Thought regarding a tax system

apdst said:

No, loopholes are unintentional holes in the law and deductions are intentional provisions that allow people not t be taxed on certain expenses.

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Fair enough. But whether they were intended or not, most of them are unnecessary and some of them (e.g. mortgage interest deduction, employer-provided health insurance exclusion) are actively harmful to the overall wellbeing of our economy. Not to mention all of these items increase the complexity of the tax code, which itself costs money.

Back in the day? You're only 20 something. Back in the day for you was 2005! :rofl

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Yeah, I lived on $20,000 for a few years in the middle part of the past decade, right after college. It was doable.

It doesn't matter what you you think it should cost to live. What matters, is that if a person wants a lifestyle that costs 80 grand a year to maintain, they have the right to have that lifestyle. This is still America, afterall.

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I agree...if they're earning $80,000 in post-tax income they can spend it however they like. If they're only earning $72,000 in post-tax income then they shouldn't be spending $80,000 unless they're willing to go into debt. That's not the government's fault for taxing them too highly, it's their own fault for not planning accordingly (even if you consider that tax rate too high). I'm more sympathetic to people who truly CAN'T pare back their spending any more (i.e. the poor), but if someone can't cut back from a lifestyle that requires $80K per year then it sounds like they've made some bad financial decisions.

You pay $28,000+ a year in taxes?

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Not quite...I think my total federal tax burden will be about $24,000 this year, and I don't anticipate it being a problem. The other thing to keep in mind is that 28% is the MARGINAL tax rate for people earning $100K...what they pay on their last dollar of income. Most of their income is taxed at less than that.

Kandahar said:

Fair enough. But whether they were intended or not, most of them are unnecessary and some of them (e.g. mortgage interest deduction, employer-provided health insurance exclusion) are actively harmful to the overall wellbeing of our economy. Not to mention all of these items increase the complexity of the tax code, which itself costs money.

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Allowing the private sector to keep it's hard earned money is never harmful to the economy. Putting that money into the hands of the government does nothing to help the economy.

Yeah, I lived on $20,000 for a few years in the middle part of the past decade, right after college. It was doable.

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Didn't say it wasn't doable, but do you really think it's a good idea to encourage people to live on 20 grand a year?

I agree...if they're earning $80,000 in post-tax income they can spend it however they like. If they're only earning $72,000 in post-tax income then they shouldn't be spending $80,000 unless they're willing to go into debt. That's not the government's fault for taxing them too highly, it's their own fault for not planning accordingly (even if you consider that tax rate too high). I'm more sympathetic to people who truly CAN'T pare back their spending any more (i.e. the poor), but if someone can't cut back from a lifestyle that requires $80K per year then it sounds like they've made some bad financial decisions.

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Do you have kids? Ol' lady? House note? Car note? Been divorced? Call me in 20 years. I'm sure your tune will change.

Not quite...I think my total federal tax burden will be about $24,000 this year, and I don't anticipate it being a problem. The other thing to keep in mind is that 28% is the MARGINAL tax rate for people earning $100K...what they pay on their last dollar of income. Most of their income is taxed at less than that.

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I'm talking the scenario of taxing people on their gross, with no deductions, as you're suggesting should be done.

Did you take any deductions?

apdst said:

Welcome to our current tax code.

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The current tax code doesn't operate that way. If you move from the 15% tax bracket into the 25% bracket only the income that exceeds the 15% limit is taxed at 25%, not all of your income.

Any replacement should probably operate in a similar fashion. If there's a tax rate at income up to $75,000 and a different tax rate at $75,000 - $125,000 the higher tax rate should only apply to income over $75,000 not all of your income. Otherwise it does create a disincentive to earn more. (A major problem with most of our welfare programs.)

Generally speaking, I actually really like the idea. But, I have two concerns.

First, I would be more comfortable doing this if the single plan included ALL taxes. Eliminate every other tax and roll it into this one. Otherwise you have the problem of all these regressive taxes lurking around messing up the progressive nature of the system. For example, sales, property and FICA are all regressive. So if you still had sales and property and FICA taxes PLUS this tax, then what you actually get is:

1) baseline * 1 + baseline * 7
2) baseline * 2 + baseline * 6
3) baseline * 3 + baseline * 5
...

See what I mean? Those other taxes undermine the plan because they are cut in the opposite direction- you pay a higher percentage the less you make. That's the reason the federal income tax is basically tweaked so you pay none if you're in the lower half- because those are the folks getting hit the hardest with the regressive taxes. So, if you roll all taxes together, so everybody's total tax burden really goes like you describe in the OP, that would work. Otherwise it won't. Obviously including state taxes in a federal plan would be weird... We could just say have the states follow the same scheme or whatever though for the sake of discussion.

Second, I think capital gains income would just need to be treated as every other kind of income. I see no reason somebody making $1m/year in income by actually working should pay double the taxes of somebody making $1m/year just by investing. If you want, you can eliminate the corporate income tax if you make investors pay the same rate as on other types of income.

Zyphlin said:

They do.

They don't have a right to have their house subsidized by my tax payer dollars

They don't have a right to their medical expenses being subsidized by my tax payer dollars

They don't have a right to their education being subsidized by my tax payer dollars

Hell, they don't even have a RIGHT to their charitable donations being subsidized by my tax payer dollars.

They have a right to spend their money. They have the PRIVLEDGE of deducting certain ways they spend that money from the amount of taxes they pay compared to someone else.

If you make 80K a year and I make 80K a year, we both have equal right to spend our money as we choose. However you for some reason think you have a right to more of your money if you spend it on education and a house while I spend it on a hummer and vacations. Seems you wish to give special treatment and government hand outs to people for doing what the government wants...that's not a "right", that's a government handout.

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So, what are you saying, you don't take any deductions when you file your taxes?

apdst said:

Allowing the private sector to keep it's hard earned money is never harmful to the economy. Putting that money into the hands of the government does nothing to help the economy.

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Even if that's the case, what I am suggesting is that we cut the overall rates as we eliminate the deductions. So I'm not suggesting a major tax increase, I'm suggesting either a revenue-neutral simplification of the tax code (if we use the current tax rates as a baseline for the simplification), to a modest overall increase (if we use the post-expiration of the Bush tax cuts as a baseline for the simplification). Either way it will save a lot of paperwork in filing taxes, and eliminate most of the most disturbing distortions in the tax code. The mortgage interest deduction and the employer-provided health insurance exclusion are essentially subsidies by another name...only they aren't even subsidizing anything beneficial.

Didn't say it wasn't doable, but do you really think it's a good idea to encourage people to live on 20 grand a year?

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Not at all. My point is just that if I could live on $20,000 per year, I don't believe for one second that others can't cut back from spending $80,000 per year if they need to. I view $20,000 as what a person actually needs to live on...anything beyond that is extra. Nothing wrong with spending extra...but the more extra someone has, the easier it should be to cut back if necessary.

Anyway, I don't really advocate a major tax increase on those earning $100K. Maybe a percent or two, at most. The ones who really need to pay more are the ones for whom it would hardly affect their lifestyle at all: the wealthy.

Do you have kids? Ol' lady? House note? Car note? Been divorced? Call me in 20 years. I'm sure your tune will change.

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All of those things are a result of one's own lifestyle decisions, except arguably the car note...and even that is mostly a lifestyle decision whether you buy a Ferrari or a Cavalier.

I'm talking the scenario of taxing people on their gross, with no deductions, as you're suggesting should be done.

Did you take any deductions?

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Even with all my student debt I'm still typically better off with the standard deduction.

I'd also like to point out that just because I don't support deductions (with a couple exceptions), doesn't mean I want to tax everyone at their marginal tax rate. So if your marginal tax rate is 28% on $100,000, your effective tax rate is less than that, which is OK with me. I did a back-of-the-envelope calculation, and under our current tax code, a single person who earns $100K and takes the standard deduction will actually only end up paying about 19% in federal income taxes.

Voted assuming my two concerns on the previous page were addressed- this scheme replaces all state and federal taxes of all kinds and investment income is treated like any other kind of income. Given that- like and between 4 and 6 for the base.

Kandahar said:

Even if that's the case, what I am suggesting is that we cut the overall rates as we eliminate the deductions. So I'm not suggesting a major tax increase, I'm suggesting either a revenue-neutral simplification of the tax code (if we use the current tax rates as a baseline for the simplification), to a modest overall increase (if we use the post-expiration of the Bush tax cuts as a baseline for the simplification). Either way it will save a lot of paperwork in filing taxes, and eliminate most of the most disturbing distortions in the tax code. The mortgage interest deduction and the employer-provided health insurance exclusion are essentially subsidies by another name...only they aren't even subsidizing anything beneficial.



Not at all. My point is just that if I could live on $20,000 per year, I don't believe for one second that others can't cut back from spending $80,000 per year if they need to. I view $20,000 as what a person actually needs to live on...anything beyond that is extra. Nothing wrong with spending extra...but the more extra someone has, the easier it should be to cut back if necessary.

Anyway, I don't really advocate a major tax increase on those earning $100K. Maybe a percent or two, at most. The ones who really need to pay more are the ones for whom it would hardly affect their lifestyle at all: the wealthy.



All of those things are a result of one's own lifestyle decisions, except arguably the car note...and even that is mostly a lifestyle decision whether you buy a Ferrari or a Cavalier.



Even with all my student debt I'm still typically better off with the standard deduction.

I'd also like to point out that just because I don't support deductions (with a couple exceptions), doesn't mean I want to tax everyone at their marginal tax rate. So if your marginal tax rate is 28% on $100,000, your effective tax rate is less than that, which is OK with me. I did a back-of-the-envelope calculation, and under our current tax code, a single person who earns $100K and takes the standard deduction will actually only end up paying about 19% in federal income taxes.

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You might want to re-calulate, because the standard deduction for a single person is only $5,800, which leaves a person making $100,000 in the 28% tax bracket.

Me? I'm itemizing. I have $4,000 in mileage alone, that I can right off, clothes, per diem, you name it, I'm deducting it.

apdst said:

I agree, but think those limits should be dictated by the tax code. I mean, a person that makes $100,000 a year and has to pay $28,000 in taxes is plum rediculus.

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Wonderful, then obviously under my plan you'd be pushing for the Tax Baseline to be set at 5 or less, which would make $100,000 a year pay 25% in taxes. 4% would be 20%. 3% at 15%. You're the one arbitrarily coming up with this 28% number.

I pay for six kids--that I can't claim on my taxes--a house note, buy gas for my truck, put tires on that truck, make repairs on that truck, plus all the other stuff that life requires that we have and you can bet it takes up every bit of 80% of my annual salary.

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You choose to have those kids, and if they're no longer able to be claimed because they're too old but you're still supporting them then you're choosing to do that as well
You choose to buy the house you bought
You choose to buy a truck instead of a more gas efficient vehicles
You choose to apparently buy a truck that necessitates repairs

Those are your CHOICES. You made them. It shouldn't be incumbent on the government and essentially other tax payers to subsidize your choices. Under my tax code whatever you're getting taxed would be the same as what someone else making the same amount would be taxed, and any alteration on you would alter it on everyone else. You're not special, you shouldn't be treated special.

apdst said:

You might want to re-calulate, because the standard deduction for a single person is only $5,800, which leaves a person making $100,000 in the 28% tax bracket.

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That isn't how it works. If you make $100k, you pay 10% on the first $8500, 15% on the income between $8,500 and $34,500, and so on. You don't pay 28% on the whole thing.

If you made $100k in 2011, you paid 21.62% or $21,617 in federal income tax if you filed as single (plus you would have to pay FICA on top). There is a calculator here- Tax Brackets (Federal Income Tax Rates) 2000 through 2011

That is without any deductions.

apdst said:

Allowing the private sector to keep it's hard earned money is never harmful to the economy. Putting that money into the hands of the government does nothing to help the economy.

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And not giving you a deduction for something special you spent your money on while not giving it to someone else is also taking money out of the economy...its just taking that persons money out instead of yours.

Where as if there isn't deductions for your special little purchases then the money going back into the economy is the same for you and him.

Why is your money more important to go back into the economy than someone else who earns the same amount of money but spends it differently? How does yours help the economy more than theirs? Why should theirs subsidize you?

Zyphlin said:

And not giving you a deduction for something special you spent your money on while not giving it to someone else is also taking money out of the economy...its just taking that persons money out instead of yours.

Where as if there isn't deductions for your special little purchases then the money going back into the economy is the same for you and him.

Why is your money more important to go back into the economy than someone else who earns the same amount of money but spends it differently? How does yours help the economy more than theirs? Why should theirs subsidize you?

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What deductions do I get that no one else is entitled to?

apdst said:

So, what are you saying, you don't take any deductions when you file your taxes?

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Absolutely not. The same way as I talk about why I have no issue with a Republican governor taking money for his state after its allocated to them, or a Republican senator taking pet projects after the money has been approved, even if they oppose it.

You play by the system that is in place currently, and the system as it stands currently necessitates deductions due to the way in which it is formatted and due to the other issue of principle that is more important to me... responsibility to my family...I am going to keep as much of my money as possible.

However, if and when there's an opportunity to overhaul the system in such a way that it removes such a process, reduces the size of government, doesn't prioritize who gets to keep their money based on what special purchases they make, then I'd absolutely go for that even if it may harm me some. I have no problem of going with my principles even if it does me a little harms...I actually do that every single time I vote Republican since I'm a federal employee.

You on the other hand are so self focused that you chuck out your principles even if you had a chance to enact them because its a little bit more inconvenient to you to allow you to keep the level of life you life and to hell with the benefit it would give to the country.

Me not taking a deduction wouldn't do jack **** for the good of the country. Simplifying the tax code, reducing the size of government, depoliticizing to a point taxes...that WOULD be good for the country and outweighs a little potential discomfort on my personal level.

The problem with federal tax systems, in general, is that there are a wide variety of state and local taxes they sit on top of. I do very much like systems that give deductions or credits per children. Maybe you could do a per capita per household or dependent group, to take significan pressure off of parents. While this might not be popular with extreme progressives or libertarians, most of the others don't like seeing the US birth rate fall below replacement, as it is now; I doubt we'll see an end to tax discounts for children anytime soon. Even though there are certainly plenty of politicians pleased with the low birth rates in Russia, Iran, and China...

I think there is merit to taxing everything at a flat rate, except maybe for poor people and discounts for children, this could essentially be part of some kind of standard deduction x household members or a per capita income in the family, it would essentially be the same at a flat tax rate. That would include business, and all income including capital gains.

I would like to see a good assessment of who is actually poor in our country, as the normal poverty level calculation seems pretty ambiguous.

apdst said:

You might want to re-calulate, because the standard deduction for a single person is only $5,800, which leaves a person making $100,000 in the 28% tax bracket.

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Start with a single person earning $100,000 in income.
Subtract his $3,700 personal exemption, and subtract his $5,800 standard deduction.
So he's paying income taxes on $90,500 of taxable income.

On $90,500 of taxable income...
He pays 10% on his first $8,500 ($850)
He pays 15% on his next $26,000 ($3,900)
He pays 25% on his next $49,100 ($12,275)
He pays 28% on his final $6,900 ($1,932)

By my calculations, a single person taking the standard deduction would pay $18,957 in federal income taxes on his $100,000 income...or 19%.

apdst said:

What deductions do I get that no one else is entitled to?

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If you spend your money on education you're entitled to get money back. If I spend that same money on a vacation I'm not.

The only reason you're "entitled" to that is because the GOVERNMENT deems it so. Its not a "right", its a government handout.

You talk about "free" to spend your money. Seems in reality you want people to be free to spend their money, but you want them to get a bonus from the government for spending that money how the government wants.

Why should you get a bonus for spending money in a different fashion than I? What makes your spending better? What makes your spending more worthy of being tax free?

And frankly, again, how about we get back on topic. For example, if your issue is that no deductions plus a 28% tax on those making $100,000 is bad then that's not so much an issue with the tax suggestion as it is with what someone may try to make the baseline.

The baseline begins at 1 and would need legislation passed to set it. Thus the vote at the top to see what baseline people would perhaps think is right.

Zyphlin said:

If you spend your money on education you're entitled to get money back. If I spend that same money on a vacation I'm not.

The only reason you're "entitled" to that is because the GOVERNMENT deems it so. Its not a "right", its a government handout.

You talk about "free" to spend your money. Seems in reality you want people to be free to spend their money, but you want them to get a bonus from the government for spending that money how the government wants.

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But, we're both able to write off our mileage to and from work, at 51 cents a mile, though. We're both able to.

Why should you get a bonus for spending money in a different fashion than I? What makes your spending better? What makes your spending more worthy of being tax free?

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It's more important to me and that's why I play by the very rules that the government created.

apdst said:

But, we're both able to write off our mileage to and from work, at 51 cents a mile, though. We're both able to.

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One thing that is likely similar between two people does not equal it being the same across the board. As my specific example specified. If you spent 10% of your income on education and I spent 10% of mine on vacation, you'd get a government handout for how you spent the money but I'd have to give the government a handout.

It's more important to me and that's why I play by the very rules that the government created.

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I have no issue with you playing by the very rules the government created.

I've got an issue however with a "Conservative" who cares more about their own excesses and lifestyle and a little discomfort when given an option of lowering the size of government, simplifying the tax code, reducing dependence on government bureaucracy, and stopping a systematic method of backhanded government redistribution of wealth by putting an incentive on certain purchases the government wants people to make. And that's not even taking it a step farther, that because of it possibly having a slight impact on your life choices and some discomfort you're against something that, on top of everything I already said, would assure EVERYONE is taxed rather than just some, removes the ability for Democrats to just target "The rich", and could potentially lower taxes for the vast majority of Americans if not all Americans.

apdst said:

But, we're both able to write off our mileage to and from work, at 51 cents a mile, though. We're both able to.

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But the question is why. What is it about spending $1 driving two miles to work, as opposed to spending $1 on a bottle of Coke, that makes it worthy of a tax writeoff? Why should the government even care?

Zyphlin said:

One thing that is likely similar between two people does not equal it being the same across the board. As my specific example specified. If you spent 10% of your income on education and I spent 10% of mine on vacation, you'd get a government handout for how you spent the money but I'd have to give the government a handout.

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Exactly, and that's hy hammering the crap out of people with taxes is a bad idea. Just because it works for you, doesn't mean it works for me.

I have no issue with you playing by the very rules the government created.

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Sounds like you do.

I've got an issue however with a "Conservative" who cares more about their own excesses and lifestyle and a little discomfort when given an option of lowering the size of government, simplifying the tax code, reducing dependence on government bureaucracy, and stopping a systematic method of backhanded government redistribution of wealth by putting an incentive on certain purchases the government wants people to make. And that's not even taking it a step farther, that because of it possibly having a slight impact on your life choices and some discomfort you're against something that, on top of everything I already said, would assure EVERYONE is taxed rather than just some, removes the ability for Democrats to just target "The rich", and could potentially lower taxes for the vast majority of Americans if not all Americans.

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Dude! Don't judge me!

apdst said:

Exactly, and that's hy hammering the crap out of people with taxes is a bad idea. Just because it works for you, doesn't mean it works for me.

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Whose suggesting to hammer the crap out of people with taxes? Seriously, you've just thrown out a random number at 28% and decided to act like that was somehow my suggestion.

Sounds like you do.

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Seems you're hearing wrong. However, I don't believe you're just playing within the rules the government created. I think you like, prefer, and would desperately hold onto the rules the government created out of self interest...country and principles be damned. That's significantly different than just "playing by the rules", that's embracing and supporting them.

Dude! Don't judge me!

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I'll be honest, I'm having a little fun with the whole conservative thing since so often people enjoy having a go at me for not being "conservative" because its not lock step in the method they want. However there is a point to it, specifically pointing out that sometimes we put certain personal thoughts or views ahead of conservative principle sometimes and that in and of itself doesn't necessarily negate one from being "conservative" as I'd hardly call you anything else but that.

I get it, you're looking out for your own. You're comfortable and you don't want anyone rocking that boat. However, I don't think the results of my suggestion would have an outcome such as you're suggesting, I think your suggestion is an over reaction, and I think the total benefit it'd have for the nation would be significantly more than any damage.

I have found that some conservatives instinctively shy away from criticizing subsidies if they happen to be located in the tax code. This is unfortunate, because this is where some of the least efficient subsidies occur, and should be a prime place for fiscal hawks to look for wasteful spending to cut. For example, if Obama proposed a new social program wherein the government would give people a few cents for every mile that they commuted to work, conservatives would be screaming bloody murder...and rightly so. They'd complain about social engineering, and how the government couldn't afford this, and how it isn't the government's place to get people to behave in certain ways...all valid criticisms. And yet, if you include exactly the same subsidy into the tax code instead of a social program, suddenly it's not only OK but it's essential.

Kandahar said:

I have found that some conservatives instinctively shy away from criticizing subsidies if they happen to be located in the tax code. This is unfortunate, because this is where some of the least efficient subsidies occur, and should be a prime place for fiscal hawks to look for wasteful spending to cut. For example, if Obama proposed a new social program wherein the government would give people a few cents for every mile that they commuted to work, conservatives would be screaming bloody murder...and rightly so. They'd complain about social engineering, and how the government couldn't afford this, and how it isn't the government's place to get people to behave in certain ways...all valid criticisms. And yet, if you include exactly the same subsidy into the tax code instead of a social program, suddenly it's not only OK but it's essential.

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Bingo. You nailed it. Great post. That's exactly right. It's this weird blind spot in their reasoning big enough to drive a trillion dollars through...

Kandahar said:

I have found that some conservatives instinctively shy away from criticizing subsidies if they happen to be located in the tax code. This is unfortunate, because this is where some of the least efficient subsidies occur, and should be a prime place for fiscal hawks to look for wasteful spending to cut. For example, if Obama proposed a new social program wherein the government would give people a few cents for every mile that they commuted to work, conservatives would be screaming bloody murder...and rightly so. They'd complain about social engineering, and how the government couldn't afford this, and how it isn't the government's place to get people to behave in certain ways...all valid criticisms. And yet, if you include exactly the same subsidy into the tax code instead of a social program, suddenly it's not only OK but it's essential.

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Technically, they're opposed to increasing revenue, because they want the federal government to be much smaller. They might prefer to replace with tax credit with a general tax reduction, for instance.

Part of it is the perception.

In one case the government is giving money, in the other case the government is just taking less money.

The issue of course is that in the latter case its never a situation where somehow that less money they're taking from you means the government is taking less money in general. In reality, typically other taxes are raised higher to compensate for the lower rate some are getting for "X" reason. Thus the wealth is backhandedly being redistributed but it takes a more macro view of the situation to understand that. The other thing is that what its doing is the government exerting some control over people by giving an incentive to spend money in certain ways, and thus is in essence penalizing those that don't go that way by taxing them at a higher rate.

If there was actually a case where a tax subside actually brought the amount of taxed revenue for the government DOWN in a grand scale I'd have less issue with it. But in general it seems our tax system is set up in such a way that we're taxed to higher degrees to compensate for the subsidies that are in place.