T Nation

How I Fixed the Tax Code

In half a day no less. This is what the author of the article below claims. In it, he combines a 10% national sales tax and a lower progressive income tax (zero percent for joint filers up to $100,000) I’m still an advocate of the flat tax, but I thought this article was interesting at least.

Thoughts?

[i]How I Fixed the Tax Code (In Half a Day)
By BRETT ARENDS

I did it. I reformed the U.S. tax code.

It took me about half a day. With time off for lunch. Why Congress hasn’t been able to do this in 26 years is another matter.

Today, of course, is Tax Day. Last week I unloaded with my ten top tax hates. I started wondering how difficult it would be to create something better that raised the same amount of money. Turns out, it’s not hard at all. All those protests from Washington – “it’s tougher than you think” – are a bunch of hooey.

As everybody knows, our current tax code is appalling. It manages to be offensive to every sound principal, liberal and conservative.

It’s outrageously regressive. The super-rich often pay much lower rates than many in the middle class. Payroll taxes wallop the working poor. Hedge-fund managers get a tax break. Many people get a free ride. The different treatment of stock dividends, bond coupons and capital gains makes no sense and distorts economic behavior. The whole system is so convoluted it’s a drag on the entire economy. The tax code is now four times as long as the complete works of William Shakespeare.

In short, our code is unfair, inefficient and perverse. It’s the tax code you’d impose on enemy combatants, if it weren’t for the Geneva Convention.

I figure a good tax code should be simple, efficient and fair. So I wondered if we could just combine a national sales tax, which is simple and efficient, with a drastically simplified but progressive income tax, which would be fair.

Scrap the regressive payroll tax. Scrap the regressive corporation tax, too: Instead tax the business owners, and treat all investment income and capital gains as income. No loopholes. No breaks. Easy.

The IRS says 2011 taxes total about $2.3 trillion. A 10% national sales tax would bring in about $1.1 trillion, or nearly half of what we need. That would ensure everybody pays something, and it would be relatively easy to collect.

What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.

Based on the IRS numbers for 2009, the most recent available, this would have raised just over $1 trillion that year compared to the $915 billion that income taxes actually brought in. In 2011, when the economy was stronger, you have to figure it would be well over $1.1 trillion.

Which means, of course, that we are at our goal: $2.3 trillion.

You can, of course, play with the numbers and the brackets. But if anyone wants my vote this November, they could try offering me something like this.

Instead, of course, we have logjam.

Most of those who want our tax code simple and efficient don’t really want it fair. Most of those who want it fair don’t want it to be simple and efficient.

Meanwhile the White House’s so-called Buffett Rule, imposing a new tax on many rich people, is just another Band-Aid: A new level of complexity to counterbalance the problems caused by the existing levels of complexity.

The Alternative Minimum Tax was brought in as the first Buffett Rule, forty years ago. You can tell how well it worked, as we need another.
[/i]

federal sales tax is a terrible idea imo

I could come up with some more reasons - but the biggest one is that it’s only a matter of time before you pay a bunch for regular income tax AND a federal sales tax.

I understand. A sales tax allows a lower income tax. But it won’t - not for long anyway. It might work for a decade or three, but it’s only a matter of time before the tyranny grabs it up to dish out maximal damage.

I never thought that a federal sales tax was a good idea. Among the reasons that squating_bear mentions is the chance that spending will go down.

ZEB, spending is in proportion to income and what can naturally be consumed. Spending does not bring prosperity but rather is a sign of prosperity.

You are right spending will go down - with ANY tax - but that is because there is less money to spend after being taxed.

Sales tax is a bad idea and so is an income tax.

Government should work with no money and all “needs” should be relegated to the private sector in a voluntary system.

(Did any of you go down to city hall yesterday and boss around a government employee as is your constitutional right on Tax Day?)

[quote]LIFTICVSMAXIMVS wrote:
ZEB, spending is in proportion to income and what can naturally be consumed. Spending does not bring prosperity but rather is a sign of prosperity.

You are right spending will go down - with ANY tax - but that is because there is less money to spend after being taxed.

Sales tax is a bad idea and so is an income tax.

Government should work with no money and all “needs” should be relegated to the private sector in a voluntary system.

(Did any of you go down to city hall yesterday and boss around a government employee as is your constitutional right on Tax Day?)[/quote]

No…LOL…I didn’t feel like spending the night in the City jail.

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

There you go, getting all analytical and stuff.

Now that we have infected you with the economics virus, will we be held responsible for the distress it causes?

[quote]orion wrote:

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

There you go, getting all analytical and stuff.

Now that we have infected you with the economics virus, will we be held responsible for the distress it causes?[/quote]
Yup.

Actually I thought that was the exact thought crime you were being locked up for - but I guess we can just add some more time to the end of your sentence. No need for a fake kangaroo court trial, seeing as how you’ve already admitted to using your biological weapons of math instruction.

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

The gap between $50k and 66.6k is losing money. There needs to be some type of formula to calculate your percentage so there is never a case that if you made $1 more your overall income would not drop more than $0.99. Then nobody would have any incentive to get in a lower tax bracket. A fixed deductible could accomplish the same thing, maybe the summary failed to mention that.

[quote]sufiandy wrote:

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

The gap between $50k and 66.6k is losing money. There needs to be some type of formula to calculate your percentage so there is never a case that if you made $1 more your overall income would not drop more than $0.99. Then nobody would have any incentive to get in a lower tax bracket. A fixed deductible could accomplish the same thing, maybe the summary failed to mention that.[/quote]
Not quite - well my main point was that these things are way more complex than most people even begin to realize - even the author who I guess we are supposed to accept as an expert…

Having it follow a square / step pattern is obviously a bad idea right from the beginning. It should follow a ramp pattern in order to even begin to achieve what it wants. Or maybe an exponential. But what’s the point in trying to fix the authors boneheaded ‘solution’, when I’m no expert and most definitely am not even qualified enough to notice / marvel at the true level of boneheadedness displayed?

Yea sure, but I have to point out that you’re still decreasing the natural incentive that there is to work towards more money. As I said “The damage that taxes do isn’t only in the fact that people have less money to spend… blah blah”
Taxes suck.

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!
[/quote]

I don’t think he said it but I think he is saying that anything over 50,000 is taxed at 25%, and anything over 200,000 is taxed at 40%.

Well golly, the solution is so simple, just tax the fuck out of everyone! Why didn’t anyone else think of that?

Steve Forbes had it right a decade ago. Everyone pays a flat tax of 20% and all loopholes and deductions are eliminated.

End of tax mess and the current inherent unfairness built into the tax system.

20% my ass.

[quote]ZEB wrote:
Steve Forbes had it right a decade ago. Everyone pays a flat tax of 20% and all loopholes and deductions are eliminated.

End of tax mess and the current inherent unfairness built into the tax system.[/quote]

The flat tax is actually what I would like to see the US move to. Not sure about the 20% rate, but I like the idea of the flat tax.

And for the record, I’m definitely NOT a proponent of a national sales tax for the reasons listed. What I do like, however, is the author’s point that it’s not a difficult endeavor to TRULY reform our tax policy. We could just as easily move to a flat tax, in probably less time than the author made the move to his scheme.

[quote]LIFTICVSMAXIMVS wrote:
20% my ass.[/quote]

You would have them take 20% of your ass? lol

[quote]bigflamer wrote:

[quote]LIFTICVSMAXIMVS wrote:
20% my ass.[/quote]

You would have them take 20% of your ass? lol
[/quote]

LOL…Lifty either has a large ass, or he’s not in favor of paying any taxed. I suspect it’s the latter.

[quote]squating_bear wrote:

[quote]orion wrote:

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

There you go, getting all analytical and stuff.

Now that we have infected you with the economics virus, will we be held responsible for the distress it causes?[/quote]
Yup.

Actually I thought that was the exact thought crime you were being locked up for - but I guess we can just add some more time to the end of your sentence. No need for a fake kangaroo court trial, seeing as how you’ve already admitted to using your biological weapons of math instruction.[/quote]

Oh well, might as well go for a life sentence.

There is a graph somewhere about the marginal income of welfare recipients.

Turns out that there are several steps in there where they actually make less money if the take a better paying job because they lose their… “benefits” quite abruptly.

Ah found it, so is this a system designed to get people out of poverty or to keep them there?

[quote]orion wrote:

[quote]squating_bear wrote:

[quote]orion wrote:

[quote]squating_bear wrote:

[quote]bigflamer wrote:
What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly “39.6%,” as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.
[/quote]
Also, this part is almost retarded - unless I completely misunderstood.

Someone with an “income” of $60,000 would actually take home less than someone with an income of $49,999.99

:slight_smile:

You would actually get millions of people with the same exact incomes, all in order to save on taxes. It’s a pretty bad system when getting a raise would actually lose you money. The author doesn’t even consider that people react to tax laws. He’s not even thinking about the damage he could be doing!

The damage that taxes do isn’t only in the fact that people have less money to spend. That’s a part of it, but in this very example you see something else - people won’t do things that they could have done otherwise - and within that category is things that they should be doing. Such as paying their employees a fair rate, rather than giving them a pay cut in an attempt to save them from losses.

ex. employee used to make 58,000 but now with this tax system he keeps only 43,500. So the employer is nice enough to give a pay cut, and only pays him 49,999. You just robbed him of 8 thousand dollars, and didn’t make any income taxes out of him. At least the employer gets to keep that 8,000 - but that wasn’t the goal was it?
[/quote]

There you go, getting all analytical and stuff.

Now that we have infected you with the economics virus, will we be held responsible for the distress it causes?[/quote]
Yup.

Actually I thought that was the exact thought crime you were being locked up for - but I guess we can just add some more time to the end of your sentence. No need for a fake kangaroo court trial, seeing as how you’ve already admitted to using your biological weapons of math instruction.[/quote]

Oh well, might as well go for a life sentence.

There is a graph somewhere about the marginal income of welfare recipients.

Turns out that there are several steps in there where they actually make less money if the take a better paying job because they lose their… “benefits” quite abruptly.

Ah found it, so is this a system designed to get people out of poverty or to keep them there?

http://mises.org/daily/3822[/quote]
So do you stand behind daily from that source?

[quote]ZEB wrote:
Steve Forbes had it right a decade ago. Everyone pays a flat tax of 20% and all loopholes and deductions are eliminated.

End of tax mess and the current inherent unfairness built into the tax system.[/quote]

Put all income into the same catagory, every person files as an idividual and exempt the first $30,000.00 for every individual and I’m ready to climb on board.