MM- All I'm sayingis they may be paying their own salary ($100K for example and their spouse makes $100K at her own job) but in their business (A 100% owned LLC or S-corp or other pass thru business) have out $200K on a line of credit because their business is money ($200K). Now on their tax return they would be showing $200K in salary and a $200K loss (assuming their basis was that high) from the business, and presto Zero taxable income. So yes it is possible that they are financing their loss via a loan, or kline of credit thru the business (rather than having enough capitilzation to sustain a $200K loss)
http://www.tompaine.com/feature2.cfm/ID/8179 Going Flat Max B. Sawicky is an economist at the Economic Policy Institute. He has worked in the Office of State and Local Finance of the U.S. Treasury Department and the U.S. Advisory Commission on Intergovernmental Relations. He also serves on the at-large national board of Americans for Democratic Action. Conservative activist Grover Norquist has essayed the daunting feat of putting a sober face on the Bush administration's bacchanal of tax cuts. Where others see budget-busting largesse to the rich, he sees inexorable progress towards fundamental tax reform. The Norquist ideal is the flat tax invented by Robert Hall and Alvin Rabushka and promoted by Steve Forbes: the famous tax you can do on a postcard. It is certainly a fundamental reform; whether it is desirable is a different matter. In either case, the rough beast of federal income taxation is slouching not towards the flat tax, but to something quite different. Norquist cites five steps to fundamental tax reform: elimination of the Alternative Minimum Tax (AMT), the Estate and Gift Tax and taxes on capital gains, plus immediate depreciation of all capital expenditures, and fully-flexible Individual Retirement Accounts (IRAs) that permit sheltering all savings from taxation. Norquist claims that tax cuts enacted over the past three years fit the enlightened design embodied in his five-step program. Is he right? Reducing the top marginal rates makes the bumpy income tax somewhat flatter, but the president also boasts of the new 10 percent bracket, the expanded, partially-refundable Child Tax Credit and extended marginal brackets for couples that reduce marriage penalties. None of these measures accord with the flat tax. Instant depreciation is consistent with flat tax treatment of business income, but it goes along with the full taxation of profits. Profits include funds used to pay creditors. No politician has been caught favoring the taxation of interest paid by business firms. What about IRAs? There is no provision for IRAs in the flat tax. In effect, the business firm is the IRA. Its investments -- capital expenditures -- are analogous to contributions and deductible to the firm; its returns -- profits used to pay interest and dividends -- are taxable. The individual pays no tax on interest, dividends or capital gains. Flat tax treatment of savings exactly parallels existing Roth IRAs, but without the income limitations. After-tax dollars can be used to buy tax-free financial assets. The flat tax does not need an IRA. The president and Congress have been conspicuously silent about the AMT, aside from enacting limited, temporary relief from it. In the same vein, the 2001 tax cut repeals the Estate and Gift Tax by 2010, but revives it in 2011. So far, politicians have postponed a confrontation with the huge deficit implications of eliminating these taxes. On the Norquist map of fundamental tax reform, mountains are leveled but valleys remain. Properly speaking, going flat requires taxing what is presently untaxed, not just reducing taxes on what currently is taxed. Missing from Norquist's five steps is the flat tax's required abolition of a raft of popular deductions, income exclusions, and credits that don't fit on the postcard. For instance, the popular deductions for home mortgage interest and state property taxes that tripped up presidential candidate Jerry Brown in 1992 are inconsistent with the flat tax. So too is the exclusion of wages used to pay for health insurance. On the Norquist map of fundamental tax reform, mountains are leveled but valleys remain. Republicans are opposed on principle to any change in the law that entails a tax increase, but it is impossible to achieve the flat tax without some. So what do recent tax cuts herald if not fundamental tax reform? First, the obvious answer: reducing revenues for reasons unrelated to tax policy. Norquist is famous for hoping "to get government down to the size where we can drown it in the bathtub." Second, the ever-increasing concessions to "savings" -- which means preferential or zero tax rates on capital gains, interest and dividends -- shifts the tax burden to labor income. Our individual and corporate income taxes are devolving towards a wage tax. Third, the increasing complexity of the system in its treatment of business and investment income widens opportunities to offset taxes on salary income for sophisticated taxpayers with complex financial affairs and hungry accountants. Those with high salaries will not merely escape income tax, but their investment income will benefit from negative taxation -- shades of socialism for the rich. At the end of the day, the system towards which we are pushed is tantamount to a single tax on wages under a manufactured budget crisis. (Using the payroll tax to raise all the income tax revenue would require a rate increase to about 40 percent.) Evidently, the plan is not "fundamental tax reform," but a bankrupt national government.
I can't believe the hutzpah* of Max's position. The conservatives have spent many years including the recent Bush tax cuts trying to make the tax system less progressive. Finally you get to the point where thousands of people making lots of money pay virtually no taxes. The proposed solution: a flat tax or some system that would wring the last possible vestiges of progressivism out of the system to insure a permanent class of inherited wealth. *Hutpzah: killing your parents then complaining bitterly that you are an orphan
I don't think that is the purpose of the flat tax at all. The flat tax will reduce funding for the federal government to the point where they will have to either raise taxes or cut programs, and the Republicans think they will always win on the cutting programs part once they get the flat tax, because the burden on lower and middle income taxpayers will become unbearable.
I believe at least some flat tax backers believe a lower tax rate with few or no loopholes will increase the economy (since they believe the market spends money far more efficiently than the government), as well as eliminate more fraud and tax-deferring transactions, etc. to the point that the revenues received by the government at the lower tax rate will equal or exceed what they are at the higher tax rate. I don't think you can dismiss that as a motivation of at least some.
I always thought that the tax system is overly complex because far too many things are subsidized through the tax system instead of being subsidized more directly. All these deductions and such are reasons for the tax code's complexity. So the question is whether it is better to subsidize some of these things through means other than through the tax system. Examples: 1. Mortgage interest - Currently you can deduct it from taxable income if I'm not mistaken. But this can be eliminated by having the govt subsidize mortgage interest rates directly. You won't deduct the interest but the interest would be lower so same thing! 2. Charitable deductions - I don't really see the need for it. If you donate $100 but it costs you say $95 because of less tax, just donate the $95 and forget about deductions! This eliminates a major source of tax fraud (where people donate some object and claim the object was worth a lot more than the object probably is worth for deductions). Many other examples...... To me taxes could be simplified thus: 1. Have a progressive tax table where people are taxed on "excess" net income where "excess" income is defined based on the number of people supported by this income but on a progressive scale. 2. NO deductions of any kind. 3. All subsidies (mortgages, charities, etc) to be directly provided by the govt through other means. I don't claim my simplistic tax scheme can work cause I haven't thought through it completely but I do think that much tax code is needlessly complicated because I think it is the easiest way to soften and hide govt subsidies which should or could be subsidized through more direct means.
The usual outrage. I pay my fair share -- it's those other guys who need to pay... 4 chuckie laid out one scenario. Also included in the non-tax payers are the ones who paid foreign tax. Suppose you earned the income outside the US and paid foreign tax that was higher than the US tax would have been. Should the US also tax you??? Not fun at all. Remember...the percentage is 0.08% of over $200 k earners. Not exactly a representative sample of the super rich. Flat taxes and consumption taxes sound wonderful...but they are very regressive, and very cumbersome. Consumption taxes: everybody becomes a tax collector. Book keeping galore. Lots of avoidance. With at 10-15% sales tax how many 'cash discounts' do you think you'll see. And, congratulations, you've just made foreign vacations cheaper than local ones!!! Make it simple. Tax everything. Well... except groceries...and kids shoes...oh, and prescription drugs...and energy efficient cars...yeah, and maybe school books. and.. and... OK...A flat tax. Everybody pays the same. Now define income. Deduction for meals and entertainment -- no, can't have that. What about capital gains and dividends? And I'd like some sort of tax break for investing in new pollution controls, please...and don't I get a break for a large family, owning a house, all this debt... Ugh...right back where we started. Lots of problems with the current system I'm sure. TJ and his ilk will swear it makes good economic sense to tax investment income favourably. He's probably right. Can't do that with a flat tax. So...the usual outrage. Need to know the details for the non-payers. Maybe it makes sense. Maybe changes are needed. My 2 cents? Glad you asked. Raise the rates for income greater than $75,000. (Picked the number right out of the air!). Redistribute to schools, to healthcare, to a social safety net. But then...I guess I'm a wee bit of a socialist at heart...See too much of a divide in the good old US of A. Don't like all them poor people...would rather feel safe.
Want to fix the tax system? Make the corporations pay their share, instead of giving them loopholes, tax havens and "incentives." Fix that, and we're swimming in cash -- and individual taxes go down. Unfortunately, since corporations and moneyed interests write the tax laws, the system continues to screw the poor, reward the rich and ignore the middle.
The flat tax will reduce funding for the federal government to the point where they will have to either raise taxes or cut programs, To me this is true but not the main point and is reflective of their deeper motivation. It is just a selfish thing. The wealthy crowd who control the conservative movement want to have more money and they therefore don't want to pay taxes. This is their primary motivation. Not that surprising given their celebration of greed andcelebrating (when the aren't claiming to be deeply religious) that the only signifcant motivation is the acquisition of personal weath. They have a problem. Taxes are necessary to pay for such popular goverment programs like social security, public libraries, etc. The economy gets out of wack if government deficits are too high, which threatens their wealth. They can't afford to attack these popular programs head on by just admitting: " we're wealthy and we don't need medicare or social security, so we're against it" so they have to put the government in deficit to try to undermine these programs as you say. As we see since they can make money off of money spent on weapon systems, they love to increase this type of government spending as they don't resent sending tax payer money to industries they own or control.
If you "over" tax corporations one of 2 things will happen: 1. Corporations will pay there employees less therefore still getting the owners the same profits they had before. Basically if ABC corp had $1M in revenues and paid out $750k in expenses (all wages to keep it easy) and the tax rate is 30% then the owners would be making $175K ($1M-$750K less 30% in taxes). So if the tax rate suddenly goes upto 50% and busiess was level then the company would sell $1M pay out $650K in wages and still take home $175K. Now maybe they couldn't cut wages back that fast but int he end it would be the people at teh bottom and middle who would get eliminated or have their salalry cut. 2. Or if the owners of a business also were employees then they woudl just raise their own salaries, reducing the profits of the companies and getting taxed at the lower indidical rate. Meaning if a CEO/owner is making $250K in salary now, then you can bet he would immediately increase his salary, which would decrease the profits of the business. Again I can pretty well bet every system will have loop holes. People are very good at tax planning, so if a new system emerges there will be people whose job it is to beat the system.
Glynch I couldn't disagree more, it's an equity thing. Everyone thinks they are paying too much and everyone else is paying too little. I'll use my self as an example. I am 31 and single and make a good living for myself. I pay my fair share of taxes every year. Statistics I may be wealthy (or near wealthy), but there are many things which I disagree with: Earned income credit- Why should others get money back from the government who have children and make modest amounts of money or in othe rcases have no children and make very little money. Having children is a privelege, but I do not think teh goverenment should reward people who have children who have a hard times makign ends meet. In the end since they pay less in taxes I (and others) pay more. Child Care Credit- See general premise above for the EIC. Double taxation of divends: (The govt is working on this now) But the C-corp gets taxed on profits (before dividends) then I also pay taxes ont he dividends I receive from the company. My point is simple how do you reconcile what is equitable to you vs what I think is equitable. I think it is very unequitable that a wealthy person may have his federal taxes withheld at 36% (may have just been cut to 35% got I need to do my homework), state taxes in Ohio at 6.9% and local taxes at 2% (and this is not including any Persona Propoerty taxes for owning busines property). So a wealthy person is getting taxed 44-45% on income over $200,000 (or so). Maybe you see that as "ok" I don't. PS - I want to have kids someday (the above examples may have inferred I don't like children) but I don't think the government has any obligation (other than providing an education) in assisting with them.
I agree with 4Chuckie. Taxing corporations more sounds good and has become a "buzz" word (kind of like helping "the rich" - who exactly are "the rich?") but, remember, corporations are run by people. If you tax corporations more on their profits, the people who run them will find a way to see that corporations make fewer profits by paying themselves more. This may sound good in that people get more money but it will just be taxed as income for those people and at a lower rate according to the "soak the corps" people. I think a consumption tax or a flat tax on people's income would be the best way to go. Of course, this brings up the problem of "it's not my Mercedes, it belongs to my company" but I'm sure someone can think of a way to fix that. I do have a problem of taxing people who make mores at a higher rate simply because they make more. I think one rate should be determined, exempt food from any taxes and that's what everyone pays.
I don't want to "overtax" anyone. Pay your share. You and I do. Enron, WorldCom, GE, GM and Ford made a tax PROFIT last year. I'm not talking $600 here -- they made tens of BILLIONS. Think about that: your tax dollars are subsidizing these giant corporations. If corporations paid even a fraction of what they're supposed to, we'd be swimming in money. Fifty years ago, corporations paid more than 60 percent of the total taxes. Now, it's less than 20 percent. Guess where that difference is made up.
Well, Ford did have a $5.3 billion operating loss last year. I'm not sure what the tax bracket is on negative $5.3 billion, but I suppose we could make it higher.
Under a pure flat tax scheme, of say 25%, you would charge a person making $10000/year a whopping $2500 in taxes while you would charge a multi-millionaire the same 25% on his last $10000 (also $2500). That just doesn't seem right to me. It makes more sense to have a progressive system where you charge, say 2.5% on the first $10000 and 47.5% on the last $10000 on someone making close to a million dollars. Then the person making $10000 is paying only $250 in tax while the multimillionaire is paying $4700 on his last $10000. In this case the low income is charged a rate that isn't a onerous burden while the high income person is charged at a much higher rate at the high income braket but the tax is something he also can easily afford. To me I don't think you charge 25% for the person living in poverty and the multimillionaire. That's just not good policy. It makes more sense to charge 2.5% on the first $10000 and 47.5% on the last $10000 (of a millionaire) than to charge them both 25%.
r35- Not meaning to be a a$$ here but it sounds like you are either a die-hard liberal or you don't make very much money. Either way But biger question is how do you tax the $980,000 in the middle?
I'm not sure what you are getting at. If you oppose the progressive tax because you think that a person making $10000 should pay $2500 in tax while the last $10000 a multi-millionaire makes should also be taxed 25%, then I just vehemently disagree. If this is a "liberal" or "socialist" position so be it. But I don't see how having a pure flat tax where everyone is charged a fixed rate regardless of income is a good idea. Even proponents of flat tax really do not propose a flat tax. In their schemes there is usually two brackets: 0% for income up a certain amount, then say, 20% for all income above that amount.
Off the top of my head, here is an example of a system for a single person: 10% on the first $50,000 of taxable income 20% on the second $50,000 30% on the second $100,000 40% on the next $300,000 (up to $500,000) 50% on the anything above $500,000 This makes much more sense than, say: 25% on all taxable income
My point is simple how do you reconcile what is equitable to you vs what I think is equitable. You discuss the issues honestly and put it up to a vote by the voters. You don't for instance falsely distort that you can lower taxes on the weathier segments and not cut back on such things as education, health care, publi libraries for the poor and middle class. So a wealthy person is getting taxed 44-45% on income over $200,000 (or so). Maybe you see that as "ok" I don't. I do see it as ok. This tax rate and higher was accepted in the 50's and 60's two of the most prosperous decades in US history. It is accepted in virtually every other non third world country where you don't have poeple dying of simple diabetes and high blood pressure like you do in rural counties of Texas. Let's don't lie about the issues and try to create fiscal crises by lowering taxes knowing that these programs will eventually create a fisal mess. Let's don't lie even if it leads to a feel good situation where like Bush you can boast of a tax cut when you want to run for President. He left the next government of Texas to do such things as take away indigent health care for tens of thousands of defenseless poor children and raise state college tuition 46 percent in the next two years in order to try to salvage the mess.
clearly my concern with the article is that people who have considerable income aren't paying taxes...read in what you will about me.
