"Put down how much you earn, put down a deduction for charitable contributions, home mortgage and how much you owe. It ought to be a simple one-page postcard, and take the agents, the bureaucracy out of Washington and limit the power of government."
Said Ted Cruz, puzzlingly preserving the charitable deduction, which would require that somebody keeps making those determinations about which organizations count as charities for tax deduction purposes.
१५१ टिप्पण्या:
A flat tax would have no deductions.
Opening salvo.
Trying to find the range.
Politics is like Battleship.
What a rube!!
You can't play politics with a flat tax!!
For simplicities sake of course I'd love a flat tax with no possible deductions of any kind. But I do wonder what would happen to a lot of charities if there were no deductions.
Nonapod:
Conservatives would still donate to charity. Joe Biden would stop donating his $2K per year and charge the Secret Service more rent on his property.
"A flat tax would have no deductions."
Tell Cruz.
...puzzlingly preserving the charitable deduction, which would require that somebody keeps making those determinations about which organizations count as charities for tax deduction purposes.
Yes, but that's not the hitch with the IRS categories.
The issue is two-fold: a legislative prohibition on groups eligible for tax-deductible donations engaging in "politics" (whatever that means), and a desire to have groups that do engage in "politics" having to disclose their donors--which leads back to a determination of what represents crossing the line.
In any case, even if there were no donor-reporting requirements, and no charitable deduction, there would still be good reasons to have a "not-for-profit" category.
Nonapod said...
For simplicities sake of course I'd love a flat tax with no possible deductions of any kind. But I do wonder what would happen to a lot of charities if there were no deductions.
By-in-large, people donate to charities regardless of whether there is a deduction or not. Infact, once they realize the amount of take home pay they get, charitable donations will increase. Most people who give to charity don't even use the deductions.
Even with a flat tax, I think we could all agree on a deduction for Flat-Coated Retrievers.
Ted Cruz is about to be ganged up on by The National Society of Accountants, the American Society of Women Accountants, the American Accounting Association, and a whole lot more professional societies. Our arcane and inscrutable tax laws keep millions of accountants fully employed.
"By-in-large"
By and large
"Our arcane and inscrutable tax laws keep millions of accountants fully employed."
Oregon won't let you pump your own gas. So that gas stations have to employ people to pump your gas for you.
Sort of the same thing.
I don't blame Cruz. His next opponent would run around Texas claiming that he wants to get rid of home mortgage deduction.
I give a lot to charity. I think it's good, but I think organizations would be better to not have a tax-exempt status. It's already held over their heads like road funds are over the states.
Get rid of it, may hurt at first, but eventually it'll be fine. You could exempt donated income so long as no service is attached, but you'd have to do that for everyone.
It would cut out Congress & President tampering
It would cut out Congress & President tampering
I give a lot to charity. I think it's good, but I think organizations would be better to not have a tax-exempt status. It's already held over their heads like road funds are over the states.
Get rid of it, may hurt at first, but eventually it'll be fine. You could exempt donated income so long as no service is attached, but you'd have to do that for everyone.
To do away with the problem of determining which organizations are tax exempt one has to do away with the corporate tax, not the income tax deduction.
I still suspect that a lot of charities would see an overall drop in income from donations, but I have no data to back that suspicion up. Not that I have a lot of faith in the way some charities are run anyway. Often times many of them are far too administratively top heavy ,money probably isn't used in the most efficient way possible, and the charities themselves may even be somewhat dubious in nature.
Small business people will still have the Nightmare on Elm St.
"Put down how much you earn..."
And what are the rules for determining what are "earnings" and what expenses are allowed to be deducted from what revenues to determine what the "earnings" are?
And who is going to keep track of what everyone is being paid so that the government can double-check that what you write down on your postcard for earnings is accurate?
You still need the IRS for all of that.
The problem comes from the government raising money by taxing incomes. That naturally leads to all the complications of keeping track of what income people have and defining income.
If taxation was simply based on your presence in the country, or on your citizenship - i.e. everyone owes an amount equal to the total cost of the government divided by the number of people in the country - then you could almost get rid of the IRS. You'd just need an agency to keep track of who hasn't paid their annual, one-amount-fits-all tax yet.
Or else just fund the government through excise taxes as I understand it was funded in the 19th century before the income tax.
But the progressive/socialist mindset that now runs this country and has for the last century or so would think it terribly unfair for everyone to pay the same amount of tax. And so we will have income taxation - and even wealth taxation, next! - and we will continue to need an IRS whether we have a flat tax rate or a progressive tax structure. I can't see how a flat tax gets rid of anything about the current system except for the 'Tax Table' at the back of the 1040 instructions, which would presumably be replaced with something like "multiply taxable income by xx%".
Love the crazy accountant talk! Most accountants don't prepare personal income tax returns!
Taxes aren't complicated because of marginal rates. They're complicated because of what counts as "income" and what deductions are permitted. If you don't allow some deductions (e.g. for business expenses), you're going to have a lot of profitable businesses suddenly unprofitable.
Flat tax will reduce some of the distortionary effects of the tax code, but it won't make the tax code simpler.
Althouse has Cruz on this one, though I'm a big fan of Cruz.
I don't see any reason for there to be charitable deductions, especially because that opens the door to corruption over what qualifies.
This government can not handle even that without corruption. Strip it away.
The flat tax should be keyed directly to what the government spent last year + debt service.
Let the people paying taxes today feel the tremendous burden of the government and services they are being given in exchange for votes. My core wish is that our tax policy be fair, which also means temporal fairness.
@Robert Zaleski: "I give a lot to charity."
I give nothing to charity - or I should say, I give no additional charity to non-governmental charity organizations, because I am already being forced by the government to "contribute" over 40% of my income to charity through the various governmental "redistributions". Since the U.S. government has decided we're all going to fund disease research, feed the third world, give Shaniqua and Manuela free housing, free food, free education, free health care, free student aid, free birth control, etc, etc, I'll be damned if I can see why I should donate more than the 40% I'm already being forced to donate.
And don't tell me that what the government charges me in taxes gives me commensurate benefits. I get virtually nothing from the government, and what I get a pay hugely more for than I would in a free market.
People donated to charities long before there was an income tax--the 1689 US cities with a Carnegie library attest to that.
Commenters who point out that you still need an IRS given a flat tax are right, but its job would be made much smaller and far less intrusive to taxpayers.
I favor a law requiring all elected officials have to complete their individual tax returns personally. They would be forbidden from relying on something prepared by anyone else.
Yes, even the President should have to sit down for four hours or so and fill out his tax return.
I'd also like some way that any tax increase always falls on elected officials, but I haven't figured out how to do that.
A flat tax with no deductions would, however, vastly increase taxes on the middle class--remember the "47%"? Or it would vastly reduce taxes on the rich. Pick your electoral poison.
Said Ted Cruz, puzzlingly preserving the charitable deduction, which would require that somebody keeps making those determinations about which organizations count as charities for tax deduction purposes.
The answer, of course, is to get rid of corporate income tax. Cruz just needs to get on board.
I think the fairest tax system would be a sales tax that exempts food and fuel.
The "not for profit" distinction for charities, etc., makes sense for practical reasons.
These groups simply don't operate like for-profit enterprises, and--if you're going to have a corporate income tax--it doesn't make sense to treat them as profit-making.
Quite a lot of these groups would so organize their business affairs as to avoid almost all taxes, most years. There wouldn't be much tax revenue, just a lot of compliance costs; plus more headaches for the IRS. It wouldn't be cost-effective.
Of course, repealing the corporate income tax is an excellent idea.
Meanwhile, if you keep the corporate income tax, but ax the not-for-profit category, what happens to charities and institutions that have large funds, endowments? What happens to museums? Would they face taxation on their reserve funds and assets, or only income?
Balfegor said... If you don't allow some deductions (e.g. for business expenses), you're going to have a lot of profitable businesses suddenly unprofitable.
I guess that's assuming the current rates are generally maintained. I suppose you could eliminate the payroll tax completely too.
I suspect that if we went to a national sales tax, there would still be some sort of IRS, because there would be issues of things bought and sold without sales tax collected. It's one thing to go to a lot of trouble to avoid 5-6% tax; but 20% (on top of the 6%)?
Abolishing corporate income tax has no effect on whether contributions to corporations are tax deductible for individual income taxes. 501(c)(4)s and 527s are "not-for-profits" but an individual taxpayer cannot deduct contributions to those corporations on their individual tax returns, unlike contributions to 501(c)(3) "not-for-profits".
The government would still have to decide who gets (c)(3) status.
Only answer is to get rid of corporate income tax and the charitable deduction.
President Obama has proposed a bi-partisan compromise flat tax, using the following form:
Put down how much you earn.
Subtract the amount you donated to OFA.
Send the remainder to the IRS.
I agree with Balefegor and MNMark, the reason why the federal income tax code is so complicated, susceptible to rent-seeking and has such high compliance costs isn’t because we tax income at different rates, it’s because of all of what has to be done to determine what constitutes “taxable income.”
"Our arcane and inscrutable tax laws keep millions of accountants fully employed." That is true enough.
And our socialist re-distribution system keeps about a million or social workers employed.
With fresh ideas like this, you can see why Cruz is headed straight to the top in the GOP.
Death, taxes, and talking about tax simplification.
Unicorns, the tooth fairy, tax simplification.
You cant have a flat tax w/o first raising the speed limit.
A flat tax would mean the death of Obamacare.
The IRS uses the term "social welfare" as a distinction in deciding which non-profits fall into which category. How the hell do they or anyone strictly define and apply that term? It could mean almost anything.
Why does A get to give $1,000 to a charity with pre-tax income but B who needs to spend his last $1,000 on food and clothes for his children must use after-tax income?
Why this immense favoritism toward those who give their money away versus those who choose to spend it on members of their own family?
I know the answer is supposed to be that when you give to charity, you are saving the govt from having to deal with that particular need, such as by feeding the hungry or healing the sick.
But that's not what all these charities are doing.
When it comes to tax reform, go big or go home.
The only way to ensure that the tax code won't morph into a disgusting mess driven by special-interest lobbying and social engineering is to tax all transactions--which means a sales tax or a VAT on everything. Including food and fuel.
Why subsidize obesity?
I believe a national sales tax would have to be at least 20% to replace all current federal taxes including FIT, soc sec taxes and medicare taxes and fuel taxes.
Why is it puzzling?
I shouldn't have typed "ensure". Nothing ensures a lobbying-free legislative outcome.
I should've said "the only hope that the tax code won't morph into a disgusting mess..."
I suspect that if we went to a national sales tax, there would still be some sort of IRS, because there would be issues of things bought and sold without sales tax collected. It's one thing to go to a lot of trouble to avoid 5-6% tax; but 20% (on top of the 6%)?
Not to mention there will be a lot of political pressure to exempt certain things from the national sales tax and tax certain things at different rates. Some people will insist that “necessities” not be subject to the national sales tax so as to protect lower income folks. That may mean some kinds of food, shelter, clothing and medicine. You’ll see pressure to not taxing “healthy” foods while having higher taxes on junk food. Or saying that only food that people prepare for themselves (as opposed to buy in a restaurant or prepared at a deli) be exempt from a tax (which is how it is in my State).
Do you tax just goods or do you broaden the base to tax services as well? Do you tax things at just the final point a sale (making it a national retail sales tax) or if there are “sales” of non-finished goods, does it become a de facto value added tax which is a lot less transparent.
I’m fine conceptually with repealing the income tax and gong to a national retail sales tax but I think that we need to realize that this will not necessarily end up less complicated than the federal income tax code.
"Why is it puzzling?"
The scandal is about the IRS doing a rotten job of determining which organizations are tax exempt, but if you preserve the charitable deduction, it's still necessary to determine which organizations are tax exempt.
So, he wants to abolish the IRS. Who's going to do the determination? Some renamed agency?
bbkingfish said:"With fresh ideas like this, you can see why Cruz is headed straight to the top in the GOP."
Define "fresh".
Using that definition, list for us "fresh" democrat economics policies.
Explain why "fresh" is a necessary ingredient to correct/successful/useful policies.
Thanks in advance for not being able to explain your own talking point.
Do you tax things at just the final point a sale (making it a national retail sales tax) or if there are “sales” of non-finished goods, does it become a de facto value added tax which is a lot less transparent.
People always say that, but I don't know why.
If the VAT is 20% and no goods are exempt, then even the lowest-info voter can figure out that (s)he's paying 20% of expenditures in taxes.
And a VAT avoids all the problems of identifying the final point of sale.
With fresh ideas like this, you can see why Cruz is headed straight to the top in the GOP.
It'd be interesting if you could posit some of your fresh ideas, bbkingfish. Or is it easier for you to sit on the sidelines and snipe?
Why does A get to give $1,000 to a charity with pre-tax income but B who needs to spend his last $1,000 on food and clothes for his children must use after-tax income?
The person with so little income that all they can afford is the bare minimum of food and clothing for their children is already paying no income tax, and probably receiving the EITC too.
Don't change a thing about the present tax code. Simply eliminate automatic withholding, sit back and watch a giant storm cloud of tax revolt mount up and up and then burst over Washington.
There's already a flat tax. It's called Social Security, and it's regressive @ 14.3% of income.
Meanwhile, the ownership class can lock up a ton of money due to "unrealized" capital gains, while the average schmoe is going to pay flat taxes on any interest, not to mention taxes on inflation.
The problem today is so much tax income comes from the middle class and those least able to pay for the welfare of the nation. You phone is taxed for Obamaphones. Your energy is taxed regressively. Your water is taxed regressively. Gas taxes are regressive. Sales taxes are regressive. Property taxes are regressive.
Social Security was a massive scam, transferring $1T to the general fund when a trillion was real money, and leaving the wealthy off the hook. People retiring in 2027 will get as little as 50c on the real dollar. Really, it was a great way to transfer money from the middle class to the wealthy, and keep the programs running.
Illegals are a tax on the middle class, and our progeny.
The best answer in my view is to return power to the states, so they can compete, and take a cleaver to the big, fat Federal Government.
Ann Althouse said...
I know the answer is supposed to be that when you give to charity, you are saving the govt from having to deal with that particular need, such as by feeding the hungry or healing the sick.
No, my dear, when you give to charity you are establishing a relationship between you and your god.
The last thing any government is concerned with is whether anybodies belly is full or if they're sick or not.
People do not appreciate the power of simplicity. Get rid of ALL of the deductions.
Dante has a good point- disembowel the feds by taking away their checkbook. Leave it to the states to try different solutions to our problems.
Though, for sure, we still need national defense, highway & bridge funding and we will need to transition huge failed boondoggles like Soc Sec and Medicare to individual plans of some type.
The power to tax is the power to destroy. Churches, political parties, media, book sellers, gun sellers and anybody else whose products or causes coincide with rights found in the Bill of Rights should be tax exempt.
However, as long as there's no discriminatory tax consequences for using your money for charity or causes, there's no need for any special deduction either.
No. Repeal the sixteenth amendment and fund the Feds with consumption (sales, excise) taxes. Exempt critical items like groceries. Then the people with money who buy a new Lexus every year would be paying most of the taxes.
Then the people with money who buy a new Lexus every year would be paying most of the taxes.
Not only that but you would tap into drug dealers, organized crime, etc, profits. Bling is consumption and would be taxed.
The Mortgage Interest Deduction in its present form isn't probably long for this world.
And Barry's wanted to curtail charitable giving from almost the start.
The problem today is so much tax income comes from the middle class and those least able to pay for the welfare of the nation
In fact not all that long ago the bottom 60% of households weren't contributing to government at all, but were net recipients of government assistance through transfer payments and social programs.
So, he wants to abolish the IRS. Who's going to do the determination?
Flat tax at the federal level removes the IRS and it's confiscatory/harassment powers.
Initiate charitable deductions at the state level and let the states handle it however each states decides to do so.
Little "r" republicanism.
Exempt critical items like groceries. Then the people with money who buy a new Lexus every year would be paying most of the taxes.
That's not how tax incidence is determined in the long run.
If you exempt food, then you'll shift consumption (and therefore, production) toward food. That continues until the cost of producing food rises to the point where there's no longer an incentive to shift toward it.
Exempting food from taxation is just another form of agricultural subsidy.
Never gonna happen. Might as well ask Gollum to fork over the One Ring.
Lots of people in DC love the idea of a VAT - on top of the income tax. Unless the 16th amendment is repealed that's what you'll end up with if you open that door.
Chip said go big or go home. I think he's right. Otherwise they'll just build reanimate the monster, supposing that you could ever get tax reform to begin with that isn't "reform" instead of reform.
Scott M said...
Flat tax at the federal level removes the IRS and it's confiscatory/harassment powers.
So if I don't report all my income under a flat tax the feds won't come after me?
Cool.
Let's talk Hollyweird accounting and bling.
No more freebies.
Once the IRS started taxing those goody baskets, did you see how many started getting declined/donated?
The flat tax people are so ignorant about taxation that it's impossible to take these proposals seriously.
If the VAT is 20% and no goods are exempt, then even the lowest-info voter can figure out that (s)he's paying 20% of expenditures in taxes.
That might be true if we were talking about a National Retail Sales Tax in which the goods are taxed only once at their point of final sale. A VAT is different because each transaction before the goods get to their point of final sale are potentially subject to the VAT which means that the true cost is hidden from the final consumer who would only see the final VAT that it tacked on at the end.
Thorley, you don't understand how a VAT works.
Our arcane and inscrutable tax laws keep millions of accountants fully employed.
Not to mention financial planners and insurance agents. Warren Buffet would never stand for a flat tax!
preserving the charitable deduction, which would require that somebody keeps making those determinations about which organizations count as charities for tax deduction purposes.
That's assuming that "charitable deduction" means "donation to a government-approved charitable organization" as opposed to "money given away".
We will never institute a flat tax so the GOP should really stop bringing this up. Push for closing deductions, lowering rates and broadening the tax base.
Start having those who are clamoring for more government programs to start kicking in.
Why not have a fat tax - it will either get rid of obesity or balance the budget.
I've only skimmed the comments so far...but I have a question: How does anyone think, and many do think it, that a flat tax or "fair tax" would eliminate the need for a revenue collection service?
Please explain it to me, in detail. George Washington couldn't collect taxes voluntarily, and had to use an army. So who, today, will just line up to pay taxes without any enforcement? No one, that's who.
Next..nothing is more regressive than a consumption tax, whether sales/use or VAT. I've worked with both and if you like a VAT you likely haven't a clue about how taxes work...but you think you do.
A flat income tax sans deductions or exemptions might work, and reduce the IRS size significantly. You owe it on everything, from wherever, you receive in a year, if not previously taxed...including any welfare. Best part..it would make the 47% pay their "fair share." No worries...the system would adjust in short order.
Despite that fact that I regularly volunteer for and donate to them, I don't like the idea of tax exempt charities. They almost always have employees, and already have the advantage of getting free money and labor. The managers usually make good money, and often more than people working for a small business.
In addition, I donate a lot to people who are not part of such a recognized organization and they often need the money more, but I get no deduction for that.
It directs too much of our charity to organizations who go through what is really just a bureaucratic dance to get the certification, but which are really just businesses getting special treatment.
The best part is that folks would be taxed as childfree singles with no deductions for marriage or breeding.
That's a great improvement, and accords with the tax policies of the more advanced countries.
I read that when tax rates were reduced charitable donations went up. More money to donate.
The Professor is right: Cruz is the problem!
Colonel, all those reforms you list are easily undone.
Repealing the 16th amendment wouldn't be easy, but it also wouldn't be easy to undo if achieved.
If I were a Rep politico, I'd push hard on the idea of eliminating the right of the IRS to pore over every detail of my personal finances.
Why can't the IRS just get it's money from the Federal Reserve. Have them print up whatever they need.
Could I pick where my postcard comes from? Tierra Del Fuego?
Aridog said...
nothing is more regressive than a consumption tax
I could list plenty of taxes that were more regressive than a consumption tax.
... if you like a VAT you likely haven't a clue about how taxes work...but you think you do.
A flat income tax sans deductions or exemptions might work...
The fact that you think a VAT and a flat income tax are fundamentally different causes me to question your credentials as a tax expert.
Over an individual's lifetime, a consumption tax is equivalent to a tax on income plus inheritance minus bequests.
"Why can't the IRS just get it's money from the Federal Reserve. Have them print up whatever they need."
Excellent point:
http://www.zerohedge.com/news/2013-06-03/thought-experiment-why-do-we-bother-paying-personal-taxes
Carol:
"The flat tax people are so ignorant about taxation that it's impossible to take these proposals seriously."
Well, you've sure showed me. I stand corrected. I am in awe of your analytical insights.
We have the same chance of a Flat Tax as we do of a Flat Earth.
'Said Ted Cruz, puzzlingly preserving the charitable deduction, ...."
"Puzzlingly?" You've made progress, Professor, but you still don' quite get it. Charitable deductions are a counter to the welfare state.
We don't need an IRS to determine what is a charity and I doubt Cruz opposes audits as a deterrent to cheating (as opposed to a deterrent to free speech).
It is not accurate that a flat tax cannot have deductions.
Colonel, all those reforms you list are easily undone.
So would raising the percentage of a flat tax. 20% isn't enough anymore? Time to go to 22%...
My point is that its never going to happen so push for reforming deductions, broadening the tax base rather than pie in the sky proposals.
We will see a VAT before there is ever a flat tax.
We have the same chance of a Flat Tax as we do of a Flat Earth.
So we can't aspire to a tax code remotely comparable to Russia's?
Carol wrote: "The flat tax people are so ignorant about taxation that it's impossible to take these proposals seriously."
Another "progressive" locked into the status quo and unable to contemplate the possibility of an alternate paradigm.
He also only deals with personal income tax. We'd have to eliminate the corporate tax if we really want to abolish the IRS. A flat tax can't work for a business.
Chip S said ...
The fact that you think a VAT and a flat income tax are fundamentally different causes me to question your credentials as a tax expert.
First, I did not and do not claim to be a tax expert. Fact is I asked a question for someone with expertise to answer.
Next, I've worked in the private sector in the USA [Michigan] where there was both a VAT and a flat income tax, plus a sales/use tax, and paid them all. And you?
I asked a question and you have not answered it, except to question my experience and ask other questions.
Answer my question and we can talk further.
Also, if you are expert, explain how a pure VAT works, rather than one with pass through features. At what point in a pure VAT system is labor not taxed to the employer?
Those who promote "progressive" income taxes fail to grasp that it is "perfectly unfair". If you believe in progressivity in a tax code, then it should be a smooth curve. Most tax software and calculators could handle it.
As it is, having brackets that have a flat tax between two income amounts means it is distortive and unfair for almost all people, particularly when you cross a bracket.
Clearly "progressives" believe in some sort of flat tax rates, otherwise they wouldn't support something like we have now.
However, as long as you have an income tax, you will require an IRS. Better to completely eliminate income taxes completely and go with a consumption-based VAT.
Not only will this eliminate personal and corporate filing of income taxes, but it will eliminate this nonsense about profit vs non-profit corporations.
I consider this
I've worked with both and if you like a VAT you likely haven't a clue about how taxes work...but you think you do
a claim of expertise. What do you consider it?
Next, I've worked in the private sector in the USA [Michigan] where there was both a VAT and a flat income tax, plus a sales/use tax, and paid them all. And you?
I have not had the great privilege of living in MI.
So what?
As far as this
I asked a question and you have not answered it
is concerned, I have no idea what you're talking about. When did you pose a question to me?
Ambrose said...
He also only deals with personal income tax. We'd have to eliminate the corporate tax if we really want to abolish the IRS.
I'll ask my main question again. Please explain to me how any form of federal tax will allow elimination the IRS?
Hint: The IRS couldn't collect the excise tax on highway fuels efficiently, due to so many retailers, who failed to report, to police. They now levy that tax on the wholesaler [much fewer points], at the point of deliver to a retailer. The retailer acquires a reimbursement, by filing a form quarterly, for sales for tax exempt uses.
So, given collection issues with fuel excise taxes are known, how will the government collect a flat tax without enforcement.
Unless the new way of doing taxes saved people a significant amount of money, doing away with charitable deductions would have to result in lower donations.
The deductions are no big deal to people who give a little here and there, but people who give significant percentages of income have to take deductions into account to see how much they can afford to give.
For example, if Joe makes $100k, and he gives $20k to charity, he's going to have to pay thousands extra to give the same amount if you get rid of his charitable deductions.
Cruz will get traction on this because of the way not only the IRS, but the Demos are reacting to the people demanding their rights.
bbkingfish said...
With fresh ideas like this, you can see why Cruz is headed straight to the top in the GOP.
As opposed to superstars of Leftism like Jim McDermott?
When people have to tell the Demos they come not as a serf or vassal, it's a bad day for the Lefties.
" How does anyone think, and many do think it, that a flat tax or "fair tax" would eliminate the need for a revenue collection service?"
Of course it doesn't, but the entity that would be required is as different as a small city council is from the federal government.
It is impossible for any taxpayer to understand the the current tax code, to know what they must pay or if they are paying too much or too little. In fact, nobody at any price can really tell you what you owe with any confidence that the IRS will agree. That's immoral.
For example, people, including me get notices that we owe a few hundred dollars from a return 3 years ago. No explanation is supplied why you owe it. Just that you must pay, or be penalized severely. Sure you can protest it, dig out all those old records, call your accountant and pay him twice what the demand is, and hope it doesn't get worse over the months-long fight you are starting.
All this is because it's too complex, and it's not by accident. It's a feature for the IRS. It gives them bully power by force of shear hassle. You have nothing to win, but plenty to lose. And now that we know how they operate (watch today's congressional testimony), you have to be suicidal to start a fight with them, even if you know you are right.
...which would require that somebody keeps making those determinations about which organizations count as charities for tax deduction purposes
No it wouldn't. "Charity" is giving at first remove: if I give clothing to someone who's going to wear it, if I buy a bum lunch (or a drink, ha ha).
The problem only arrives with this lawyerly redefining of "charity" to include charity at any remove, i.e. I give $100 to Save The Whales, which then gives $30 of that to their fundraising organization, another $50 to their own employees in the front office, a $10 share of the $1 mil bonus the CEO got this year for boosting fundraising....and, finally, $10 to do something for the whales. Lawyers, those clever people, have taught us to call this "charity" just as much as if I hand my coat to a freezing street child.
Which is ridiculous. You can readily preserve what most people genuinely consider to be a charitable deduction by simply only allowing deductions for direct gifts to others.
But what about the Red Cross? Well, you can if you want allow them to set up a separate accounting pipeline from donors to donees, with no leaks into salaries or fundraising costs. Then they'll have to solicit after tax donations to fund their operations, and the separate accounting system.
But that's perfectly fair. After all, the only purpose of the Red Cross is to let you hire them to direct your charity more efficiently than if you did it yourelf. They're charity consultants, not a charity themselves. There may be humanitarian reasons for exempting charity from income taxes, but no similar reason for exempting charity consulting.
Chip S said ...
...a claim of expertise. What do you consider it?
I consider it a claim of experience, not expertise ...IANAL or CPA. However, I have reported and paid all three taxes I cited. My experience informs me they are not the same.
My main question was in my post...how would the IRS be eliminated?
You responded to my post, and obviously are not going to answer the question.
Simple. Maybe someone else will. The main post title line refers to "abolish the IRS"...so some one who knows please tell me how that would work.
Simple.
A flat income tax does allow for negative income tax/earned income credit to support the low-end of the income spectrum more efficiently than the bureaucracy that would have to remain and grow to provide welfare payments.
However, even if you were to implement a simple flat tax with a negative income tax, there would still be the redistributionists calling for a new tax for the wealthy that might be impossible to stop, unless you made a flat tax constitutionally mandated.
I think the most effective and efficient would be a individual flat tax and no deductions except dependent deductions. Also no corporate income tax and no inheritance tax.
bagoh20 said...
Of course it doesn't, but the entity that would be required is as different as a small city council is from the federal government.
Thank you for at least acknowledging that the IRS would still be there.
However, that sensible grasp of the reality is not what proponents are claiming....the title line of this post says clearly "abolish the IRS"...
(the other kev)
Taxes should be for one thing, and one thing only - raising revenue for the state. Exemptions are at their heart nothing more than ward-heeling for preferred constituencies. They should all - all - be abolished because they are inevitably subject to abuse. No one should be exempt from paying them, otherwise it's just too easy to vote to raise taxes on the 'other' guy.
And Carol, if you don't want to be dismissed as the troll you obviously are, start citing facts and making reasoned arguments.
how would the IRS be eliminated?
I didn't realize that I was supposed to answer for positions I haven't taken. See, e.g., my comment @ 1:56, and then tell me why I was supposed to think your question was directed at me.
In one of my comments I originally wrote "Of course it would still be necessary to have the IRS collect and administer taxes," but deleted it before posting b/c it seemed so damned obvious.
Anyone who reads this thread ought to be able to see that people are talking about getting the IRS out of the business of determining what activities meet vague standards for tax-exempt status, and other sources of its power to bigfoot individuals. Some of us think that requires scrapping the income tax, others are unwilling to go that far.
bagoh20 said...
... hope it doesn't get worse over the months-long fight you are starting ... All this is because it's too complex, and it's not by accident. It's a feature for the IRS. It gives them bully power by force of shear hassle
Full disclosure: I agree with you on this aspect. I had a middle 6 figure penalty and interest liability for 15 years, and it grew like Topsy. I received my $0.00 due statements in January 2006. Attorney cost was about 1/3 of the total claim, so worth it from the relief standpoint.
BagOh:
Are you under the impression that an organization being "tax exempt" exempts it from all taxes, including paying payroll taxes on its employees, and its employees paying taxes?
Not so. A tax-exempt organization doesn't pay the corporate income tax, and usually is exempt from sales and property taxes, but not payroll taxes; and its employees are not tax-exempt.
I'm not, for example. (If I took a vow of poverty, I would be, but only some priests do that, not all.)
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending - by telling people making 30K a year that it is fair to pay the same 18% flat tax and have 21% of each dollar they make left over for discretionary spending.
It is trotted out by the wealthiest every few years. Directly, or by their well-donated to political mouthpieces.
That is not to say the whole tax code needs to be burned and fixed with a better system.
But leaving it to the super-rich and their paid tools to pimp a "fair tax" is like leving it to the heads of government employee unions to craft the "fairest" government budgets.
Nonapod said...
I do wonder what would happen to a lot of charities if there were no deductions.
They'd have to provide enough value to earn those contributions.
Chip S...whatever you say. Note that I opened my comment with I've only skimmed the comments so far...but I have a question...and you responded to remarks I made in that post. I could care less at this point. The thread topic was "abolishing the IRS" per Sen Cruz. Sen Cruz also refers to a "simple flat tax" and then makes it complex by including exemptions and deductions...aka not simple.
We would not even need postcards [for 85-90% of us] because the relevant income data and expense data [like mortgage interest] already exists in electronic form and is already supplied to the IRS. They could take that data and just issue a bill or send a refund.
... if you like a VAT you likely haven't a clue about how taxes work...
In fact, VAT is probably the most popular form of tax policy amongst economists, provided you get to eliminate most everything else- personal and corporate income, payroll, estate etc.
VAT is efficient, easy to comply with and hard to cheat, because it's collected throughout the production chain, rather than all at the retail level like sales tax.
My own feeling on charitable deductions is the practice should continue, but eligibility for deductions limited only to those activities that directly help American citizens in a concrete way to better their standard of living.
No more deductions for aid to Africa, planting trees in Israel, medicine for Arabs, TVs for Amazonian Indians, etc. Deductions for aid to American natural disaster survivors. Deductions for libraries, Salvation Army, medical research - yes. No deductions for corporate art collections, 15 million dollar Panda exhibits. No deductions for union dues, political action groups.
Just true, needed charity for Americans only. No
Cford - most of those who favor the so-called flat tax would be fine if it was graduated to higher levels of income.
I recommend you stop looking under your bed. Then you won't see the multitude of boogeymen living in your head.
He was making a statement of the possibility of how to simplify the tax system. Not a specific proposal. Relax (unless you're a tax accountant, tax lawyer or IRS employee).
Cedarford said...
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending - by telling people making 30K a year that it is fair to pay the same 18% flat tax and have 21% of each dollar they make left over for discretionary spending.
A true flat tax with absolutely no deductions whatsoever might not benefit the ultra rich as much as you might think (depending on a lot of things). Of course there may still be shelters to avoid paying on full income, but that's a preexisting problem whether you have a flat tax or not.
Cruz/Paul in 2016. More supper.
rehajm said...
In fact, VAT is probably the most popular form of tax policy amongst economists, provided you get to eliminate most everything else- personal and corporate income, payroll, estate etc.
Theoretically correct.
How many countries or jurisdictions have just a VAT and no income or other tax?
Canda? The have both VAT and Income Tax, but the VAT has pass through credits, and is detailed on retail sales slips for taxpayers. Simple gets complex very quickly.
So if a person "A" makes 10 times as much as person "B" and thus pays 10 times the tax, then people like Cedarford think that grossly unfair, because the guy paying 10 times as much is not paying enough? That's just an indication of how messed up we are and how far we are from respecting each other as people first, as fellows in a community. It's a society based on coveting, and greed, and envy.
Maybe if such a flat tax system is insufficient to pay the bills, then we have a spending problem. The problem being the people not paying the bills are making the decisions to spend what they are not willing to cough up themselves. That's pretty damned close to theft.
Robert Cook said...
"By-in-large"
By and large
The question of course is how a nautical term describing sailing maneuvers into the wind has anything to do with the accepted meanings of the phrase which are "on the whole", "generally speaking" and "all things considered?"
An IRS with a Flat Tax becomes more like the DMV. Processes basic paperwork, deals with issues related to not processing the basic paperwork. Most stuff can be done online.
A few different income brackets could also fit on a postcard. The question of whether you could fit your return on a postcard has very little to do with how progressive or flat an income tax is.
Even if you got rid of all deductions, that wouldn't eliminate the need for the IRS. Some people would still cheat and lie on their taxes. There would need to be some government officials policing that.
At most, you could say you're reorganizing or renaming the IRS, and creating a new federal government agency charged with auditing tax returns. Most people would still call that "the IRS." Just like you can take welfare and call it something else, but people are still going to call it "welfare."
On Jane Ellen Smith's UNM web page:
Note for prospective graduate students:
Probability of accepting a new student in coming year is very low.
I am not accepting applications at this time.
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending
They already do that under current tax law, little brain.
"A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending"
OMG, the horror! People spending their own money on things they want, things their fellow citizens produce for a living, giving to charities they admire, starting businesses and investing in things that make sense rather than giving it to politician to give to their friends to waste and pocket without having anything to do with producing that wealth, or to use to buy votes by creating permanent
dependent classes of wasted lives.
Man, what a fucked up mindset on display!
On Jane Ellen Smith's UNM web page:
Note for prospective graduate students:
Probability of accepting a new student in coming year is very low.
I am not accepting applications at this time.
The question of course is how a nautical term describing sailing maneuvers into the wind has anything to do with the accepted meanings of the phrase which are "on the whole", "generally speaking" and "all things considered?"
"Smartly port" just didn't sound right.
Cedarford said...
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending
Ted Cruz is not a billionaire.
Your class warfare rhetoric is stupid.
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending.
Right now I'd be thrilled to see billionaires paying as much as 20%. Today they write a check to the campaign funds of a few Congress critters and next thing you know there's a loophole in the tax law that fits -- amazingly! -- only their particular case.
Heck, even Barack Obama only paid 18% last year.
Jay:
Remember C-ford is a fascist (probably a Nazi). In addition to hating dark people and Jews, wanting the unfit exterminated, and being hostile to civil liberties, they also go in for that hate-the-plutocrat stuff too.
Let me state proudly and without reservation that I do not desire anyone to have to pay a higher tax rate than I do. If you think someone else should pay a higher percentage than you, then you justify it. I can't.
In the future, computers will do most of the work. The IRS will probably be sitting in front of Google Maps checking their properties to see if they look wealthier than what they're being told.
In addition to hating dark people and Jews
I know. Those comments by him are always the worst.
Fr Martin Fox said...
Meanwhile, if you keep the corporate income tax, but ax the not-for-profit category, what happens to charities and institutions that have large funds, endowments? What happens to museums? Would they face taxation on their reserve funds and assets, or only income?
6/4/13, 1:01 PM
Eliminate the corporate income tax and tax the distributions to the shareholders at the ordinary taxable income rate and include all shareholders no mater their personal or corporate status.
As for charities and non-profits, too much political biases and abuses. Better to eliminate the deductibility of the gifting and to tax the income generated by endowments and investments at the ordinary personal income tax rate.
For the really wealthy most deductions on ordinary income have little value on very large ordinary income since most deductions are phased out or capped at the high levels. Those who are going to give, give and those who are going to give big gift in a manner to avoid other taxes such as estate taxes.
Ann Althouse said...
Why does A get to give $1,000 to a charity with pre-tax income but B who needs to spend his last $1,000 on food and clothes for his children must use after-tax income?
Why this immense favoritism toward those who give their money away versus those who choose to spend it on members of their own family?
6/4/13, 1:17 PM
Ann Althouse said...
I know the answer is supposed to be that when you give to charity, you are saving the govt from having to deal with that particular need, such as by feeding the hungry or healing the sick.
But that's not what all these charities are doing."
Ann thats crazy talk. I mean really crazy as in no gifting to university endowments, buildings, chairs and eliminating 529 plans.
Cedarford said...
A flat tax is the favorite idea of billionaires that want to save 80% of every dollar they make for discretionary spending"
He not being being the sharpest knife in the economic drawer doesn't get that to become a billionaire you first have to become a millionaire and with few exceptions that means paying high ordinary income tax rates. After you have made the first couple of after income tax millions then you can invest in deals that might make you ultimately in to a billionaire with those deals subject to capital gains taxes.
When you scratch a Nazi always remember they are racial socialists as well.
Another problem with the "flat tax" is the wealthy escape the devastation of compound taxing.
Anyway, it's probably true a flat tax would generally get more $ from the wealthy, but first you have to get rid of Social Security, or make it flat too (it's simply another tax, in my view).
And regarding Bagoh's quip "I don't want anyone to pay a higher percentage of taxes than I do," the answer is there is a segment of the country that pays enormously in taxes, today, and it's not the ultra wealthy. It's the dual income family each earning $108K, with tax rates that can be as high as 35% for federal taxes alone. Then there are all the other regressive taxes built in there.
So I suppose if the government would get rid of Social Security, another tax, Obamacare, Medicare, and all the other regressive taxes out there, it would probably be fairer than today, in which the 400 most wealthy Americans spent 17% of their realized income on Federal taxes in 2010.
Of course, these things aren't going to happen in my lifetime, and if they don't I can NOT support a flat tax.
Couple things . . . .
First, I believe the general understanding is that "flat" refers to the absence of income brackets and graduated rates -- there is a single tax rate applied to all Taxable Income which, as other posters have pointed out, is how Social Security and Medicare taxes are computed.
Determining Taxable Income is a separate matter and could involve personal exemptions, allowable deductions and, well, whatever the legislature says is involved.
Indeed, in my opinion, the only way to make a flat tax "fair" is with fairly large person exemptions . . . at $10,000 per person, for example, a family of four would pay no tax on the first $40,000.
The point is that while tax returns for individual "employees" could be quite simple, maybe even a postcard, there is still a place for some agency to check the work -- are there four Social Security numbers for those four family members, for example.
Second, I run a small business. I don't pay income tax on my gross business receipts. The Tax Code defines Business Expenses, the "stuff" I have to buy that allows me to generate the revenue.
I get to deduct business expenses, like payroll, advertising and liability insurance from my gross receipts. Some items might be deductible business expense or non-deductible personal expenses depending on the nature of the business and other circumstances.
For example, I "commute" daily to a regular work location so I don't get to deduct the cost as business travel expense. In contrast, an "outside salesman" who drives from customer-to-customer can.
It gets complicated which is to say that the is still a need for that tax agency to, so to speak, "check my math."
Bottom line . . . . Flat tax? Has a certain appeal but don't imagine for a minute that it would let us abolish the IRS.
When It Comes To Healthcare Issues, Paul Krugman Is Wrong 100% Of The Time
Wow. Krugman gets his ass kicked.
obamacare and the IRS are now one. Good luck getting rid of the corrupt IRS.
Obama is in the highest tax bracket (39.6%), yet he only paid 18% in 2012.
For starters, the man who insists "the rich" must pay their "fair share" should be required BY LAW to pay his fair share in the bracket he just raised.
I get to deduct business expenses, like payroll, advertising and liability insurance from my gross receipts....
So let's abolish the dee-dutability of advertising. Less advertising would improve American life.
Re the flat tax: Would the the flat rate apply to both long and short cap. gains? What to do about our fellow Americans who would plead that they are still too poor to pay any income taxes, even if the rate is flat?
... broadening the tax base ...
How does one do that? Raise taxes on businesses? Try to squeeze more tax dollars out of poor peepul? Keep the borders wide open for more and more immigrants? Most newly arrived Americans are also poor folks.
The tax code is written to make and keep people like Nancy Pelosi and the Clintons - RICH.
No deductions. One tax rate of 15% for all individual filers for all income. Business is not taxed.
I am cautious about even posting on this thread again. Chip S and I disagreed and likely were saying the same thing. This is a scary topic. I fell for the title line as there whole thing initially, and that was my error...thanks Althouse [my inner Democrat says get to blame somebody else for my mistakes].
I used inappropriate words in one post, which I regret, and Chip S misunderstood what I meant about expertise versus experience. I have experience in almost all forms of taxation as a payer and processor, but if any expertise exists it might be on excise taxation for fuels. As a "Fed" for a while one of my chores was to pound knot-headed bureaucrats into grasping that, yes, they DO pay excise tax on fuels if they use it for a taxable purpose...such as driving down a highway.
Believe it or not, the IRS does have agents or delegated agents who ride along with state inspectors to checks fuels in trucks...if died red (means exempt use as identified at the ultimate vendor source) you have a tax evasion issue with the feds...even if you are a fed yourself. At the time I oversaw purchase of diesel fuels in 20 to 30,000+ gallon lots...ordering it *died red* at wholesale level for marine use, and ordering it for direct delivery to a vessel, not to a ground tank where some idiot could fill up his pick up or highway truck and get us jammed up....ordering in advance as *died red* also relieved me of quarterly tax returns to recover taxes collected if purchased retail.
To illuminate the non-simplicity of even excise taxes and sales taxes, the federal government no longer issues its own credit card...hasn't for years now. To do all the record keeping and tax filing, when reimbursement is appropriate, the "Feds" contract with a credit card operation, such as Voyager or other non-standard variety, specialized to do it for them.
My whole point is really, said simply, that there is no easy, simple, effective way to just abolish our current tax culture. I read and hear the words "flat tax" and "fair tax" used interchangeably from time to time..they are not the same [as defined by their major proponents]...one is on consumption, the other on income, gross or net as determined by legislation.
Then I read and hear VAT tax as the solution, essentially a tax on the revenue, less only materials costs, levied on the manufacturer(s) when they ship products. Quite simply, although no VAT is simple, it is a double taxation scheme, such as taxing labor to the employer [labor is not deductible as a direct cost] and again to the laborer through income tax in every jurisdiction that I am aware of using a VAT. AS I stated, in Michigan, until this year, we had the big three...income tax, VAT tax (aka SBT), and sales & use taxes. We earned our *rust*...and Republicans did it (Gov Milliken in the 60's and 70's) and taxed ourselves to death. Today we have only two, sales/use & income....if you ignore sundry property taxes in myriad jurisdictions within the state.
150 comments here and none of us has even tried to propose a full plan for tax reform with details included and projected revenue streams necessary. One reason, beyond the complexity, is that we have a **Spending Problem** in Wshington DC. Good luck.
How about a national sales tax? If you earn more, you buy more. If you buy more (or more expensive goods) you get hit harder. Progressive. IRS scaled back to accountants.
I could list plenty of taxes that were more regressive than a consumption tax.
Despite protestations to the contrary, consumption taxed are not regressive in practice, though admittedly it does seem they would be.
Rich people buy lobster. Poor folks buy bologna.
A flat tax would create a regressive tax system further undermining the middle class. But that's what most of you here apparently want -
A "free" country run by the oligarchs.
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