[bobbtmann]

I'd hardly say the "why" is irrelevant. Your example is more of a short term problem, or more immediate and smaller in nature. You spend more than you make for a few years, and them, suddenly, you've got nothing.

On a longer time frame with a bigger scale, you have a society that has a middle-class that is steadily getting poorer, all the while needing to appear that they have an acceptable level of wealth. In our society, if you look like you can't afford to take care of yourself or your kids, then it's assumed that you're incompetent. You'd never get hired and you'd be forced to carry these negative associations into every new business or personal relationship you forge. So you borrow.

[JCDNWarrior]

One other problem is that much of the industry has been going off-shore the past decades, and the amount of (illegal) immigrants into the USA also seem to be very high, applying for very low wages jobs. Every issue has it's significance on what's going on. So, the nation is going into more and more debt, and it's industrial base is slowly disappearing, and it's means to pay back other countries near impossible.

Also, like Europe, the USA is trying to compete with China and India. I don't think it's a good idea to try to compare and compete with nations with millions of slave workers, who barely get enough paid, if at all (all spent on company food for instance) or who, in order to produce more quantity, they throw in some deadly toxin or some other problem.

Even worse in the comparison is that China especially gets to build many more electricity plants (dirty ones, but thats beside the point) than the West, and gain many industries. Many off-shored companies nestled themselves there.

That, has been making me wonder how feasable it is to slowly stop competing, stop trading as much as we do, to and from such nations, as it only empowers them. And what if, say, such a nation as China would suddenly say, "You owe us so much debt, that we'll force our own leader into the position of U.S. presidency"? Hope to hear opinions on that.

[jr2]

More likely just demand really high payments that force us to slowly bleed ever more to them.  And then once we are no threat, apply subtle pressure to do w/e they want aka become their little minion.

Or not.    IDK

[Kosh]

What about people who need to borrow just to make ends meet? Even if they're frugal with their spending? If you have to borrow so that you stay above the poverty line, then it's the system and not the people who are wrong.

When you have such huge swathes of people in that situation it shows something is seriously wrong with the economy.

[Unknown Target]

So in my class's mock congress we were tasked with this problem, and I felt that it went really well.

The initial proposal my group turned in was to basically replace the IRS with a set tax based on a fair poverty income amount.

An example of the system: if a fair (to both sides) minimum income per year was deemed to be 30,000 dollars, then people with incomes greater than 30,000 would be charged 5% of their income, subtracting the 30,000. So if you earned $35,000 a year, you would only get taxed on the 5,000 you make above 30,000.

As you go up to 10x the income ($300,000 a year), you might go up to 15% of that  is taxable, or .15 times (the amount you earn).

[General Battuta]

Isn't that pretty much exactly how taxes work right now, except it's going to cut revenue a lot because you lowered taxes so much?

I'm not sure I get the advantage.

[Unknown Target]

Isn't that pretty much exactly how taxes work right now, except it's going to cut revenue a lot because you lowered taxes so much?

I'm not sure I get the advantage.

Not really. The current tax code is swiss cheese. The rich are somehow both overtaxed and undertaxed at the same time, there's almost 50% of people in this country that don't even pay taxes, there's massive corporate tax loss...I guess some of the best evidence that the tax code is a mess is the fact that tax day produces so much trepidation in people.

Oh and to answer your question about the cutting revenue...you're not really cutting it so much as you're evening it out. Like I said, almost 50% of the current population of the US don't pay taxes. The richest people or organizations in this country are undertaxed. Instead of "cutting revenue", you're evening the system out at a reasonable level that you can actually support or sustain.

[General Battuta]

Yeah but as someone who actually files taxes, the tax you're suggesting doesn't sound any different at the core level. It's the same mechanism. You didn't even include a corporate tax.

Also tax day is easy. :colbert:

[Unknown Target]

Yeah but as someone who actually files taxes, the tax you're suggesting doesn't sound any different at the core level. It's the same mechanism. You didn't even include a corporate tax.

Also tax day is easy. :colbert:

I edited my previous reply, please read. But yea, I don't see why it would have to be radically different. You're still collecting taxes, just now you're doing it more reasonably and fairly.

[Mustang19]

UT, you have described exactly how taxes work already. It's called progressive taxation. Look it up on wikipedia.

50% of people don't pay taxes because a lot of people are not in the workforce (they're retired or children), and I don't know what you mean by "corporate tax loss" but fraud is an issue of enforcement not insufficient tax rates.

I think I've pretty much lost hope for the internet now.

[Unknown Target]

Perhaps I should explain then...the current tax code is full of loopholes that let a lot of taxables slip through. 50% of the population is not starving and just barely making it with $14,000 a year (I believe the current "poverty line"). Yet in the system I proposed, 50% of the population would currently have to be making $14,000 or less per year in order to get that sort of tax rate.

[General Battuta]

People who make that little don't have to pay taxes. I make a lot more than that and I barely have to pay.

Why don't you just propose closing loopholes instead of restating the exact progressive tax system we already have?

[Unknown Target]

Because I'm not restarting the same one we have now.  I'm starting with a fresh slate - one that we'll hopefully have a better time of keeping clean.

As for closing the loopholes, I honestly think there's not a whole lot of time for it.

[Mikes]

"The hardest thing in the world to understand is the income tax" - Albert Einstein.

[Mustang19]

Because I'm not restarting the same one we have now.  I'm starting with a fresh slate - one that we'll hopefully have a better time of keeping clean.

As for closing the loopholes, I honestly think there's not a whole lot of time for it.

Okay so can you like list the differences between your idea and the present system?

[Unknown Target]

Because I'm not restarting the same one we have now.  I'm starting with a fresh slate - one that we'll hopefully have a better time of keeping clean.

As for closing the loopholes, I honestly think there's not a whole lot of time for it.

Okay so can you like list the differences between your idea and the present system?

Every single addition besides what I said is a difference. What I proposed would be the extent of the tax code.

[General Battuta]

Because I'm not restarting the same one we have now.  I'm starting with a fresh slate - one that we'll hopefully have a better time of keeping clean.

As for closing the loopholes, I honestly think there's not a whole lot of time for it.

Okay so can you like list the differences between your idea and the present system?

Every single addition besides what I said is a difference. What I proposed would be the extent of the tax code.

If your goal is to put more taxes on the rich and relieve the poor why are you lowering the minimum wage and reducing the tax burden on the rich?

[Unknown Target]

Because I'm not restarting the same one we have now.  I'm starting with a fresh slate - one that we'll hopefully have a better time of keeping clean.

As for closing the loopholes, I honestly think there's not a whole lot of time for it.

Okay so can you like list the differences between your idea and the present system?

Every single addition besides what I said is a difference. What I proposed would be the extent of the tax code.

If your goal is to put more taxes on the rich and relieve the poor why are you lowering the minimum wage and reducing the tax burden on the rich?

I did not say that was my goal.

[Mustang19]

Every single addition besides what I said is a difference. What I proposed would be the extent of the tax code.

The only differences you mentioned were apparently elimination of loopholes and changes in the tax brackets from what they are now. Is this correct?

If so I guess it's okay but it's good to have things like tax deductions for families, and a 15% tax on $300,000+ would lower taxes from what they are now when the government is already running a budget deficit.

[jr2]

Hmm... this is interesting...

THURSDAY, APRIL 14, 2011
Congressional Testimony Regarding Tax Simplification
-- Posted by Neil H. Buchanan

Yesterday morning, I testified before the House Ways and Means Committee at a hearing on "How the Tax Code’s Burdens on Individuals and Families Demonstrate the Need for Comprehensive Tax Reform." I have copied below my prepared testimony. Tomorrow (and perhaps in follow-up posts next week), I will post some thoughts on the hearing.

Chairman Camp and Ranking Member Levin, and Members of the Committee:

Thank you for giving me the opportunity to address the Committee today. At the outset, at the risk of stating the obvious, I want to acknowledge that there are many areas of the Internal Revenue Code that could benefit from rationalization and simplification. In areas in which multiple provisions have accumulated over time, such as retirement savings and education incentives, the same incentives and benefits surely could be provided in a simpler fashion. That being said, I hope through my testimony to warn the Committee of some red herrings – issues that need not be addressed as you work to simplify the lives of Americans who honestly try to comply with the tax laws. Clearing away some tempting distractions will, I hope, provide more clarity – and time – for the Committee to focus on genuine tax simplification.


False Simplification

Assuming that the goal of simplifying the tax code is truly to simplify the lives of citizens, and that the exercise is not merely a cover for the elimination of the housing, education, retirement savings and other incentives that past Congresses have enacted to benefit the American people, the Committee should be wary of reducing “tax complexity” without reducing what we might call “overall complexity.” A simple way to reduce the complexity of the tax code, after all, would simply be to stop running certain benefits through the tax code and, instead, run them through some other agency of the government. The mortgage interest deduction, for example, could be turned into a benefit program run by HUD. The earned-income tax credit, which is a benefit to workers, could be run by the Department of Labor. The medical expense deduction could go through HHS.

Doing any of those things, however, would do nothing to make the lives of American taxpayers less complicated. If anything, compliance burdens would become even more onerous, as our citizens would now have to deal not just with the IRS but with newly-created administrative arms of other cabinet departments, or “mini-IRS’s” – which would also add to federal spending, by the way.

The IRS has the advantage of being a single agency with which citizens interact, and it is the logical agency to provide incentives and benefits the eligibility for which are conditioned on income levels. In addition, decades of experience have shown that the IRS and its employees possess the expertise, dedication, and experience – notwithstanding years and years of chronic under-funding – to handle the administration of important benefits that we administer through the tax code.



Multiple Rate Brackets

Reducing the number of tax brackets is not an important aspect of simplifying taxes, and it has the undesirable effect of making the tax code less progressive. Some analysts have asserted that the existence of multiple brackets is confusing, making it more difficult for taxpayers to figure out how much they owe in taxes each year. In fact, all of the work and uncertainty involved in tax compliance is related to what happens before tax rates even become relevant.

That is, once a taxpayer has determined his or her “taxable income,” it takes merely a few seconds to look at the relevant table to determine the tax owed. We could have ten or twenty tax rates without increasing the compliance burden. The taxpayer’s uncertainty is in figuring out what to include, exclude, deduct, credit, and so on, not in dealing with different rates. Again, it is the determination of taxable income, not the final step of determining the tax owed, that takes up all of a taxpayer’s time.



Phase-outs

As a related matter, the existence of so-called phase-outs is not inherently complicated, either. Again, the difficult part of the process is in figuring out whether a person is eligible for a particular provision, and what facts must be known before one can even understand the provision in question. The arithmetic involved in the phase-outs is a relatively simple after-thought, and the IRS is perfectly capable of providing simple tables to assist the taxpayer in determining how a phase-out alters the final tax computation.

I should add the qualification that phase-outs can pile up, with a different phase-out for each of several different tax provisions, which complicates compliance somewhat. Combining separate phase-outs into a consolidated phase-out would, therefore, allow taxpayers to apply a simple adjustment to all of the relevant provisions for which they might otherwise qualify. For example, if we were to set a “universal phase-out” range from, say, $100,000 to $250,000 for a single taxpayer, then any single taxpayer earning more than $250,000 would know that it is not worth the time to work through the various tax benefits. Taxpayers with incomes below $100,000 would know that they qualify for full benefits, and taxpayers in between would know in advance the fraction of the benefits that they can expect to receive.

More to the point, however, as the Committee sets priorities, its time would be much better spent simplifying tax provisions themselves – who qualifies, what can be deducted, and so on – than on hunting down and eliminating phase-outs.

In addition, it is important to remember that phase-outs serve two important purposes: First, they limit the cost of any tax benefit, by reducing the benefits received by people who can afford to live without the deduction. They are, therefore, a way to means-test benefits – benefits that, after all, cost the federal government money. Second, phase-outs avoid abrupt, all-or-nothing changes to tax benefits, with a taxpayer suddenly losing all of a benefit after hitting an income limit or some other arbitrary threshold. Without phase-outs, taxpayers can face especially harsh tax consequences as they suddenly lose a benefit that they would otherwise have received.



My message today, Mr. Chairman, therefore amounts to taking three items off of the list of possible approaches to tax simplification. First, taking policies out of the tax code – and out of the IRS’s jurisdiction – can make citizens’ lives more complicated, rather than less so, as it would simply relocate the complexity that our citizens face, rather than actually reducing it. Second, the number of tax rates is a non-issue, as far as complexity and compliance burdens are concerned. And third, the existence of phase-outs is nearly a non-issue, and the complexity of phase-outs can be all but eliminated by harmonizing phase-outs across all provisions that Congress chooses to means-test.



The Committee’s work is daunting, involving important work in eliminating and combining duplicative and sometimes ineffective tax benefits. That work will be difficult enough without becoming distracted by false promises of reduced complexity. I hope that my testimony will prove useful in directing the Committee away from those distractions.



Thank you.


POSTED BY NEIL H. BUCHANAN AT 3:01 AM

Thoughts?