The biggest obsticle to tax reform is.....

[Racket_Man]

WE the people. as in almost everyone. THis includes special interest type groups, the politician and ordinary citizens.

http://www.nbcnews.com/business/econ...id=msnhp&pos=7

Most of the talk these days is about our tax system reform. this runs the gamit of huge honkin breaks for gazillionaires to a break for the ordinary Joe getting his employer health insurance premium taken out pre tax (thus lowering their income), to making interest on mortgage payments deductable, etc.

Everyone talks big until it comes down to the nitty gritty "what do we cut, close or raise" details. Everyone who benefits screams and cries when THEIR deduction or loophole (intended or not) is on the chopping block.

and therein lies the big problem.

[EricKei]

Just as one idea along the lines of "get rid of many of the loopholes" -- what about the notion of a flat tax, with fewer exemptions available? (assume that only those above a given "poverty level" would have to pay tax, much as it is now). Leave the automatic exemption in, as well as deductions that really only help people who are in the "rolling dimes to pay for gas" category. Just to pull a number out of thin air, 15%?

In theory, part of the reason why wealthier people seek out those deductions so fervently is BECAUSE the rate on them is disproportionately higher -- even at a flat rate, they still end up paying much more, in dollars, than most of us. Corporations, too, that currently often see base rates easily in the 50% (of net profits) range.

[Greenday]

Here's the problem with a flat tax.

Person A makes $1,000,000. He pays $150,000 (15%) in taxes and is left with $850,000, way more than enough to make a living on.

Person B makes $25,000. He pays $3,750 in taxes and is left with a whopping $21,250 for the whole year. But $21,250 isn't much when you have rent to pay each month, food, gas to get to work, etc.

Sure Person A is paying a lot more, but it hurts the little guy a lot more because they don't have much to live on as it already is.

[crashhelmet]

I've always had trouble accepting the flat tax ideas because of the disparity of wealth amongst the people.

10%, 12%, or whatever the number may be, isn't much to a millionaire or someone in the $250k and up brackets. The amount might be big, but the cost of living doesn't inflate with their income levels. Sure, they're paying out ~$25k in taxes, but they still have ~$225k to live off of. $4 for a gallon of milk, $2 for a loaf of bread, or $1.50 for a head of lettuce is nothing for them.

That same amount for someone working for minimum wage, or slightly higher, could be crippling. It could be the difference between eating PB&J or Ramen.

So what do we do? How do we fix it?

Flatten out Income taxes, but increase and add more luxury and sin taxes?

Want that big screen TV? $800 + Sales Tax, plus 4%(random number) Luxury tax? Start charging fees to have a Driver's License in areas with working public transportation?

Income has to come from somewhere. The greed and corruption from "Corporate America" in the last few years has shown that privatization will never work.

[the_std]

So what do we do? How do we fix it?

Flatten out Income taxes, but increase and add more luxury and sin taxes?

Want that big screen TV? $800 + Sales Tax, plus 4%(random number) Luxury tax? Start charging fees to have a Driver's License in areas with working efficient public transportation?

Fixed that for you.

I agree with everything you said if you add in that little caveat. In a lot of areas in both Canada and the US, there is likely functioning public transportation, but its layout or implementation might make driving the only real option. For example, it takes me ten minutes to drive to work, but taking the bus took me an hour because of ridiculous transfer points.

I know that this is the case with a lot of the more spread-out cities in both countries. In places like NYC, the public transportation has to be efficient due to size constraints, but that's not the case with, say... Los Angeles.

Anyways, back to the main point, I completely disagree with the idea of a flat tax for the reasons both Crash Helmet and Greenday pointed out; ten percent is a vastly different amount to the wealthy and even the middle class. I'm not really educated on the matter enough to suggest a different solution, but I know enough to say that a flat tax is not it.

[AdminAssistant]

STD makes a good point. My town has a bus system, but it's designed primarily to get the elderly, poor, and students to grocery stores and doctor's offices, and the stops reflect that.

[bex1218]

I make less than $18,000 a year. I don't know much about this like std, but I agree. I am lucky right now to have roommates. I have some luxury once a month to get groceries and something (usually small) to spoil myself. If I was alone, I would need a second job just to pay for a roof over my head and groceries. Its expensive to live in my city.

And trasportation is very limited here.

[EricKei]

Good points --

Greenday, in your example, what if the "poverty level" (gross income level under which you pay NO taxes) were more realistic than it often is today? e.g., more like 30k than the current range of 10~16k (I wanna say it varies by state, tho that may be unofficial)?

Note that the auto-exemption would still apply, as in my hypothetical situation -- the person making 25k would actually get tax back in that scenario, even if only a tiny amount.

http://www.taxpolicycenter.org/taxfa....cfm?Docid=389

[Panacea]

Just as one idea along the lines of "get rid of many of the loopholes" -- what about the notion of a flat tax, with fewer exemptions available?

The Flat Tax is a shell game. In order to be revenue neutral, that is to generate as much revenue as our current tax system, the tax rate would have to be set higher than what proponents are advocating.

Right now the proposal is for 23%.

Let's look at an item that is priced at $100, and assume the sales tax is 5%. So with tax, the item costs $105.

With the flat tax, which is built into the price, the item would cost $77, the tax would be $23 for a total price of $100. Sounds good, right?

Well, let's consider this. Look at the math. To get that $100 price tag you actually have to impose a 30% tax. People miss this because they aren't used to thinking of the sales tax built into the price.

FactCheck.org has a great article on this here.

[SongsOfDragons]

The Flat Tax is a shell game. In order to be revenue neutral, that is to generate as much revenue as our current tax system, the tax rate would have to be set higher than what proponents are advocating.

Right now the proposal is for 23%.

Let's look at an item that is priced at $100, and assume the sales tax is 5%. So with tax, the item costs $105.

With the flat tax, which is built into the price, the item would cost $77, the tax would be $23 for a total price of $100. Sounds good, right?

Well, let's consider this. Look at the math. To get that $100 price tag you actually have to impose a 30% tax. People miss this because they aren't used to thinking of the sales tax built into the price.

FactCheck.org has a great article on this here.

Someone correct me if I'm wrong? Isn't this basically what the UK VAT is?

[EricKei]

Panacea -- Again, I see where I really should have clarified what I was typing ^_^;> Mea culpa.

I was thinking of a flat *income* tax. Sales tax would definitely be a different matter -- In the US, in particular, I would think that a flat sales tax and/or scenario where the price you see already INCLUDES the tax would lead to tips being included in food prices at appropriate places, as many countries do now, afaik....Might it not?

[Chromatix]

First of all, the only difference between VAT and sales tax is that with VAT, the price on the shelf already includes the tax. In your example, it would say $105 and ring up at $105. With sales tax the sticker says $100 but it still rings up at $105. I think the way VAT does it is much less confusing.

Meanwhile, I would propose something much more radical than a flat income tax. I would suggest that taxation should be totally invisible to the ordinary wage or salary employee. Their pay rate - especially at minimum wage - is what they take home and keep. Instead, their employer is responsible for paying taxes on their behalf - call it payroll tax or something. This is at a flat rate for easy administration - it must not be necessary to give employers information about how many other jobs their employees are taking. It is only necessary for them to note where each employee's place of work is (in other words, taxes get paid within the US for business physically conducted there) and how much each employee got paid.

People with significant non-wage and non-salary income - from a sole-proprietorship business, profits on the stock market, whatever - would be required to pay tax at a flat rate - equivalent to the payroll tax rate - based on their profits. Profits are of course gross income minus deductible expenses - so the devil is in the details of what is and is not deductible. An important factor, I think, is to ensure that money sent overseas is not deductible - that should close most "offshore" tax loopholes. The same rules and rates should apply to corporate taxation - especially since the big ones keep clamouring for more equivalence to natural persons!

Note that I said "equivalent" tax rate and not "equal". That is because payroll tax is paid *on top of* the payroll expense, while income tax is paid *out of* said income. So the nominal income tax rate should be slightly lower than the nominal payroll tax in order to make the rates equivalent. (Eg. 25% payroll tax is equivalent to 20% income tax.)

I don't want to speculate about what the final tax rate would be, as I simply don't have the information in front of me. But that's a quantitative thing - the qualitative effect would be that ordinary people no longer feel taxation as a burden directly on themselves, while a simpler tax code would make it harder for corporations and the rich (who can afford to pay taxes by definition) to find loopholes or evade auditing. Since money is disproportionately controlled by the wealthy, this should help greatly with balancing the fiscal budget.

There is of course a hidden side-effect which might not be so pleasant. The cost of hiring a minimum-wage employee goes up for the employer, because he now has to budget for the payroll tax. On the other hand, since minimum-wage employees would earn more per hour, they might no longer need to work two jobs to make ends meet, and then they might be able to forego expenses like babysitters to balance the books further. It is therefore possible that the effects would work out overall. Reliable data would be needed to check this, however.

[Tanasi]

Personally I think all employees regardless of compensated amount should receive the whole check no withholding of any taxes, dues, whatever. Then that employee should have to pay their taxes, dues, fees, whatever each month. I also propose instead of the lie of employer/employee half of FICA and Medicare the employer adds their part to the employee's check and let the employee be responsible for payment after all by law the employee is the responsible agent. Should the taxes not be paid then there's only one person to go after and it would literally save employer's millions of dollars each year.
Now everyone would be on the same level in seeing exactly how much they're paying in taxes and then maybe just maybe take more of an interest in how those tax dollars are being spent.

[EricKei]

I think the way VAT does it is much less confusing.

Agreed.

Instead, their employer is responsible for paying taxes on their behalf - call it payroll tax or something.

Actually, this part of it is already done. In the US, at least, your Employer pays taxes on top of what you already pay/in addition. This page explains the basics.

Note that self-employed people pay BOTH the "employee" and "employer" parts in taxes, as they are both, rolled into one. It's the price you pay for freedom...

[draco664]

Personally I think all employees regardless of compensated amount should receive the whole check no withholding of any taxes, dues, whatever. Then that employee should have to pay their taxes, dues, fees, whatever each month.

Are you kidding? How on earth do you expect the poor, hardworking plebs to manage their money if they just get it all in one go? They'd go and blow the money they should be giving to the taxman on food or heat, and then where would we be? It would be anarchy!!!!




In all seriousness though, if people actually got the money and physically had to hand their taxes over, rather than have them taken out without seeing it, I imagine that there'd be quite a bit more dissatisfaction. People might start asking just what they're getting for all that money they hand over every month.