Purpose(s) of the Tax Code

[erchess]

I am starting this in response to a comment on another thread where someone stated that he likes the use of the Tax Code for Social Engineering but did not elaborate on why.

We all know that one purpose of the Tax Code is to raise revenue. I would advocate that this be the only purpose. If we want to encourage people to own their own homes or to work even though they can get only low wage jobs, I would like to find ways that do not involve the tax system.

I would tax gross revenue before any expenses. The number of people you support would not save you anything. Your charitable contributions would save you nothing. Your business expenses would save you nothing. You would be taxed on gross income from your stock sales and your basis would be irrelevant. I would tax you on every penny that passed through your hands. Once your income was calculated I would apply progressive tax tables or schedules similar to the ones we have now.

Since I don't deal with accounting issues other than taxation, I suppose that I would need to find another way to make my living if anything like my idea became law. I'm not losing any sleep at this point because every line of the current code has highly paid lobbyists working to keep it in place.

[George Boutwell]

For example?

I would tax gross revenue before any expenses.

So, you own a grocery store and your sales are $10 million but your cost of goods sold is $9.8 million. What amount gets taxed?

You decide you're paying too much tax so you downsize to a convenience store, where your sales are $500,000 and your cost of goods sold is $250,000. You can't be there all the time so you have to hire others and pay $150,000 in wages, payroll taxes and benefits. What amount gets taxed? If you have to pay $50,000 rent, does that make a difference?

You're a plumbing contractor with $2 million in revenue and $1.5 million in payroll expenses for all the plumbers who work for you. How much tax do you pay? What about the $300,000 in vehicle expenses?

[bertrans]

Tax Code

An historical perspective. The ancient Romans had a rather unusual tax system - I'm talking about the period of the Empire. Scenario: the appropriate committee of the Roman Senate (yes, they had committees) would determine, using whatever demographic records they had, that the province of, say, Syria, owed 1 million sesterces in tax for that year. Similar proposed assessments would be made for all the other provinces. Thereupon, the tax authorities would hold, in effect, a sale: they would 'farm' out the tax contracts to willing buyers (wealthy men, with considerable resources). So, let's say one such buyer purchased the Syrian 'contract'; he would pay to the Roman authorities the 1 million. Step two: since this was an investment, it had to be recouped. The businessman would hire tax collectors within Syria and instruct them to collect the 1 million - plus a profit. It was an investment, remember. Is it any wonder that tax collectors were amongst the most reviled figures in the ancient world? An exception for St Matthew, of course, who changed professions.

[jainen]

a few kinds of tools

>>find ways that do not involve the tax system<<

Government only has a few kinds of tools. There is the police power. And there is taxation.

If you accept that government has any purpose at all for establishing public policy, would you rather it did so with police powers or taxation?

[Bees Knees]

We all know that one purpose of the Tax Code is to raise revenue. I would advocate that this be the only purpose. If we want to encourage people to own their own homes or to work even though they can get only low wage jobs, I would like to find ways that do not involve the tax system.

Your argument is just another way of advocating the flat tax. When I go to the store to buy something, I pay a flat 6.5% sales tax. It does not matter how many people I support, how much I give to charities, or how much I pay in mortgage interest, my tax on the purchase is a flat 6.5% sales tax.

Why can’t that work for income taxes?

Because the income tax has always been a tax on wealth. The first income tax in 1913 only applied to the wealthiest 5% of the population. Since then, more have been included in the income tax system, but it has always raised the most revenue proportionately from the wealthiest.

Oh now you want to make it even for everyone? For the first time in almost a 100 years?

So that means instead of the bottom 50% of all taxpayers earning 13.42% of total income paying only 3.3% of total income tax collected, and the top 5% of all taxpayers earning 19% of total income paying 36.89% of total income tax collected, you want everyone to be even???

Have fun trying to get those 50% to agree to a huge tax hike.

[erchess]

My proposal is NOT for a flat tax

I would still have taxable income applied to tax tables or schedules featuring tax brackets similar to the ones we have now, only with lower percentages in all the brackets. In principle I would have even people on government doles of various sorts paying some tax and wealthier people paying proportionately more tax than less wealthy people.

I would eliminate all taxes on businesses. Profits would pass through to shareholders and be taxable as income to them. Losses would have no tax effect, not even to offset future income from the same entity. We would have to have some limits on the extent to which businesses could hoard profits away from taxation, but I would want to allow businesses some latitude to accumulate money for future needs.

I don't buy the argument that police power and taxation are the only two ways the State has to get people to do what it wants them to. I would say rather that the two means are incentives and punishments. Subsidization of home ownership could be accomplished through the lending industry as it is in Ireland. The earned income credit, the child care credit, and anything else intended to provide assistance to low income persons and to families could be administered through local Departments of Social Services. If Congress agreed with me that saving and investing should be encouraged, that could be done through existing banks, credit unions, s and ls, brokers, and pension fund companies.

[George Boutwell]

You left out some tools

Government only has a few kinds of tools. There is the police power. And there is taxation. If you accept that government has any purpose at all for establishing public policy, would you rather it did so with police powers or taxation?

Government has the power to establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, It's in the Constitution. You can look it up.

[jainen]

what you find wrong

>>The earned income credit, the child care credit, and anything else intended to provide assistance to low income persons and to families could be administered through local Departments of Social Services<<

There are many local programs but the ones you mention are federal. That's because they are national policy. What you are describing is not a restructuring of the tax system, but a political realignment.

EIC has very strong political support, so you seem to hold a minority opinion about it. Instead of just asserting that it should be eliminated, why don't you explain what you find wrong with it?

[erchess]

Reply to Jainen

First of all let's clarify one point. I have in mind that the EIC (and other family and low income benefits) would be mandated and funded by the Federal Government.

My problem goes beyond the above mentioned aspects of the Code. I think the whole Code is too complex and I think the reason is that it is designed with social engineering goals in mind. It simply rubs me the wrong way that any person who can balance a checkbook cannot do the most complex tax return. I want to simplify taxes. I find it particularly galling that there are sets of facts where the correct tax is open to debate.

I will concede that I am not going through this plan to simplify life in general. An industry will spring up helping people apply for the new benefits available through DSS. Other industries will spring up helping people and businesses apply for other sorts of benefits. What we will gain in my view is that the tax system will be more transparent and therefore viewed in a better light. We would not have various socioeconomic classes feeling that people in other classes do not pay their fair share of tax. We also would not have Warren Buffett paying less tax than his secretary pays.

[jainen]

more than them

>>the whole Code is too complex<<

It's pretty complicated, no question about that. Many people both inside and outside our industry feel this is an opportunity rather than an encumbrance.

>>An industry will spring up helping people apply<<

And, of course, lots of new bureaucrats to serve that industry. It could end up a whole lot MORE complex than it is now.

>>We would not have various socioeconomic classes feeling that people in other classes do not pay their fair share<<

We don't have that now. Everybody thinks "fair" means someone else has to pay more than them.

[Joe Btfsplk]

Gross receipts

I am starting this in response to a comment on another thread where someone stated that he likes the use of the Tax Code for Social Engineering but did not elaborate on why.

We all know that one purpose of the Tax Code is to raise revenue. I would advocate that this be the only purpose. If we want to encourage people to own their own homes or to work even though they can get only low wage jobs, I would like to find ways that do not involve the tax system.

I would tax gross revenue before any expenses. The number of people you support would not save you anything. Your charitable contributions would save you nothing. Your business expenses would save you nothing. You would be taxed on gross income from your stock sales and your basis would be irrelevant. I would tax you on every penny that passed through your hands. Once your income was calculated I would apply progressive tax tables or schedules similar to the ones we have now.

I

Since I don't deal with accounting issues other than taxation, I suppose that I would need to find another way to make my living if anything like my idea became law. I'm not losing any sleep at this point because every line of the current code has highly paid lobbyists working to keep it in place.

I would agree up to a point, but taxing gross receipts would not be practical. If you gross $ 100 by selling merchandise that costs $ 99, then anything higher than 1% tax would bankrupt you.

I believe all business expense including "employee business expense" should be deductible and any other expense such as interest, state tax, contrilbution, child care, etc. should be irrelevant to tax calculations. That way you could tax people at 2% and still avoid bankrupting low-margin businesses.

[OldJack]

a real job.

I am for repealing the individual federal income tax and having a federal sales tax (exempting such items as food).

If you look at states with a sales tax you will see that the most revenue for the state and local communities comes from the sales tax. The public automatically considers the sales tax as part of the purchase price and the sales tax is fair since you don't have to purchase the product if you can't afford the total price. Also, most folks spend what they make and would pay sales tax accordingly.

As a result we could all scrap preparing income taxes and do something more beneficial with our time. Of course some of us would have to get a real job.

[erchess]

The problem with a sales tax

is that it is inherently flat. I believe that I should pay a higher percentage of my wealth (and not just more tax) in taxes than should a minimum wage worker but that Bill Gates should pay a higher percentage than I do. However, if the sales tax were supplemented by a property tax and an intangibles tax I could go for that.

The only problem with intangibles is exemplified by a client I had in the days when NC had an Intangibles Tax. I don't recall if the scheme was actually carried out or merely talked about but the tax was based on your assets as of the last business day of the tax year. So the scheme was to sell all your assets on the prior business day and you could honestly report no assets for the Intangibles Tax. Of course, the Federal Capital Gains could get to be murder and the short term losses were not as good as long term losses at that time if memory serves.

[OldJack]

is that it is inherently flat. I believe that I should pay a higher percentage of my wealth (and not just more tax) in taxes than should a minimum wage worker but that Bill Gates should pay a higher percentage than I do.

That is a very socialistic view that you should pay more then I since you are more wealthy then I. I say if you feel that way just make a donation to the US Treasury but don't force your believe onto others.

Bill Gates does not benefit any more from the government than I do (contracts excepted), breathes the same air, enjoys the same freedom, and should not have to pay any more for government services than I do. Flat, good, and fair, are all desirable 4 letter words!

[George Boutwell]

Bill Gates

Men who are intelligent enough (or fund-raisers enough) to be elected to the United States Senate will blather about how the estate tax should be repealed because Bill Gates has already paid tax on his wealth once.

Until Microsoft stock is "marked to market" each year, I think it's fairly obvious that he has avoided paying tax on his unrealized capital gains.

Still, it makes a good argument, especially for those who don't have enough wealth to worry about "death taxes" anyway. And with those who do, it's always a reminder that if the contributions don't roll in fast enough, the exemptions can always be reduced, repealed, or simply allowed to expire.

The Gates family itself, of course, is opposed to estate-tax repeal. Or at least that's what their PR consultants tell them they should say.