This is topic Taxes in forum General Comments at The Ornery American Forum.


To visit this topic, use this URL:
http://www.ornery.org/cgi-bin/ubbcgi/ultimatebb.cgi/topic/6/10003.html

Posted by Lobo (Member # 89) on :
 
With the recent tax column and the April deadline around the corner, I pose this questions:

Do you have a problem with the current tax structure? What would you change.

I am OK with how I am taxed, I usually overpay, so I get $ back in February. I use TurboTax and am typically done in a couple of painless hours.

lobo
 
Posted by flydye45 (Member # 2004) on :
 
If you are educated, take the time to understand how deductions work and make records, tax time is pretty painless.

That said, I have a problem with forcing the employer to withdraw the money. It's not his job, it hides the cost of taxes and causes people to lose interest on their money by overwithdrawal.
 
Posted by NSCutler (Member # 1403) on :
 
First thing I want to change is that I want an itemized bill. I think if we all got one of those, preferably in October, democracy would get a lot more participatory.

We owe the fed just under $1000, just below the cut off where they can fine you, and they aren't getting it until April 15th. No way am I giving them an interest free loan.
 
Posted by Jesse (Member # 1860) on :
 
If you give enough money away, you don't actually have to pay Federal Income Tax.

So, I guess I'm cool with it [Smile]
 
Posted by pickled shuttlecock (Member # 1093) on :
 
quote:
Originally posted by flydye45:
That said, I have a problem with forcing the employer to withdraw the money. It's not his job, it hides the cost of taxes and causes people to lose interest on their money by overwithdrawal.

I suppose the alternative is to charge everyone at tax day. I expect the IRS would have to transform into a mafia to get all their money.

Or do you have another strategy in mind?
 
Posted by FiredrakeRAGE (Member # 1224) on :
 
pickled shuttlecock -

I agree. To show people exactly how much they're paying in taxes is the perfect way to force the tax decrease that should be required of government.

quote:
I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution or that have failed their purpose, or that impose on the people an unwarranted financial burden. I will not attempt to discover whether legislation is "needed" before I have first determined whether it is constitutionally permissible. And if I should later be attacked for neglecting my constituents "interests," I shall reply that I was informed that their main interest is liberty and that in that cause I am doing the very best I can.
Barry Goldwater
 
Posted by hobsen (Member # 2923) on :
 
The United States Department of the Treasury provides a Fact Sheet called History of the U.S. Tax System. In referring to the changes made during World War II, it notes,
quote:
Another important feature of the income tax that changed was the return to income tax withholding as had been done during the Civil War. This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.
http://www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml

Let us give the Department of the Treasury credit for pointing out the potential problem there.
 
Posted by jm0397 (Member # 916) on :
 
Cracking the Code

20 min video explanation

I posted some info on this a month or so ago. This year isn't going to work out, but I will be the guinea pig and do it next year.
 
Posted by IrishTD (Member # 2216) on :
 
For reference (from IRS).

FY 2005 Individual Income tax net revenue: ~$880 billion.

FY 2005 Employment taxes (net): ~$766 billion.

FY 2005 Estate/Gift taxes (net): ~$25 billion.

Total: ~$1670 billion. Divide by 300 million. ~$5570 per man, woman, and child in US.

Note: corporate revenue not included. And yes, the employment taxes include the "employer" portion, but really, the employee is roughly paying for that as well. And even if you want to take out 50% of employment taxes (overestimate since self-employed pay both shares), then you still get to ~$4300 for every man, woman, and child.
 
Posted by Lobo (Member # 89) on :
 
Woa! I am way underpaying then. Thank goodness for Bill Gates!
 
Posted by flydye45 (Member # 2004) on :
 
I think a lot of us can thank Bill Gates.
 
Posted by The Drake (Member # 2128) on :
 
This is my opening to plug the FairTax once again. A broad based consumption tax, progressive, no special favors because with no filing, there can be no incentive tax breaks. Did I mention no filing? You pay as you go throughout the year at the cash register, filling station, BMW dealership, etc.

Every person is guaranteed not to pay tax on the goods necessary for the basic standard of living. It gets rid of payroll/FICA taxes, which are highly regressive.

Additionally, it gives a huge boost to the ability of US manufacturing to compete overseas, because embedded payroll and other taxes are removed from the cost of goods sold.

Sadly, I think it will never happen, because the politicians will have no handouts to give to their favorite corporations and special interest groups.
 
Posted by Lisa M. (Member # 2398) on :
 
Psh, I'm still in college, and my mom fills out my taxes. And I get money back (looks like about $500 this year).

... I win!
 
Posted by TommySama (Member # 2780) on :
 
*High Five* Lisa! Pops did mine. $550 [Big Grin]
 
Posted by jm0397 (Member # 916) on :
 
That's 500 and 550 less than what you paid. Look at your year-end totals. You two are probably in the get it all back category, but you might not be.

1500 paid and 500 back means you still paid 1000 in taxes.

Not that anyone here as said this, but I always want to smack people upside the head about this time of year when ever I hear the "I got a return, I didn't have to pay taxes this year!" line.

However, to make you all feel better with your good fortunes, I'm looking at owing about $5000 this year - don't ever roll a rental property sale into an investment in your personal house - ouch! Well, it's not really an ouch since I did make a decent profit off the sale and knew it was going to bite me in the ass come tax time... still, just on principal, a $5000 check to the IRS really sucks! [Mad]
 
Posted by jm0397 (Member # 916) on :
 
Ok, now this does really piss me off.

There was this bill proposed last year, but it died: http://www.govtrack.us/congress/bill.xpd?bill=h109-6057

To summarize, this bill, if passed, was going to revise the capital gains tax to allow for indexing of inflation against the original cost/price invested.

Capital gains work like this right now: If you bought a stock for $100 20 years ago, then sold it for $125 today, you have to pay tax on that $25. Yet, in real dollar terms, you actually lost money. $100 from 1987 is probably more like $200 today, so you’d have to sell the stock for $200 or more to realize any true capital gain. So you take a loss, and then suffer the further indignity of being forced to pay a tax on money you never gained.

I was thinking about this because I was pissed when I looked at the calculations on my old house I sold last year. I bought it in 1997, lived in it until 2002, and then rented it out and sold it in May 06 because we needed the money to fix up our current house and maintaining an out of state rental is a pain in the ass. I was peeved when the taxes calculate off the original price I paid, not the adjusted real value, or even the appraised value when I converted it to a rental.

With improvements done before it was a rental (so not tracked as capital improvements) and inflation, I really didn’t make much money at all on the sale, yet now I owe $5000? WTF!! If that bill had passed, I probably wouldn’t owe any! We usually get a return of several $1000 so I’m out more than the $5000 owed!

I’m sure the bill died because it was a “just another tax cut for the rich”. Rich, poor, or just plain old middle class and smart enough to keep an old house as a rental for a while, what difference does it make? How fair is it to be taxed on a gain that isn’t really a gain, and is even sometimes a loss?

[Mad] [Mad] [Mad]
 
Posted by IrishTD (Member # 2216) on :
 
Getting a refund just means you gave Uncle Sam an interest free loan (as flydye hinted at above).
 
Posted by IrishTD (Member # 2216) on :
 
jm:

quote:
To summarize, this bill, if passed, was going to revise the capital gains tax to allow for indexing of inflation against the original cost/price invested.
Interesting. Never thought about this.
 
Posted by LoverOfJoy (Member # 157) on :
 
quote:
Originally posted by IrishTD:
Getting a refund just means you gave Uncle Sam an interest free loan (as flydye hinted at above).

Not necessarily. With Earned Income Credit it can be more like giving Uncle Sam a loan with a very high interest rate.
 
Posted by jm0397 (Member # 916) on :
 
Irish - same for me until it hit home.
Probably why there's next to no support or complaints about the bill being killed. Those who know, know how to insulate against it.
The rest of us get hit once and then, at least for me, I won't make that same mistake again.

There were also several other things I could have done but didn't know any better since this was my first foray into being a landlord.

I suppose it is kind of breaking even... I sunk a bunch of cash into the house in 2005 to sell it and took those as write offs, which helped get about a $5000 return last year, so if I look across 05 and 06 tax years, I'm breaking even.

Still, it's not the capital gains tax itself I'm peeved about, it's the not allowed to compensate for inflation thing...
 
Posted by The Drake (Member # 2128) on :
 
If you don't choose an investment that outpaces inflation plus tax treatment, you're not a very good investor. Don't let this happen to you! Spend all your money like me!

It would be a wash if it happened anyway, they'd just raise the rates to compensate.
 
Posted by flydye45 (Member # 2004) on :
 
I disagree with a consumption tax because the wealthy don't generally buy multibillion dollar yachts, instead investing their money.

I read in US News and World Report about something done in Sweden (or maybe Finland). They prorate traffic fines according to income. Let's face it, a $500 parking fine means nothing to a Paris Hilton. A $50,000 parking fine does. The only worm in this apple is politicians and police who "fix" tickets. If we could address that, I would be in favor of it.
 
Posted by flydye45 (Member # 2004) on :
 
jm0397,

I am in the same boat, except I am selling this spring. Luckily, I'm putting improvements on it after it served as a rental.

What happens when you've refinanced? Does that reset the value to more reasonable levels?

Edited to add: Check to see if the house was reassessed by the county for property tax value. You might be able to claim that as the current value, saving you some taxes.

[ March 29, 2007, 07:38 AM: Message edited by: flydye45 ]
 
Posted by Lobo (Member # 89) on :
 
What happened to "everyone is equal under the law"? I am totally against this Swedish or Finish idea.

Should we then make prison time dependant on age? 5 years is nothing to a 20 year old, but may be something more to a 70 year old.

Living in prison may not be so bad to a homeless man. It would be terrible to a millionaire. Do we need to put the homeless criminal in something far worse than his current state to make it equal, or just put the millionaire in a 2000 square foot house instead of his mansion.
 
Posted by jm0397 (Member # 916) on :
 
I was going to send this as a private message, but it's good info if anyone ever runs into the situation.

Fly - HA, my house was in Columbus... Billingsley Rd just off Sawmill. Right across from the new Hyundai dealer that went in a few years ago. I lived in Dublin (class of 1990 when it was still just one high school) for many years before coming out to NJ.

Anyway, there's a lot of good info online – just search for “rental sale reinvestment” or “rental sale taxes” or “income property capital gains”…

The main points are:

- If you have lived in a house as your personal residence for 2 years out of the last 5, you can sell it as a private residence and don’t have to pay capital gains if you don’t go over the 250k for an individual, 500k for a married couple rule. This is a good one if you want to just make a little bit up as a rental and then sell it. Just make sure it sells before you've been out for 3 years. (UGH! If mine would have sold when I first put it on the market I would have just made it in under this rule!!!)

- As best I can tell, no deal with reassessing the price (but there’s some technical finagling you can do with the structure value vs. the land value that can help). What you can do is take those improvements as capital improvements and not as one-time write-offs. Those will increase the original price... As in 5k for a new roof adds 5k to your original purchase, and then you can start depreciating it like the rest of the house if you want to.

- When you sell an investment property you have, IIRC, 180 days (but it might be 6 months) to reinvest that money in another investment property and avoid the taxes. There's a technical term for this but I don't recall.
You cannot, however, do as I did and just reinvest the money anywhere (ie not back into your personal residence). It has to be another rental or "income" property. If you're just tired of messing with being a landlord, there are other sheltered ways you can invest that money - such as real estate based mutual fund type things.
 
Posted by flydye45 (Member # 2004) on :
 
No WAY!

I lived in New Jersey and moved to...Shawnee Hills Ohio, about a mile from the dam next to the Columbus Zoo. My rental remained in New Jersey.

Sorry, the coincidence...

[ March 29, 2007, 10:45 AM: Message edited by: flydye45 ]
 
Posted by flydye45 (Member # 2004) on :
 
Lobo,

I am no socialist, however...

It depends on what you mean by "equality" under the law. If the point of the law is to discourage speeding, for example, both philosophies of the law will accomplish this.

The vast majority of the poor and middle class will not speed (at least not too much) due to the rather large fiscal inconvienience of the fine in relation to their salary. The numerically small wealthy, who can afford the fines, a driver, a lawyer etc are not discouraged much at all. This is based on a single fee fine.

However, if the point of the law is to punish equally, Paris Hilton won't laugh off a double parking ticket if it costs her $150,000 where she would one which cost $500. One reason why politicians might be less likely to dismiss such a law would be the revenue stream and pandering to Social Envy.

And if Robert Downey Jr. doesn't want to pay the fine, he shouldn't speed. This is akin to yacht taxes.

I offer it as an interesting aside, not a full formed and tested idea. Prod away!
 
Posted by Lobo (Member # 89) on :
 
We do have some things in this country that are not "equal" under the law. Taxes are one. The more money you make, not only the more you pay, put the higher percentage you pay.

To touch on something brought up in a different thread. It was mentioned that someone making minimum wage ($10,000/year) would have less to lose from being put in jail than someone making $60k/year. The thought being that the guy making minimum wage could get another job paying minimum wage quite easily once he got out while it would be considerably harder for the $60k guy to get back to his old salary level.

So, if we wanted to punish equally, we would need to have some sort of sliding scale of punishment, dependant on salary/standing in society/etc.
 
Posted by flydye45 (Member # 2004) on :
 
Considering sentencing and bail guidelines, we already have something like that. Compare an inner city kid on a drug charge compared to a Upper East Side scion.
 
Posted by jm0397 (Member # 916) on :
 
Fly - funny. I worked at the Bogey Inn most the time I was in high school, then on and off a few times through the 90's. About time for the Damn Jam, isn't it? My parents still live about 6 miles dues south of you - just past Old Dublin.
Small world

On the NJ front, do you have a way to claim an address in NJ when you sell that house? NJ was kind enough to enact a law a few years ago that taxes you a fixed % of the sale if you sell NJ property but don't live in NJ. Of course, It's gotta be unconstitutional, but what state rep are you going to complain to? The nice lady we bought from had already retired to AZ and got kicked in the you-know-where for around an extra $8000, IIRC. I knew from that point if I ever move before selling in NJ to maintain a NJ address until after the sale.
 
Posted by The Pixiest (Member # 869) on :
 
I would do away with witholding and make everyone cut a big fat check in April 15th so they know just how much they're paying with none of this "Ha ha! I get money back!" nonsense.

I want to people to sweat cutting at $15k check to the IRS and think "holy CRAP what are they doing with all this money??" rather than pay it out each money, get $500 back and think "cool!"

Then we should move election day to April 16th.
 
Posted by Jesse (Member # 1860) on :
 
Good luck financing all the prisons that's going to require, Pixiest.
 
Posted by FiredrakeRAGE (Member # 1224) on :
 
Jesse -

Why? All that's required is that you have the 'expected withholding amount' displayed on each paycheck. I know that I'd rather make interest off the money I owe the government than allow the government to make that interest.

Just going with a high-yield savings account will net you a decent return. As for those who are too poor to save - they won't owe taxes anyway.
 
Posted by LoneSnark (Member # 2005) on :
 
Ultimately this is a bad idea unless we somehow get taxes down to 15% of income; an unlikely turn of events.
 
Posted by velcro (Member # 1216) on :
 
With a consumption tax, what is to stop the wealthy from buying big-ticket items in another country? All the revenue currently collected from income tax will transfer to consumption tax, so the tax on yachts in the US will go way up. Ditto for new houses. The website claims it is revenue neutral and therefor price neutral, but it isn't price neutral.

Also, I thought that any major improvements you make to a house (not maintenance) goes into the basis for your sale and cuts down the capital gains tax. You have to keep records, though.
 
Posted by Jesse (Member # 1860) on :
 
FDR-

It's not about folks being "too poor to save". It's that many simply won't. We had the problem before we started witholding, and a lot of people lost homes to the Federal taxman, not just their respective states.

I don't even know if it's worth it to adress the much repeated Big Lie that "the poor don't pay taxes", but what the heck.

Is a single person without children earning 14,000 a year "Poor"?
 
Posted by FiredrakeRAGE (Member # 1224) on :
 
Jesse -

If you're making less than 20K a year, and paying taxes, you're doing something wrong. Hence 'the poor do not pay taxes'.

As for losing houses to the Federal government - if they can't pay taxes why wouldn't they be forced to sell their house?
 
Posted by LoneSnark (Member # 2005) on :
 
People miss-allocate their available resources all the time. I fully accept that withholding drives down the frequency of such miss-allocations.

BTW: I am single and earn $18k a year and I paid about $1k in taxes last year. What did I do wrong?
 
Posted by Doug J (Member # 416) on :
 
I would like to see a combination of a VAT tax for corperations and a varable sales tax for individuals. Basic amenities would be taxed little or none while the more luxuries the item, the more it gets taxed. This would help the poor, the rich pay thier fair share, no more or less, and it would also encourage people to spend less and save more.
 
Posted by jm0397 (Member # 916) on :
 
The "poor" don't have an income tax liability, but do not mistake that to mean they "don't pay taxes". They simply get a waiver on one of the many forms of taxation.

For the taxes paid to income made ratio, without even adding it up, I'll wager that single young person at 15k a year pays more percentage-wise than, say, a family in the 50k a year bracket.

FICA and Medicare, sales tax, property tax (yes, you still pay it even if you rent) utilities and direct taxes like gas and sin taxes...

The one fallacy to avoid is the assumption many folks seem to get of the "always poor" poor person. "Poor" is very predominantly a transient economic status that most folks don't remain in beyond their first few years working. I'm talking averages, of course there are exceptions.

So, in essence, the vast majority of today's "poor" have no federal tax liability but they will in a few years, making the "poor don't pay taxes" angle moot any way you slice it.

That's where we get the saying "you don't have a heart if you're not liberal by your 20's, and you don't have a brain if you're not conservative by your 40's" or something like that...

[ April 02, 2007, 12:54 PM: Message edited by: jm0397 ]
 
Posted by The Pixiest (Member # 869) on :
 
quote:
Originally posted by Jesse:
Good luck financing all the prisons that's going to require, Pixiest.

No, you'd start out with a transition. Since no one realizes how much they're throwing down the rathole of government, they wouldn't save enough.

So instead of your withholding going to the government the first few years, it would go into a savings/checking account in your name. You keep the interest, but more importantly, you cut the check for the obscene amount of money the government takes each year. You see it in big numbers and you write them out in long hand.

For extra emphasis, you should have to include your Social Security too. Both your side and your employeers side (Your employeer can pay it into your "Withholding Savings Account")
 
Posted by Carlotta (Member # 3117) on :
 
Now that is an idea. As long as people weren't allowed to spend anything in that account till after tax time.
 
Posted by The Pixiest (Member # 869) on :
 
Exactly Carlotta.

After you have paid the government their ton of flesh, you could transfer the funds from your WSA-2007 to any other account, take it in cash or transfer it to your WSA-2008 for use next year.
 
Posted by hobsen (Member # 2923) on :
 
That is a very good idea, Pixiest. Politicians would hate you, but it might actually save money.
 
Posted by Jesse (Member # 1860) on :
 
jm, fdr...

Go to the IRS website and download the 1040EZ.

Work out taxes for a single person making 14k a year, who has no children and is not a home owner.

They pay Federal Income Tax.

Pixiest-

Not to just be a naysayer, but you realize old Uncle Sam would hike the tax rate to make up for the effective revenue loss resulting from not getting intrest free loans, right?

[ April 02, 2007, 03:37 PM: Message edited by: Jesse ]
 
Posted by Lobo (Member # 89) on :
 
So, in other words, be smart and underpay your taxes while encouraging everyone else to overpay!
 
Posted by DonaldD (Member # 1052) on :
 
Jesse, as I understand it, bi-weekly tax payments aren't interest-free loans - that money is available to the government immediately (in practice, since the US is in debt, the government is already borrowing to pay its bills, so payroll taxes are in effect reducing its interest payments on those loans).

The end result is the same, though: getting less money as interest-free loans is equivalent to paying larger amounts in interest - either way, the government will be footing bigger bills.
 
Posted by The Pixiest (Member # 869) on :
 
Jesse: that's why, as part of the plan, we vote on April 16th. Tax 'n Spenders will be very unpopular and they'll actually have to reduce spending to save money.
 
Posted by Jesse (Member # 1860) on :
 
The reason it won't just make Borrow and Spenders more popular is.....

FDR, JM

Our 14,000 dollar a year single individual with no kids or home mortage interest pays 558$ in Federal Income Tax.

Please understand when I say you're repeating a Big Lie, I'm not actually calling you a liar.
 
Posted by Lobo (Member # 89) on :
 
Wow, 4% Federal Income Tax.
 
Posted by Lobo (Member # 89) on :
 
$558 on 14K earnings is basically nothing.
 
Posted by MattP (Member # 2763) on :
 
That $558 is much harder for that 14K individual to pay than $5000 is for a 90K individual to pay.

After a certain amount if income (much more than 14K) the income becomes more expendable.
 
Posted by Jesse (Member # 1860) on :
 
Not entirely relevant if it's hard to pay or not.

The poor pay Federal Income Tax.

On the plus side, it takes about 60 seconds to do their taxes.

[ April 02, 2007, 05:39 PM: Message edited by: Jesse ]
 
Posted by DonaldD (Member # 1052) on :
 
558$ means about 3 home-cooked meals every week
 
Posted by LoneSnark (Member # 2005) on :
 
Or, since they are illiterate and cannot add, it takes $1000 in penalties for incorrectly filling their returns.
 
Posted by Lobo (Member # 89) on :
 
Hold on. Let's compare apples to apples. A single individual with no kids or home mortgage interest pays $17,000 in federal taxes, not $5000.

Of course it is harder for someone making less $ to pay taxes (or other bills). Should we then tax the guy making 90,000 at a rate that will make his take home equal to the guy making 14k?

Last I checked, we live in a place that rewards hard work AND takes care of those who can't take care of themselves. (Unless Hillary takes over!)
 
Posted by FiredrakeRAGE (Member # 1224) on :
 
Jesse -

That all assumes the standard deduction. Most people can come up with a few deductions [Smile]
 
Posted by Zyne (Member # 117) on :
 
I paid my first quarter taxes today (am self-employed). OUCH that's a big check.

I do OK income wise, and I have a spouse who gets paid in beads and whiskey and we've two houses between us. My social security tax this year will be slightly higher than my income tax. THAT is saying something.
 
Posted by Automath (Member # 2720) on :
 
Pixiest-

It seems to me another way to achieve what you seem to want out of your idea is to simply get self-employed people into the majority. Australia seems to be heading in this direction, with self employment currently at 20 something percent of total employment.

To me it's a case of employment versus commercial contracting, and making the argument for the latter over the former.
 
Posted by jm0397 (Member # 916) on :
 
Jesse, I was simply repeating the 14k figure someone threw out. Whether it's 14, 12, or whatever, my point has nothing to do with the amount, so I didn't even bother to check.

To reword what I should have put more succinctly: There is a point where a person has no income liability. But it doesn't change my speculation - that someone scraping by with little to no federal tax liability still pays more in taxes percentage-wise than someone making more and paying more to federal taxes.

What I was getting at, I suppose, is those folks ought to get a break that goes beyond little to no federal liability.

Ewww. Now I need a shower. You made me talk like a socialist!
 
Posted by The Pixiest (Member # 869) on :
 
Automath: The goal is to reduce taxes. The means is to remove the fraud (on the government's part) from the tax system.

When you spread out and hide taxes, it has the same effect as spreading out your vegetables on your plate when you're a child. It looks like a lot less than there really is. It's an effort to deceive. Pay in a huge lump sum and everyone sees it.

Encouraging more people to be entrepreneurs would not work. America is more densely populated than Australia and I suspect that most of your self employed people are some sort of farmer/rancher? With an increase in city-folk, you won't have nearly the percentage of self-employed.

But in a way, you're right. The reason I think this way is because I saw the checks my parents cut the IRS during the handful of good years their small business had.
 
Posted by IrishTD (Member # 2216) on :
 
quote:
My social security tax this year will be slightly higher than my income tax. THAT is saying something.
The joy of being self-employed and having to pay both parts [Smile]
 
Posted by The Pixiest (Member # 869) on :
 
Irish: Really you pay both sides anyway. Your "Employer Contribution" is just more government smoke and mirrors. That's money you could be being paid if it wasn't going to the government. It weighs down any raise you get because your "Employer Contribution" goes up too. It's just more fraud.

Being self employed means they don't have a rock to hide it under.

Pix
 
Posted by jm0397 (Member # 916) on :
 
Just call your business a religion, the tax laws are pretty liberal to what can be a "religion". Then set up a, IIRC, 501c3 tax exempt organization, and pay yourself as the priest or grandpoobah.

IIRC, you only need like 4 members and certain jobs fulfilled like a board of directors and treasurer. All your costs of living can be paid by the curuch as expenses, and you draw a salary of very little or none.
 
Posted by Jesse (Member # 1860) on :
 
FDR-

Most folks making 14k a year can't [Smile]

Seriously. If I'm correct, you lose part of the 8,450 standard living deduction the second you try to itemize anything, and few people that poor have enough deductions to make up that difference.


jm-

I threw out the 14k 'cause it was something I figured we could agree was "poor"...at least for anyone not living with mommy and daddy.

Of course, we have the insanity of the EIC being available to single people over 25...how that hasn't resulted in an age discrimination suit is beyond me.
 
Posted by Zyne (Member # 117) on :
 
quote:
Pay in a huge lump sum and everyone sees it.
Cause addition is too hard to expect citizens to do.
 
Posted by IrishTD (Member # 2216) on :
 
Pix: I know. That's why I included both parts when I did the computations on the previous page. It's just far more obvious how expensive it is when you are self employed.
 
Posted by The Pixiest (Member # 869) on :
 
Zyne: Obviously, or people wouldn't be so stoked about how much money they're getting back.
 
Posted by Jesse (Member # 1860) on :
 
Pixiest?

You do realize several million Americans get far more back than they paid in, right?

The rest of them aren't saying "I'm Happy, I got free money". They're saying "I'm happy that my tax burden was actually slightly lower than what I thought it was."
 
Posted by Greg Davidson (Member # 3377) on :
 
If you assume that a big chunk of the federal budget goes to pay for national defense, you might make the case that wealthy people are getting more protection services than poorer people( [Wink] ).

My father always taught me that if ever I had to pay outrageously high taxes, I should be grateful for the opportunity to contribute.
 
Posted by The Pixiest (Member # 869) on :
 
Jesse: I would be interested in seeing stats on that. Especially once you include both sides of social security.

Do you have a link? or are you postulating?
 
Posted by Zyne (Member # 117) on :
 
quote:
Do you have a link? or are you postulating?
P -- I'm interested in seeing stats on this: Got a link to support people being "so stoked about how much money they're getting back"? Or are YOU postulating?

[ April 04, 2007, 10:35 PM: Message edited by: Zyne ]
 
Posted by Jesse (Member # 1860) on :
 
I assume that you're asking if I'm postulating about the EITC ?

quote:
The same data, in words: Currently for tax year 2006, for a family with two dependent children, the credit is equal to 40 percent of the first $11,340 earned, plateaus at a maximum credit of $4,536, begins to phase-out when earnings increase beyond $14,810, and reaches zero when earnings pass $36,348.
http://en.wikipedia.org/wiki/EITC

40% of the first 11,340 earned is a lot more than social security, medicare, ect.

Even if you include employer contributions.
 
Posted by The Pixiest (Member # 869) on :
 
Where does it say how many million fit the bill?
 
Posted by Jesse (Member # 1860) on :
 
Do I really have to do all your homework?
 
Posted by Omega M. (Member # 1392) on :
 
Whoa, Lisa and Tommy, your parents fill out your taxes for you? I've always had to do my own taxes, even while I was in college---though of course my parents helped me understand them the first few times. Are you never home to have access to the forms?
 
Posted by 0rnery (Member # 398) on :
 
quote:
Originally posted by jm0397:
Ok, now this does really piss me off.

There was this bill proposed last year, but it died: http://www.govtrack.us/congress/bill.xpd?bill=h109-6057

To summarize, this bill, if passed, was going to revise the capital gains tax to allow for indexing of inflation against the original cost/price invested.

Capital gains work like this right now: If you bought a stock for $100 20 years ago, then sold it for $125 today, you have to pay tax on that $25. Yet, in real dollar terms, you actually lost money. $100 from 1987 is probably more like $200 today, so you’d have to sell the stock for $200 or more to realize any true capital gain. So you take a loss, and then suffer the further indignity of being forced to pay a tax on money you never gained.

I was thinking about this because I was pissed when I looked at the calculations on my old house I sold last year. I bought it in 1997, lived in it until 2002, and then rented it out and sold it in May 06 because we needed the money to fix up our current house and maintaining an out of state rental is a pain in the ass. I was peeved when the taxes calculate off the original price I paid, not the adjusted real value, or even the appraised value when I converted it to a rental.

With improvements done before it was a rental (so not tracked as capital improvements) and inflation, I really didn’t make much money at all on the sale, yet now I owe $5000? WTF!! If that bill had passed, I probably wouldn’t owe any! We usually get a return of several $1000 so I’m out more than the $5000 owed!

I’m sure the bill died because it was a “just another tax cut for the rich”. Rich, poor, or just plain old middle class and smart enough to keep an old house as a rental for a while, what difference does it make? How fair is it to be taxed on a gain that isn’t really a gain, and is even sometimes a loss?

[Mad] [Mad] [Mad]

Hah, that made you mad, eh? Look what Barack Obama has in mind:

Obama hinted at a targeted hike...
quote:
"It's like throwing ice water on the little camp fire that we have going and the domino effect of the decline in housing is hurting every segment of the economy," says Kathleen Clifford, a Marin County realtor.
Too early to kick this around? [Wink]
 
Posted by munga (Member # 6006) on :
 
Ornery,

I am curious, do you know which side sponsored that, the Republicans or the Democrats?

That was a really great bill, whoever floated it deserves to be re-elected.

EDIT: Ah. Just checked it myself. It was a Republican beast, and it was, for a change, a really good one. It should have passed, and I hope we can persuade the incoming Democrat President to champion it!

[ April 21, 2008, 12:30 PM: Message edited by: munga ]
 
Posted by LetterRip (Member # 310) on :
 
munga,

that idea has been floated for at least 10 years. I'd be surprised if there hasn't been a bill with it quite a few times before.

LetterRip
 
Posted by G2 (Member # 2942) on :
 
quote:
Originally posted by LoneSnark:
BTW: I am single and earn $18k a year and I paid about $1k in taxes last year. What did I do wrong?

You need more deductions.

Donate old clothing or unused items to charities like Goodwill. You can claim $400 deduction without any real proof (you get a receipt from Goodwill you fill out yourself and it cannot be tracked). I think it's $400 - the exact number escapes me right now for some reason.

Got any medical expenses? You need quite a bit to get this but at $18K you might be able to take some off for this.

Claim a dependent. If you'd had kids or some other dependent, I'm almost 100% certain you'd have paid nothing.

Put money in an IRA. I know you don't have much to spare but even a few hundred dollars a year will make an enormous difference in a decade or two for your retirement. It's about a $125 reduction in taxes for every $500 put in the IRA (wide variability there but it's a reasonable rule of thumb).

There are a *lot* of other things you can do to reduce your tax liability that, when all added together, will make a big difference.

Don't forget the stimulus package money coming back to you in the next few weeks. You'll get $600 IIRC so you really will end up paying only $400. A chartable donation claim could have been a big deal for you.

[ April 21, 2008, 02:02 PM: Message edited by: G2 ]
 
Posted by OpsanusTau (Member # 2350) on :
 
quote:
Not entirely relevant if it's hard to pay or not.

The poor pay Federal Income Tax.

On the plus side, it takes about 60 seconds to do their taxes.

Thanks, Jesse.

It is always nice to see people being reminded that yes, we who make almost no money do TOO pay taxes.

And for those of you scorning the *amount* of tax we low-income folk make, try thinking about it this way:

Yes, the amount of tax I was liable for this year was Not Very Much. However, it was equal to one month's rent.
Or to two month's worth of groceries.

I would imagine that, if your monthly income is multiple thousands of dollars, it is really easy to look at an amount like three to five hundred dollars and think, "That's not even ANYthing."

It's not even really about it being "hard to pay" - it's not any harder for the poor to pay our small tax burden than for the wealthy to pay your larger one, I'm sure. But we DO pay it, and what is insignificant for you is notable for me.
I think there's some parable about a widow and two copper coins, which is sort of (but not entirely) appropriate here. [Wink]
 
Posted by scifibum (Member # 945) on :
 
G2, I think you're missing that you can't itemize without foregoing your standard deduction, and it's really hard to come up with enough deductions to outweigh the standard deduction on 18k a year.

Pointing out that a single person can avoid paying taxes by claiming a dependent is kind of funny, though.
 
Posted by munga (Member # 6006) on :
 
quote:
Originally posted by LetterRip:
munga,

that idea has been floated for at least 10 years. I'd be surprised if there hasn't been a bill with it quite a few times before.

LetterRip

Interesting. Maybe it's time is coming. I wonder what forces can be brought to bear.....
 
Posted by 0rnery (Member # 398) on :
 
We've been trying to do away with the inheritance tax for at least as long, but guess who keeps putting the kibosh on that? Yep, same folks who want to raise the Capital Gains tax, and keep gains adjustment bills from passing. Big surprise, eh?
 
Posted by Omega M. (Member # 1392) on :
 
I heard Mike Huckabee say this on Sean Hannity's show the other day: Every tax form should have added to it a line on which you can write how much extra money you want to give to the government. That way everyone who says we need higher taxes can pay what they think is their fair share even before the laws are changed.
 
Posted by KidB (Member # 3016) on :
 
quote:
That way everyone who says we need higher taxes can pay what they think is their fair share even before the laws are changed.
If I pay my fair share, and other, wealthier people don't, do I get to write that in?
 
Posted by Omega M. (Member # 1392) on :
 
If other people don't give their fair share to charity, does it make it any less wrong for you not to give your fair share?
 
Posted by OpsanusTau (Member # 2350) on :
 
Taxes are not charity.

Taxes are a payment for a service, where the "service" in question is having the advantages of a stable, functioning society with a high standard of living.

If other people don't pay for their fair share of this service, does that mean that it's all right to withhold the advantages from them?
 
Posted by Straygaldwyr (Member # 4465) on :
 
There is no 'fair share' of charity...hence the giving is a virtue...
 
Posted by Dave at Work (Member # 1906) on :
 
quote:
If other people don't give their fair share to charity, does it make it any less wrong for you not to give your fair share?
I agree that voluntary donation of time, money, and other resources to charity is a good thing. On the other hand, I take exception to the notion that there is some "fair share" that everyone should be required to give to charity as if charity were a tax. Charity is a free expression of ones generous nature. Charity is not a requirement; if it were a requirement, it would no longer be charity.
 
Posted by 0rnery (Member # 398) on :
 
quote:
Originally posted by JoshCrow:
These stories about "ohh, taxing the rich luxuries only hurts the middle-class jobs" are a crock. If you think that rich people "not buying another yacht" is going to hurt the economy more than when the middle class has to start buying bicycles instead of cars, you're out to lunch.

If I had my druthers, there would be a salary cap somewhere between $200-300k, indexed to inflation and such. There is just nobody alive who merits having obscene riches, and no justification for creating such an imbalanced power structure that is the end-result of capitalism unleashed and untethered to the middle class.

And before anyone gets their panties in a bunch, I do believe in the free market and am not a communist. I just think capitalism needs a band-aid to get under control. Income that brings you over the salary cap should be instantly transformed into charitable donations or gov't program of your choice.

This retarded tax was repealed . Why?

First Obama wants to increase the Capital Gains Tax to 28%, (link) then he backpedals to 20%, same as Hillary. Why?

Would raising taxes help our economy, or is it just a matter of "fairness"?
 
Posted by OceanRunner (Member # 5605) on :
 
quote:
As for losing houses to the Federal government - if they can't pay taxes why wouldn't they be forced to sell their house?
Here's a question. Do any of us really own property, or do we just lease it from the government? After all, non-payment of taxes means they can reclaim your home and land... is that a) a punishment for a crime (evasion of taxes) or b) one more way we ignore the fact that we really do live in a socialist country?
 
Posted by OceanRunner (Member # 5605) on :
 
quote:
If I had my druthers, there would be a salary cap somewhere between $200-300k, indexed to inflation and such. There is just nobody alive who merits having obscene riches, and no justification for creating such an imbalanced power structure that is the end-result of capitalism unleashed and untethered to the middle class.
You don't think that would crush initiative?

I like this quote from Mellon:
quote:
Any man of energy and initiative in this country can get what he wants out of life. But when initiative is crippled by legislation or a tax system which denies him the right to a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.
There are people who "merit having obscene riches". The ones who have honestly earned them. They have often employed others or bettered the world along the way.
 
Posted by kenmeer livermaile (Member # 2243) on :
 
A man of ambition would work to get around such tax legislation. We need men like that;)
 
Posted by Jesse (Member # 1860) on :
 
No, OR, it's another example of the legal fact that we, as citizens and not nations unto ourselves, can only "own" land in Fee Simple.

-----------

Ornery, give me an ethical explination of why capital gains should be subject to lower taxation rates than earned income.

Me, I see no reason the two should be treated seperately.
 
Posted by starLisa (Member # 2543) on :
 
quote:
Originally posted by Jesse:
Ornery, give me an ethical explination of why capital gains should be subject to lower taxation rates than earned income.

Me, I see no reason the two should be treated seperately.

I agree. Neither one should be taxed.
 
Posted by starLisa (Member # 2543) on :
 
quote:
Originally posted by Jesse:
No, OR, it's another example of the legal fact that we, as subjects and not nations unto ourselves, can only "own" land in Fee Simple.

There, fixed that for you.
 
Posted by Jesse (Member # 1860) on :
 
You didn't "fix" anything.

Quit abusing the quotes.
 
Posted by IrishTD (Member # 2216) on :
 
quote:
This retarded tax was repealed . Why?
Did you not read the article? Here's an example

quote:
"We had to collect 10 percent luxury tax on all items that carried a price tag of more than $10,000," she said. "This actually affected middle-class customers, those who had saved up, for instance, to buy an engagement ring or an expensive watch for a once-in-a-lifetime occasion. They were the ones who hesitated and did not buy because the 10 percent tax on top of the sales tax just put them too far over the edge."

 
Posted by IrishTD (Member # 2216) on :
 
quote:
First Obama wants to increase the Capital Gains Tax to 28%, (link) then he backpedals to 20%, same as Hillary. Why?
Here's a WSJ link (opinion column, so probably a bit of bias)

Article quotes:
quote:
Critics howled this would reduce tax revenues, and they howled when Republicans cut the rate to 15% in 2003. What followed in both cases was an enormous "unlocking" effect, as investors sold more stock and assets to take advantage of the lower rate. Capital gains realizations soared to an estimated $729 billion in 2006 from $269 billion in 2002. This goosed Treasury receipts from capital gains, to an estimated $110 billion in 2006 from $49 billion in 2002.
quote:
With the economy weak, this is an especially poor time to be talking up tax hikes. A higher rate, and its devaluing of U.S. assets, would hammer U.S. competitiveness, making it harder to attract global capital. America is increasingly isolated in taxing capital gains. Many industrialized competitors publicize a lower rate, and many (Germany, Switzerland, Austria, New Zealand) have no levy at all.

 
Posted by LetterRip (Member # 310) on :
 
Investors tend to sell when they can lock in a gain at a lower rate - so right before a tax raise is likely to increase short term capital gains tax receipts even more than after a lowering of the tax rate.

Instead of not taxing until the stock is sold, a lower rate (say 1%) that is paid annually would generate drastically more revenue; and spikes due to strategic considerations of selling when a rate either changes or is about to change would be eliminated.

quote:
. Capital gains realizations soared to an estimated $729 billion in 2006 from $269 billion in 2002. This goosed Treasury receipts from capital gains, to an estimated $110 billion in 2006 from $49 billion in 2002.
It is actually a net loss of capital gains to the treasury, since those gains would have been realized anyway at the higher rate, it just impacted the timing of the gain.

A stronger realization of gains would have happened from an increase in the capital gains rate.

LetterRip
 
Posted by Jesse (Member # 1860) on :
 
So....from a low during the post 2001 recession to a high after recovery, revenue went up even though taxes went down.

Got it.

Capital gains, realistically adjusted for inflation, should be treated just like earned income.

Pretty hard to make an argument against that if you're one of the folks who argue that investors earn their profits - even those tend to be the exact same folks who argue that there should be no capital gains taxes.

quote:
The proposal of any new law or regulation which comes from businessmen, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Adam Smith
 
Posted by flydye45 (Member # 2004) on :
 
So Jesse,

You are speaking as if the initial income came from nowhere. In the case of margin investing, there is some truth to that; not in anywhere near a majority of cases.

I have that exact circumstance. My wife takes my taxed income and makes profits...which is AGAIN taxed.

At the very least, they need to leave the rates at the much lower rates we currently enjoy.

[ May 05, 2008, 03:28 PM: Message edited by: flydye45 ]
 
Posted by Jesse (Member # 1860) on :
 
You speak as if "earned" income is not the result of an investment in education, in housing, in food stuffs, in training, in clothing, in transportation.

"Why, I was already taxed on the cash I used to buy gas to get to work, what right have you to tax me on the income I gained while there!"

I propose no higher tax on capital gains than on other forms of income. It certainly is work to research investments, to remain informed about market trends, or about the expected performance of a company in which one has invested. There certainly is risk involved, but there is risk involved for anyone who performs labor as well.
 
Posted by kenmeer livermaile (Member # 2243) on :
 
Arguing against dogmatic free market, entrepreneurs-as-holy-cows ideologists is like arguing against a 1933 Marxist or against religion. IN fact, identical.
 
Posted by Jesse (Member # 1860) on :
 
Fly is less dogmatic than some, so I bother.

Somehow, talking to a brick wall is much less frustrating than trying to teach pigs to fly.

I don't think I thank Fly often enough for being a well constructed brick wall.
 
Posted by 0rnery (Member # 398) on :
 
quote:
Originally posted by IrishTD:
quote:
This retarded tax was repealed . Why?
Did you not read the article? Here's an example...
The question was rhetorical. The answer makes OceanRunner's point about initiative.

I'd rather have a flat tax, so yeah, make capital gains the same as that rate, whatever it ends up being.

The question about whether raising taxes would help our economy, or just a matter of "fairness", wasn't rhetorical...
 
Posted by flydye45 (Member # 2004) on :
 
There is a point to your argument. The money I spend on gas is taxed twice after all (but your example is backward btw). And I do not mind a gas tax because it is predicated on money being used to maintain the highways of the Feds and State, i.e. a specific application. (I am trying very hard to avoid too many eyerolls but in this case it is particularly hard) Well, of course I mind, but less so then on capital gains.

Because of it's nature, capital gains, both as a liquidity issue and as a personal profit issue, should not be taxed as highly as normal income if at all.

I can see capital gains being taxed that way IF and only IF the person is a professional investor, in which case he is self employed and needs to file accordingly. For the majority, not so much.

I make by the sweat of my...well, sweat of something is involved $12,500. Assume $2,500 is shined off as income tax. So, my ten grand is then invested by the wife. She makes 10%, which again gets hit with another tax of equal value. I still don't find that fair. It is no different then the increase in value of your home, which remains untaxed, except that the investor is providing a useful service to the economy at least as potent as giving a neighborhood a well maintained property.

[ May 05, 2008, 08:52 PM: Message edited by: flydye45 ]
 
Posted by Jesse (Member # 1860) on :
 
I'm not talking about the gas taxes, Fly. I'm talking about the income tax you paid on the cash you used to make the investment in gasoline so that you could turn a profit by going to work that day - and that's only a small part of a lifetime of investments that enabled you to go to work that day, all paid for with income you (or your parents, or whoever) were taxed on.

Except as adjusted for inflation, I see absolutely no excuse for clintons perversion of the tax code in regard to profits made from home sales. It was a huge factor in the collapse we're now seeing, as it led to rampant speculation - in the way such artifical incentives always do.

If, instead of investing your ten grand in Bobs Nationwide Hot-Dogs Inc., you went out and bought yourself a hot-dog cart so that you had a part-time weekend job, you'd be paying income tax on your net.

Nevermind that you would get to write off depreciation of your hot-dog cart - you don't get taxed on the principal of your Bobs Nationwide Hotdogs Inc. investment when you recover it either.

Make investment of time, of money, of effort,
in real productive property you yourself own - pay higher tax on earned income.

Make an investment by loaning your money out to someone else - pay a lower rate.

That's Bush's "ownership society" for you in a nutshell - own, as long as you own a tiny piece of someone elses enterprise.

Your ability to perform labor is capital. There is no divergence, no seperation, between "labor" and "capital" in the rawest sense. There should be no difference in how the profits from either are taxed.

I don't think this needs clarification, but labor is labor, whether it's writing novels or picking beans, for purposes of this discussion.

There is also no excuse for a flat rate on capital gains when we have a progressive income tax. It's absolutely INSANE that someone whose only income came from a 12,000 dollar capital gain should pay 15% tax on it while someone who made 12,000 dollars profit on their investment of sweat, education, skills, time, what have you walks away with more back than they paid in.

No, these warped views that the "idle rich should be soaked" or the converse view that "labor" is discrete from and owing all to capital do not serve to grow our economy to its maximum potential, they do not serve to provide an equitable playing field, they do not serve to promote social mobility or meritocracy, they do not serve to promote the wisest course of investment.

If you use your dollar to aquire another dollar, or use your muscles to aquire a dollar, or use your creativity to aquire a dollar, (all of the above always apply to some wildly varying extent)and do so legally, the Government has no business artifically valuing one of these tools over another.

You should be no more "double taxed" when you are taxed on the returns from your capital investment than a ditch-digger is double-taxed when he uses post-tax income to purchase food to provide the motive energy to dig ditches - but no less so, either.

[ May 05, 2008, 09:37 PM: Message edited by: Jesse ]
 
Posted by kenmeer livermaile (Member # 2243) on :
 
"There is also no excuse for a flat rate on capital gains when we have a progressive income tax. It's absolutely INSANE that someone whose only income came from a 12,000 dollar capital gain should pay 15% tax on it while someone who made 12,000 dollars profit on their investment of sweat, education, skills, time, what have you walks away with more back than they paid in."

My crude and extremely narrow understanding of such matters is that the idle rich problem is found at the gate of inheritance. When parent transfers their earned wealth to a child who then receives income on wealth they invested no more into than surviving childhood, that creates a disparity that is potentially class-based: 'old money' versus 'new money'.

When people say the inheritance tax is a death tax, they seem to forget that the dead can't take it with them and the inheritors haven't necessarily earned their inheritance in terms of contributing to the economy.

Somehow, or such is my impression, this is conflated in the mushy mass mind w/ capital gains, period.

I would say more, but my nose is spastic this AM and my brain is disliking the consequent oxygen cutoff. But I am very interested in this and would hear more, especially as clearly expressed as Jesse has in language that turns financial terms into laymanese et vice-versa.

Fly, on service of Jesse, I thank you and your parents and mentors for being such a well-constructed set of bricks. [Wink] As a bulwark you are well-made; as a launching platform for pigs that would fly, you are wise to have posted on your wall: No Pigs Allowed.

I go now to release my flying monkeys for their morning exercise...
 
Posted by Jesse (Member # 1860) on :
 
I say the same to you that I say to everybody I know, Ken. Read Smith.

If you want to understand Lincoln, understand he read The Theory of Moral Sentiments a dozen times and An Inquiry into the Nature and Causes of the Wealth of Nations more than once. If you want to understand Bolivar, understand that he literally carried both works with him everywhere, even on the run through the mountains. If you want to know what Jefferson and Hamilton were fighting about - it was Smith.

Read Smith.

Smith is the bible, or the Constitution. Everyone quotes him, few people read him, and his words are distorted by those trying to make an appeal to an authority they do not expect anyone to investigate.

Read Smith.

We've reached this bizarre place, where christians call for killing in the name of christ, and self-described devotees of Smith call for an end to public education...although we know what Yeshua had to say about killing, few realize that Smith believed public education was absolutely neccesary.

Read Smith.

The kicker is, it's really important to read both of Smiths works if you're going to understand that Smith's "self-interest" is not a "greed is good" argument. It's a "greed IS" argument.

Read Smith.
 
Posted by kenmeer livermaile (Member # 2243) on :
 
Read Smith? I grew up on the Book of Mormon! [Wink]
 
Posted by Lobo (Member # 89) on :
 
That is not Smith, that is Nephi, Mormon, et al.
 
Posted by Colin JM0397 (Member # 916) on :
 
A lot of the confusion seems to stem from those who intuitively understand the "income tax" to not be Constitutionally legal.
http://www.losthorizons.com/review.htm
quote:
Cracking the Code- The Fascinating Truth About Taxation In America by Peter E. Hendrickson
Lost Horizons, 2003, 232 pages, $19.95
Reviewed by Steve Thomas

Any student of liberty and of the founding of the United States has to know intuitively that the current tax code of our federal government could have never been the intention of our Founding Fathers. One can take it as a given that the Founders would be disheartened and outraged by the growth and perversion of the federal government – and the abuse of power it employs in collecting taxes from the people.

I have often wondered how much different the course of American history would be if an economist like Milton Friedman or James Buchanan – with two hundred years of hindsight – could be transported back in time to advise the Founders on Constitutional issues like taxation. Perhaps they could provide the Founders with insights that would have made the Constitution impervious to time and the “factions” that so troubled them.

In his recently published book, Cracking The Code: The Fascinating Truth About Taxation In America, libertarian author Peter Eric Hendrickson makes it perfectly clear that America’s Founders were very much aware of the dangers associated with the federal government’s power to tax. Accordingly, they established a wholly viable system of checks and balances within the Constitution to prevent the federal government from abusing its taxing power. Hendrickson also points out that the Founders actually had a renowned economist (if indirectly) advising them: a capable Scotsman by the name of Adam Smith.

The Constitution calls for direct taxes (i.e., those which are unavoidable) to be apportioned according to each state’s population. That means that federal taxes are supposed to be collected from the states proportionate to their percentage of the nation’s total population – not directly from individuals.

Even the Sixteenth Amendment, which is widely misunderstood as having established an “income” tax, actually represents only a slight modification of the tax already in place at the time of its proposal. It did not change the Constitution’s restriction on direct taxation.

Nonetheless, a widespread misunderstanding of the effects of that amendment has successfully been exploited to convince Americans that everything changed in 1913. People wrongly believe that the amendment gives the government the legal ability to take citizen’s property at will – but nothing could be further from the truth, says Hendrickson. There’s a reason why we hear all the time that it’s a ‘voluntary’ system, and it’s not because we all ‘volunteer’ to save the government the trouble of doing the paperwork.

It is Hendrickson’s contention that the only people from whom the federal government can legally demand an “income” tax are those who are direct beneficiaries of the federal government. Such parties would include federal employees, contractors and those who benefit from government licensing. In other words, if you are a private citizen who earns a salary, Hendrickson claims that you do not have to pay “income” taxes – including FICA – to the federal government.

Don’t believe him? Then go to Hendrickson’s website (www.losthorizons.com) and bear witness to the unthinkable: a letter from the IRS acknowledging that his claim of “money improperly withheld.” is valid. But don’t expect your accountant or attorney to jump on Hendrickson’s bandwagon any time soon. Their jobs – and those of millions of others – depend on your confusion and fear when it comes to the IRS and the bewildering tax code it enforces.

Cracking The Code is a product of the information age. The Internet and its search engines allowed Hendrickson to not only wade through the entire tax code, but to investigate and cross-reference its content: all 3,413,780 words of it. What Hendrickson found is that the tax code, regardless of its confusing and misleading language, is consistent with the Constitution’s original restriction on direct taxes – and that there is no legal way for the federal government to enforce an “income” tax on the labor or earnings of private citizens. Hendrickson cites clear and consistent case law throughout the book to back his claim – including a plethora from the United States Supreme Court.

Readers of Cracking The Code will undoubtedly experience a paradigm shift in their thinking as they make their way through its pages. Skepticism and doubt will slowly be replaced with certainty and conviction as Hendrickson systematically walks his readers through the law and the tax code’s maze of confusion. But it won’t come easy.

As Thomas Paine once wrote in Common Sense, “ . . . a long habit of not thinking something wrong, gives it the superficial appearance of being right, and raises at first a formidable outcry in defense of custom.” Paine’s wisdom undoubtedly applies to the sentiments most Americans have when it comes to the way income taxes are imposed upon them.

There’s no shortage of frivolous books on the market that make the claim that you can avoid taxes. Cracking The Code is not one of them. It is a judicious and thoughtful work written by an American patriot deeply dedicated to the rule of law. Hopefully, this book will find its way into the hands of concerned citizens, legal scholars and federal judges who truly believe in upholding the Constitution – and who are sympathetic to the cause of liberty.


 
Posted by IrishTD (Member # 2216) on :
 
quote:
There is also no excuse for a flat rate on capital gains when we have a progressive income tax. It's absolutely INSANE that someone whose only income came from a 12,000 dollar capital gain should pay 15% tax on it while someone who made 12,000 dollars profit on their investment of sweat, education, skills, time, what have you walks away with more back than they paid in.
For clarification (I'm guessing you do realize this) that the 15% is for long term gains (short term is still regular rates), and the cap gains are NOT indexed to inflation yet (sadly).

*****

On another point though, I wonder (and this is mostly speculation on my part) if there are some advantages to having a lower rate for long term gains -- in particular, the potential to reduce asset bubbles. If I have to pay the same amount of tax on any amount of capital gain, I may be more likely to try and buy into the hot sector (esp. if I want to recoup my tax hit) rather than ride out the bump in the road/slow period. This type of thinking by funds, individual investors, etc. could (potentially) cause a lot more bubbles...

Thoughts?
 
Posted by Jesse (Member # 1860) on :
 
I know they aren't. They should be.

________________________________________________

Treating all profit, be it profit from labor or investment as long as we treat them both the same, would actually do a lot more to discourage that behavior, as long as we adjust for inflation.

No one wants to be pushed into a higher bracket THIS year.

[ May 07, 2008, 02:50 PM: Message edited by: Jesse ]
 
Posted by 0rnery (Member # 398) on :
 
Conservative VS Liberal Economy Rx

Fostering an Environment for Wealth Creation - Jerry L. Jordan

...The resources of the industrialized world were not all endowed; most were created by entrepreneurial effort within a congenial political-economic system.

...Government wealth redistribution by way of explicit or implicit taxation lowers the incentive to create and accumulate wealth, thereby lowering the potential productive power of the economic system.

...The conclusion from examining more than 100 countries over a 20-year period was that governments with a strong commitment to economic liberty--including the freedom of exchange and the protection of private property--tended to be faster-growing and wealthier.


Index of Economic Freedom - The Heritage Foundation

...Corporate and personal taxes are moderately high and are getting relatively higher as other advanced economies reform with lower tax rates.

...Congress has been active in raising the minimum wage, which has harmed labor freedom, but inactive in lowering corporate tax rates, unlike most other advanced economies. Most alarming, America's major political parties have been unwilling to curb growing government expenditures, particularly public entitlements.


Don't punish entrepreneurs - Eric Cantor

...several members of Congress set their sights on American entrepreneurship and retirement savings. The Levin-Rangel bill would effectively raise taxes on investment partnerships by 133%, with serious consequences for job creation and economic growth.

Top Five Tax Breaks For At-Home Entrepreneurs - Maureen Farrell

...half of all businesses in the U.S. are home-based. The U.S. government encourages this kind of entrepreneurship.

The President's Small Business Agenda

...small and young companies create two thirds of the net new jobs in our economy, and they employ half of all private-sector workers. Entrepreneurship has become the path to prosperity for many Americans, including minorities and women.

...High tax rates inhibit entrepreneurial activity because they act as a tax on success, claiming a larger share of income from flourishing enterprises, while the government shares little of the risk of loss. For most entrepreneurs, taxes reduce their companies’ cash flow – the money businesses need to expand, buy more equipment, and hire more workers.
 
Posted by philnotfil (Member # 1881) on :
 
quote:
Originally posted by Omega M.:
I heard Mike Huckabee say this on Sean Hannity's show the other day: Every tax form should have added to it a line on which you can write how much extra money you want to give to the government. That way everyone who says we need higher taxes can pay what they think is their fair share even before the laws are changed.

It already does. Right after you figure out how much they owe you there is a line that asks how much of that amount you want them to send you.
 


Powered by Infopop Corporation
UBB.classic™ 6.7.1