Isn't Income Income?

[stebo0728]

Something to bat around, and I dont sit on either side of this question, its one thats been bothering me for a few weeks, decided to get some input on it. Most of the regulars here know I support the FairTax, and believe that a consumption based tax is the only way to fairly tax a free people. However, assuming we are going to cling to our income tax, along with our guns and bibles, the let me ask this. Theres been alot of debate lately regarding capital gains tax, whether its too high, whether its too low, whether we should have a tax on capital gains period. Lots of camps on this issue, but heres my take. IF we are going to tax income, wouldnt it make sense to tax ALL income equally? What does the source of income matter? Wages, tips, child support/alimony, dividends, capital gains, under the table income that know EVERYONE claims right? Income is income right? Shouldn't it be much simpler just to have a tax code where you add up all your income, take 15% of it, and write a check? Obviously there are some chinks involved, like the standard deduction, I dont think anyone should pay tax on the baseline income required to live, thats what the standard deduction gets you. I know this baseline varies based on local economics, it seems the only fair way to determine this is to average. If we stick to taxing income, one rate is my vote, I know proggies are going to want to graduate the scale, I dont agree, but thats a different debate. My point here, basically, is why do we differentiate varying sources of income? Does it make sense to anyone else that we keep it that way?

[IBCoupe]

It encourages investment, and we've had special tax rates on capital gains since 1913. But it does cost us about $200B every year in lost tax revenues.

[szh]

As IBCoupe mentioned, we have different rates for capital gains for encouraging investment reasons. In some countries, capitals gains are not taxed at all for that reason. We also have different rates for "short-term" vs. "long-term" gains to encourage keeping the investment in the system longer.

Your other question about progressive vs. regressive taxes is an old debate - here and in the country!

I am not supportive of a "each person pays the same absolute amount" - although that is what the extreme "Fair Tax" people want. Yes, one could argue that this is the most fair, since the ROI benefit for each person is identical in theory. Regardless, it is an extreme position and highly unlikely to find favor.

However, I am supportive of a "each person pays the same percentage" of earned income. And, yes, I am (slightly more reluctantly though) also willing to accept a poverty threshold below which somebody should not pay any taxes at all - this would help the truly needy. I have old posts on these ideas here ...

(Without any deductions whatsoever, by the way ... no mortgage interest deductions, etc.)

Whether this "same percentage flat tax" should apply to capital gains or not, is a lot more fuzzy in my mind. I would strongly prefer to not see any taxes on capital gains, but am open to talking about, and considering, it.

Z

[IBCoupe]

We also have different rates for "short-term" vs. "long-term" gains to encourage keeping the investment in the system longer.

That's true, too. Today, we have two rates: for short-term investments (anything held for less than a year), you pay taxes on it as ordinary income. For long-term investments (anything held for more than a year), you pay 15%. That rate was established in 2001 by President Bush, down from the 20% rate established by President Reagan. The disparity between income tax rates and the capital gains rate is notably great at this point in time.

It's noteworthy, too, that we used to have even more rates for different periods of time. I think in the 1920s or 1940s, we had rates for investments greater than 1 year, greater than 2 years, 5 years, and 12 years. Something like that; I don't recall the actual years, or rates.

[stebo0728]

As IBCoupe mentioned, we have different rates for capital gains for encouraging investment reasons. In some countries, capitals gains are not taxed at all for that reason. We also have different rates for "short-term" vs. "long-term" gains to encourage keeping the investment in the system longer.

If someone was making $1000, paying $300 in taxes, netting $700 on an investment, are they going to invest more when the tax drops to $150? Or more importantly to the questions looming today. Will an investor really invest less, really pass up on certain investments when the tax goes from $150 back to $300? Will they leave $700 on the table now just for spite? Theres more to it than that, like the current saved $150 can be turned back into more investment, thus bolstering the economy a bit more.

I am not supportive of a "each person pays the same absolute amount" - although that is what the extreme "Fair Tax" people want.

Gotta correct you hear. I rest comfortably in saying im one of those "FairTax extremists" and the above is a bit off. We dont want everyone to pay the same net amount. We still believe in percentages. Everyone pays the same % on purchases they make, and everyone gets the same standardized poverty level prebate, exempting them from tax on necessities. I know you werent doing this, but I really get irritated when ill informed people bill the fair tax as a lower class crushing proposal. In reality, the lower class stands to benefit the most. Granted they will lose their refundable tax credits, but that money was never theirs anyway. Its the luxury spending upper class that will power the system, on any spending above the poverty level.

However, I am supportive of a "each person pays the same percentage" of earned income. And, yes, I am (slightly more reluctantly though) also willing to accept a poverty threshold below which somebody should not pay any taxes at all - this would help the truly needy. I have old posts on these ideas here ...

(Without any deductions whatsoever, by the way ... no mortgage interest deductions, etc.)

If we are going to retain an income tax, then I'm in complete agreement with you there.

Whether this "same percentage flat tax" should apply to capital gains or not, is a lot more fuzzy in my mind. I would strongly prefer to not see any taxes on capital gains, but am open to talking about, and considering, it.

Im not positioned either way on capital gains, except for my generalized assumption that tax rates and tax revenues share an inverse relationship, thereby making my default answer for raising revenues is to lower rates.

[stebo0728]

Another idea I've been toying with. Theres been alot of talk about a balanced budget amendment. An idea I support. Hey most if not all states have to balance a budget, our households have to balance our budgets, or float credit cards, which only last so long, why shouldnt the Fed? But theres some merit in the argument for running a modest defecit as well. As a balance what if we dont necessarily require an annually balanced budget, but rather require that any tax modification be accompanied by a balancing of the budget. That way increases dont add to an irresponsible deficit, and any surplus (do those exist anymore?) doesnt go to waste when programs could be funded that year. Any thoughts?

[szh]

I am not supportive of a "each person pays the same absolute amount" - although that is what the extreme "Fair Tax" people want.

Gotta correct you hear. I rest comfortably in saying im one of those "FairTax extremists" and the above is a bit off. We dont want everyone to pay the same net amount. We still believe in percentages.

In that case, we are actually in total agreement. If the "Fair Tax" is saying "single percentage", then I am fine with that for sure - that is what I believe in too. With a single poverty threshold deduction to ensure that the weakest members of our society get a break, and the threshold could be high too.

I have, however, heard some "Fair Tax" people espouse "single dollar amount per person" - I think that is impossible, and it is only they who I call extreme.

Z

[stebo0728]

I would definitely not agree with equal net share. You have unfortunately encountered grossly misinformed representatives of the FairTax. The only difference between the FairTax and Flat Tax, is one is consumption based, and one is income based. They both rely on the principle of "the more you do the more you pay". And the prebate serves as the FairTax's version of the income tax's standard deduction. It removes tax liability of everyone's basic essentials of life purchases.

[telcoman]

Something to bat around, and I dont sit on either side of this question, its one thats been bothering me for a few weeks, decided to get some input on it. Most of the regulars here know I support the FairTax, and believe that a consumption based tax is the only way to fairly tax a free people. However, assuming we are going to cling to our income tax, along with our guns and bibles, the let me ask this. Theres been alot of debate lately regarding capital gains tax, whether its too high, whether its too low, whether we should have a tax on capital gains period. Lots of camps on this issue, but heres my take. IF we are going to tax income, wouldnt it make sense to tax ALL income equally? What does the source of income matter? Wages, tips, child support/alimony, dividends, capital gains, under the table income that know EVERYONE claims right? Income is income right? Shouldn't it be much simpler just to have a tax code where you add up all your income, take 15% of it, and write a check? Obviously there are some chinks involved, like the standard deduction, I dont think anyone should pay tax on the baseline income required to live, thats what the standard deduction gets you. I know this baseline varies based on local economics, it seems the only fair way to determine this is to average. If we stick to taxing income, one rate is my vote, I know proggies are going to want to graduate the scale, I dont agree, but thats a different debate. My point here, basically, is why do we differentiate varying sources of income? Does it make sense to anyone else that we keep it that way?

Tax is not as simple as you might think.
The tax rules were written to benefit a certain class of people.

ie The richest 1%

This long article might help you understand?

http://www.nytimes.com/2012/01/28/busin ... ml?_r=1&hp

And if you think the American People are stupid enough to elect someone who has offshore bank accounts there is a bridge in Brooklyn that you could purchase.

http://en.wikipedia.org/wiki/Offshore_bank


Telcoman

[IBCoupe]

Another idea I've been toying with. Theres been alot of talk about a balanced budget amendment. An idea I support. Hey most if not all states have to balance a budget, our households have to balance our budgets, or float credit cards, which only last so long, why shouldnt the Fed[eral Government]?

The States can largely get away with that because the federal government provides a backstop.

And the "Fed" is not a nickname for the Federal Government; it's a nickname for the Federal Reserve. Just wanted to make sure that we're all clear on that.

[AZhitman]

Tax is not as simple as you might think.
The tax rules were written to benefit a certain class of people.

ie The richest 1%

Again with the confusion....

So, here's a cute little tax tale for y'all... http://finance.yahoo.com/news/102-tax-r ... 10322.html

[szh]

Tax is not as simple as you might think.

About the only thing you said right.

The tax rules were written to benefit a certain class of people.

ie The richest 1%

This long article might help you understand?

http://www.nytimes.com/2012/01/28/busin ... ml?_r=1&hp

Using rates to justify false arguments - particularly ones that use punitive N.Y. state and city taxes - is meaningless.

Don't live in N.Y. City and whine about the taxes - city government there has become even more dependent than the Federal government on these enforced collections of money and spending and is not likely to change their methods.

And, as always, the thinking that tax laws are written to benefit the top 1% conveniently ignores the fact that those same 1% of earners pay a very high percentage of the actual tax dollars collected - I have posted the real data in earlier threads.

And if you think the American People are stupid enough to elect someone who has offshore bank accounts there is a bridge in Brooklyn that you could purchase.

http://en.wikipedia.org/wiki/Offshore_bank

Uh ... not that I care about whether any presidential candidate has off-shore bank accounts or not ... did you miss this (it is clearly writtin in the linked article) or did you not read it at all, perhaps?

... offshore banking does not prevent assets from being subject to personal income tax on interest. ... the personal income tax of many countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts—which may or may not be numbered bank accounts—they may have.

Telcoman, when will you learn that using extreme one-sided false arguments - with little or no basis in reality - causes people to simply ignore any semblance of a point you might have been attempting to make?

By the way, the N.Y. Times link also talked about Buffet's secretary and her supposed high tax rate. This story also being debunked - creative selection of what is included and what is not in taxes paid or whether she was comparing to AGI or taxable income, etc., is simply made-up hoopla to create a furor when there is no need for it.

Romney paid about 15 percent of his AGI and 17 percent of his taxable income. This is near $3 million in actual tax dollars.

By the accounts that I have seen, his tax dollars is somewhere between 15 to 50 times the entire income (not taxes .. the ENTIRE income) that Buffet's secretary made that year. The estimates for her income range between $60k to $200k.

So, even with her supposed 38.5% tax rate (which is being questioned by experts, BTW - it is isn't clear whether she meant marginal rate or what she included in there, since neither Buffet nor she have disclosed their tax returns), she paid an estimated $20k to $60k in taxes (very roughly calculated).

Which amount: $3,000,000 or $60,000 (assuming, for arguments sake, the highest possible positive read of her taxes) do you think actually benefited the country more?

Z

[szh]

I would definitely not agree with equal net share. You have unfortunately encountered grossly misinformed representatives of the FairTax. The only difference between the FairTax and Flat Tax, is one is consumption based, and one is income based. They both rely on the principle of "the more you do the more you pay". And the prebate serves as the FairTax's version of the income tax's standard deduction. It removes tax liability of everyone's basic essentials of life purchases.

We are on the same page.

I don't know what you might call my approach, but here is what I believe should be done:

1. Calculate your total income from all sources.
2. Subtract a "minimum living income".
3. If the remaining amount is, or would be, less than $0, you pay nothing.
4. If the remaining amount is greater than $0, then:
4a. Take 20% of the remaining amount and send it to the IRS.
4b. Take 5% of that same remaining amount and send it to the State (if they want a state tax) - divvied up by the ratio of number of days resident in each state for multi-state residency.
5. Done.

Examples (assuming a base $40k minimum living amount for arguments sake - feel free to set this elsewhere, or adjust it up or down every year based on economic hardship conditions):

1. If you make $20,000, you pay nothing.
2. If you make $39,999, you pay nothing.
3. If you make $50,000, you pay $2,000 to IRS and $500 to State.
4. If you make $100,000, you pay $12,000 to IRS and $3,000 to State.
5. If you make $250,000, you pay $42,000 to IRS and $10,500 to State.
6. If you make $500,000, you pay $92,000 to IRS and $23,000 to State.
7. If you make $1,000,000 you pay $192,000 to IRS and $48,000 to the State.
8. If you make $20,000,000 you pay $3,992,000 to the IRS and $998,000 to the State.

What should this method be called?

Z

[stebo0728]

Z - thats the Flat Tax approach, its the plan Steve Forbes is backing. The problem with it is that there, at least to my knowledge of the plan, is no safeguards to keep the tax from being doctored down the road. Essentially we have already done a Flat Tax twice, once on inception, and again in the 80's. Both times, the code became "special interested" over time. If we have to have income tax, which I dont believe we do, and further believe income tax to be direct taxation, against constitutional muster. Unfortunately the Supreme Court decided against my opinion on that one, so if we are absolutely going to have income tax, I like the Flat Tax, I just want to doctor it up a bit to be sure it cant be hijacked down the road.

Consumption based tax is indirect, and keeps the taxation power in the hands of the individual, its the only free market, individual liberty way to tax a free people, in my opinion. The FairTax requires a super majority for ANY changes to be made. We've had discussions on how super majority disenfranchises the minor majority, and for the most part I agree with that notion, however, on matters of taxation, if you cant get a super majority on board with a change, then I would rather the change not be made.

[AZhitman]

By the way, the N.Y. Times link also talked about Buffet's secretary and her supposed high tax rate. This story also being debunked - creative selection of what is included and what is not in taxes paid or whether she was comparing to AGI or taxable income, etc., is simply made-up hoopla to create a furor when there is no need for it.

But...but... but... it was on Huffington Post! And Mother Jones! It HAS to be factual!!!

You *really* expect some bumpkin from Snookiville to do math? C'mon, Z. Flying carpet or not, you should know better.

[szh]

By the way, the N.Y. Times link also talked about Buffet's secretary and her supposed high tax rate. This story also being debunked - creative selection of what is included and what is not in taxes paid or whether she was comparing to AGI or taxable income, etc., is simply made-up hoopla to create a furor when there is no need for it.

But...but... but... it was on Huffington Post! And Mother Jones! It HAS to be factual!!!

You *really* expect some bumpkin from Snookiville to do math? C'mon, Z. Flying carpet or not, you should know better.

[IBCoupe]

What should this method be called?

A non-marginal progressive tax.

[IBCoupe]

The problem with it is that there, at least to my knowledge of the plan, is no safeguards to keep the tax from being doctored down the road.

There's no safeguard against that for anything. It's a law that Congress passes. They can pass another one a week later and change the tax code to be whatever they please.

The FairTax requires a super majority for ANY changes to be made.

Unless you're saying the FairTax is going to be a Constitutional amendment, I don't know that this is an option Congress has at its disposal. And supposing it is an amendment, you then need 38 states to sign on, as well. Think I can't find 13 states that will disagree with you? Further more, even if you want a tax system imposed by Constitutional amendment, that's still not impenetrable. See: prohibition.

[stebo0728]

Actually there is a very big safeguard, one thats been removed by the combination of an income tax, and payroll deduction. That safeguard is the people. The general populous has no clue what they pay, only what the "get back". The FairTax is one of the largest shifts of power from DC back into the hands of the people. Imagine seeing the figure 23% EVERY day, on EVERY receipt, for every brand new product, or service rendered. Suddenly CNN pops the story, "Lawmakers seek to increase tax rate to 25%". They better have a damn good reason, and they better be damn good at promoting that reason, otherwise its SOPA all over again.

Aren't you always the one telling me "there's no reason to fear what might be"? Is that advice no good now?

[szh]

What should this method be called?

A non-marginal progressive tax.

And ... regardless of the label, I am FOR it.

Z

[AZhitman]

I'm an admitted taxtard, and I'm sure this idea has already been floated, but maybe you guys can tell me if this idea is lunacy...

What about no income tax - Make as much as you can, any way you can. But tax ALL expenditures - food, fuel, goods, services, etc. at a substantial rate.

[stebo0728]

And just for the lulz

[stebo0728]

I'm an admitted taxtard, and I'm sure this idea has already been floated, but maybe you guys can tell me if this idea is lunacy...

What about no income tax - Make as much as you can, any way you can. But tax ALL expenditures - food, fuel, goods, services, etc. at a substantial rate.

Boy you are a taxtard LOL - In essence, thats the FairTax, throw in the prebate and you have it.

Read this:

FairTax Official Site

[stebo0728]

Other very positive aspects of this plan:

Black market and under the table miscreants still have to go to Kroger right? Or Food Lion, or whatever. Taxed!

Illegal immigrants still have to go to Kroger right? And whats more, as they have broken our law and remained undocumented, they get no prebate, but ARE taxed!

Used goods are exempt from taxation, as they have already been taxed once, on inception, taxing subsequent sales results in double taxation. Thats ALL used products, including automobiles and homes. Some argue this is bad, I know why, but I disagree.

You, the citizen, choose how to spend the wealth you own, and so, choose how you pay taxes.

It may seem nasty at first to consider 1.00 bread now costs 1.23, but theres two issues there. First, FairTax is treated differently than other sales taxes, in that its an inclusive tax. $1.00 bread is 1.00 bread, you just pay $0.77 for the bread, and 0.23 in tax. Now bread thats already $1.00, yes at first there will be in increase, BUT, market forces will quickly react to the vacuum left by already inbedded taxes being removed, and the goods and services are estimated to drop in price anywhere from 18 to 21%. Yes, that means now your tax rate, effectively, has only resulted in about a 2 to 5% increase in product price.

I've written an exhaustive thread on this plan in the past, but if you dont want to kick back and read it, at least check out the site above. Keep in mind this has been devised by economists, not politicians.

[szh]

I'm an admitted taxtard, and I'm sure this idea has already been floated, but maybe you guys can tell me if this idea is lunacy...
What about no income tax - Make as much as you can, any way you can. But tax ALL expenditures - food, fuel, goods, services, etc. at a substantial rate.

Boy you are a taxtard LOL - In essence, thats the FairTax, throw in the prebate and you have it.

I thought that this was VAT ... sometimes called Consumption Tax ...

Z

[AZhitman]

Used goods are exempt from taxation, as they have already been taxed once, on inception, taxing subsequent sales results in double taxation. Thats ALL used products, including automobiles and homes. Some argue this is bad, I know why, but I disagree.

As do I. It reduces waste in landfills, for one. It may deincentivize new home / new car / new "stuff" sales, but I doubt it - There's already enough of a price differential (new vs used) to prove that one wrong.

[AZhitman]

And if you think the American People are stupid enough to elect someone who has offshore bank accounts there is a bridge in Brooklyn that you could purchase.

Really? They're stupid enough to make a fat, retarded, overtanned, makeup-encrusted New Jersey whore famous and rich.

How do you think we got President Obama?

[stebo0728]

I thought that this was VAT ... sometimes called Consumption Tax ...

Z

No Z, big difference. VAT, which stands for Value Added Tax, adds more taxation to products at every stage of production. This is a european bombshell.

[szh]

I thought that this was VAT ... sometimes called Consumption Tax ...

Z

No Z, big difference. VAT, which stands for Value Added Tax, adds more taxation to products at every stage of production.

Oh, right, yes. I forgot that ...

Z