T Nation

Easy Tax Fix


#1

GDP $18 BB

Corporate rate 10%
Personal rate 10%, no deductions, no exemptions, no exceptions


#2

So a college student making 13k a year should pay $1,300 in federal tax?

What about a 70 year old? Should they pay tax on their SS income?


#3

Student: yes

SS: on the contribution - no, on benefits - yes


#4

[quote]treco wrote:
Student: yes

[/quote]

How did you reach that conclusion? Do you think that $1300 dollars is insignificant for an independent student?


#5

Since college is a choice and the student needing the same services that the non college person requires of the government, I see no reason to make an allowance on contributing to the collected fund to operate those services.

If we are starting with a new slate, why introduce an exemption here and a deduction there? 75,000 pages to explain who knows how many loopholes, explanations on how to figure, exceptions, etc. That is insane.


#6

[quote]treco wrote:
SS: on the contribution - no, on benefits - yes[/quote]

Please clarify what you mean here. I don’t want to assume.

[quote]treco wrote:
If we are starting with a new slate, why introduce an exemption here and a deduction there? [/quote]

Are you seriously proposing companies pay tax on their top line?

Why would you want to make it harder to save for retirement?
Why would you want to increase the costs of Health insurance?


#7

How about a 10%-20% federal consumption tax? No federal tax on income. No corporate tax on income. Consumers decide how much tax they pay based on what they buy and the wealthy will easily pay more.


#8

I should have clarified from the start I was thinking of income taxes, but failed to do so.

Since a large portion of retirement and healthcare have evolved to be ‘nationalized’ with contribution mandated to be collected by employer, I believe SS and Medicare should be collected pretax with medicare benefits never taxed, but SS and any additional retirement methods (ie IRAs) taxed at payment of benefit.

Health Insurance - I don’t have an answer, but it feels like a mandated contribution like SS/Medicare now with ACA.

Companies would pay on their Net Income before taxes, not the revenues.

[quote]countingbeans wrote:

[quote]treco wrote:
SS: on the contribution - no, on benefits - yes[/quote]

Please clarify what you mean here. I don’t want to assume.

[quote]treco wrote:
If we are starting with a new slate, why introduce an exemption here and a deduction there? [/quote]

Are you seriously proposing companies pay tax on their top line?

Why would you want to make it harder to save for retirement?
Why would you want to increase the costs of Health insurance?
[/quote]


#9

I agree consumption tax looks interesting.
How do you handle the first question I got - that the kid making little money is taxed anyway at the same rate as Joe Moviestar?
Or the ones Beans proposed - you want retirement, here is your voucher for the future and a tax bill today?

[quote]usmccds423 wrote:
How about a 10%-20% federal consumption tax? No federal tax on income. No corporate tax on income. Consumers decide how much tax they pay based on what they buy and the wealthy will easily pay more. [/quote]


#10

[quote]treco wrote:
I should have clarified from the start I was thinking of income taxes, but failed to do so.

Since a large portion of retirement and healthcare have evolved to be ‘nationalized’ with contribution mandated to be collected by employer, I believe SS and Medicare should be collected pretax with medicare benefits never taxed, but SS and any additional retirement methods (ie IRAs) taxed at payment of benefit.

Health Insurance - I don’t have an answer, but it feels like a mandated contribution like SS/Medicare now with ACA.

Companies would pay on their Net Income before taxes, not the revenues.
[/quote]

Okay, now I’m picking up what you’re putting down.

I’m going to bring up a couple situations then, just to illustrate why the IRC is so huge, because these are common, and it should show why we’ll have the IRC even with a consumption tax:

Are you going to have passive loss rules? If not, I have a couple clients that will show losses every year, hence pay no tax, and be cash positive to the tune of anywhere between 2m-22m.

With the straight and simple rules you’ve outlined, I can set up a partnership, have an interest sold from one individual to another and effectively defer millions upon millions in taxable gains, for perpetuity in some cases. There is a difference between inside and outside basis, that is why there are rules about taking a step up upon a sale of an interest, and in the example I’m thinking of, making an EIP election, which puts the onus of math and gain tracking on the investor rather than the partnership.

What about ECI & FDAP? Currently companies are required to withhold (at varying rates) on what is effectively US income allocated to foreign partners. Do you want to get rid of those definitions, change them or keep them? Do you want to keep the withholding or get rid of it? If you want to keep either, your tax code just grew by quite a few hundred pages.

I’m not trying to be an asshole here. I truly get the desire to “simplify the tax code”. And for the vast majority of Americans and companies you could do it. (It’s pretty simple as it is, IMO, but I work in it, so my perspective is shit.) But unfortunately we live in a complex world, that requires a complex set of rules. There is no grand conspiracy here, I promise. There are actually very few designed “loopholes”. Most of the time what people call a “loophole” just means “anything that allows a ‘rich’ person to not pay out their ass in tax.”


#11

Beans, I’ll ask you as you seem to know what you’re talking about in this area and I was talking this subject with a CPA friend of mine and he brought up similar examples to you (way over my head) showing how its not easy to simplify.

We have seen tax proposals from candidates, do you think a flat tax is possible? Is it possible to simplify the tax code? Do you think any of the tax proposals by Candidates are feasible or are they talking points that could never get passed?

Candidates who have proposed tax reform so far are Bush, Rubio, Trump, Cruz (flat tax), Fiorina (3 pages), Paul (flat tax), Carson (flat tax).


#12

[quote]Drew1411 wrote:
do you think a flat tax is possible? [/quote]

Possible? yes. A good idea? No.

Sometimes people get this notion in there head that because something is a percentage that it suddenly is equal in all respects and all situations “because it’s a percent”. You see this in the gun threads a lot. People literally can’t comprehend that yes, total population matters and DOES effect the per 100,000 numbers, even though the per 100,000 statistic appears to take total size out of the equation. Anyone that has ever taken an intro to stats class understands these things.

That said, 10% for the young woman fresh out of school, making 45k and living in Brooklyn is NOT the same “skin in the game” as 10% on the Partner at her firm with an AGI of 25m living in Manhattan. The percentage is the same, and it’s flat so it’s “fair”, but the young woman who just left school is going to miss the $4500 more than the Partner will miss $250k.

A progressive tax, which we very much do have, even though lefties cry to the mountain tops we don’t, they don’t know wtf they are talking about, is a better way, if we’re taxing incomes. Are there changes I would make? Yeah, absolutely. But I wouldn’t change it to a flat tax, and I would avoid words such as “fair” and “patriotism” while doing it.

Loaded question lol.

Possible? Yeah, without question. Will we just end up right back where we are in a couple years? yeah, lol.

One of the pieces of advice i like to keep in mind is there is always going to be someone out there better than you at anything you do. (You know, stay humble, etc.) With this in mind, there are very, very smart business men and women out there that are also creative. Neither you, nor I nor anyone can write the perfect law that prevents creative people from innovation in the name of tax deferral. And that is a GOOD thing. I’m glad people want to keep their money, lol.

So end of the day, yes there is a ton of fat we could trim, but much like your typical american, we’ll gain a lot of it back, if not more.

[quote]Do you think any of the tax proposals by Candidates are feasible or are they talking points that could never get passed?

Candidates who have proposed tax reform so far are Bush, Rubio, Trump, Cruz (flat tax), Fiorina (3 pages), Paul (flat tax), Carson (flat tax).[/quote]

After I read Bush’s I gave up. It’s a lot of fluff that seems specific but has zero substance and just sets them up for lefty propaganda. Our current code makes anyone proposing lower taxes look like they are in the “bag for the rich”. Because THE RICH PAY ALL THE FUCKING TAX lol. Even Bush43’s cuts lowered taxes for every single fucking quintile, and total revenues increased. What do the lefty’s cry? “Bush’s tax cuts for the rich”. Those ignorant cunts make me hate election season on social media. Everyone Tom Dick and Harry suddenly has an MST and 22 years of tax experience because they read some meme that is 100% bullshit.


#13

I don’t consider your examples to be rude even here in Texas ;).

But I do think you have brought up some of the most difficult situations that are minuscule in number compared to the total number of returns.

However I will research and respond to them later as I am about to spend a fun day of moving a full storage unit to a different site - hopefully in advance of the approaching rain and winds we are receiving south of here.


#14

How about letting the federal government tax the states and letting each state decide how to pay its taxes?


#15

[quote]treco wrote:
I agree consumption tax looks interesting.
How do you handle the first question I got - that the kid making little money is taxed anyway at the same rate as Joe Moviestar?
Or the ones Beans proposed - you want retirement, here is your voucher for the future and a tax bill today?

[quote]usmccds423 wrote:
How about a 10%-20% federal consumption tax? No federal tax on income. No corporate tax on income. Consumers decide how much tax they pay based on what they buy and the wealthy will easily pay more. [/quote]
[/quote]

That’s simple, you would only pay tax on what you buy so the kid making little money pays little in tax because he consumes little. Multi billionaires would pay more in taxes because they consume a lot more.

Retirement wouldn’t be taxed (income wouldn’t be taxed)

I don’t know how the number would shake out though.


#16

Although I would prefer the consumption tax; assuming Federal Income tax is not going anywhere…

*All income is categorized the same…
*Everyone files as an individual; no married, no head of household, nothing
*There are no itemized deductions; no mortgage, no children, no charity, nothing
*There are no credits; no EIC, nothing
*Everyone receives the same potential exemption: From $0.00 - a TBD amount (let’s say $39,999 to get the argument started)
*Everyone pays the same rate on every dollar over the TBD amount (let’s say 10% to get the argument started)
*Increase the ceiling for SSN or Medicare to $250.000.00
(edit)


#17

[quote]usmccds423 wrote:

[quote]treco wrote:
I agree consumption tax looks interesting.
How do you handle the first question I got - that the kid making little money is taxed anyway at the same rate as Joe Moviestar?
Or the ones Beans proposed - you want retirement, here is your voucher for the future and a tax bill today?

[quote]usmccds423 wrote:
How about a 10%-20% federal consumption tax? No federal tax on income. No corporate tax on income. Consumers decide how much tax they pay based on what they buy and the wealthy will easily pay more. [/quote]
[/quote]

That’s simple, you would only pay tax on what you buy so the kid making little money pays little in tax because he consumes little. Multi billionaires would pay more in taxes because they consume a lot more.

Retirement wouldn’t be taxed (income wouldn’t be taxed)

I don’t know how the number would shake out though.[/quote]

I like usmc’s idea of a consumption tax, but a lot like the flat tax beans was talking about is regressive instead of progressive unless you make modifications to it. If the federal government were to just put a sales tax on everything consumed the people making less money will be paying a higher proportion of their income on the consumption of goods than someone who is more well off. Poor people spend a higher proportion of their income, rich people save a higher proportion.

Found a few articles about a progressive consumption tax.

http://www.forbes.com/sites/timworstall/2014/03/18/bill-gates-points-to-the-best-tax-system-the-progressive-consumption-tax/

Usmc definitely like the idea of a consumption tax vs our current system.


#18

I wish a presidential candidate would bring up a progressive consumption tax instead of the Democrats talking about raising taxes on the wealthy to 80%, which will cause the economy to even further retract, or the Republicans talking about some variation of the flat tax. This type of federal tax makes the most sense to me in terms of growing the economy and also promoting savings, which our current system doesn’t do.


#19

[quote]treco wrote:
Student: yes

SS: on the contribution - no, on benefits - yes[/quote]

It may work if we did not have an artificial floor in our labor market , meaning if they had to pay farm workers what it required to get Americans in the field it would have a staggering effect on minimum wage


#20

I think a market based tax would be best from the stand point you could get foreign companies to pay taxes to get access to the American Market