s Annual Financial Review 2006-2007, released yesterday."

Then why the price difference that I mentioned? I doubt they're spending the money on their storefront labor. Actually, I know they aren't, at least not by wage, perhaps by number of employees.

 

[REWahoo]

Then why the price difference that I mentioned?

Loss leader, better (lower cost) sourcing, mis-pricing, who knows? You can't judge the overall pricing/profit strategy of a retailer or industry by looking at one product out of thousands.

 

[Trek]

However, there is no reason to go to a single tax rate. If there are 60,000 pages of tax code, then 59,999 pages are used to determine your taxable income, and 1 page has the table of graduated rates that we apply to that income. I would keep the 1 page and get rid of as many of the 59,999 as possible.

I can get behind this solution as well. My main issue with the tax code is it's vast unnecessary complication.

Personal Income Tax form - USA EAZY

Name here
SSN here

Line 1: Total income
Line 2: Your tax rate % (see table below)
Line 3: Amount owed

Signature here

 

[Maurice]

The blogger has an interesting idea but he himself seems to be uninformed about the tax code. Look at this:

"Currently, only the first $95,000 of income is subject to payroll tax. Payroll taxes are for such things as Social Security, Medicaid and Medicare."


Medicare tax base capped at 95k? Yeah, right. Then why did I pay more in Medicare tax than Social Security tax last year?

 

[Independent]

http://www.early-retirement.org/forums/f28/new-national-sales-tax-15380.html

http://www.early-retirement.org/forums/f28/fairtax-gaining-steam-17556.html

I read the “Fair Tax gaining steam” thread above. I wasn’t around in 2005 to get a comment into it, but I can’t resist putting a comment here.

I think the “FairTax”, aka a “national retail sales tax”, has some significant costs and very few benefits. One cost is transitioning to something so different from our current system. Another is the likelihood that high wealth people won’t pay their “fair share” of taxes. Time and energy spent trying to install a sales tax would be better spent trying to reform the income tax.

Here are the purported benefits of a sales tax, and my comments:

“A sales tax is dramatically simpler than our current individual income tax.”
That’s true if you compare a theoretically pure sales tax to our current immensely complicated personal income tax. However, all those complications are in the income tax because they are politically popular. Any sales tax is subject to the same political forces as the income tax. (In fact, the FairTax already has one complication -- education expenses are exempt.) Over time, a sales tax will be just as complicated or simple as an individual income tax, depending on our political will in either case.

“A sales tax is dramatically simpler than our current corporate income tax.”
That’s true, and a small part of the difference is inherent in the nature of the taxes. However, if you really don’t like corporate income tax, it can be eliminated without redoing the entire tax code. ERD50 has one approach. Another would be to simply tax dividends and capital gains at the full rates on individual returns, with some provision to prevent deferring capital gains indefinitely. This approach also assures that high wealth people pay some tax on income that they may not spend.

“We’ll get better compliance with a sales tax than an income tax.”
Compliance rates go down when tax rates go up. A high sales tax rate, as proposed in the FairTax, will result in significant incentive to avoid the tax. Compliance also depends on complexity. An individual income tax and sales tax with equal rates and equal complexity will have about the same compliance rates.

“A sales tax doesn’t need the IRS”.
Nonsense, all taxes require enforcement. Equivalent sales and income taxes need about the same enforcement (see paragraph above).

“Wealthy people will finally pay their ‘fair share’ “.
I expect that wealthy people will pay less under a sales tax, simply because they spend a lower percent of their incomes. I haven’t seen any study which shows how wealthy people currently avoid income taxes, and how this avoidance would be easier to fix with a sales tax than with changes in the income tax.
I believe there is considerable debate among economists about the actual incidence of corporate income taxes (important because the top 1% of US families own about 50% of stocks). The FairTax people believe they are entirely transferred to prices. Other people believe they are entirely paid by stockholders.

There’s one other thing that you won’t find explicitly on the FairTax site, but is often suggested. That’s the notion that we’ll all pay less with a sales tax, but it will raise the same amount of revenue for the gov’t. This is obviously wrong when you say it bluntly. But it is often implied.
In the "gianing steam" thread above, a FairTax opponent gave examples of situations where he thought the sales tax would be higher than the income tax. In every case, the FairTax advocate claimed this wouldn't happen. But there must be some cases where taxes go up, and there have to be enough to equal the dollars lost in the cases where taxes go down. I can’t find any calculation like that on the FairTax site, probably because they want everyone to think they will come out ahead.

 

[ERD50]

Good points, but I'll take a bit of exception on a few of them:

“We’ll get better compliance with a sales tax than an income tax.”
Compliance rates go down when tax rates go up. A high sales tax rate, as proposed in the FairTax, will result in significant incentive to avoid the tax. Compliance also depends on complexity. An individual income tax and sales tax with equal rates and equal complexity will have about the same compliance rates.

It's true that the NST rate would be high - but the amounts are relatively small and spread out over many purchases and across many sellers. So cheating on a single purchase may not add up to much overall.

That's one reason I don't like the Estate Tax and Cap GAins Tax - it can be a big chunk at one time and just screams 'avoidance'.

“A sales tax doesn’t need the IRS”.
Nonsense, all taxes require enforcement. Equivalent sales and income taxes need about the same enforcement (see paragraph above).

You're assuming that the NST gets as many exceptions as the current tax code. Maybe, but until then it is simpler. It's pretty bad when you cannot even rely on the IRS themselves to provide an answer to a tax question.

“Wealthy people will finally pay their ‘fair share’ “.
I expect that wealthy people will pay less under a sales tax, simply because they spend a lower percent of their incomes.

This depends on how much the wealthy are taking advantage of loopholes. In some ways, this might at least have the appearance of 'fairer'? I don't know the numbers.

That’s the notion that we’ll all pay less with a sales tax, but it will raise the same amount of revenue for the gov’t. This is obviously wrong when you say it bluntly.

Not obviously wrong at all. When you factor in the cost of compliance, the cost of avoidance (we are paying for corporations to hire accountants and lawyers to lower their tax burden, and then we end up paying the tax that they didn't), and the added tax revenue from illegal activities that are not taxed now , but will be when those thugs spend their money - the average guy/gal may end up paying less overall tax.

But I still don't think it has a chance - but if Huckabee can get support for it, he may use it as a lever to simplify the current tax situation. At least he's talking about it.


-ERD50

 

[TromboneAl]

I also don't think it will happen, but the threat is enough for me to limit my Roth conversions.

Imagine that it did happen, and it was announced "Starting in one month, there will be a 23% national sales tax." You thought people bought a lot of stuff now. It would be like one month of supermarket sweep for cars, houses, etc. Prices would jump.

That would be something to see.

 

[ERD50]

T-Al, if the impossible happened, they would need to phase it in. Maybe 1/2% per month to make it small enough to avoid panic buying. So we'd still have 4 years of filling out tax forms - but they ought to be able to simplify them each year as the amount goes down, deductions and so on would have less impact.

Actually, I was thinking about this in the car today. An NST sure seems a lot fairer for people who have variable incomes year-to-year. If you know you are in a feast or famine career, but are smart and spend based on average earnings, you would be better off.

Currently, you get hit with high progressive taxes in the feast years, and pay little/nothing in the famine years. But you aren't living different - so why should your taxes be so different.

-ERD50