I'm not normally anti-tax, but...

I pay my taxes willingly and promptly.  I am extremely conservative about deductions and extremely vigilant about reporting income.  I am not generally against taxes or regulations that make taxing easier.  But I am irritated by the reporting changes which were included in the Health Care bill which nobody wants to admit to adding and which have nothing to do with health care.

Read the article, Stealth IRS changes mean millions of new tax forms, to see if your business might need to start gathering tax ids and file forms for every business to which you pay $600 a year or more.  Imagine having to collect tax information from Walmart, your telephone and internet providers, the people who clean your office, etc. etc.  Not to mention, dealing with all the forms from the people who pay you or buy your products.

It isn't clear to me how foreign entities are handled.  Are they ignored completely?  Do they count toward the 200 transactions and $20,000 limit, but not require a form.  Ugh!

What has been said:

902.1. Mark Hughes (05/24/2010 03:59 PM)

Taxes are important, but can be a large burden. I think it would be great if we just had a 10% flat tax, no deductions. 1 Form, gross pay * .1 = your tax.

We would all be so much happier.

902.2. David Vasta (05/24/2010 04:00 PM)

Ben, One should not have to pay taxes on income and there should be no reason for complicated TAX laws. Seems we disagree there. That simply put is redistribution of wealth. You might argue that point but that is my opinion after reading how income tax is spent.

Income taxes are something new to our country in the last 90 years. They are a burden on the people. They created a super-bloated organization called the IRS who harasses the people it depends on for taxes, and gave the government more money they did not need.

The new tax laws are even more complicated and with new tax laws coming because of health care and other junk they are going to get worse and the IRS is going to be even larger bureaucracy.

902.3. Ben Langhinrichs (05/24/2010 04:05 PM)

Thanks, Mark and David, for your thoughts. Not surprisingly, I disagree with both of you. I think that flat taxes are a horrible regressive idea, and I think redistribution of wealth is a generally good idea (in kindergarten, we called it sharing, and nobody called us communists then). This is simply an overly onerous requirement.

902.4. Nathan T. Freeman (05/24/2010 04:11 PM)

Eegads! The mammoth health care bill that no one actually read has provisions in it unrelated to health care!? I'm SHOCKED! SHOCKED, I tell you!!!

Who ever would have thought that Washington politicians would do such a thing? I can barely believe it!

902.5. Ben Langhinrichs (05/24/2010 04:17 PM)

I doubt anybody is surprised, Nathan. This is just an annoying requirement for a business. Oh yes, and, David, the first incomes taxes in the US were in 1862, so 148 years ago, not 90. Slavery was legal then too, but those taxes helped end it. Funny thing, that.

902.6. Mark Hughes (05/24/2010 04:25 PM)

yeah, i am old school.

902.7. Ben Langhinrichs (05/24/2010 04:35 PM)

Mark, no offense. Lots of different opinions on this. I just think I should pay a bigger share because I have been able to garner a bigger share. My cleaning lady probably needs every penny of her $25000 a year more than I need to save a bunch off what I make. Simplified taxes are appealing, but with computers, simplified doesn't have to mean flat. It would be just as simple to have a "flat graduated" tax where you could plug in a number and get out a number. But a truly "flat" tax of 10% would shift an enormous burden off the upper middle class (even more than the wealthy) onto the working poor. I'm not for it.

902.8. Chris Whisonant (05/24/2010 05:43 PM)

Heard about this last week from a right-wing commentator, but figured it was a lie. Oh well, maybe they're onto something. :P

I still think the fairtax would be much more of a solution to these problems.

902.9. Ben Langhinrichs (05/24/2010 07:18 PM)

Chris, I see no way that the "fairtax" would make any difference. Let's say that corporations have to pay a flat 10% tax of their revenues. The government still has to establish what those revenues are so they know companies are not cheating. That is what the forms are for, so a flat tax would not change the logic a bit.

902.10. Jerry Carter (05/24/2010 07:40 PM)

LOL... Ben, I'm glad to see you have a limit on government encroachment on your success as a capitalist. ;-) That just earned you a beverage of your choice on me at MWLUG.

I think there is probably universal consent amongst the taxed that a SIMPLER tax code would be beneficial to all.

The only problem is that the lack of simplicity has entrenched politicians who brokered power in exchange for certain tax code provisions.

Therefore - all of us, conservatives, liberals and in between all need to insist on electing and promoting politicians that will SIMPLIFY the tax code as a major focus of their efforts. It's their job to come up with the solution but SIMPLER should be the benchmark.

The disparity that more than 50% of the people pay effectively no tax can be addressed later. We can work on the details of flat/flair/curve later. Until we get people up on the hill dedicated to SIMPLE, we're not going to get anything but more of this sort of governmental "love".

902.11. Ben Langhinrichs (05/24/2010 08:03 PM)

Well, Jerry, I find it almost terrifying when we agree on something, but we do. Simpler is definitely better, and as you say, we can work on the details of flat/flair/curve later.

902.12. jon (05/24/2010 08:31 PM)

Wow, he compared distribution of wealth to sharing toys in kindergarten.. The level of ignorance is astounding... That dialogue is actually sickening.

902.13. Ben Langhinrichs (05/24/2010 08:48 PM)

jon, you appear to be new around here. We try hard to keep to civil discourse, even when we disagree vehemently. A opinion different than yours is not automatically "ignorance", and there is no need to debase the conversation by referring to anyone's opinion, even mine, as "sickening".

902.14. Peter Z Lardas (05/24/2010 09:22 PM)

Ben,

25 years ago, during the Reagan administration, a bi-partisan commission was formed to simplify the tax code. It succeeded. The tax code was vastly simplified over what it had been before.

For the past 25 years, this process has been reversed, as every year, some new exemption, exception, and addition has been added to said tax code.

If a simple code is passed again tomorrow, I guarantee that within 5 years, it will be, once again, vastly complicated.

The fact is, every time some new piece of legislation is passed, it invariably affects taxes - either raising them on some (unfavored) group or class, or lowering them for some (favored) group or class.

This could be in the form of, "let's raises taxes on those evil tobacco companies", or, "let's make going to college more affordable by giving tax breaks / credits to..." (insert definition of who will benefit).

Every time such a law is passed, it creates hundreds, if not thousands, of new pages to the existing tax code.

And yes, this is absolutely a form of "redistribution of wealth".

If you embrace using the tax code as a vehicle of redistribution, then I do not see how you can embrace "simplicity"... or at least how you can embrace it for any length of time...

;-)

902.15. Ben Langhinrichs (05/24/2010 09:34 PM)

Peter, I absolutely agree that the tax code is going to get re-complicated and need to get re-simplified over and over. That is the nature of democratic process as various forces work to meet their agendas. Even under Reagan, the tax code was re-complicated again after the simplification.

Where I am less clear is why simplicity and redistribution of wealth are related. Every Republican Congress and every Democratic Congress has added complexity to the tax code, while occasionally adding back simplicity. There is nothing about a graduated tax that is inherently complex, or in a flat tax that is inherently simple, other than a minor formula at the end. There is everything about loopholes and incentives, whether they happen to be in support of corporations or health care. I see no evidence of tax simplification under George Bush and the Republicans, just a different slant to the complexity, and a massive redistribution (or undistribution if you will) to the wealthier among us (yes, including me).

When we conflate the ideas of a "flat tax" with simplicity, it seems to miss the point. The tax law that requires filing the forms (in my post) would not be altered one whit by a flat tax. The tax rate is one issue, what it is applied to is a different issue. Filing requirements are just as necessary or not with a single tax rate as with a dozen.

902.16. Nathan T. Freeman (05/24/2010 09:39 PM)

Y'know, Ben, if you think you should pay a bigger share because you've made a bigger share, no one is stopping you. The reason it's called a tax is because you go to jail if you don't pay it. Otherwise it would just be called a "donation."

902.17. Ben Langhinrichs (05/24/2010 09:47 PM)

But, Nathan, I want YOU to pay a bigger share as well. I never said I thought it should be optional, or was in any way a noble deed of mine. Society is all about making concessions as part of a collective goal. If anyone doesn't like it, they can choose to leave the society. If they want to be part of the society, they have to agree to the concessions (and work to change them, if you like). That is true of many, many things besides just taxes, such as following laws.

It just happens that the concession of paying a higher rate of taxes at higher levels of income makes sense to me. If the laws change, I'll accept them or leave. It won't change what I believe, although it may change how hard I fight to change the specific concessions.

902.18. Peter Z Lardas (05/24/2010 10:10 PM)

Ben,

Well, you can see from my previous examples how redistribution and simplicity are connected. Both are examples of "targeted" tax increases / breaks.

In one case, you are punishing a behavior, in the other rewarding it.

When you get into the redistribution business, value judgments must be made. Winners and losers are picked by the government. This is necessarily a bit on the complicated side.

When the tax code gets simplified, invariably it will involve removing a great number of these "special" cases.

And yes, both Republicans and Democrats love to play this game. The main difference being which groups of people they choose to reward.

Now, even a flat tax can take into account people at the bottom end of the economic ladder. It would depend at what level of income you choose to start taxing people.

Personally, I would prefer to repeal the 16th amendment and find another way to tax individuals and corporations.

The chances of that ever happening are rather remote.

At the very least, I would like to see everybody pay their taxes the same way I did when I was an independent contractor. Eliminate with holding and make *everyone* send in four estimated tax payments per year. (I would also change the law so that the 3rd quarter payment is due November 1, rather than October 15. I'd like everyone to be in the proper mood on election day!)

902.19. Graham Dodge (05/24/2010 10:40 PM)

Well I'm a flat tax man myself but I'd insist on some significant new deductions for the family. Say...

* $20,000 per adult

* $10,000 per dependent child

So a family of four earning $60,000 would pay no tax while the college grad genius earning $60,000 would pay tax on $40,000.

I'll leave the choice of tax rate up to the mathematicians, but 20% seems a good place to start.

902.20. Erik Brooks (05/24/2010 10:55 PM)

I love the assumptions of a flat cost of living going on in this thread. :-)

902.21. DMP (05/25/2010 03:15 AM)

My last employer total cost for my employment.

Cost to employ $121,000

My Gross income $89,000

Net income $54,000

Why single with no home.

I went to pay cash for a car and the dealership refused.

With taxes and incentive programs I am screwed.

902.22. Jerry Carter (05/25/2010 02:49 PM)

It would seem reasonable (stop me there if you must) that IF our taxes are so very important to the functioning of our society, they ought to be held in very high regard by our dict- er democratically elected representatives. It ought to be a sacred issue, the tax code.

As Peter points out, when you have tax credits and exemptions, you are picking winners and losers. I find the contrast between this concept of fairness to be at odds with the concept of fairness embodied in the notion that earning more should mean that we a higher tax rate. It is not fair because no level playing field exists. Some are left free to run while those who have run especially fast are told they must run in the mud.

We also have a problem where more than 50% now pay no effective income tax, but all get a say in electing members of congress based on the promise of said member to bring home some bacon. This is like when I worked in Columbus and paid Columbus income tax but had zero vote when it came to increasing the income tax. Taxation without representation and representation without taxation are both apt to divide rather than unite.

Which comes to my pondering how those in favor of a progressive tax with a floor that leaves out half the population from the party, hence creating a divide and perception of "class", can also be so much for unity.

Behind all this seemingly contradictory tax policy is quite simply power. When we allowed the government to set the tax code, we opened Pandora's box on graft and corruption. Closing the box will be almost impossible without some equivalent to pressing the Reset button.

So the task of simplification is not an easy one. And it is also not enough. I agree we need to find a way to generate revenue for our government other than the convoluted mess we have right now. I would accept a VAT tax if they would flush the entire income tax. An income tax punishes success, a VAT tax punishes over consumption. What are our biggest problems just now? Flagging economy and soaring debt. Seems to me replacing an income tax with a VAT tax would provide the opportunity for Americans to begin generating wealth again while discouraging living beyond our means.

Also - Ben - a mutual friend wished to convey that altruistic sharing is noble in sentiment and laudable, but wholly different from forced tribute. I would add, if you are so thoroughly enamored with your success meaning you should be obligated to share more of what you have worked hard to earn, why not then release as open source Midas? I know that you will not because you have worked hard to build it. You earned it and it in turn earns you a living and you are right to keep it. No man has a claim on your hard work, correct?

902.23. Ben Langthinrichs (05/25/2010 03:31 PM)

In my opinion, VAT doesn't "punish over consumption" as much as it shifts the burden of taxes to those who have to use 100% of their income consuming. If person A makes $20K a year, and person B makes $200K a year, person A is likely to spend $20K, so a 15% VAT would tax that person 15% of income. Even if person B spends five times as much as person A, so $100K, he will be charged only 7.5% of income. Hardly seems fair to me.

It also seems to me that government is ALWAYS in the business of picking winners and losers. As far as I know, there is not a major passenger airport or convention center, and very few sports stadiums or marinas, that is built with no public funding. Yet person A gets almost no value from these, while person B's business may depend on flying places, and person B may be able to spend some of that 100K on seats at the stadium, a boat in the marina, a booth at the convention center. Governments pick winners and losers, but in a representative democracy, we pick the government.

For those, including our mutual friend, who missed the point of the kindergarten example, there is no altruism involved. If I want a treat, I am forced to share with my friends, but I am not forced to share my lunch. Necessary consumption (in kindergarten, that would be lunch) is not taxed, while elective consumption (treats) must be shared (the authority being the teacher).

902.24. Peter Z Lardas (05/25/2010 05:00 PM)

Ben,

In almost every proposal for some form of Sales / Consumption tax I've seen, your issue with taxing the low income person is addressed.

This usually takes the form of a credit or outright check at the beginning of a year that would compensate the tax payer for some predetermined base of expenditures.

In other words, below a certain threshold you would either not pay the tax, or would be reimbursed for paying the tax (with many of these proposals reimbursing at the beginning of a year).

In effect, this would be "progressive", in that basic needs to a certain level would not be taxed.

Beyond that basic level, people would then choose whether to be taxed or not. (They can choose to consume more, or not.)

If the US goes this route, it would be *very* important to eliminate the income tax at the same time. Otherwise, what will begin as a small (probably touted as "temporary") tax, will end up growing and growing - as it has in Europe.

Whatever method of taxation exists *should* be transparent and not in any way "hidden".

My major complaint with our current system is that A) it works mightily to hide much of the taxes we pay, B) The IRS is an entity that encourages over-reach of government power over our lives, can all too easily be abused for political purposes , and takes basic values of fairness and turns it on its' head - i.e. when the IRS *says* you owe it money, you are guilty until proven innocent. (Challenging and eventually "winning", will still cost a great deal of time and $$) , C) it is an incredibly inefficient method of taxation that takes waaaaay too much time out of my life to accommodate, and D) Sucks many $Billions out of the private economy for compliance that would otherwise go to growing businesses.

Replacing it with some form of sales / consumption tax would minimize A) and B), and would eliminate C) and D).

902.25. Ben Langhinrichs (05/25/2010 05:12 PM)

It may be in every tax proposal you have seen, but is there any country that actually does this? It sounds reasonable from a numbers point of view, but is unworkable from a real-life point of view. The poorest in society are often those who are least well equipped to save and distribute a lump sum throughout a year's worth of purchases. The credit system is worse, because it forces companies to be responsible for knowing your income when they sell you something, and your income for the coming year.

Additionally, one of the major complaints about the VAT systems in Europe are that they hide the tax, far more effectively than income taxes. It isn't even like sales tax, where the checkout person rings it up. With VAT, the tax is invisibly incorporated into the price. Who does that benefit? Mostly corporations, since they can get back the VAT paid (although the reporting issues are a nightmare for companies, which brings us back to my post).

I will say that your earlier suggestion to make everybody pay estimated taxes would make the extent of the income tax far more visible than it is now. You would need to make it far more frequent (e.g., monthly).

902.26. Erik Brooks (05/25/2010 06:31 PM)

@Ben - There's plenty of states that do this to some degree, e.g. here in FL there is no sales tax on foodstuffs.

One could argue that things like caviar shouldn't be considered a "basic need" whereas perhaps something like bread is, but now we're back to winners and losers again.

"It may be in every tax proposal you have seen, but is there any country that actually does this? It sounds reasonable from a numbers point of view, but is unworkable from a real-life point of view."

Do you know any countries that have tried this? I'm unfamiliar with any evidence here but I'd be curious to see it.

"although the reporting issues are a nightmare for companies, which brings us back to my post"

Having every company reporting VAT is probably less of a headache than having every individual reporting income, don't you think?

902.27. Peter H. (06/03/2010 08:43 AM)

Just have a look at the German tax system and then you know what a nightmare is.