Perspective on Income Taxes

[Yipper]

To me a national sales tax only makes sense if you abolish the income tax. Which is doubtful for sure.

Just like sales tax, exempt food, drugs, health care etc to make it less regressive.

It gives everyone skin in the game, and no massive bureaucracy is needed to administer it. In fact, one can be largely eliminated.

I think that's the idea - eliminate the income tax and replace it with a national consumption (sales) tax. Would exempting necessities like food/drugs/healthcare and possibly providing some relief (rebate) for people under a certain income level not even things out?

 

[pb4uski]

To me a national sales tax only makes sense if you abolish the income tax. Which is doubtful for sure.

Just like sales tax, exempt food, drugs, health care etc to make it less regressive.

It gives everyone skin in the game, and no massive bureaucracy is needed to administer it. In fact, one can be largely eliminated.

If you are thinking the IRS could be eliminated, think again unless you eliminate corporate income taxes, estate taxes and a whole bunch of other things. Besides, without the IRS how would the country administer the next wave of economic incentive payments?

 

[Out-to-Lunch]

Definitely not trying to make this political so please just comment on the idea of abolishing the income tax for a consumption tax like the bill that will be introduced in the current house session. Acknowledging the impossibility of this bill passing in this congress, it's not too far fetched to think this could surface again in a few years when the party balance is different.

https://www.thestreet.com/politics/...bolish-the-irs-how-that-would-hit-your-wallet

The bill would also put the funding of SS and Medicare onto a discretionary basis. Payroll taxes (which fund SS now) would be eliminated, and the funds from the national sales tax would go to “(1) the general revenue, (2) the old-age and survivors insurance trust fund, (3) the disability insurance trust fund, (4) the hospital insurance trust fund, and (5) the federal supplementary medical insurance trust fund."

 

[Yipper]

If you are thinking the IRS could be eliminated, think again unless you eliminate corporate income taxes, estate taxes and a whole bunch of other things. Besides, without the IRS how would the country administer the next wave of economic incentive payments?

The proposal actually eliminates income tax, estate tax and corporate income tax.

 

[pb4uski]

The proposal actually eliminates income tax, estate tax and corporate income tax.

But what about the whole bunch of other things? Besides, that ends up hosing the poor and middle class even more. Sorry, I'm a fiscal conservative but not crazy, no thank you.

 

[Montecfo]

If you are thinking the IRS could be eliminated, think again unless you eliminate corporate income taxes, estate taxes and a whole bunch of other things. Besides, without the IRS how would the country administer the next wave of economic incentive payments? [emoji23]

Lol you make a good point in that last sentence.

But yes would take the next step and eliminate the corporate and estate taxes or at least massively reform them.

The corporate income tax just drives away business. Remember the weekly din of the latest company moving overseas, taking tax revenue and jobs with it? That has died down with reforming the US tax on worldwide income and reforming rates. So lower corporate taxes are a positive for jobs, which is key. And it is an indirect tax on consumers. The direct tax on consumers i.e. a sales type tax, would mean less distortion.

I would reform the estate tax to stay at very high levels at minimum.

Other benefits of eliminating or massively reducing the IRS are evident as well, but I am reticent to mention those.

 

[Sunset]

The proposal actually eliminates income tax, estate tax and corporate income tax.

Wealthy folks would just buy items from other countries and pay no sales tax to US, like they do now, same with large corporations.

 

[Irishgirlyc58]

Well this is certainly an interesting conversation.

 

[Midpack]

Interesting. I started the thread showing how much lower effective tax rates have been over the course of my adult life, yet the IRS and/or the current tax code is the enemy to some? I certainly agree with simplifying the tax code considerably, but I'm not holding my breath.

 

[MichaelB]

Interesting. I started the thread showing how much lower effective tax rates have been over the course of my adult life.

Over the same period marginal tax rates have also fallen sharply.

 

[Yipper]

Interesting. I started the thread showing how much lower effective tax rates have been over the course of my adult life, yet the IRS and/or the current tax code is the enemy to some? I certainly agree with simplifying the tax code considerably, but I'm not holding my breath.

I think they call it "thread drift" or something. I don't have a strong opinion personally on what I introduced in my first post in the thread so I apologize for derailing your subject... I was just interested in the thoughts of the smart people in this community on such a radical change.

 

[TheWizard]

They've already simplified the tax code by eliminating deduction of more than $10,000 of SALT, thus making a lot of us take the standard deduction instead...

 

[TheWizard]

I have a simple little spreadsheet that tracks certain numbers on my form 1040 from one year to the next:
Adjusted Gross Income
Taxable Income
Tax

There were a few exception bumps, but they all increment a bit year by year, from my latter working years through ten years of retirement thus far.
Those numbers include modest Roth conversions, by design...

 

[copyright1997reloaded]

I've gotten used to it, but voluntarily paying lots of extra taxes for Roth conversions since 2019 has been hard to stomach. But I know it's the right thing to do.

Looking back at our effective tax rates makes it clear I have nothing to whine about...

I also distinctly remember doing my first tax return as a retiree in 2012 and thinking - this can't be right! But it was right.

We made less than $40K in 1982, Federal taxes were WAY more confiscatory then! Looks outrageous to me today.

Thought others might have similar records or recollections - I'd forgotten.

No comment on other posts, but I will note that a 40K 1982 salary is roughly the same as a 152K salary today (using average wage index to compare). So, to look at marginal and effective rates you would need to compare it to a 152k/year salary in todays $.

 

[Midpack]

No comment on other posts, but I will note that a 40K 1982 salary is roughly the same as a 152K salary today (using average wage index to compare). So, to look at marginal and effective rates you would need to compare it to a 152k/year salary in todays $.

Fair point. It would take triple the salary today to equal our 1982 household income...

 

[frayne]

Folks, there are industries built around keeping our current tax system convoluted and complicated, and they ain't going away ever ! Too many with vested interests in keeping the system just the way it is. The best any of us can do is play the hand we are dealt, the best we can, based on the rules as we know them at any point in time.

 

[MichaelB]

No comment on other posts, but I will note that a 40K 1982 salary is roughly the same as a 152K salary today (using average wage index to compare). So, to look at marginal and effective rates you would need to compare it to a 152k/year salary in todays $.

The marginal tax rate in 1982 for $35k of taxable income was 39%, which is greater than the highest marginal tax rate today (37%).

 

[Car-Guy]

Folks, there are industries built around keeping our current tax system convoluted and complicated, and they ain't going away ever ! Too many with vested interests in keeping the system just the way it is. The best any of us can do is play the hand we are dealt, the best we can, based on the rules as we know them at any point in time.

+1 Absolutely agree with that!

 

[Koolau]

+1, however, without going into detail, "I'm okay" with helping those who really tried and just couldn't make ends meet...

Heh, heh, I'll PM you my address. I could use about $50K this year, thank you.

 

[Koolau]

There was a time in my life when my marginal tax rate was 39.1% federal and 6.85% state, so I'm running short on sympathy for all those who are being "penalized for success".

Yeah, I used to have to pay AMT for heaven's sake! Don't recall even making $50K at the time.

Much better now.

 

[Chuckanut]

Wealthy folks would just buy items from other countries and pay no sales tax to US, like they do now, same with large corporations.

Isn't that what happened with the luxury tax on Yachts years ago? The yacht businesses went overseas, jobs were lost in the USA, and the government did not get the increase in revenue that it projected. IIRC.

I have to constantly remind myself that, as a group, we elect these people.

 

[Montecfo]

Wealthy folks would just buy items from other countries and pay no sales tax to US, like they do now, same with large corporations.

We have laws on the books now in every state that has a sales tax which include a parallel tax on the "use" of goods otherwise subject to sales tax. It is called the "use tax" as in sales and use taxes.

So this issue is relatively easy to address.

 

[mwilson]

They've already simplified the tax code by eliminating deduction of more than $10,000 of SALT, thus making a lot of us take the standard deduction instead...

2017 tax bill also complicated things by trying to make the 1040 fit on a postcard - which lasted 1 year before being expanding to nearly a whole page PLUS the new schedules 1, 2, 3.

The tax bill also introduced more complexity in the QBI/qualified business income deduction (which has 70%+ marginal rates around the phaseout potholes) and dealing with the various state attempts to get around the SALT cap.

The cherry on top is that it increased my tax prep fees by 50% while taking away the deduction for those fees!

 

[jollystomper]

Folks, there are industries built around keeping our current tax system convoluted and complicated, and they ain't going away ever ! Too many with vested interests in keeping the system just the way it is. The best any of us can do is play the hand we are dealt, the best we can, based on the rules as we know them at any point in time.

+1. Best one can do is educate ones self on the legal options one has available to them to best manage taxes. I recall the first time our tax bill was over $50K, DW was shocked when she saw that on the return. Of course I pointed out to her that "well, we paid that much because we made a lot, and were still able to save/invest" .

Frankly - and I hope this does not start the bacon sizzling - I am more concerned with the constant "finger pointing" that keeps vocalizing either "those people are not paying enough in taxes!" or "those people pay too little in taxes!". Divide and conquer at its finest.

 

[scrabbler1]

2017 tax bill also complicated things by trying to make the 1040 fit on a postcard - which lasted 1 year before being expanding to nearly a whole page PLUS the new schedules 1, 2, 3.

The tax bill also introduced more complexity in the QBI/qualified business income deduction (which has 70%+ marginal rates around the phaseout potholes) and dealing with the various state attempts to get around the SALT cap.

The cherry on top is that it increased my tax prep fees by 50% while taking away the deduction for those fees!

After seeing her on C-Span in February of 2019, I wrote Nina Olson, who at the time was the head of the Taxpayer Advocate's office, about how the new tax forms were terrible because of the way they chopped up the old 1040 into pieces and made us file several of those extra schedules, some of which contained one number (or, even no numbers) which got copied back onto 1040. Apparently, Ms. Olson did something which worked because the 2019 forms had moved several items back onto the 1040 form, so I didn't have to file most of those new schedules again.

The one item they still have on a separate schedule which puts me in the one-number territory is the ACA net subsidy (credit) from Form 8962. With all the people who use the ACA, why can't that one get back on 1040 so the one-number schedule would disappear, too?