Via Ezra Klein, a useful online briefing book from the earnest wonks at the Tax Policy Center. They've got the best brief explanation of why the tax system is so complicated I've ever seen (hint: shifting to a single tax bracket wouldn't fix the problem), among other useful tidbits.
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Everything You Ever Wanted to Know About Taxes
19 Feb 2008 12:13 pm
Comments (16)
If I buy an item for $100,000, improve it, and sell it for $110,000, I should probably only pay the yearly income tax on the $10,000 profit I collected, not the entire sale.
That by and large explains most of the complexity of any tax code.
I think Democrats should double the standard deduction. This wouldn't actually simplify The Code at all, but who cares? It would progressively spare most taxpayers from itemizing.
There is really no good reason for all of this complexity. Nearly off of it can be eliminated by simply applying the appropriate tax rate to each taxpayer's gross income. All deductions/allowances/etc. should be completely eliminated, period.
Understand that doing this would not take away Congress' power to give citizens the same gifts of money that it is currently giving to many, many households. Want to give homeowners a break on their housing costs? Simply notify those who are currently receiving these tax breaks that they must apply for them from a separate government agency.
We could call it the Agency for the Disbursement of Federal Money Gifts. If the money gift is based on disposable income and other considerations, the agency would simply have to requisition from the IRS the relevant data it needs.
It is simply not necessary for Congress to tie its gift-giving activity to the income tax collection agency. At least those who take on the complexity will understand that they are taking on the complexity in order to get some free money from the government.
The good news politically: The Republicans would no longer be able to blame the complexity of the current tax system on the progressivity of tax rates (never been true). One would think that Democrats could see that it would really be a no brainer to "fix the tax code" in this way.
The Progressive Income Tax: Theoretical Foundations
Kroeger, that makes life a bit more difficult for those who are self-employed than those who are salaried employees (though, granted, one could get around this by simply forming a shell company which deducts all the business expenses and then pays the owner of the company a salary which is taxed).
There is really no good reason for all of this complexity. Nearly off of it can be eliminated by simply applying the appropriate tax rate to each taxpayer's gross income. All deductions/allowances/etc. should be completely eliminated, period.
I hope you mean "net income." I'm an independent contractor and pay about 25% in state and federal taxes on every dollar I earn after expenses. If I couldn't deduct expenses to arrive at the amount taxed as "my income" I'd be well and truly screwed. But, as your link explains:
If they believe that certain individuals or interest groups deserve more money in order to meet their expenses, or in order to create incentives for certain kinds of behavior, then they can choose to have the Treasury Department write them a check after they've proven their worthiness (perhaps through some kind of means-testing).
Or, instead of going hat-in-hand to the federal government to "prove my worthiness" I could just jab a hot poker through my eyeball and into my brain. Sounds like more fun.
(CNSNews.com) - Sen. John McCain pledged Sunday on national television not to raise taxes under any circumstances if he is elected president.
"So on taxes, are you a 'read my lips' candidate, no new taxes, no matter what," host George Stephanopoulos asked the Arizona Republican on ABC's "This Week."
"No new taxes," McCain affirmed, before making an argument that taxes ought to be cut if the economy deteriorates.
"But under circumstances would you increase taxes?" Stephanopoulos asked in a follow-up question.
"No," said McCain.
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Shouldn't uttering such idiocy in and of itself disqualify a person from becoming president?
- The political process creates complexity. Politicians and interest groups support tax subsidies for particular groups or activities.
- Some complexity is necessary to deter tax avoidance.
- Many complicated provisions were enacted to raise revenue or limit revenue losses during times of rampant budget deficits.... The 1986 act created several complicated phase-outs and hidden taxes in order to raise revenue and meet distributional targets.
So:
- Transparency: someone should pass a law that says any proposed change to the tax code has to publicize the before-vs.-after page length of the tax code. Not perfect but it gets a clear metric of "simplicity" out there in the debate.
- Tax avoidance, I have no idea.
- Complicated phase-outs and hidden taxes: the media can do a better job on this. If a bill cuts the most visible tax rate but raises other less visible rates, give a simple pie chart or something that shows this.
For being a writer, your writing really sucks sometimes.
JB and Tyro:
Actually, what looks unfair to you looks fair to other people. Allowing deduction of business expenses invites endless debate as to what is deductible and also seems unfair to people who seek to deduct non-business expenses.
There's nothing intrinsically fair or unfair about choosing any cut-off point (revenue, gross profits, net income) for taxation. Under any system, someone's going to feel they are getting a raw deal.
I might add one other thing. From an economic efficiency standpoint, taxing all business entities on revenue on a pass-through basis would probably be much closer to optimal, because there are plenty of business "expenses" that create agency problems (such as the famed 3 martini lunch) and a strict rule of no deductibility would incentivize businesses to run such expenses only when they generate commensurate income. (Of course, there are practical reasons you could never move to such a system, but theoretically, it would be superior in some respects.)
Re: Nearly off of it can be eliminated by simply applying the appropriate tax rate to each taxpayer's gross income.
Even that doesn't work, since you first have to define what counts as income. And that's the main source of the complexity, as any self-employed person can attest.
Yeah, I'm no expert on the tax code and am certainly just evaluating this in terms of what makes sense for me personally. I can understand the argument that you just get nailed for what you earn, regardless of how much you laid out to get that money--if you can't make your work cost-effective then get another job. My concerns, though, are two:
1. It artificially disadvantages independent contractors by preventing them from deducting expenses that corporate employees get for free. There's a fairness issue there, and also a larger question of whether the tax code should create incentives that force people into corporate jobs and limit their ability to freelance. That's an issue in creative fields, technology, and trades.
2. I think the simplicity issue is overblown. My taxes aren't that hard--I track every penny I spend, save every receipt, email my accountant with questions as the year progresses, and then pay him a nominal fee to tell me how much money I owe the government.
The above post, with it's proposal that I should instead engage in some separate process of groveling for a check from the government, indicates that a) It's simply a practical impossibility to deny people at least some deductions, so this whole debate is academic; b) The current system isn't all that much more complicated than the alternatives, and may actually a be a lot simpler.
Actually, what looks unfair to you looks fair to other people. Allowing deduction of business expenses invites endless debate as to what is deductible and also seems unfair to people who seek to deduct non-business expenses.
True. Two martini lunches are okay to deduct, but once they order the third martini, no way.
What part of the word "theft" is complicated?
Even that doesn't work, since you first have to define what counts as income.
How so? All income from any source should be considered income. All income from capital gains, from interest, from gifts, etc. Simply sum all of the different types of income from all sources, then apply the tax rate to that total amount. Nothing could be simpler.
If Congress wants to provide a money gift to those who earned income from the sale of some of their assets at a profit, then it can provide them with the opportunity to apply for a government check from the Agency for the Disbursement of Congressional Money Gifts by submitting the required information to that agency and waiting for a check after the information is verified.
There is NO 'tax break' that Congress currently gives through the IRS that cannot be processed through a separate agency. There is no need to introduce mind-boggling complexity into the computation of taxes AT ALL. Any Democrats who want to protect/preserve the progressive income tax should push for this kind of 'tax simplification' in order to thwart the Republican approach.
Even that doesn't work, since you first have to define what counts as income.
How so? All income from any source should be considered income. All income from capital gains, from interest, from gifts, etc. Simply sum all of the different types of income from all sources, then apply the tax rate to that total amount. Nothing could be simpler.
If Congress wants to provide a money gift to those who earned income from the sale of some of their assets at a profit, then it can provide them with the opportunity to apply for a government check from the Agency for the Disbursement of Congressional Money Gifts by submitting the required information to that agency and waiting for a check after the information is verified.
There is NO 'tax break' that Congress currently gives through the IRS that cannot be processed through a separate agency. There is no need to introduce mind-boggling complexity into the computation of taxes AT ALL. Any Democrats who want to protect/preserve the progressive income tax should push for this kind of 'tax simplification' in order to thwart the Republican approach.
Comments closed March 04, 2008.
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Heads in the Sand
Second sentence needs some work.
Posted by brent | February 19, 2008 12:26 PM