Overhaul of federal taxes

Discussion in 'Free Speech Alley' started by BrettStah, Sep 30, 2003.

  1. BrettStah

    BrettStah Tiger Fan

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    OK, taxes are boring at best, but I'll try to make this interesting...

    First, most of the ideas given below are not original... I have gotten a lot of them from http://www.fairtax.org :

    Most would agree that the current tax structure is overly complex, confusing, and rife with loopholes, shelters, etc.

    So how to fix it? In a nutshell, by replacing the entire federal tax system (which includes personal, payroll, corporate, self-employment, capital gains, figt, and inheritance taxes) with a consumption tax (aka sales tax) on new goods and services.

    (Some of you have probably have some concerns about this, and I'll address some of those shortly.)

    Let's look at the benefits first:

    1) Everyone who earns a paycheck would actually be able to take home their entire paycheck (except for any state taxes of course). Take a look at your pay stub to see the difference between NET and GROSS pay. An instant pay raise for everyone who gets a paycheck sounds good to me.

    2) Existing taxes that businesses pay are actually built in to the prices of the things that they sell (a Harvard study says 20-30% of the price of a product is made up of hidden taxes), so if those taxes are eliminated businesses will be able to reduce prices (competition will make sure this happens). So things will start to cost less.

    3) No need for individuals to file complicated tax forms each year, and/or pay someone else to help them with the forms.

    4) No more loopholes, tax shelters, etc. Congress wouldn't be able to give a particular company/industry a tax break, or raise the tax rate on some people and not others... there would be exactly one tax rate for them to mess with, and it would be very evident to everyone whenever it was raised.

    5) No need to keep receipts, or for the IRS to be told how much money you make, or where you work, or how much you decided to contribute to charity, etc.

    6) Tax the "underground" economy a lot better (drug dealers don't pay payroll taxes, but every time they'd buy a new car, etc. they would pay taxes under this new plan).

    Now, the concerns that some people have:

    1) "Sales taxes hurt the poor, because they're taxed on 'essentials' such as food, medicine, etc."
    The proposed plan I'm advocating takes this into account, by allowing every household to request a monthly tax rebate to cover purchases up to the government poverty level. How would this work? Let's look at an example dealing with a family of four:

    (I'm basing this off of numbers that are 2-3 years old, so there would be some minor changes for this year, but it'll give you a good idea of how it works).

    First, the government would make an assumption: Every single household needs to spend money equal to the poverty level. Therefore there is no need to keep receipts, or otherwise prove what you bought, when you bought it, etc.

    • Poverty level for a family of four is $17,050.
    • Let's assume the consumption tax rate is 30%.
    • So the government would assume that a family of four would pay $5115 each year, or about $426 each month.
    • The family of four would then be able to receive a tax rebate check each month for $426.

    Note that there is no proof of income required... the thinking would shift to how much you spend, versus how much you earn. All you'd need to do is provide the government with the Social Security number of everyone in the household. And if you make enough money to not bother, then you don't have to even do that.

    Basically, any family that decided not to spend more than the poverty level (or didn't have enough money to spend more than the poverty level) would pay $0 in federal taxes. Compare that to the current system, where everyone earning a paycheck is paying Medicare, Social Security, and in many cases income taxes. Even those who make too little to pay income taxes are paying the other payroll taxes.

    2) "It's just a tax break for the rich!"
    Well, there would be some people paying more in taxes, and others paying less in taxes. But guess who typically buys the expensive vehicles, new homes, boats, etc.? That's right... people with money. And when they buy those things, they'll pay taxes. If a guy making millions each year decides to live in a one bedroom apartment and eat dog food, he'd get a tax break. But conversely, someone living on a large trust fund (in a tax-free shelter probably) would wind up paying more taxes than they are now.

    Anyone have any comments/concerns?
     
  2. Jetstorm

    Jetstorm Founding Member

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    Your poverty exemption without proof might be a cause for concern. That looks like a loophole that could potentially be abused to me. There has to be some corroborating evidence to ensure that you actually deserve that break.

    I'm all for radical tax reform as well; the system we have now is way too complicated. But I advocate either a flat tax or a bracketed income tax of severely compressed brackets. For example, my ideal personal income tax system:

    -Anyone in America at or below the poverty line (example, a family of four making 17K) is totally exempt from federal income tax.

    -First bracket (Poverty to $50K) pays 1% of annual income.
    -Second bracket ($50K to $150K) pays 5%.
    -Third bracket ($150K to $400K) pays 10%.
    -Fourth bracket ($400K to $1M) pays 15%.
    -Fifth and highest bracket; all millionaires pay 20%.
    -Married couples filing jointly get 0.5% tax credit (marriage bonus instead of marriage penalty).
    -For every child you have in your household, a 0.2% tax credit.

    To me, I don't care how much or how little money you make, paying 35% of YOUR income in federal taxes is just not fair and un-American.

    Of course, my system, like any tax reform system, will require something no Republican or Democrat in Washington is willing to do right now; take a meat cleaver to the federal budget to reduce spending. Federal spending is out of control, and Bush is spending our money at a clip equal to Clinton. I truly fear that both parties, along with the average American, have completely given themselves over to Big Government. If Ronald Reagan were cognizant of such a shift, under a Republican administration no less, he would be horrified.

    The federal govt. should be 40% it's current size, 40% it's current budget, IMHO. And that must happen before ANY tax reform can take place. Even then tax reform cannot happen right away, as our tax resources must then be devoted to eliminating the national debt, which is still at around $5 trillion dollars.

    So all in all, those of you waiting for radical tax reform, don't hold your breath.
     
  3. BrettStah

    BrettStah Tiger Fan

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    Jetstorm, there is no concern for abuse (barring Social Secrurity number fraud) because every single household would be eligible for the monthly tax rebate, regardless of income. It uses the federal poverty levels to decide the refund amount, but there would be absolutely no need for income reporting, etc. If you have a valid Social Security number, you qualify (along with any spouse and kids with valid Social Security numbers).
     
  4. Biggles

    Biggles Founding Member

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    BrettStah welcome....

    I like your ideas....

    But it's too damn logical and fair....

    It will never work in Washington....
    ;p
     
  5. Bestbank Tiger

    Bestbank Tiger Founding Member

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    Another reform I'd like to see: no more payroll taxes. Not only are they a job killer, but they unfairly punish people who work for themselves.

    I agree on cutting the federal budget, but I don't know if cutting it in half is feasible. Defense and interest on the national debt are two of the biggest items.
     
  6. Jetstorm

    Jetstorm Founding Member

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    I guess my "meat-cleaver" analogy threw you off BBT. Of course, budget cuts and department eliminations will have to be phased in over several years time, and for several years if not a whole decade, the federal tax take and budget will have to stay the same just to pay down the debt. Defense will still take up the lion's share of our budget, but they are so wasteful with our money, they need to be put on notice to cut the fat and find the missing money (something like $350 billion that the Pentagon cannot account for? That is unacceptable!) A new tax structure would allow us to either totally cut the IRS, severely reduce it in size, or roll it in with another entity. The Dept. of Education should be eliminated, honestly, what purpose does it serve that cannot be handled on the state and local level? Several other departments and offices could be eliminated or trimmed.

    This ain't rocket science people. It's just not politically expedient to put thousands of federal employees out of work.
     
  7. Biggles

    Biggles Founding Member

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    I'm sorry Jet Storm....

    It's politically expedient for millions in the privitate sector......
    ;p

    I'm just a real [email protected] today....

    This is a subject were Demos, Repubs, Liberals and Conservatives should ban together and clean up the mess. Our federal tax system sucks.....
     
  8. TigerEducated

    TigerEducated Founding Member

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    They shoudl ban together, eh, Biggles?

    Mr. Boutros-Boutros Gali himself...
     
  9. JD

    JD Founding Member

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    Yes - my complaint goes back to your consumption rate. The consumption rate for the poor is nowhere near 30% - try 100%. Yet, you're only giving them a 30% credit - plus you are giving the non-poor a 30% credit, which is a needless subsidy.

    Second, the rich spend a low, low percentage of their income. If you don't think this is an IMMENSE tax cut for Steve Forbes et al, you are living on Mars.

    To fix this, all purchases of certain goods should be exempted - non-luxury food, clothing below a certain cost ($3 for a pair of socks, e.g. or maybe graduate it up) - bureaucrats would have to determine the exemption levels then apply pcis each year.

    Also, get ready for a deep recesssion for several years after imposition.


    And I ask again, anyone please enlighten me as to the jobs that the professional coupon clippers of the world create? Answer - they don't.
    Most jobs are provided by small entreprenneurs - not coupon clippers.

    I do think the idea has promise only because it gets the government out of our personal business - that is , of course, why the right will NEVER support it.
     
  10. Bengal B

    Bengal B Founding Member

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    BrettStah, I like your basic idea. It would work out ok even for the poor if there were no sales taxes on things like food, medicene and utilities, especially electricity. The present system of graduated taxes imposes a severe blow on the middle class and is practically confiscatatory on the lower end of the "high income" bracket without access to the high priced tax attorneys and specialists that the very rich take for granted.

    Now here is potential fly in the wheel to the plan. Just since reading your plan I have already thought of several ways to get around paying sales taxes if a 25 or 30% federal sales tax were to be implemented. Lets say I go to a grocery store one day and all of a sudden it cost $130 out of my pocket for the food I had normally been paying $100 for. I am outraged so what do I do? I get some friends together and we pool our money and go to some farmers and buy a couple of cows and pigs and a bunch of chickens in a private non taxed sale and get somebody to cut the meat up so we can divide it. Establish ongoing cash only relationships with producers of milk, eggs and vegetables. Big ticket items like automobiles? A little trickier but if a corporation were to be formed that would buy vehicles for its use in the course of its business and drive them for a 1000 miles or so each and then resell them to its stockholders at a greatly devalued price from the new car sale price the sales tax would be much lower and the corporation could deduct the purchase from its corporate taxes which I presume would still exist. I just thought of these ideas but if it were to become a reality I'm sure that the ideas of a workaround would start flowing and some really creative plans to evade the consumer tax would evolve.
     

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