I'm open to suggestions for replacements...but this clearly isn't working. http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=2996937 IRS: Over 2000 Big Earners Paid No Tax in 2000 Thu June 26, 2003 03:02 PM ET By Jonathan Nicholson WASHINGTON (Reuters) - More than 2,000 individuals with incomes of $200,000 or more paid zero in federal income taxes in the year 2000, according to a report released by the Internal Revenue Service on Thursday. The report shows the percentage of tax filers with $200,000 or more in income that escaped all income tax liability was at its highest since 1994, but still remained a very small group. The report was in the IRS "Statistics of Income" bulletin. A separate IRS report showed the average income tax rate paid by the 400 tax filers with the highest incomes in 2000 was 22.29 percent, up from 22.23 percent in 1999 but below a recent peak of 29.35 percent in 1993. The numbers may raise questions about the effectiveness of the so-called Alternative Minimum Tax, a method of calculating an individual's tax liability aimed at ensuring wealthy people pay at least some income taxes. The AMT was created in 1969 in response to worries some of the rich were managing to completely avoid taxes by using tax shelters. Then-Treasury Secretary Joseph Barr told Congress that 155 individuals with incomes of more than $200,000 paid no income taxes in 1966. In 2000, that number was 2,328, up from 1,605 in 1999. Looked at as a percentage of all tax filers with incomes of $200,000 or more, the group amounted to only 0.084 percent. That's the highest percentage since 1994, when it was 0.102 percent of the $200,000 earners. Adjusted for inflation since 1976, the number of non-payers was smaller, at only 464, the IRS said. Taxes can be offset by several factors, including credits for state and local income taxes or foreign taxes paid or extraordinary losses from personal businesses, experts said. Analysts worry though that the AMT, which is not indexed for inflation, will start to affect middle-income families in coming years unless it is overhauled. William Beach, a senior fellow with the conservative Heritage Foundation think tank, said the AMT performs "extraordinarily poorly." "It has now leached into the upper middle class," he said. Unless it is reformed, it could touch about 30 million tax filers by 2012, he said. Len Burman, co-director of the Urban-Brookings Tax Policy Center, said the reports on non-payers and the 400 highest income filers were related, in that they showed the role of capital gains in reducing taxes. Of $69.57 billion in adjusted gross income reported by the top 400 filers in 2000, about $44.53 billion was made through capital gains, Burman said "Capital gains is the linchpin of every tax shelter I know of, except for municipal bonds," he said. Capital gains are generally taxed at a lower rate than wages for all but low-income taxpayers. With the tax package passed in May, the rate will fall to 15 percent.
On this one, we totally agree. I do not know what the best tax code is, but I think there are a couple of good potential alternatives to the loophole ridden, 5800 page piece of s*** that passes for tax law in this country. 1) VAT - Consumption Tax - National Sales Tax - Could be a good way to go. If everything is based on sales, it is easy for people to avoid paying too much in tax -- save your money. Upside We could have a measure of control over what people buy if we can exempt or reduce taxes on certain items. If we want people to buy hybrid cars, lower the tax rate on them. We could set the tax rate high enough to have a modest surplus every year and use that surplus to pay the debt. Once the debt is retired, use the surplus to give a back to school tax holiday like Texas does in August every year. Downsides Sales taxes tend to be regressive - Could be mitigated by having the tax only on new items (consumption tax) and only on non essentials. The rich would buy more of their goods overseas - I don't see this as a big argument as there are VAT (Value added taxes) on goods from the EU and most of the countries in Asia. 2) Flat tax (with no loopholes or deductions) - Would be a fairer way to do taxation but it is still a tax on INCOME, which is the wrong way to go, IMO. If we do stay with an income tax, I think the tax code should be limited to no more than 200 8.5" X 11" sheets of paper and 12 point type. It shouldn't take any American longer than 1 hour to do their taxes. Downside It would never happen with all of the lobbyists advocating for this group to get a tax break or for that group to get an exemption. Just simplifying the tax code, never mind the method, would kill a few industries including tax preparation, tax law, and accounting. These industries will probably hire lobbyists to see that their livelihoods don't disappear.
I don't know that simplified taxes would kill tax preparation. My understanding is that a not-insigiticant number of customers to places like H&R Block are EZ form filers. Some go just to get the instant refund anticipation loans. And a flat tax wouldn't work for corporate taxes, so there would still be that for accountants and tax lawyers. Not to mention auditing, and many smaller accountants also get into financial planning, which would still be a viable business even with simpler individual taxation.
There are a couple problems that would be tough to overcome: 1. Flat tax or consumption tax: Easiest to do but it will be the people who are barely getting buy will pay alot more in taxes, which I don't think would fly very far. Another problem with a consumption tax would be the black market would be opened up for all goods. Currently in Ohio our sales tax just raised to 6.75% so if we would go to the consumption tax the sales tax would probably be 12-15% (my guess). So for large purchases like on a $300,000 home that could be $45,000 home. There would be a big incentive to find away around the law. 2. Defining revenue (what is taxable): Much of the tax code is defined in defining revenue. When is SS taxable, what is a person's basis when they sell it, what is rent income vs revenue from a lease. The code will always be a problem as long as you try to tax different people at different rates, which subsequently leads to different rates for different income (income, short term capital gains, long term capital gains) 3. Finally the current code encourages thing that many people see as good such as saving for retirement and owning a house. I fyou do somehow dissolve the current system do you trust people on their own to do these things? Again the current code is difficult (I should something about it know I am a CPA) but there is not an easy answer as how to fix it. I would love a flat tax or a consumption tax, but I don't think a majority of AMericans would support it once they looked at teh details.
I'm not sure I want the government giving incentives to purchasing a certain class of products in this manner. I will tell you this...FOOD should be tax exempt. Any other way would be unfair to those who cannot afford it. A flat tax seems the most fair to me.
Good points, Andymoon. I think the natl. retail sales tax would be a major boon for our economy. With no income tax and no taxing of dividends and interest earnings, more Americans would be encouraged to save and invest. The only way this could be implemented would be a grass-roots effort, but the main sticky wicket is that the flat-tax folks and the VAT folks don't agree and thus are split. Together they would be enough folks to at least try to make inroads. Kind of reminds me of that term-limits fad that really hit hard, but then all of the elected officials who said they'd abide by term limits said they still had work to do.
I can see how people that make that much did not pay taxes. If their business lost money and they are a the owner of that business (and thus responsible for it) they can take the loss directly against their income. Last year my company had a great year, and I got killed on taxes, this last year we lost some money...and I paid no taxes. I sold my company so next year I am just an employee. However, if a person is a business owner and is providing a place of employment for others, I like that they can ride out the tough times by getting a tax break. Good for them. DD
Isn't food (at least groceries) already tax exempt? Every state I have ever bought groceries in has had no tax on them.
dakota -- these were people who took home over $200K. that is, by definition, a good year, relatively speaking. i had a good year, too, last year...and i too got hammered on my taxes, mostly because I don't plan for my taxes very well. i get stuck holding the ball come April 15th, because I'm an idiot. but when people take home hundreds of thousands of dollars and pay no tax at all...then something is broken. this is an example of the very wealthy being able to navigate the tax code with tax attorneys and accountants...and the average joe being stuck with the bill. i'm not much of a populist...but that's just what this is. we need an overhaul.
you should spend a week in arkansas! they tax EVERYTHING. including food staples like milk and bread...it's a joke. and they have arguably the nation's worst education system to show for it. plus personal property taxes and a state income tax.
I gotta admit, I have never had the pleasure of shopping for groceries in Arkansas. I agree with you though, food (at least the essentials) should never be taxed. I would also agree that clothing should not be taxed, again, at least the essentials. $100.00 Nike's should be but $20.00 Keds shouldn't.
bobrek - i certainly find the tax on food offensive...but the personal property tax isn't much better. if you own a car...you pay sales tax on it, right? yes, but in arkansas you also pay a tax for owning the car each year!!!
I would also agree that clothing should not be taxed, again, at least the essentials. $100.00 Nike's should be but $20.00 Keds shouldn't. The problem with this is that after 10 or 20 years of adding rules and regulations to tax the right products, you end up with a nightmare of a tax code, and now its the small business store that has to deal with those regulations to collect the right taxes. Remember, if Congress can tinker with something, they will.
In Minnesota the license tabs on your car are described as a "personal property tax", thus they can be deducted on the Federal form. License fees used to be outrageous here, but they have gotten better. A new car is around $200.00 for the first few years then drops to around $100 then eventually drops into the $30's.
I think that all clothing in Minnesota is non taxable. However, athletic shoes such as cleats, golf shoes or bowling shoes are taxed regardless of price. I don't think they tax $100.00+ tennis shoes, but since I don't buy those, I don't know.
Problem is they may have paid taxes on $1M the year before when they did not take out that much. Plus you are not considering they may have $200K borrowed from the bank to finance their business to meet cash flows.
Max, The amount they took home is meaningless. If their business lost money this year, they should get the tax credit. The point is the tax credit is there to help business owners make it through the hard times, so that they pay more taxes in the long run. If the company goes out of business the government loses more then just that company's taxes it loses all the employees taxes too. A good incentive if you ask me. DD
Depends on the business, Dakota. I'm in a partnership...an LLP, actually. It's pass-through. I could set a salary for myself and say that I will make it no matter what. Thus, when I report income...personal income...I have it! Or...I could just make distributions...as I do...twice a month. But then, at the end of the year, if I've made distributions, those are absolutely income to me! There's no getting around that. If I can't afford to make the distributions to myself and my partner, I don't make them. Fortunately that hasn't been a concern...but if the business pays expenses first and then, as a partnership, splits profits among the partners or members or owners...those distributions are still income to those persons. and what they hell are they doing taking home $200K if their company is losing money? and of course, all of this is based on the assumption that these people owned their own business...that they weren't employees of some business.
Maybe they are paying themselves a salary rather then taking a profit draw, and the loss of money is more of a timing thing then anything else. Sometimes the IRS taxes monies in the bank as earnings, when in reality they are to pay for future expenses, so when the timing comes around the next year, and the expenses have out grown the earnings for the year...it all balances out. 200k does not go as far as people think. It is a lot of money, but it doesn't make someone rich. DD
