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Tax Cheats and My Take on the Tax Code (as if you care)

Discussion in 'BBS Hangout' started by MadMax, Nov 5, 2002.

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  1. MadMax

    MadMax Member

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    OK...I'm ready to throw the baby out with the bathwater. Flat tax...some sort of consumption tax...anything. The current tax code is a joke. Put a problem before 40 different tax accountants and you get about 35 different answers. The only guys who are able to navigate this thing are the people who can afford accountants to find them as many loopholes as possible. It's a joke...it's a guess at best. I'm ready for something new...somthing simpler...something that provides fair notice to people...a code that people can understand...that is easy to cheat. I'm open to suggestions...


    http://www.nytimes.com/2002/11/05/b...n=e9b4f0a22c6dbc73&ei=5006&partner=ALTAVISTA1

    Departing Chief Says I.R.S. Is Losing War on Tax Cheats
    By DAVID CAY JOHNSTON


    Preparing to step down tomorrow after five years, the Commissioner of the Internal Revenue Service, Charles O. Rossotti, says the agency is steadily losing the war with tax cheats, especially the wealthiest and most sophisticated among them.

    The Bush administration, which has yet to name a replacement for Mr. Rossotti, recognizes that tax cheating is widespread but says the I.R.S. is getting the right amount of money in its budget. And the administration stopped Mr. Rossotti from speaking his mind to Congress, according to three senior I.R.S. officials.

    The officials said the oversight subcommittee of the House Ways and Means Committee was to have held its first hearing on sophisticated tax cheats on Oct. 1. But the hearing was called off at the request of Mr. Rossotti, who the officials said had been ordered by the Bush administration not to testify about his views that the I.R.S. cannot adequately enforce the law without annual budget increases that keep pace with the growing number of tax returns and the increasing sophistication of tax cheats.

    Asked whether he had been muzzled, Mr. Rossotti, who had won wide praise in tax circles for bringing a culture of candor to the I.R.S., refused to comment. Asked why, he said, "I am still a member of this administration."

    But Mr. Rossotti expressed his concerns in an interview. "The tax system continues to grow in complexity, while the resource base of the I.R.S. is not growing and in real terms is shrinking," he said. "Basically, demands and resources are going in the opposite direction."

    "This is systematically undermining one of the most important foundations of the American economy," he said.

    In a report to a civilian oversight board created by Congress in 1998, Mr. Rossotti made his point with numbers that became public the day before the hearing was canceled.

    The great majority of major tax cheats, in some categories four of five, will be allowed to get away without paying their full share because the I.R.S. lacks the money to enforce the law, Mr. Rossotti wrote.

    Over all, the I.R.S. gets a budget of 41 cents per tax return, 10 percent less, after adjusting for inflation, than in 1997. Yet during those five years many sophisticated new techniques to evade taxes have come onto the market, sold by the nation's largest accounting firms and others. And Congress has enacted 293 changes in the tax law, imposed complex rules protecting taxpayer rights and demanded the diversion of many law enforcement resources to functions like answering telephone calls from taxpayers.

    David Hariton, a corporate tax lawyer at Sullivan & Cromwell, said tax avoidance has become so sophisticated that "the government needs to devote 10 times as many resources as it does now if it wants to tax capital effectively."

    He said the additional spending would bring in many tens of dollars of tax for each dollar spent on law enforcement.

    Because most I.R.S. resources are devoted to routine work like processing tax returns, the 10 percent reduction has meant a 28 percent decline in money for audits, investigations and collections, Mr. Rossotti wrote to the board.

    "The I.R.S. is simply outnumbered," he wrote.

    He said the I.R.S. needs to work 13.3 million cases in which documents, primarily from partnerships and similar entities that are used mostly by wealthy investors, do not match up with reports on individual tax returns. But the agency has the resources to pursue only a fifth of these cases.

    In his report to the oversight board, Mr. Rossotti put the tax loss from that area alone at $7 billion annually. But in earlier reports to Congress the I.R.S. has used figures that could put the tax loss as high as $64 billion. Mr. Rossotti has said that every fifth dollar of partnership income is not showing up on tax returns.

    He said the I.R.S. had also identified 82,100 taxpayers who used offshore accounts to evade taxes, but could pursue only 17,000 of them. He estimated the annual tax loss at $447 million, or less than $7,000 for each taxpayer, a modest figure when compared with his previous estimates of multibillion dollar losses. Jack Blum, an I.R.S. consultant, has estimated that offshore evasion alone costs the government $70 billion annually.
     
    #1 MadMax, Nov 5, 2002
  2. Plato

    Plato Member

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    So you want a tax code that takes your money more efficiently? :)

    But seriously, any rule or code based system is going to have loopholes, namely because no rule can cover all possible circumstances. Not sure if a flat tax system will fix this, because although it sounds very simple, the practice of imposing a flat tax will probably not be so much different than the current tax regime.

    Solution to the problem: become a tax attorney, they do quite well! (and the hours are not as bad as other corporate attorneys)
     
    #2 Plato, Nov 5, 2002
  3. 4chuckie

    4chuckie Member

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    The key to any tax code is simple:

    Define what is revenue

    A flat tax seems simple, tax EVERYTHING. So does that mean business can't deduct expenses from revenues, rather they just pay the tax on what the receive.

    For example two men own apartments. Mr. X spends tons of money on improving his property and makes a modest sum in the end. Mr. Y is a slum lord, never reinvests any money. If you tax only the revenues Mr. X gets screwed. Good way to treat a guy who gives the community attractive housing.

    Now if you say only tax the profits, then guess what define what are expenses vs. capital expenditures. It's getting more complicated.

    Now for the individual how do you encourage them to save? If you tax everything now 401Ks are not so attractive (because all the income is being taxed). Ok so exempt 401Ks, now how do you tax the money when you take it out. Same deal with IRAs.

    The tax code is set up to incent people to do certain things (save money, or buy a house for example). Simplify the code all you want but if you make it too simple, eventually you need to adjust it to make sure people take care of themselves (save money for retirement, save money for medical emergencies, college, buy a house).

    Sincerely,
    A CPA
    :)
     
    #3 4chuckie, Nov 5, 2002
  4. DaDakota

    DaDakota Balance wins
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    A sliding flat tax would be best for sure.

    DaDakota
     
    #4 DaDakota, Nov 5, 2002
  5. MadMax

    MadMax Member

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    i am talking about how we tax individuals...i think corporations should be treated differently...

    i'll say this...get rid of the entertainment write-off, and you'll KILL pro sports.

    but a flat tax for individuals seems like a no-brainer. I disagree entirely, Plato...the implementation of a flat-tax and the implementation of the current tax system would be entirely different. Report gross income...multiply by X%...there's what you owe.
     
    #5 MadMax, Nov 5, 2002
  6. haven

    haven Member

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    Bah... a flat tax would completely suck.

    It's regressive, not in numbers, but in effect on the person being taxed... and isn't the goal of the tax system to collect funds for public use without being a terrible burden on tax payers?

    The truth is, a tax of, say, 20% on someone making a small amount is a much greater burden than a tax of 40% (the current max, right?) on someone in the highest income bracket.

    And before you accuse me of just arguing my interest... I fully expect to be in the highest income bracket in a little while. And most of my family is currently in it. And some of them are even liberals as well :).
     
    #6 haven, Nov 5, 2002
  7. ROCKSS

    ROCKSS Member
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    On a personal note, I hate the tax system as it stands now. I am single, no dependents and did not own a home until recently. I have paid not just a little, but alot more then my friends who are married with kids and a house payment. Why should I be taxed at such a high level based on the fact that I am single? This year alone I will pay approx $10k to FICA while a buddy who is married and has kids will be lucky to pay $5k
     
    #7 ROCKSS, Nov 5, 2002
  8. Rocket River

    Rocket River Member

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    How would this work?

    Rocket River
     
    #8 Rocket River, Nov 5, 2002
  9. haven

    haven Member

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    Yeah, I second Rocket River.

    Are there many different types of flat taxes? If there are, does anybody want to give the 1 minute run down of them?

    I always assumed that a flat tax meant "everyone pays X percent..." with, at most, exceptions for dependents. But is that not the case?
     
    #9 haven, Nov 5, 2002
  10. dylan

    dylan Member

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    How so? I know nothing about tax laws so I'm not sure what the entertainment write-off is, let alone how it affects pro sports...
     
    #10 dylan, Nov 5, 2002
  11. Major

    Major Member

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    One big problem with a flat tax is it assumes that the government will stay hands off - and that won't happen.

    Theoretically, you could probably get a tax rate down to 17% or so, if you had NO DEDUCTIONS whatsoever. That means that someone who makes $1000 a year pays $170 in taxes.

    However, you'll definitely have a minimum income floor before paying - so that raises the rates. Then, even if it starts with no deductions whatsoever, some will be added. Homeowners - do you take away the interest deduction? Education - what about helping people get through college?

    Every single group that has a deduction now will fight to get that in the new tax. That's what screws it up.

    Plus, what about Soc Sec tax? It's currently a massively regressive tax at a flat 13.6% for only the first $80k in income - meaning the net rate goes down as you get more and more income. How does that fit in with the flat tax?
     
    #11 Major, Nov 5, 2002
  12. Major

    Major Member

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    i'll say this...get rid of the entertainment write-off, and you'll KILL pro sports.

    I disagree. You may make the players have to go from $10MM / yr salaries to $8MM / year, but I hardly think that's a bad thing. :)
     
    #12 Major, Nov 5, 2002
  13. PhiSlammaJamma

    PhiSlammaJamma Member

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    It's too bad we can't force everyone to meet with an IRS agent before filing for the year. Probably impossible to do from an administrative perspective, even with a scheduled appointment, but the Federal government would be raking it in. Nobody would cheat.

    Right now, it's too damn easy to cheat. They are being beaten by sheer numbers and everybody knows it. It's kinda like mp3 downloading. So many people do it you can't stop them.
     
    #13 PhiSlammaJamma, Nov 5, 2002
  14. MadMax

    MadMax Member

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    I don't think it would just go from $10mm to $8mm...bye bye luxury suites!!! bye bye corporate season ticket holders!!! who else can afford the seats at Rockets' games over the course of 41 games? think attendance was down last year? just wait...
     
    #14 MadMax, Nov 5, 2002
  15. Refman

    Refman Member

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    The notion that our current tax system is actually progressive is ludicrous. Those with the means will hire a big accounting firm (KPMG etc) and shelter as much money as possible. Anybody recall the words of Leona Helmsley? "Only the little people pay taxes." Yes she was evading and got busted...but her words ring true more than most would care to admit.

    Bottom line: I agree with MadMax...big shocker, eh? We need a tax system which will take out all of the loopholes which only the wealthy can take advantage of.

    Not all systems have loopholes as one poster suggested. You simply take all of them away. The only reason we have loopholes today is because the IRC has been put together in a piecemeal fashion, rather than as a coherent code.
     
    #15 Refman, Nov 5, 2002
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