The internal revenue tax code

[David in FL]

I am not against a consumption tax but it's harder for the government to track versus income which is reported directly from their employers.  How would consumption work on resale of items such as Craigslist.  Would paying cash for items allow for the circumvention of the taxes?  No tax system is perfect but I can see more areas of abuse than the current income system. States have issues with their sales tax revenue where they border states that have lower sales tax rates.  People will go to great lengths to save money, especially on taxes. I'd much prefer a flat income tax combined with severely high penalties for employers who hire undocumented workers or do not report income.

Straight retail goods and services. No need to include resale. Though like now, I would expect an exception for larger items that require registration, like cars and boats. It's just collected at the point of sale and the merchant forwards it along as they do state sales tax now. Simple.

[newtogolf]

Off top of my head -

Business: Expense everything even buildings and autos after a phase in period, low rates, tax US Income - make it attractive to do business here - it is a global competition.

Individuals: low progressive rates, deductions for low and middle class income earners - motivation for one home, car, etc.; no deductions for wealthier people except for charitable contributions and then only cash, securities, and appreciating assets counts towards a deduction. I would go for a low rate consumption tax to ensure products are not taxed at high rates that discourage consumption and the economy, and then leave a low rate income tax.

I think TR started the estate tax .... not in favor of dynasties so I would, and this is admittedly socialistic (so is the present and any future tax code), I'd find a way to get some of that money into the grubberments' hands while not breaking apart a family business. Hey, that's why you have tax attorneys -- to plan around a tax code.

I'm not sure why the government should expect income from the death of a family member.  Assuming the deceased paid all applicable taxes while he was alive why would their death be another opportunity to tax the survivors of the estate beyond it's just a money grab by our government who doesn't know how to balance a budget and curtail needless spending.

[No Mulligans]

I hate estate taxes the way they are now.

Trust fund distributions, absolutely should get taxed.

A farm that wants to keep the business in the family, but the estate tax would put them under, not so good.

Not sure where you stand from that.  It seems you want estates taxed from that trust fund statement but not taxed from the family business statement.  The assets of a family business often do end up in a family trust.

The estate exemption is pretty high, 5.43 million individually, 10.86 million for a couple. That eliminates estate taxes for a whole lot of family businesses.

[Mr. Desmond]

I'm not sure why the government should expect income from the death of a family member.  Assuming the deceased paid all applicable taxes while he was alive why would their death be another opportunity to tax the survivors of the estate beyond it's just a money grab by our government who doesn't know how to balance a budget and curtail needless spending.

Ask TR, one of our greatest Presidents.

It is totally socialistic, and he was progressive.

But the estate tax now kicks in at $11.4m for a married couple. If you are single, marry someone young and avoid the tax for a longer period, and enjoy the benefits.

TR:

"We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate."

http://onpoint.wbur.org/2010/12/15/teddy-estate

[acerimusdux]

A progressive tax is one in which people who earn more, pay more. A consumption tax absolutely does that.

Um, no. An earnings tax is one in which people who earn more, pay more. A consumption tax is one in which people who consume more, pay more. A progressive tax is one in which you have progressive RATES, so some people actually pay at a higher rate, not just a higher nominal dollar amount. You are completely missing the entire point of progressive taxation.

What your other arguments forget, is that the consumption tax is simply a replacement collection method. If there is a 20% consumption tax added to the purchase of goods and services (just to pick a number), it has virtually no affect on what people will buy, because they will have that much more hard $'s available to them in their weekly paycheck by virtue of no federal tax having been withheld.

Not at all true. Over 2/3 of people would be paying more in tax (unless you find some way to match the progressiveness of the current system), and so would have less to spend. Only the rich would have more to spend, but they also have a lower marginal propensity to consume.

BTW, if you want to see how a VAT affects the average guy, you need look no further that the debacle of the short lived luxury tax on yachts, airplanes, and expensive cars in the early 90's. Companies almost immediately went out of business and everyday workers lost their jobs. Let's not have to relearn that lesson.

A VAT is just a form of consumption or sales tax. It has the exact same economic effects, and the exact same cost to consumers and raises the exact same amount of revenue in  theory as any other sales tax of the same rate. It's just a technically different way of collecting the exact same tax, which tends to be preferred by governments simply because it works better for compliance reasons (and so yes slightly better revenues strictly due to better compliance).

[saevel25]

Not sure where you stand from that.  It seems you want estates taxed from that trust fund statement but not taxed from the family business statement.  The assets of a family business often do end up in a family trust.

The estate exemption is pretty high, 5.43 million individually, 10.86 million for a couple. That eliminates estate taxes for a whole lot of family businesses.

When you have a farm that has all it's assets in land and livestock. If the parents die and the farm is worth 10 million. You get get with a 35% tax on 5 million of it. Not sure those farms have 1.75 million laying around to pay off those taxes.

[Mr. Desmond]

When you have a farm that has all it's assets in land and livestock. If the parents die and the farm is worth 10 million. You get get with a 35% tax on 5 million of it. Not sure those farms have 1.75 million laying around to pay off those taxes.

The IRS has a long term payment plan for family businesses where a certain % of the assets of the family are in the business.

Section 666

(lol)

Section 6166

This is from 2011, so it may be slightly out of date..

Of course, if you hire someone like me, you can plan to not pay any estate tax.

And as of now, you can carryover the spouse's exemption so you get about $11m that escapes the estate tax.

Deferral of the estate tax
According to the Internal Revenue Code section 6166, a personal representative may defer estate taxes if the interest in a closely held business exceeds 35 percent of the decedent's adjusted gross estate.

For the estate to defer the payment of estate taxes, section 6166 spells out elements that must be satisfied:

• The decedent must have been a U.S. citizen or resident at death.
• An interest in a closely held business must comprise more than 35 percent of the decedent's adjusted gross estate.
• The estate's personal representative must make the section 6166 election on a Form 706 Federal Estate Tax Return filed in a timely manner.

If the estate satisfies all three elements, the estate tax attributable to the closely held business may be deferred, with principal and interest on the deferred tax paid over a 14-year period. During the first four years following the due date of the return, only the interest on the deferred tax must be paid. Under code section 6166, the interest rate on the deferred tax is 2 percent on the tax attributable to the first $1,430,000 of the decedent's estate (according to Internal Revenue Code Revenue Procedure 2012-41.26: Interest on a Certain Portion of the Estate Tax Payable in Installments). Beginning five years after the return is due, the deferred tax and interest are payable in equal annual installments over a 10-year period.

Meeting the 35 percent threshold
If you are considering using 6166 to defer estate taxes, the 35 percent of the decedent's adjusted gross estate is calculated by taking the gross estate and subtracting certain deductions such as debts, funeral expenses, administration costs, mortgages, and liens.

[saevel25]

Deferral of the estate tax

According to the Internal Revenue Code section 6166, a personal representative may defer estate taxes if the interest in a closely held business exceeds 35 percent of the decedent's adjusted gross estate.

Good to know.

Still, I find the estate tax pretty stupid. Of all the revenues from taxes, Estate tax makes up 0.6%.

Honestly, it's a waste of filing paper. Here's what you do. You get rid of the Estate Tax and you just move that 0.6% to the Corporate Income Tax to make it up. Honestly it would probably be a fraction of a percent of that 0.6% because there's probably more corporations paying taxes than people paying the Estate Tax.

[acerimusdux]

Quote:

Originally Posted by saevel25

Why?

Saving more would be a good thing in the long run. It promotes a feeling of security which allows people to spend more later. Also you forget if you get rid of the income tax then you are dumping 1.3 trillion dollars back into the market.

Not in the aggregate. You are missing the macro implications of more saving also meaning lower income. And unless you are also changing government spending, you are just moving that 1.3 trillion from one market to another. If you shift it to another tax, like a VAT, it also ultimately comes out of the market. If the government borrows the money instead, that also comes out of the market.

If you are trying to shift dollars from consumption to savings, that would really only be appropriate in an overheating economy already at maximum employment. I don't think we're there yet.

Quote:

Nah, I don't support that idea. I think it's better to not inhibit saving money. I think saving money gives people security to spend money later on.

With tangible assets, yes if you produce them they have value that you can leave then even to future generations. But with intangible financial assets, in the aggregate, all they usually mean is that someone owes something to someone else. So one person has more security, and the other has less. Even cash is essentially just a claim on someone else's output and labor. And that claim is backed by the governments ability to seize our output through taxation, that's basically what gives fiat money value.

So I see no advantage in encouraging aggregate accumulations of financial wealth. Better in the aggregate to maximize income and output.

Quote:

Originally Posted by saevel25

Nope, no income tax.

VAT tax is stupid. If you just want to drive up the price of a product.

Lets say the progression of an item is

$100 for raw materials

$50 for labor to make, sold to stores for 10% profit, $165 value

Sold for 10% profit in stores, $181.5 value

If you add a VAT of 10%

If you add a VAT of 10%, the effect is exactly the same as a sales tax of 10%. The consumer would pay a tax of $18.15.

The only difference is, $16.50 of that would go to refund the store for the tax it has already paid to the manufaturer/wholesaler.

And of that $16.50 collected by the manufacturer/wholesaler, $15.00 would be a refund of the tax it has already paid.

You don't double or triple tax those things in a VAT, that's the entire point of only taxing "value ADDED".

The VAT tends to be used for the simple pragmatic reason that you seem to get better compliance when the seller has already paid his tax and must collect the proper tax in order to get his previus payment refunded.

In any case, I was really making no distinction for purposes of this discussion between VAT, sales tax, or consumption tax. I consider them all roughly equivalent in macro effects.

[No Mulligans]

thumbs up to @Mr. Desmond previous post. Good info.  (For some reason the thumbs up icon has disappeared).

Unfortunately, I don't need your help with my estate.  My wife and I are under the exemption threshold.

[Mr. Desmond]

Good to know.

Still, I find the estate tax pretty stupid. Of all the revenues from taxes, Estate tax makes up 0.6%.

Honestly, it's a waste of filing paper. Here's what you do. You get rid of the Estate Tax and you just move that 0.6% to the Corporate Income Tax to make it up. Honestly it would probably be a fraction of a percent of that 0.6% because there's probably more corporations paying taxes than people paying the Estate Tax.

Agree with you ... the estate tax is overly complicated and every return is audited, and there is little guidance as to filing the return and how it relates to the laws of the various states as to ownership of property between husbands and wives. We should just rid ourselves of the bureaucracy.

We put too many creative minds at work on tasks that do not contribute to the economy. We can use those minds elsewhere.

We can do better.

[Gunther]

10% flat tax, 1st $50K exempt. No SS, no Medicare, 10%, period. Cut 25% of govt spending. 75% of IRS can go away with this change, eliminate Dept of Ed, EPA, and a bunch of other non-essential, unconstitutional spending. Focus on Defense, Homeland Security, and infrastructure. Pie in the sky, of course but truthfully, so is any talk of real tax reform. Too many lobbies opposed.

[Mr. Desmond]

10% flat tax, 1st $50K exempt. No SS, no Medicare, 10%, period.

Cut 25% of govt spending. 75% of IRS can go away with this change, eliminate Dept of Ed, EPA, and a bunch of other non-essential, unconstitutional spending. Focus on Defense, Homeland Security, and infrastructure.

Pie in the sky, of course but truthfully, so is any talk of real tax reform. Too many lobbies opposed.

Mr. Trump, they already focus on defense and homeland security...

AND the Pentagon will tell you that EPA and climate change solutions are essential to national security.

Other than that, it's a fantastic, super plan that won't work...

[ghalfaire]

This is an interesting thread as I have often wondered why we tax income.  I have always believe if you want more of something don't tax it and if want less of it, do tax it a lot.  Since the Government has several ways to produce the money it needs to fund its activities why use one's wages/profits directly to produce that money?  I personally believe in general you cannot tax the rich as they own the capital and production in the USA and will just pass it along.  You can't tax the poor because they don't have any money.  So guess who pays the taxes in the USA?  The middle of course and it is unavoidable. They are the segment of the population that has the money to pay and not the means to pass it along to someone else.  

For me I think the only fair taxes are user taxes.  There certainly some issues with user taxes like they are a bigger percent of income for the poor than for the middle and rich. It is also true that some expense functions of government don't lend themselves to specific products or services that your can tax, like the Military for instance. But I would think you could handle that with a "service tax" added all user taxes.  Some fixed percentage if you will.  

Well I am likely off topic but If I were emperor of the USA I would switch us over to some sort of user tax system with a poor second choice of a flat tax.  Income taxes just inherently lend themselves to being unfair to all except those that can influence the political system.

[iacas]

This is an interesting thread as I have often wondered why we tax income.  I have always believe if you want more of something don't tax it and if want less of it, do tax it a lot.  Since the Government has several ways to produce the money it needs to fund its activities why use one's wages/profits directly to produce that money?  I personally believe in general you cannot tax the rich as they own the capital and production in the USA and will just pass it along.  You can't tax the poor because they don't have any money.  So guess who pays the taxes in the USA?  The middle of course and it is unavoidable. They are the segment of the population that has the money to pay and not the means to pass it along to someone else.  

The wealthy pay a lot of taxes.

I've said before that I hope I have to pay a million dollars in taxes some year.

[saevel25]

This is an interesting thread as I have often wondered why we tax income.  I have always believe if you want more of something don't tax it and if want less of it, do tax it a lot.

Depends on the item. Certain things like gasoline tend to have a floor where people have to drive a certain amount. 
 

 I personally believe in general you cannot tax the rich as they own the capital and production in the USA and will just pass it along.

Not really true. People with more money save a lot of it. The top 1% saves about 50% of their income. Top 5% saves 37% of their income. 

Also it depends on what source of income you are talking about. There is no guarantee that money will be passed down if you do not tax them. 
 

 So guess who pays the taxes in the USA?  The middle of course and it is unavoidable. They are the segment of the population that has the money to pay and not the means to pass it along to someone else.  

Actually the rich pay a good part of the taxes. The top 20% pays about 40-45% of all tax revenues. The Middle quintile only pays about 10-15% of all tax revenues.