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Bush to push to eliminate the IRS?

Taxes IRS Bush Proposal 2004

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#41 Aric

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Posted 02 August 2004 - 09:55 PM

Hi Delvo.  I think you may have illustrated quite a few differences between Canada's and US tax systems that might make my comparison incorrect, as I do not know US income tax system, and I based my analysis using Canada.  I'll describe my reasoning.

First off, anyone making about $8 000 or less pays no income tax at all.  A single income earner with a spouse or child can make almost $14 000 and pay no income tax.  This doesn't include any other deductions other than the basic personal and elegible dependant.  Add in other tax credits and the like as they apply, and you can earn quite a bit more and still pay no tax.

A person earning $10 000 only pays income tax on about $2 000, of which it is taxed at 16% (the lowest fed. tax bracket, up to about $34 000).  That means he owes $320.  If he was under 10% sales tax, he would likely have to buy about, say, $7 000 in taxable consumption, so he's paying $700.  This more than doubles his tax payable.  A single individual likely has to be at about $15 000 income before he's indifferent between a 10% sales tax and income tax.  If the sales tax rate were 15%, he'd likely be indifferent at around $18 000.  If he has a child or a spouse and is the only earner, it'd be much higher level of income before he's better off with a sales tax.

The reason I describe this as ripping apart their purchasing power is because a sales tax is added on to the price of a product, and in the case of the poor, whose purchases are almost entirely inelastic necessities, they will shoulder the entire burden of the tax, the suppliers won't hesitate to pass the price of the tax onto the consumer.  In short, for the poor, their basket of goods will rise in price almost exactly the percentage of the sales tax, with no real gain in income tax recovered, since they usually don't pay income taxes at all.  But as I said, Delvo, I based this on my knowledge of Canadian tax system, if the US system is fundamentally different, perhaps the same result would not apply.

While I was at Univ, I used to earn about $12 000 a year, more than enough for my basic personal and tuition credits to zero out my tax owing, so I simply requested to my employer that they not deduct any income tax from me.  I left the CPP and EI, of course, but I didn't have a penny of income tax deducted from my paycheques.  Are you saying that you do not have this option, Delvo?

There would still be some need for accountants, for businesses, and can always move on to other related fields.  Even sales taxes need to be administered, there would still be an IRS, though not as big.

The greatest danger is running broke within a few years under a sales tax plan with no income tax.  Income tax alone, both together, that can do the job of financing a country, but a sales tax under 8% probably wouldn't even pay the defence budget for one year.

Aric

Edited by Aric, 02 August 2004 - 09:57 PM.


#42 QueenTiye

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Posted 03 August 2004 - 01:35 AM

I'm pretty certain that people on public assistance are exempted from taxation, and can declare so to their employers.  However, people on public assistance also pay for groceries (in most cases) using a card that substitutes for foodstamps (or they pay in foodstamps).  In New Jersey, there is something called a "Families First" card that I've seen people using as debit cards at atms.  It is very easy to NOT charge tax for these citizens.

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#43 Cardie

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Posted 03 August 2004 - 05:23 AM

I don't think the argument is contradicted by pointing to the very poorest of the poor.  There are plenty of working people not on public assistance who would spend two thirds, say, of their income on taxable items and who never have enough money left over each month to invest in anything and earn extra income from that money.  So the crux of the sales tax vs. income tax argument is whether you agree that money made from investment, or huge profits from one's business, or any accumulation of wealth that never has to be spent during a given fiscal year should be exempt from taxation.  A frugal millionaire might then pay no more absolute tax than someone supporting a family of four on $30,000, and massively less as a percentage of income.

There are plenty of people who think that this is fine, that the accumulation and investment of wealth keep the economy buzzing and that if someone has other sources of income besides wages then they should get to keep all of it.  I just don't happen to believe that myself.  I am perfectly happy to give everyone the same subsistence exemption and then tax the same fixed percentage of all their income over and about that.

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#44 Godeskian

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Posted 03 August 2004 - 06:20 AM

The practical reality though, is that the rich are very invested in remaining rich. The golden rule has always been, with regards to money, that he who has the gold, makes the rules.

If the tax structure changes, then the rich will simply instruct their tax attorney's to adapt with them, just like they have done before.

from a certain perspective, that's fair too. Someone who has gone ahead and challenged life, played it with skill, with daring, with a chutzpah attitude that 98% of the populations doesn't have, and come out on top, frankly deserves to enjoy his winnings.

At the end of the day, the rich have been keeping their money safe for a long time, and no change in tax structure, no matter how radical will change that.

#45 Coffee Please

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Posted 03 August 2004 - 10:42 AM

Kosh, on Aug 2 2004, 12:16 PM, said:

This is also part of the Libertarian platform. I hadn't looked into it yet, so I don't know how they planned to raise money.
Here is a link to the Libertarian platform on the tax issue.

http://www.lp.org/is.../cut-taxes.html

Really, there isn't much meat here, but I like the idea.

#46 Nick

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Posted 03 August 2004 - 12:12 PM

Pickles, on Aug 1 2004, 10:04 PM, said:

Intriguing idea and one I'm totally in favor of. :)  You pay on what you buy. If you don't spend, you don't pay. I think - and I've not researched - that Florida has a state tax on goods and not an income tax. If my memory is correct, it must work 'cuz' all them retired folks seem to like Florida. ;)
Florida has no state income tax and individuals only pay sales and property taxes.  The actual rate varies depending on the area--from 6% to 7.5% . . . Orlando's 6.5% (some counties and cities tack on a little extra).

Also, there are tons of exemptions for items that don't require sales tax.  Clothes are still taxed, but groceries are not (with exceptions . . . tortillas, meat, cheese aren't taxed, but buy a burrito from a gas station and it is.)

We also get a "back-to-school" tax-free week where clothes, books, and school supplies are tax-free for the whole week. (Again, with exceptions--the clothing item must be $50 or less, supplies must be $10 or less, or they're charged normal taxes.)

As for moving to a flat sales tax or VAT . . . :unsure: The I'm not sure how I feel about that idea. . . a VAT would still require some oversight organization since it gets charged at every stage of production . . . and a sales tax would still impact the poor more than the rich.  As it stands, I work part-time . . . my tax bill is less than $1000 . . . and I *assure* you . .  I'd wind up paying more in sales tax . . . the big discounts are going to come to those who make tons of money and save it, rather than your typical consumers.  It sounds an awful lot like yet another plan by the evil rich people to steal money from the dirty poor masses™.

-Nick

#47 Jid

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Posted 03 August 2004 - 12:23 PM

I personally would be much more in favour of a flat income tax rate, on any income over a certain subsistence level, than shifting all tax onto sales of items.

For example, say a person is married with two kids.  For your region, the "minimum" subsistence requirement is, say, $25 000 a year.  If you earn less than this, you don't get taxed.  If, on the other hand, you earn $30000/year, you pay tax on (30000-25000=)5000 of your income, at the same rate as everyone else.  (I dunno what that rate would be.  10% maybe?)

This means, of course, that the richer would pay more overall, but in the grand scheme of things, would be taxed just as much as a person who makes far less.

The only way I could really see a solely commercial tax setting really being fair is if the tax were only applied to non-essential items.

Technically, no one absolutely *needs* a car when there's public transportation around, so hey, go ahead and tax it.  But people *need* food, and clothing, and I don't think those ought to be taxed.

(Property tax, on the other hand, I see more as paying preemptively in the event you need your city/municipality workers to come in and say, fix your sewer line, or repair a watermain break)

#48 Cardie

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Posted 03 August 2004 - 01:22 PM

In addition to the fairness question, I think you'd have to shrink government services to the libertarian level of national protection only to begin to be able to  bring in enough revenue to keep government operating through a sales tax that wasn't as much as the item purchased itself.

I mean, every dollar of income that anyone saved or invested instead of spending during a given year, and every dollar that those savings or investments generated, which we currently tax, would produce no tax revenues at all.  I think there's a stat that the top 1% of income earners (who are well over a million in annual income they haven't shielded from tax) pay over 50% of income tax revenues.  If these folks are only paying sales tax on what they spend, they'd have to spend themselves into near bankruptcy even to begin to keep the system revenue neutral.

A national sales tax looks attractive to people of moderate income because it probably wouldn't raise their tax bills that much.  What they don't see is that it would drastically lower the tax bills of the more wealthy and shrivel up government services they might depend upon.

I know that what Medicare paid for both my parents' expensive final illnesses was probably more than all the federal income tax they paid during their lives.  Now, they at least would have had just enough to cover the bills if their taxes had remained in their pockets and all their other assets were eaten up.  But I shudder to think what would happen to folks who never had more than a paycheck-to-paycheck income, who were faced with those bills and no Medicare in existence.

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#49 Delvo

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Posted 03 August 2004 - 06:26 PM

Aric, your description of the income tax marginal rates in Canada is similar to the USA's Federal income tax. But the USA also has Social Security tax, which is not structured that way, and is not counted as "Federal income tax" even though it is a Federal tax on income. :wacko: So whenever you hear Americans talking about taxes to the Federal government, you have to figure out whether they're talking about FIT alone or the total that is actually being taken from us, including SST as well. Most political actions to change the tax code are about tweeking the FIT, rather than the total Federal tax; most conversations about who pays how much refer to the FIT if a conservative is talking about excessive taxation as a punishment of the rich but can include SST if a liberal is talking about the unfair tax burden on the poor, even though both propose to fix it by tinkering with the FIT in some way without touching SST; special tax breaks and discounts and exemptions and loopholes and shelters mostly apply to the FIT; when people talk about how much lower the USA's tax rates are than the tax rates of other modern Occidental countries they're often only talking about the FIT, not the overall tax burden. SST is mostly ignored as if it weren't there, and in fact most people aren't aware of it because it's taken from our paychecks before it ever gets to us and we only look at the net pay, not the gross, and the truth about it (that it's a Federal income tax but it's separate from FIT) just makes no sense and is easier to forget than to figure out. But the poorer an American is, the less mathematically relevant FIT is to him/her, because poor people are hit harder by SST than by FIT and see little or no movement in their total tax liability when FIT is changed in any way (which contributes to disillusionment and apathy over how little effect all the big talk we hear about taxes ever really ends up having on us); those that wouldn't even have to pay any FIT at all still get hundreds or thousands taken from them in SST, and the lowest levels of FIT payers still pay a multiple of their FIT amount as SST.

Edited by Delvo, 03 August 2004 - 10:15 PM.




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