seretogis

President Bush has been hinting at sweeping tax reforms if he is re-elected in 2004. Let's ignore for the moment how unlikely that possibility is, and instead focus discussion on the various proposed Federal tax systems, and their pros and cons.

Let's assume that an implemented system would inherantly include a budget-balancing mechanism, as it would be incredibly short-sighted not to include one (imagination, people, imagination! ).

"Progressive" Income Tax
This is our current [bloated] system -- if you make more money, you pay a higher percentage of your income to the government. If you make less, you pay a smaller percentage. This leads to the wealthy essentially hiding income and investments in off-shore tax shelters, while the middle class pays their fair share and more due to the massive size of the tax code (some 49,000 pages).

National Sales Tax (aka Value Added Tax / VAT)
With this system there is no income tax, just a tax on every good and service. The tax, however, would range from 23-57% depending on whose economists you listen to. Both the CNN/Money writer and Cato Institute agree that a transition to a VAT would be followed by sharp drops in price of goods and services, so a loaf of bread would cost relatively the same before and after such a system is implemented.

"Flat" Income Tax
This is Steve Forbes's baby -- a flat 17% income tax for all. However, under Forbes's plan a family of four would not pay any income tax on the first $36,000 of their income, just on any income in excess of that. So, under this system, the lower-class family struggling to make ends meet would pay nothing to the federal government. There would also be no tax on interest, capital gains, or dividends so investment in ourselves would be greatly encouraged. This seems like the best idea to me -- it's simple, it doesn't hit the lower classes hard, and allows for substantial government cuts.

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seretogis - sieg heil
perfect little dream the kind that hurts the most, forgot how it feels well almost
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Paq

i've always been against a flat tax as it hits the poor especially hard...however, i consider it fair and hte 36,000 cutoff point seems fair. I can easily see how there would be room for abuse by hiding income as is done now, but It seems like a 'fairer' system....just not sure if it would actually bring in enough money for the gov't

as for a national sales tax...bad idea...i cannot reasonably see any massive drops in prices to offset the huge increase in tax prices for goods or services...I dont' see prices going much higher, but there would be a short-term leap followed by long, sustained increases..

as for the current system....very bloated and not very fair to poor or middle..

just my quick thoughts..not much to them other than gut feelings

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Ustwo

While the progressive system is unamerican and unfair, you are wrong on who is paying.



Thats from Limbaughs site, but I've seen it verified, if someone doesn't trust it, prove it wrong.

I like the sales tax best as it means becomeing a tax cheat is much harder. Down side is it would create more of a black market, but the losses there would pale compaired to cash only workers and illegals who avoid paying any taxes currently.

I'd be very happy with a flat tax. Rich will still pay more but making more money wouldn't be a penalty. The only downside is at the tax point. If you are making 38k are you now making less due to the tax? There are ways around that of course, and currently the progressive system does the same thing.

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seretogis

A quote from an article I was reading (not online):

An article of Gongloff's on the VAT: http://money.cnn.com/2004/08/11/news.../election_tax/

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perfect little dream the kind that hurts the most, forgot how it feels well almost
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Orpheus

I'd have to see some statistics that are not from the CATO institute in order for me to get behind a VAT. By extension, I find it curious that flat tax proponents are also enthusiastic about defense spending, which takes up almost 44% of discretionary spending by the Federal Government. Are they willing to absorb cuts in their beloved military?

I'd have to say that the problem with our tax code is not that it's progressive, but that wage earners, usually the middle class are hampered by the payroll tax. Income tax is, IMO, the fairest way to distribute the costs of society, since the wealthy tend to have multiple sources of income while wage earners derive most of their income from their labor.

The answer to combat cheating on taxes is not to ignore the problem, but by giving the IRS, one of the most competent bureaus in DC more resources to prosecute tax evasion. Corporations, which benefit most from government's enforcement of property rights, should not be allowed to hide their earnings in tax havens, and claim that it's done because of global competition...

Ustwo

People on the left like to talk about freedoms, but why never economic freedom.

I'll let your IRS is competent comment slip for now.

Lets change this a bit....

The answer to combat terrorism is not to ignore the problem, but by giving the department of homeland security, one of the most competent bureaus in DC more resources to prosecute potential terrorists. Immigrants, which benefit most from government's social services, should not be allowed to hide their anti-american sentiments and claim that it's their freedom of speech.

Sounds like something the left would oppose.

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aceventura3

Taxing income is wrong in my opininion. We should not tax the fruits of someone's labor. I say tax consumption. Example, for people drive on roads, tax gas to pay for roads.

Generally, the federal government is trying to do to many things. Example, schools should be funded locally or at the state level. The federal government's primary purpose is national defense.

Before we can reform our tax system we have to get the federal government out of the areas in our lives where it does not belong.

Orpheus

Ustwo, I'd agree that the DHS needs more resources to patrol our borders, like checking freight containers at our ports, which is something that GWB administration has failed to do (only 3% of all containers are inspected). They also need more help patrolling borders (during the WJC administration, a border inspector successfully foiled the millenium bomb plot at LAX).

Are you equating free speech with tax evasion as protections afforded by the constituion? While the former is explicity stated, I'd like to see where the later is mentioned.

Orpheus

aceventura, I can't agree because the marginal cost of consuming one item, for example, an apple, is much costlier for the poor than the rich, as a percentage of their income.

The_Dunedan

I'd much prefer the elimination of coercive taxes alltogether. Not only would this mean I'd keep -all- of the money I earn, but it would strangle this monster known as the Federal Government, and pare it down to it's Constitutionally-mandated functions. Tarriffs could perhaps be permissible, as would user-fees on things like roads, the Post Office, Ports of Entry, etc etc. However, -forcing- someone to give up a portion of their income is the moral equivalent of holding a gun to their heads and demanding their wallet. Not to mention that fact that runaway taxation, combined with out-of-control inflation, has reduced the buying power of today's dollar to something like 8% of what it was 100 years ago: no wonder we all live 3 paychecks from poverty!

kutulu

Regarding the progressive tax system and the graphic that Ustwo posted:

Although the percentages in that graphic are true, there is no context in that which makes it misleading bullshit. The numbers are taken from the IRS website. The thing that is wrong about it is set up so that you look at these numbers and say "hey half of the country is paying for the other half's free ride"

We had a pretty lengthy thread about this here is a reply I posted on it:

http://www.tfproject.org/tfp/showpos...8&postcount=91

Looking at those numbers Ustwo posted and including the the income generated by that top 50% wage earners you see that although the top 50% of wage earners are paying 96.03% of the taxes they are also making over 86% of the money. Does the Windbag (Rush) tell you that those people are also making almost all the money? Of course not. Saying that would prove that the tax system is fair and blow his arguement to shit.

On to the idea of a National Sales Tax. This has to be one of the biggest scams ever put on by the haves to screw the have nots. This system would only bring in money on sales taxes. Say there are two people, Bob and Dick. Bob makes 60k and is in the top 10% of wage earners and Dick, who makes 300k is in the top 1%. The national sales tax is 30%. 60k isn't that much, therefore Bob spends 95% of his money (saving 5% for retirement) and Dick spends only 70% of his money. With a sales tax system, 30% of Bob's income goes towards taxes. Since Dick only spends 70% of his money, his tax rate is reduced to 21%.
Dick's group used to pay well over 21%. Currently, they pay over 30%. Now they pay 33% less. The govt still needs just as much money to operate without making HUGE cutbacks (laying off federal emplyees) so who has to absorb that loss of Federal income? Bob does. In the end the rich get richer and the middle class and poor get screwed.

Ideally, the corporations would respond to lowered expenses with an equivalent reduction in prices. Although prices might drop a litte, don't you think that they are going to hold on to some, if not at least half of that money? Also, the lowered prices only reflect the amount of corporate taxes paid. The govt still needs that money. The sales tax has to account for that plus what they used to collect in income taxes. It goes with the saying "Figures don't lie but liars sure can figure"

One more thing about sales taxes, what about the people who paid income taxes all their lives and are now living off their retirement money? As long as they weren't making money, they weren't paying taxes. If the National Sales Tax is 30%, you just took 30% from Grandma and Grandpa.

On to the Flat Tax garbage:

This is simple. Unless the govt cuts funding significantly they will need just as much money. Now if we cut the taxes on the rich by half, who has to absorb that money? Oh it the middle class and the poor.


People have this big pipe dream that there is some magic system that can make paying taxes fair for everyone. It just isn't like that. Right now, our system is fair for anyone who isn't in the top 5%. The people in the top 5% pay taxes that are disproportionate to their incomes. As a result, the people on the bottom are able to survive (I'll add that the top 5% are the ones paying the bottom 5% slave wages that people can barely live on).

The rich are tired of paying their share and now they want to pass a system that allows them to keep more of their money. We'll end up with a system that is only fair for 5% of the population. That's great.

One other thing to consider is that taxes are deeply rooted in the economy. How many people out there work in fields that only exist because of taxes? I'd bet there is at least a half a million such people. If we eliminate their reason for work that is 500k people looking for new jobs that aren't out there.

Orpheus

Kutulu, that was well done...

seretogis

It's nice to see that you're keeping an open mind.

Yes, the idea behind Tax reform is that the tax code is made simpler, and waste is removed. This leads to the idea of removing other forms of government waste which cost the taxpayers oodles of cash. Ideally, were we to switch to a flat tax unnecessary government programs would be tossed, and we would set ourselves on the route to curbing spending increases and balancing the budget.

The idea that we shouldn't touch the tax system because it is bloated and parasites depend on it is simply not something I would want anyone to base policy decisions on. Depending on an obsolete bloated monstrosity is a failure of a business strategy, and I can't imagine that it would prove to be a successful move in a government application either.

__________________
seretogis - sieg heil
perfect little dream the kind that hurts the most, forgot how it feels well almost
no one to blame always the same, open my eyes wake up in flames

Orpheus

Using words like parasites and monstrosity is usually not an indication of one keeping an open mind...

The_Dunedan

I'd say that "Parasite" is an accurate description for someone who siphons resources away from the Productive Class in order to maintain their lifestyle. However, I'd say that recipiants of welfare rarely qualify, as they are the victims of a State-created system of dependancy. In this context, "Parasite" could more accurately be used to describe Politicans and Airlines.

cthulu23

Kutulu makes some excellent points.

It goes without saying that we could undoubtedly cut unnecessary government spending. What isn't so obvious is what exactly constitutes "unnecessary" spending. Still, say that we can significantly reduce government expenditures. Does that mean that we should shift the tax base to disproportionately affect the middle class? It seems to me that the ideal system would be a completely equitable one, where everyone gives an equal percentage of their income. Does it really make sense to reward those most able to pay taxes while punishing those that most need the money?

kutulu

Oh please. How much waste is going to be eliminated by getting rid of the IRS? The discretionary budget for the entire Department of Treasury (not just the IRS) is $10.8 billion. That is pocket change in the big picture. The 2005 Discretionary budget is $914B. $10.8 is 1.18% of $914B. Looking at the total outlays, the govt takes in $2,400B.

Sorry but call me crazy if I don't accept a plan that magically drops the tax rates of the top earners by over 50% and "supposedly" doesn't ask for more from the rest of us (the people who hardly get by as it is). These people pay over 40% of our taxes. Let's see the govt cut spending by 20% before we even CONSIDER making some drastic change to our tax system.

Here is a classic conservative saying:

"We robbed Peter to pay Paul"

In response to that, let me say that Peter is employing Paul. Peter likes his money. In order for Peter to have lots of money, he pays Paul just enough to keep Paul and his friends from revolting. As a result, Paul cannot afford to have a Paul Jr who will work for Peter Jr. Therefore, Peter is dooming his business, Peter Inc., by not paying his employee enough to raise the child that will one day work at Peter Inc. The government sees this problem and knows that the county needs Peter Inc. to be a part of its functioning economy. Therefore, they take more of Peters money and less of Paul's money so that Paul can afford to raise his son to be a part of the working class in the future. Because a lot of money minus an additional 10% is still a lot of money, Peter still has lots of money and Paul still barely gets by but now he gets to raise Paul Jr.

Ustwo

You have never had employees have you.

I have 15 of them. Please explain to me how taxing me at a higher rate helps them out? If anything since I have less money (and we won't go into the 'hidden' taxes quite yet) in my pocket, I'm going to be less likely to want to share it with my employees.

Your scenario is quite silly. I'm waiting for tiny Tim to say 'God bless us every one.' any minute now.

The government takes more of my money no matter WHAT the tax rate since I make more. You will pardon me for making more money then the people who work for me if that’s ok. I did take 7 years of schooling past college, substantial loans, and substantial risk to open my practice. How taxing me higher allows my people to raise their children is quite beyond me. None of them are on government assistance programs, because these are people who are WORKING. Some are married, some are unwed mothers, all are paying their own way. This is what America is about people working for a living, and their families, not taking hand outs and having babies. When I pay their social security and other payroll taxes that’s money I could be giving them but instead I am giving the government.

We conservatives don't say you robbed Peter to pay Paul, we say you robbed Peter to buy Paul’s vote. Fuck if its unfair to Peter, he isn't a big enough voting block.

__________________
Agents of the enemies who hold office in our own government, who attempt to eliminate our "freedoms" and our "right to know" are posting among us, I fear.....on this very forum. - host

Obama - Know a Man by the friends he keeps.

cthulu23

Hahaha, yes, the wealthy have no voice in government due to the poor's abuse of their massive clout. So who, exactly, is getting payed off here? What with the contraction of the welfare state and the lurching economy, it must so great to be poor now.

kutulu

Have you been the guy on the bottom? Did your employees go to college also? Didn't they have student loans?

Listen to this, HALF of America makes less than 28k/yr. That is a whopping $2,333/mo before the SS and any taxes get taken out of their checks. This isn't the bottom of the barrel, this is the most that the people in the bottom 50% make. These people are actually making more than double the minimum wage ($13.46/hr). Starting at 28k, they have 10% taken by the govt. That leaves them with 2100.

Subtract:
Housing - 400 for a shithole
Electricity - 80
Phone - 30
Health insurance - 400 for a family of four
Car - 150 for a POS car
Car insurance - 80
Gas - 120

That's most of the basics for a shitty place to live and a shitty car. Total $1260. These people have $840 left to eat and buy clothes for the whole fucking month. Assuming they go naked, they have $28 a day to feed 4 people 3 meals per day. That's $2.33/meal/person/day. That won't even buy you a fucking happy meal.

Now, who are the people who are running the places where the bottom 50% works? It's the top 5%. They only way for them to be in that top 5% is for them to pay their worker bees shit wages or for the govt to step in and take more tax money from the employers and less from the workers. The govt also provides assistance to those that cannot afford housing, education, food, and health care because their employers are not paying them enough to afford those things.

You can say that if the rich made more they'd give more to the workers but it isn't true. CEO salaries have risen drastically while common worker wages have remained the same. The CEO's are making more and they haven't given the workers any more than the workers used to get.

Google search for "robbed Peter to pay Paul", 428 hits

Google search for "robbed Peter to buy Paul’s vote": Your search - "robbed Peter to buy Paul’s vote" - did not match any documents.

aceventura3

I think the fundamental problem is people will consume more or what they would not normally consume if the costs are hidden or subsidized.

Our current tax code hinders poor people accumulating assets and building financial security. For example the mortgage interest deduction, with that deduction my after tax cost on my home is less than what renters pay in many cases. Renters have a harder time saving to buy a home because housing prices are inflated because of this form of a tax subsidy. the federal government should not be in the business of trying to manipulate the real costs of home ownership.

jb2000

This is really an impossible discussion to hold under the current tax codes. Fact is, we don't have the faintest clue how much we are paying in taxes. Okay, you can look at your income tax return for starters (I'll keep this Federal for simplicity). But what about payroll taxes? What about corporate income taxes? Don't believe for a second that these don't ultimately come out of the pockets of individuals.

I am strongly in favor of a simple, progressive income tax as the sole primary revenue source for Federal treasury. No corporate payroll, inventory or profit taxes. No sales tax. No special categories of income. It would not be a true flat tax, it would have thresholds.

A note on thresholds; unlike what Ustwo alluded to earlier about thresholds punishing people for increased earnings, thresholds would not result in lowering your post-tax income because you slightly surpassed a threshold. Indeed they would work as now, in that only income in excess of the threshold would be taxed at the higher rate. If the first threshold is 3% up to $25,000, then even a multi-billionaire would only pay 3% on their first $25,000 of income. If it goes to 10% up to $50,000, getting a raise from $24,900 to $25,100 wouldn't subject your entire $25,100 to the higher 10% rate, but only $100 of it. It's actually pretty simple.

I don't want to propose rates, but instead I think rates are something that should be determined by way of a national debate. That debate can't really happen until we have an honest taxation system where the rates are real and actually mean something.

kutulu

jb2000:

I think that would be an excellent system. I would tweak it a little bit though by removing the lowest bracket and replacing it with a sales tax and subsequently smaller brackets after you get out of that lowest bracket. You could have something like a standard deduction of 25,000 or just build that into the tax tables.

That way, we would account for most of the income from people who recieve under the table cash only. I have nothing to back it up, but I'm sure that most people who get paid only in cash and pay no taxes make less than 25k.

Superbelt

Poor top 5% paying in 53.25% of their income in taxes.
I'd shed a tear for them if it wasn't for the fact that they pay a SMALLER percentage of their income into the federal government than I do with my 28K a year job.

Top 5% paying 53% but control 57%. That's a damned good deal by any account.

gcbrowni

VAT taxes don't work. We don't want to discourage consumption, we want to encourage it; it's what drives the US economy. It also hits poorer people worse than the rich, since a larger portion of their income would go towards taxes. It would also be hard to make exceptions for the poor since it's hard to eliminate the tax at the register on an person by person basis. The current income tax system handles this by simply not taxing the poorest segment of society.

We have a pretty simple progressive system now for individuals. The monkey wrech is the deductions. The Feds encourage and discourage certain behaviour by taxing it at different rates. This tweaking of the system is what adds the complexity to system, and is also its greatest strength. People tend to gravitate towards the things that make the most financial sense; the government recgnizes that and tries to push the nation in certain directions based upon that fact.

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aceventura3

I think we really want to encourage work, savings and investing. We have to make sure people are incented to do that. And, people should pay the true costs of things rather than shifting and hiding the cost.

Also, if we could come up with a reasonable way to tax consumption you actually tax the underground economy. You also tax the wealthy in a more fair way. Example, Bill Gates of Microsoft, one of the wealthiest people in the USA pays himself a salary of about $250k, we know based on his lifestyle he consumes more than $250K of goods and services, but because of our tax code he can hide his expences through his corporation(s), foundation(s), trust(s), and hiring the best tax people. The CEO of Cisco Systems was paying himself $1/year for a number of years, but I bet his lifestyle was one of a billionaire.

Middle class and poor people are at a clear disadvantage and don't even know it. Increase taxes on the rich and it is meaningless. They pay what the want to pay.

jb2000

I'm not opposed to some of that, but I would strongly oppose a sales tax. First, sales tax is one of the most innefficient methods of collection. Second, it puts an inordinate burden on small businesses. Third, and most detrimental to my proposal, it is a hidden tax, in that most people don't know what all they pay in sales tax, and it is used to make people feel like they are paying less taxes, and that they have some measure of control over how much they pay, when the reality is neither of those.

As for the under 25K group, their contributions at any rate of taxation is a very small factor in revenue calculations. I don't know that zero taxation on the group is a bad thing, except that I think it is important for all Americans to have a hand in contributing to the maintnance and investment in their society, and so I would advocate at least a small rate.

The thing is that I want to get rid of most all deductions. The only ones I can really advocate at this point are those based on quantity of people (dependents).

jb2000

I clearly agree with you against any form of VAT/Sales tax, for some of the same reasons you cite.

I have wrestled a great deal with the social engineering tools that taxes provide government. Personally, I am not opposed to social engineering; it can be a very good way to invest in improvements, and reward pro-social behavior, all of which I am not opposed to in the least. The problem is that as you mentioned, it is also a big problem, in that as the various tweaks have created a system so complex as to not serve the desired results at all, and increasingly create a situation that, despite all best intents, does not put the burden of taxation where desired.

Thus I have concluded that despite the easy nature of social engineering via the tax codes (from a legislative point of view), in the end, the purpose is often not achieved, and overall, the burden of taxation becomes highly imbalanced, and increasingly difficult to manage. Thus, while personally a fan of many social investments, I would prefer the government do them in a perhaps more legislatively difficult, but yet more stable, straightforward, and managable manner than through tax deductions.

aceventura3

Payroll taxes are a heavy burden on small businesses as well. In California, for example we have to collect Fed Tax, FICA, Medicare, Fed Unemployment Tax, CA. State tax, CA training tax, CA-SDI, CA unemployment tax. Get any wrong you are subeject to heavy penalties and interest. We do W-4's, W-2's, DE6's, 941's, 941's, W3's DE34's, and a few others forms that don't come to mind at the moment. It is ridiculous. It is a muti-billion dollar industry, not counting the time it takes from productive activities.

madsenj37

Although I prefer user fees to taxes, I know we will not get that far in my lifetime. As far as tax systems go, I believe in a flat tax like Forbes backs or a property tax. With a property tax, the poor will not be unfairly taxed because they will not have to buy property. All systems have their problems, I believe these two are the fairest.

__________________
"Only two things are certain: the universe and human stupidity; and I'm not certain about the universe."
-- Albert Einstein

jb2000

Yes indeed, which is why payroll taxes are one that I would do away with. Let's face it, they amount to income taxes in that they are considered part of the cost of labor to most managers, but can't be offered to the employee. They are in that sense a hidden tax. Employees don't see them and so don't think of them as having been levied upon them, but in truth they are, yet of course the business has to take the burden of managing this seperate tax.

There isn't much that the Federal Government can do about state taxes, and so I confine my discussion to Federal taxes in this forum. I would support the same reform for my state, but I'm not familiar with enough with other states to say.

jb2000

I admit I don't know off hand which form Forbes supports lately. There are two kinds of 'flat' taxes that people talk about. One is a basic same rate regardless of income, and the other refers to a progressive or regressive system that is flat in the sense that there are no deductions or special circumstances, and thus all who have X income pay the same tax, all who make Y income pay the same, etc.

The first may sound simple, but is so horribly regressive that it can not be supported in reality. The idea that 20% of a $14,000/yr income is a similar burden to 20% of a $140,000/yr income is untenable. Thus I support the second form, in which all are equally covered by a progressive scale.

User fees are commonly popular as a way to supposedly contain the cost of certain programs to those who get benefits out of them, but in reality with few exceptions that kind of thinking doesn't apply to social programs. User fees are wonderful in commercial applications, but these should be handled by private companies, not the government. The government should be limited to those investments for which costs and benefits are not limited, but instead spread throughout enough breadth of the society to make their benefits and costs common to us all. Add to that the fact that collection of user fees is innefficient and results in regressive taxation, and there is no way I can support them as a major method of revenue gathering. Not that I oppose some nominal fees for specific services. $5 for a day pass to a National Park; I'm okay with; but trying to fund the National Park Service solely off user fees? No way. They are national treasures which benefit the nation as a whole, regardless of our personal patronage of the parks themselves.

Things like roads (I'm a big enemy of toll-roads) and education don't just benifit their direct users, but they benefit the nation as a whole, and the most efficient way as a society to pay for them is not through micro-collection of user fees, but instead by inclusion of their costs in the common treasury.

Finally, I guess I have to oppose your property tax idea as well. Property taxes indeed do represent an inordinate burden on those with limited cash flow. It means that people can not be comfortable in trying to put together what property they can afford to, but instead have to live forever in fear of it being taken from them if they ever lose the ability to pay the recurring taxes on the property. An estate tax to limit generation-to-generation ammassing of massive levels of wealth is appropriate, but if you buy a piece of property, then at least so long as you are alive, you should be able to feel confortable in knowing that it is truly yours and noone can take it from you.

madsenj37

I have had this thread in the back of my mind for a while now. I want a flat tax where every dollar over $13,000 is taxed flately. And for each dependent you support, you get an additional $13,000. Adjusted for inflation when necessary. If you make $40,000 and support only yourself, then $27,000 would be taxed by the agreed upon flat percentage, say 18%. If you make $40,000 and have a spouse who doesn't work, you get taxed 18% on $14,000. If you have a spouse and child you support on $40,000, you get taxed 18% on $1,000. I think this is a very fair system. I would also not allow for any other tax deductions, unless there was the libertarian idea of a tax free medical account. Businesses would also be taxed by 18% on all economic profit they make (taxed after all their expenses are paid). This way money is not taxed twice.

__________________
"Only two things are certain: the universe and human stupidity; and I'm not certain about the universe."
-- Albert Einstein

flstf

As far as folks objecting to a national sales tax or VAT. Don't we pay something like those already? Doesn't all the income tax that people pay show up in the price of goods and services already?

From a question I asked in another forum:
How much of the price of a loaf of bread is there because of taxes?

Income and other taxes are levied on all the following and added to the bread's price:
The farmer, all the equipment he buys, etc.., the farm worker, the shipping company and employees, the dock workers, the baker and employees, the packaging company and employees, more shipping company costs, the warehouse and employees, the grocery store and employees, etc...
After all these folks add the taxes they pay to the prices thay charge, how much of it shows up in the price of bread? I would guess that we are already paying about a 90% (sales) tax. I could be way off, and would be interested if anyone has run the numbers on something like this.

aceventura3

Your method seems to be a compromise type solution. I think one weakness is that there are people who would pay no taxes. I think everyone, no matter how small the amount, make some contribution in taxes to support the government.

It becomes to easy for those who don't pay taxes to come up with more and more ways to spend the tax dollars paid by others. Example if you pay taxes and I don't, I would want more and more services provided by your tax dollars. Not only do I want new schools: I want you to provide my child with breakfast, lunch and dinner; I want my child to have a personal tutor, physiologist, music instructor, personal trainer, and personal security; etc., etc, etc. The point is that if it is "free" I want everything or as much as I can get, if I have to help pay I will be reasonable.

People are generally greedy, the worst thing you can do is to give things away. A good tax system has everyone making some form of contribution or sacrifice for governmental services.

braisler

This thread has done a pretty good job of staying on topic and not resorting to name calling as many other threads in the politics forum tend to do. I guess it is because we are all in the same boat, stuck with a tax system that doesn't work and looking for better alternatives.

I would support a flat tax with a reasonable minimum level under which no tax is paid. I don't support the idea of increasing that level for people who choose to have dependents. That kind of a system is a little too pro-breeding for me.

My preference though would be for a national sales tax (or VAT if you prefer). Some previous posters in this thread have made valid points on both sides of the debate. I have a couple of points to add to the discussion. One of the points that was missed is that there are already essential goods that are excluded from sales tax. Thus the burden on the lower income family would be quite limited. Groceries, rent, health care... all exempt from sales tax. You don't pay sales tax when you buy a house either, so there is no impediment to purchasing your own home (one of the key paths to wealth). You would only pay out extra on taxable items... dining out, clothes, cars, travel, luxury items, etc. So the lower income family struggling to get by would not have to struggle any harder to put food on the table or pay the rent. Sure, they still have to buy clothes and a table to put the food on, but those costs are not monthly recurring essentials. Also as the point was raised earlier, if the VAT reduced businesses costs for these items they might costs only marginally more.

The middle income families would also not be put out by a VAT because they would retain more of their income to spend as they like. Their discretionary income would increase, so the economy would not be injured by reduced consumption. Likely most people would continue to live their lives as they do now. The upper income bracket would also continue to spend as they are accustomed. They might like the idea least, as more of the tax burden is placed on those who consume more, but that is the whole idea.

The second point I'd make in this debate is that a VAT reduces loopholes and potential tax shelters so that the burden of tax is more fairly applied across all socioeconomic classes. If you want more taxable goods, you pay more tax. Surely there would be those who would try to avoid the system... buying a luxury auto overseas comes to mind, but I don't see that as being too difficult to enforce.

Another benefit of the VAT system is that it is possible to largely reduce your personal tax burden if you so choose. Say that I am a thrifty person of middle income (which I happen to be). I would like to save more of my money for retirement and reduce my current tax burden. Easy... I just spend less on taxable items. I don't buy that new car, I don't pay tax on that new car. I don't buy a new wardrobe for fall, I don't pay tax there either. If I try to reduce my tax burden under the current system, I could be thrown in jail.

Ok, I've said my piece. Shred my arguments as you see fit.

kutulu

I think what you are referring to is the assumption that the elimination of corporate taxes would lead to higher wages and therefore the increased tax burden for everyone is not noticed. This assumption is so flawed because it is built on many other flawed assumptions.

Look at the current system. Let's assume that the govt collects a total of $20. Say $15 of that comes from the people via income taxes and the other $5 comes from corporate income taxes (don't pay attention to the percentages). The government still needs the $5 because the agencies in charge of collecting that $5 make up a negligible portion of the government's budget. Therefore, the government needs to collect $5 more from the people. There is almost zero change in the revenue and total amount of taxes collected.

The fundamental basis of the arguement stated is that the people's incomes will increase enough so that they don't notice the change in taxes. I'm sorry but that would NEVER happen. There is no way in hell that ALL of that money would go directly back to the people. Many supporters of the idea use 25% as the level of corporate income tax so I will too.

Take WalMart as an example (because I love to villianize them). Once their taxes are gone they now have an extra 25% to do whatever they want with. What is their motivation to give all of that back to the people? No supporters of this idea have tried to knock this down.

That is the fundamental flaw with a VAT system. As citizens of this country I believe that EVERYONE is required to make the "same" contribution to this running of the country. I don't think it would be fair for someone to decide that they don't want to pay taxes and then be legally able to do so by not buying any taxable items. The money that needs to be collected gets shifted to everyone else. What if everyone decided to buy as few taxable items as possible? Not only would it wreck the government's income generation but it would also destroy the economy because nobody is buying the taxable goods.

The whole system discourages consumption and that is not the way to have a healthy economy.

flstf

I mostly agree with you, but don't we already pay a huge tax on goods and services with the present system? Please see my previous message # 34.
How much of the price of a loaf of bread is there because of taxes?

kutulu

Does it really matter? Either way we'll pay about the same amount for it. Right now we have the illusion of it costing more rather than the illusion of it costing less, but after VAT taxes it ends up costing the same amount.

And really, won't businesses still be paying a lot of those taxes still if a VAT system goes into place? Sure, we could exempt them from paying taxes on vehicles, equipment, and some things but the more we exempt the more costs get absobed as profits rather than lower costs and therefore higher rates are passed on to the consumer. There is also a huge potential for abuse there.

Before we even talk about revising the method of collecting taxes we need to figure out how much money the government needs to collect via taxes. We cannot keep piling on debt. It's not fair to the future generations. If we shift to a different system we need to know without a doubt what those rates will be and that those rates will provide the govt with sufficient income.

Also, what about the people making $10M/yr but only spend a couple million on taxable goods? Their tax rates go way down. That lost money gets passed to the middle class.

braisler

Actually, no. I was referring to the speculation that a reduction in corporate taxes would result in a reduction in costs of good at market. This was mentioned earlier in this same thread referring to the cost of a DVD player purchased for a set dollar amount. Part of the cost of bringing that DVD player to market is the tax burden that the corporation pays, ie. corporate taxes, payroll taxes, etc. If you remove that tax burden, the corporation could potentially bring the same product to market at a lower price point. Instead of paying $100 + 6% sales tax for a total of $106, you might pay $80 + 35% sales tax for a total of $108. Not withstanding that current sales tax is locally collected and used by the states, I think that you can see how this situation might work.

Of course this is based on the idea that corporations would be willing to convert their lower costs in producing goods to a lower market price for those goods. I think that the market would demand that they do. If one industry is making significantly larger profits than another, and there are not undue barriers to entry, other companies will enter that business and drive prices down by competition.

I disagree. I think that Americans do not need any more encouragement as consumers. As a nation, we consume too much, we are in too much debt, we save too little for retirement. If anything, we need to stop the consumer culture that leads to waste and encourage both governmental and personal fiscal responsibility. And for every person who did cut their conspicuous consumption of taxable goods, there would doubtlessly be some other citizen who would step up and gladly spend all of their extra money on taxable goods.

Further your argument that a larger sales tax would discourage consumption would be the equivalent to arguing that increasing income tax discourages people from working. If I have to pay tax on any income I have from working, then I am going to work the least I have to in order to survive. That would reduce my tax! Sounds silly? People always want things to make their lives more comfortable and pleasant. An increase in the sales tax is not going to keep your neighbor from buying that bike for his kid.

I don't think that everyone needs to pay the same amount into the government for the system to work. Certainly, no one can live in a vacuum. I still have to buy clothes, own a car, and I like to eat dinner out once in a while. All of those things would subject me to a sales tax. But I don't have to shop at designer stores for my clothes. I don't have to buy a brand new car every three years. I don't have to eat all of my meals at $30/plate restaurants. Those are the ways that I might choose to reduce my tax burden. Is that bad for the economy? No, I don't think so. There will still be other people with other priorities that choose to do those things for their own reasons. Would the amount of tax coming in to the federal budget drop dramatically? I don't think that it would. I am sure that they could structure an appropriate VAT % that would provide for losses due to reduction in other taxes.

Reflectively, the government could do well to reduce its own consumption as well. There are certainly essential government functions, providing for the national defense and common welfare of all citizens. But there are also lots and lots of federal programs that could be cut without negative impact to the citizens of this country. I am sure that everyone has a few pet ideas of which programs could be cut where, so I won't go into them here.

I was hoping to introduce the idea that an income tax, or a tax on wages, is not the only way that the federal budget can be funded.