Kerostasis

This, by the way, is a misguided goal. I've studied tax law, and theres lots and lots of weird corner cases that pop up which need laws to describe what happens, and in the majority of cases the rule is written to be fair to the taxpayer in a way that wouldn't be possible with a blanket rule. Even if the rate is a single constant, the laws determining what counts and what doesn't count will fill books. But in general, more simplification will lead to less fairness, rather than the other way around.

Even with a flat tax, you will still need armies of accountants. The only difference will be who the accountants give their bill too.

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Judge_Leo

A flat tax would require the elimination of cash so the IRS could track ALL financial transactions. If not there would be extensive fraud. Perhaps we would eliminate the 1040, but it would be replaced by a much more in depth reporting requirement. Any financial transaction you make would have to be either taxed or you would have to prove that it was not a purchase. Birthday gifts, charitable contributions, your kid's allowance - all would have to be reported and verified to avoid the tax. What a mess.

Any time you propose that the Federal Government operate a program they will learn to lose money at it, this is no different. Eventually the rate would climb so high our economy would collapse, which it may do soon anyway.


I think we would be further ahead demanding a better job of managing the tax dollars that are currently collected.

CingularDuality

Funny, none of the states that employ a sales tax seem to have this problem, nor are there huge sales tax frauds being committed. Sure there will still be a few, but I doubt that the enforcement side of the IRS is going to need to get any larger...

And your average dumb drug dealer might be smart enough to save enough cash for a new Cadillac, but he's not going to be smart enough to pull off tax fraud, nor is he going to convince the local Caddy dealer to do it.

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TacticalGamer TX LAN/BBQ Veteran:

Steeler

Jesus, that would drive small business and start-ups, basically anyone who couldn't get their goods wholesale, into the ground. It's basically a tax giveaway to big distributors.

I like this less the more I hear.

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xTYBALTx

Dude...

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Judge_Leo

If sales taxes were 40% or more - and the sole source of revenue - fraud would be a huge problem. The only way to track transactions in a cost effective manner would be electronically.

A tax overhaul like this would only gain traction if it increased revenue, and that has always meant the middle class picks up the tab.

I suspect that your "dumb drug dealers" and their customers would be what would unravel the deal. A cashless society would require legal status and financial accountability for the poor folks who have never and never intend to pay any taxes. It would be vilified as a burden on minorities and there isn't a legislator alive that would touch it.

snooggums

The real problem is that the mega rich don't have income as much as investments. When you get rich by putting money into business and then use business expenses (tax free like planes and trips to areas you turn into a vacation) you get the benefits of a working man's income without the income. If you make 1 million in stock options that are reinvested in a tax free way or invested into tax protected savings like stocks and bonds you can easily avoid paying income tax and still become very wealthy because it isn't "income" for income taxes. The reason rich people donate to avoid taxes (many donate because they do care) is because it hits the next bracket that makes them pay less in taxes than they are donating. There are other investments to make that also help avoid paying taxes on "income" by making it not income that the middle class and below cannot afford to take advantage of. (Donating 40,000 to charity that saves then 50,000 on taxes).

The problem is finding out what transactions are best to tax. Republicans like taxing the middle class' income because they have to have a steady income to continually tap, noting that the middle class will simply choose not to buy overtaxed goods in most cases and justify not charging for estate taxes because that allows rich people to keep wealth that creates jobs for the middle class to have jobs that gives than easily taxable income... and so on. Democrats generally try to give the same kind of tax shelters to the poor because they cannot afford the taxes or the other benefits of society that the rich can pay for without thinking, so will be a drain on society if they don't get to keep their whole income. The best solution would be to find the middle ground of making the ones that can afford pay taxes and the poor who cannot afford to make enough to become paying citizens. The current tax system is progressive but would be fair if everyone who made money was taxed for it wether it was from a paycheck or an investment. the plethora of tax loopholes that allow people to avoid paying on income because of "investments" is what shoves the burden onto those who make the least since they pay the majority of their income relative to the rich for necessities.

But all in all even the poor have more materialistic and health wise than they did 30 years ago. Even the poorest have TV (cheap entertainment and access to world events through broadcast TV which is better than radio was previously), most have their own personal transportation or access to public transportation, most have access to some kind of health care and more independent housing available than 30 years ago. Relatively they are worse off than the middle class if you include non-necessity materialistic goods but most can afford even moderate necessity goods (like a washer and drier). Most home goods also last longer than they used to, they just get more of a workout (we put more miles on cars than we used to, watch TV more often etc) comparable to what we pay.

Kerostasis

Investments are taxed every bit as much as ordinary income, if not more. The IRS is actually pretty good at preventing those sorts of loopholes, despite popular opinion to the contrary. Even so called "tax free" investments usually do require you to pay taxes, the difference is merely in the timing. You might only have to pay taxes once you take the money out of the account, for example, rather than every year while its still sitting in the account. Truly tax free investment usually means investing in the government, since the government doesnt tax its own borrowing. Of course, it doesnt pay much interest either.

And I'm afraid you're very misinformed on the subject of charitable donations. It is nearly impossible to get a tax break from a donation that is bigger than the donation itself. At most, the tax incentive will make the donation less expensive for the donor, to help encourage them to give, but making a donation purely for tax benefits is usually a foolish plan. Rich people who donate to charity donate because they really do care, even if how much they care may be hard to guess.

For example, if I offered you 80 cents if you would donate a dollar to the homeless, would you do it? If you didn't care about the homeless guy at all, you'd just keep your dollar and not worry about my 80 cents. But if you cared about him at least 20 cents worth, then you'd be happy to take my offer and help the homeless out with a full dollar while only losing 20 cents yourself.

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xTYBALTx

Thank you for saving me a few minutes Kero :] Nice post.

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CingularDuality

I have no idea what you're basing this on...
You too. Why in the world do you think that the only way to track this would be if it were all done electronically? At the retailer's level, what's the difference between cash and plastic?

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TacticalGamer TX LAN/BBQ Veteran:

Judge_Leo

You're missing my point. I'll attempt an example. Let's say you want to buy a new ipod. In the store it is $150 plus the new sales tax of $60 for a total cost of $210. Let's say you also know a guy, that has a friend that can get you one for $160, if you pay him cash it's tax free. Seems pretty likely you would want to save the $50. Once you hand him the cash the deal is done and can't be traced. Multiply this scenario a million or ten million times a day. How would you enforce the law?

Also there would be a huge temptation for retailers to cheat, they do it now to an extent but the losses are calculated into the tax formula. Service industries that sell more than hard goods are the most difficult to regulate. Adding the potential for them to triple their profits is too much temptation.


Comparing a 6 or 7% state sales tax to a national tax that is 6 or 8 times higher isn't apples to apples.


States also collect many more taxes than just a sales tax. Property and income taxes are climbing here and in most other states, license fees are climbing just as fast. How would the states replace all of that revenue?

CingularDuality

We'd enforce it the same way we do now. How did that Ipod hit the streets without being taxed? Somebody was supposed to pay taxes on it. Your scenario has absolutely ZERO to do with your requirement that our economic system be cashless in order for this system to work.

You're just making stuff up now...

The states would have to figure for themselves how they're planning on taxing their citizens. That's a completely separate issue.

BTW, Texas doesn't have an income tax, and our state has a budget surplus.

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TacticalGamer TX LAN/BBQ Veteran:

Judge_Leo

OK I give up.

USN_Squid

I've studied the fairtax quite a bit, and reading this thread is confusing. There are two tax proposals being used interchangeably in this thread, I think; The fair tax and the flat tax. The two are very different.

For the benefit of clarification; The fairtax is a national sales tax which would abolish the IRS and rescind the 16th amendment. Those people below the poverty level would not pay tax (via "prebate"). The other is the flat tax and is very much the same system we have now, but everyone pays the same percentage.

Judge Leo, Your buddy with the $160 ipod is losing money, because wherever it came from, it was also taxed for that $60.

Steeler, small businesses stand to benefit quite a bit from the fairtax. Compliance with the current system is very time consuming and expensive. A higher profit margin (from reduced time and expense of tax compliance) would allow for competition to adjust the market and those effects would be seen from raw materials through manufacturing and to the retailer.

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Steeler

I can only speak from personal experience, Squid. I'm fairly confident that the already minimal amount of resources our (service-oriented) company spends on tax preparation, plus our normal taxes, is less than what we stand to lose from a severe increase in retail prices and the effect that would have on our contract negotiations. That comes from being very line-item focused to maintain a profit margin.

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