US Income Tax system choice poll

[robnplunder]

Any opinions on what should be your choice of US income tax system?

 

[M Paquette]

The poll only covers the style of taxation on income, that is, what goes into building the tax table one uses at the end of the reporting process.

The real fun in the current tax model is the calculation of taxable income, and other sorts of revenue taxed at still other rates (long term capital gains, gains on collectibles or commodity sales, etc). Doesn't matter how the table is built if I can magically disappear much of my taxable income through all the nifty carve-outs in the tax code.

 

[ERhoosier]

....Doesn't matter how the table is built if I can magically disappear much of my taxable income through all the nifty carve-outs in the tax code.

+1

Didn't vote in the poll as "carve outs" make specific method of taxation rather meaningless.

 

[theOAP]

+1

Didn't vote in the poll as "carve outs" make specific method of taxation rather meaningless.

An additional +1

I've paid tax in 3 jurisdictions; the US, the UK, and an EU country. I prefer the UK system (I can give a broad brush if anyone is really interested).

IMHO, the US system is 'deduction/exclusion/exemption based; the UK is income based. In the UK, there are a very few carve outs, but no where near what occurs in the US.

Instead of a number of +1 comments, it might be interesting to hear from others who have paid into other systems and their opinions as to how those systems stack up against the US system. If you've had the opportunity to pay under an alternative system then commenting on the US system may offer more than just speculating on unknowns.

 

[imoldernu]

too political for me

 

[MichaelB]

An additional +1

I've paid tax in 3 jurisdictions; the US, the UK, and an EU country. I prefer the UK system (I can give a broad brush if anyone is really interested).

IMHO, the US system is 'deduction/exclusion/exemption based; the UK is income based. In the UK, there are a very few carve outs, but no where near what occurs in the US.

Instead of a number of +1 comments, it might be interesting to hear from others who have paid into other systems and their opinions as to how those systems stack up against the US system. If you've had the opportunity to pay under an alternative system then commenting on the US system may offer more than just speculating on unknowns.

+2

More than 2 decades of Venezuelan tax returns. About an hour or so to prepare, 2 sheets, limited deductions, straightforward calculations. Overall rate lower but flatter. Total prep time about an hour. Folks bitched as much there as here and cheated much more, so I don't think there is much relationship between time spent, complexity, fairness and overall satisfaction, and it certainly doesn't lead to less complaining.

 

[Katsmeow]

Wasn't sure whether to do Other (What I ended up doing) or happy with current system. I did other because I am not happy with the current system. On the other hand, I do think that the system should be somewhat progressive (i.e. the higher the income the higher the rate).

However, I strongly feel that there should be few, if any, exemptions from income. The fewer exemptions there are then the flatter the rates could be.

 

[FIREd]

I'd be happy with a much simplified but still progressive system.

 

[galeno]

I'm not a USA person but I know a bit about fiscal policy. Ideally, a government should tax what is undesirable and subsidize what is desirable.

The problem starts when you and I think opposite things are desirable and vice versa.

Good luck USAmericans. Both of our countries are getting to the point of being ungovernable.

 

[pb4uski]

I'd be happy with a much simplified but still progressive system.

+1 I like the progressivity of our current rate structure even though it resulted in my paying beaucoup taxes during my earning years. I would like to see Schedule A/itemized deductions eliminated and a standard deduction that is either a fixed amount (as currently) or a progressively graded % of income. I think that one simple change would make taxes much simpler for most taxpayers.

Many of the other adjustments to income just unnecessarily complicate compliance IMO and in many cases don't amount to much so I would lean toward eliminating them.

Simple is good.

 

[theOAP]

...About an hour or so to prepare, 2 sheets, limited deductions, straightforward calculations.

Once the records are in order, UK tax return takes about 30 mins., if one is required (see below).

Overall rate lower but flatter.

UK has 4 bands, 0%, 20%, 40%, and 45%. There's also VAT at 20% (national sales tax) and the amount can go up or down depending on the governments need for revenue. Since tax is deducted at source, the majority of taxpayers are not even required to file a return.

Folks bitched as much there as here and cheated much more, so I don't think there is much relationship between time spent, complexity, fairness and overall satisfaction, and it certainly doesn't lead to less complaining.

Tax is very rarely discussed in everyday conversation. People sometimes complain about the amount, but seldom about filing. They do complain about those who are not declaring income they should. For the record, I pay considerably more tax on my income than I would in the US, but I still prefer the UK system as it has the appearance of being fairer.

 

[robnplunder]

I think French soccer players went on a strike recently b/c they don't believe in paying 75% of their income to government. I believe US used to have 70+% tax bracket some years back. Without tax loop holes, paying 75% of your income to government seems like a highway robbery. Does anyone know how French system works for those who make millions? Do they really pay close to 75% tax?

 

[theOAP]

I think French soccer players went on a strike recently b/c they don't believe in paying 75% of their income to government. I believe US used to have 70+% tax bracket some years back. Without tax loop holes, paying 75% of your income to government seems like a highway robbery. Does anyone know how French system works for those who make millions? Do they really pay close to 75% tax?

The French system is similar to the UK system, but tax forms are slightly more difficult. You only pay tax in the year after you earn the income, as only a set amount is withheld from pay during the year (or that's how it used to be).

The 75% tax was attempted by the new government. I'm not sure where it stands at this time. There is a Wealth Tax in France.

 

[F4mandolin]

I like the UK method....but would like a less drastic increase in rate bands. Probably a couple more bands. But then....the larger tax is taken only on the amount over the lower band limit. I think it needs a couple more bands to smooth things out a bit.
Tax rate 2012 to 2013 tax year 2013 to 2014 tax year Basic rate 20% £0 to £34,370 £0 to £32,010 Higher rate 40% £34,371 to £150,000 £32,011 to £150,000 Additional rate 50% (45% from 6 April 2013) Over £150,000 Over £150,000

 

[nvestysly]

I clicked "other." I'm generally in favor of several proposals that make the U.S. tax code simpler. I think a flat tax / fair tax system could be made to work but I think we'd screw it up quickly. So my suggestion would be to stay with something similar our current progressive tax system while eliminating tax deductions and tax expenditures.

I was very enamored with Option 1: The Zero Plan that President Obama's Bowles-Simpson committee suggested in their November 2010 Co-Chairs' Draft Proposal

Look at page 24 on the link below. I particularly like the line that indicates Eliminate All Tax Expenditures - Those rates are appealing and I suspect the tax returns would take just a few minutes. Oh, those poor CPA's - what would they do?

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf

 

[gauss]

Given that I planned my ER and pulled the trigger based on the current system, I'd prefer for it to stay in place.

-gauss

 

[braumeister]

too political for me

me, too.

I've often thought about it, and generally lean toward a national sales tax instead of an income tax, with exemptions up to a certain point for food and clothing.

But the devil is in the details, and I'm not savvy enough to come up with the perfect scheme.

 

[easysurfer]

I want a system where the other guy pays more than me

I voted for happy with current system.

But surprised to not see the national sales tax as a choice.

 

[robnplunder]

Surprising to see option 4 hanging in there so far. I've always thought the current US tax system is discriminatory against higher income bracket folks. Why should they be penalized by higher tax rate for making more money? In effect, they are paying (much) more to get into public museums, National Parks, etc..

 

[rodi]

I generally agree that tax rates need to be progressive. But I'd like to eliminate tax deductions AND tax credits. Tax credits could be replaced with subsidized services or some such for the poor like (to replace earned income credit).

That said - as an upper middle income earner - I've sheltered an amazing amount of income, legally. I take advantage of flexible spending plans, dependent care accounts, mortgage interest deductions, etc. But I don't think these are good programs overall.

For the link above - I like the zero plan, eliminate all tax expenditures option. Seems fair and simple. But still has progressive rates.

 

[F4mandolin]

Surprising to see option 4 hanging in there so far. I've always thought the current US tax system is discriminatory against higher income bracket folks. Why should they be penalized by higher tax rate for making more money? In effect, they are paying (much) more to get into public museums, National Parks, etc..

I'm all for reducing the higher tax rates.....as long as the deductions are given the heave-ho. That's why I like the UK system......the taxes are taken out before you get paid....period.....you basically don't/won't get them back. But if everybody is paying a set limit with no exceptions (easier said than done) then everybody should be able to pay less. That could be another thread....how much could everybody pay less if there were no deductions?

 

[scrinch]

+1 on the current progressive system, but without the carve outs. But phasing out carve outs will be painful. You think the dislocations with Obamacare are making people scream, wait until you take away their home mortgage deduction and 401k/IRA income exclusion!

Surprising to see option 4 hanging in there so far. I've always thought the current US tax system is discriminatory against higher income bracket folks. Why should they be penalized by higher tax rate for making more money?

Good question. Political question too. You could also ask if it is fair that high income earners make more money than low income earners. I'm not sure the higher income is always fully earned by the recipient. What I mean by that is that high income earners (for example me) are often born into families that value education, in places where there is good infrastructure and there are good job opportunities. Those are advantages that they have from day-1 that they didn't really earn. So to what extent do I deserve a $200k salary? Have I worked harder than the guy who picks fruit and vegetables in the field year-round? It is probably just as fair that I earn that salary as that I pay an effective 25% income tax compared to the farm laborer's effective 7% tax.

Or maybe not. Like I say, yours is a good question that doesn't have a simple, absolute answer.

 

[F4mandolin]

Good question. Political question too. You could also ask if it is fair that high income earners make more money than low income earners. I'm not sure the higher income is always fully earned by the recipient. What I mean by that is that high income earners (for example me) are often born into families that value education, in places where there is good infrastructure and there are good job opportunities. Those are advantages that they have from day-1 that they didn't really earn. So to what extent do I deserve a $200k salary? Have I worked harder than the guy who picks fruit and vegetables in the field year-round? It is probably just as fair that I earn that salary as that I pay an effective 25% income tax compared to the farm laborer's effective 7% tax.

Or maybe not. Like I say, yours is a good question that doesn't have a simple, absolute answer.

Good point

 

[HFWR]

I'm not a USA person but I know a bit about fiscal policy. Ideally, a government should tax what is undesirable and subsidize what is desirable. The problem starts when you and I think opposite things are desirable and vice versa. Good luck USAmericans. Both of our countries are getting to the point of being ungovernable.

A simple "you earned that much, you owe this much" system, or a national sales tax.

In my utopia, taxes would be set so that government operations are funded. We should get out of the business of trying to manipulate behavior with taxes and subsidies, as it creates too many opportunities for malfeasance...

I agree with the last sentence...

 

[Theduckguru]

My real federal tax rate has been less than 9% for the last 10 years, so I certainly am not in favor of a flat 15% rate.

You might enjoy reading this recent opinion.

PIMCO | Investment Outlook - Scrooge McDucks