Tax changes???

[Ponycat]

Grizlaw, I'm curious of your opinions on this. Not a lot of detail in the article but what do you think?

Would this cause you to have to practice other types of law?

[SonomaCat]

The link appears to be missing.

[Grizlaw]

I know what he's talking about -- the President's council on tax reform issued its recommendations on Wednesday, and yesterday's Wall Street Journal and Financial Times both ran fairly extensive stories covering the recommendations (I don't know if those are the sources Pony was going to cite, but I'm sure the basic story is the same). The proposals included a slightly streamlined version of our current income tax, and also a proposal to change our current income tax to a progressive cash-flow consumption tax (for those not familiar with the concept of a cash-flow consumption tax, I'll explain later; it's kind of an interesting concept).

I have a lot to say about this, but I can't do it right now -- I'll try later. (I'm swamped right now and have dinner plans in a bit, but after a good dinner and a few stout drinks, I should be in a good state to discuss tax policy. )

To quickly answer your question though, Pony, the short answer is "no." Regardless of what reforms ultimately get enacted, there is no way that me, BAC, and other tax advisors will be put out of business. As long as the concept of taxation exists, businesses will want to structure their transactions to minimize taxes, and that will be true regardless of what tax system is imposed.

[Ponycat]

http://www.foxnews.com/story/0,2933,172892,00.html

Here is the link. I was reading about what you said in your reply and ran across this. Probably no way in he!! it could pass.

[gtapp]

We need a flat tax with ZERO deductions. Flat percenatge, I am so tired of the 5% richest people paying 85% of the tax. Do they get 10x the services? Does the fire truck get to their house 10x faster or does their street get plowed first. The only fair way is a flat tax plus you can more easily balance the budget because you can predit the tax base more accurately. BY the way I am not one of those 5%.

[mquast53000]

We need a flat tax with ZERO deductions. Flat percenatge, I am so tired of the 5% richest people paying 85% of the tax. Do they get 10x the services? Does the fire truck get to their house 10x faster or does their street get plowed first. The only fair way is a flat tax plus you can more easily balance the budget because you can predit the tax base more accurately. BY the way I am not one of those 5%.

Wow. That is a terrible idea. You think a 5% hit on a millionaire's income would be the same impact as a 5% hit on a low income family’s (realistically the government would incorporate a 25-30% tax- not a 5%)? The tax structure has flaws, but a flat tax would be absurd. Granted the 5% of the population pays 85% of all the tax, but they own AT LEAST 90% of everything (land, businesses (by % of profitability), ect.).

[Grizlaw]

The link Pony provided is quite a bit different than the proposals in the WSJ and Financial Times articles that I was thinking of. I'm not sure how much I can really say about the Fox News piece; I doubt I need to spend a great deal of energy convincing people that we can't replace our corporate income tax (with its 35% top rate) with an 8.5% business profits tax, and replace the individual income tax (with its similar top rate) with an 8.5% flat tax, and expect our budget deficits to just magically disappear.

The suggestion of imposing a flat income tax does raise some interesting questions. There are valid arguments both for and against the idea that a tax system with a single rate is more fair than a system with a progressive rate structure like the one we have (as Quast said, a 20% flat tax on income is going to have a far greater impact on the lives of a family earning $20,000 per year than on one that earns a million; thus one could argue that, in some regards, our current system is actually more equal than a flat tax would be).

Setting aside fairness for the moment, though, I don't think a flat tax could work, strictly from a social and fiscal budget perspective. In our current system, the poorest 10-20% of the population isn't paying any tax right now (depending on whose statistics you believe). That might not seem fair, but the reality is that that segment of society CAN'T AFFORD to pay taxes, regardless of whether it's fair or not. Those who are not being taxed right now are already largely living in poverty, and if we were to change the tax system to impose tax on them, we would only be driving them deeper into poverty. From a certain point of view, that might seem "fair" -- make the poor carry their weight, regardless of its effect on them. However, regardless of whether it is fair or not, I would argue that the negatives associated with driving those who are already poor deeper into poverty would outweigh any arguable benefits that we might gain.

--GL

[gtapp]

We need a flat tax with ZERO deductions. Flat percenatge, I am so tired of the 5% richest people paying 85% of the tax. Do they get 10x the services? Does the fire truck get to their house 10x faster or does their street get plowed first. The only fair way is a flat tax plus you can more easily balance the budget because you can predit the tax base more accurately. BY the way I am not one of those 5%.

Wow. That is a terrible idea. You think a 5% hit on a millionaire's income would be the same impact as a 5% hit on a low income family’s (realistically the government would incorporate a 25-30% tax- not a 5%)? The tax structure has flaws, but a flat tax would be absurd. Granted the 5% of the population pays 85% of all the tax, but they own AT LEAST 90% of everything (land, businesses (by % of profitability), ect.).

I don't care what the impact is, It is just fare! Why punish the rich. Again, if it has to work that way then come out and say we are going to screw the rich because that is the only way it works. And make sure that fire truck gets to their home 10x faster.

['93HonoluluCat]

We need a flat tax with ZERO deductions.

[Grizlaw]

I don't care what the impact is, It is just fare! Why punish the rich. Again, if it has to work that way then come out and say we are going to screw the rich because that is the only way it works. And make sure that fire truck gets to their home 10x faster.

Just to play devil's advocate for a moment -- if fairness and equality are the primary concerns, then why have a tax based on income at all? Isn't the only truly "equal" tax one where everyone pays the same amount? If equality is the goal, then why not argue in favor of a "head tax," where everybody pays $5,000 (or whatever amount) per year, regardless of whether the person is Bill Gates or the guy who sleeps on a park bench in Washington Square Park?

--GL

[SonomaCat]

We need a flat tax with ZERO deductions.

From a selfish point of view, that works for me, as I don't get any deductions to begin with (outside of taxes paid and donations).

But I can imagine that such an idea would go nowhere when put up against the people who would be giving up their deductions for: being married, having kids, owning a home, donating to charities, churches, schools, etc., etc.).

I am not against the idea of removing all social engineering from the tax code, but the whole concept is so firmly engrained in our culture that it would be hard to shake.

Even if it did pass, somebody would want just one exception, and then another, and then another ... and pretty soon the tax code would be 10,000 pages long again. It's just too tempting to play with the code to address each of our pet projects. It's almost as fun to play with as the new ESPN mobile phone that is coming out soon (that just justified me posting during work hours ... but seriously, it's friggin' cool).

[Grizlaw]

Even if it did pass, somebody would want just one exception, and then another, and then another ... and pretty soon the tax code would be 10,000 pages long again. It's just too tempting to play with the code to address each of our pet projects.

If you're looking for an interesting read on that point, there is a book called Showdown at Gucci Gulch that I would recommend. It discusses the politicking that went on in the creation of the 1986 tax act. It's interesting because the 1986 Act started out with goals similar to what has been discussed here (the goal was to remove most deductions from the Code, broaden the definition of "income," and reduce tax rates to the lowest possible). What happened in the formulation of the bill, though, was that although most of Congress was in favor of the general principle of tax reform and removing deductions from the Code, everybody wanted their pet deductions to remain. The members from Texas wouldn't support a bill that removed provisions that benefitted oil companies, the members from farm states wouldn't remove benefits that benefitted farmers, the members from high tax states wouldn't support dropping the deduction for state income tax, and etc. In the end, by the time all the deal making to garner votes for the bill had been done (with members agreeing to insist on other members' pet deductions in exchange for support for their own), the initial goal of the legislation had been completely abandoned.

Anyway, I would recommend the book to anyone who is interested in tax policy or the legislative process in general. (The book is about tax and discusses various tax provisions, but it was written by two Wall Street Journal editors who aren't tax people, and it was intended to be read by average people -- in other words, you don't have to be a tax person to understand/enjoy it.)

[gtapp]

If we taxed churches at 40% (since they are a business) that would reduce taxes for everyone.

[SonomaCat]

I was reading some interesting (as much as it can) tax literature the other day that was talking about some of the early arguments in favor of limiting taxes against newspapers and churches. The newspaper argument was that a tax on papers (sales taxes in this case) could be deemed to be a limitation on free speech. Similarly, church people suggested that taxing churches could be seen as a limitation on the freedom of religion.

It's clearly a bogus argument (as what they are essentially asking for is a public subsidy/special treatment as opposed to being relieved of some excessive infringement upon their freedom to accumulate money and wealth as compared to any other similar group), but it was an interesting look at the lobbying history of those two groups.

[Grizlaw]

If we taxed churches at 40% (since they are a business) that would reduce taxes for everyone.

I agree that, as a matter of policy, churches should probably be taxed, but do you really think most churches actually operate at a substantial profit? 40% of essentially zero is still essentially zero; I really doubt that imposing a tax on churches would have much of an impact on the fisc.

['93HonoluluCat]

From a selfish point of view, that works for me, as I don't get any deductions to begin with (outside of taxes paid and donations).

Neither do I. Even with a family, I don't have enough deductions in my life to itemize (because I'm not a home owner).

Even if it did pass, somebody would want just one exception, and then another, and then another ... and pretty soon the tax code would be 10,000 pages long again. It's just too tempting to play with the code to address each of our pet projects. It's almost as fun to play with as the new ESPN mobile phone that is coming out soon (that just justified me posting during work hours ... but seriously, it's friggin' cool).

I agree with everything...except the phone (because I've seen it/played with it)...but it doesn't mean I can't like the idea of a flat tax.

If we taxed churches at 40% (since they are a business) that would reduce taxes for everyone.

Must...

Hold...

Tongue...

[mquast53000]

I don't care what the impact is, It is just fare! Why punish the rich. Again, if it has to work that way then come out and say we are going to screw the rich because that is the only way it works. And make sure that fire truck gets to their home 10x faster.

Gary do you assume that the rich people that we are discussing are rich because of their hard work?

The rich people that we are discussing on this thread are rich through inheritance not hard work. Why should they have no significant tax burden? Look at the homes and cars that they own simply because of their last name? It isn't like the government is taking all their well earned money. This conversation is ridiculous. You would want a flat tax that would most likely increase poverty in America simply to be "fair" to rich people? We would solidify our caste system with such a move! Our government already does too much for wealthy America. Lets at least make the rich people pay for all the benefits that they reap from our society.

[Grizlaw]

The rich people that we are discussing on this thread are rich through inheritance not hard work. Why should they have no significant tax burden? Look at the homes and cars that they own simply because of their last name? It isn't like the government is taking all their well earned money. This conversation is ridiculous. You would want a flat tax that would most likely increase poverty in America simply to be "fair" to rich people? We would solidify our caste system with such a move! Our government already does too much for wealthy America. Lets at least make the rich people pay for all the benefits that they reap from our society.

*blinks*

Holy cow; I agree with Quast on a political topic.

--GL (cue apocalypse)

[Hell's Bells]

I don't care what the impact is, It is just fare! Why punish the rich. Again, if it has to work that way then come out and say we are going to screw the rich because that is the only way it works. And make sure that fire truck gets to their home 10x faster.

Gary do you assume that the rich people that we are discussing are rich because of their hard work?

The rich people that we are discussing on this thread are rich through inheritance not hard work. Why should they have no significant tax burden? Look at the homes and cars that they own simply because of their last name? It isn't like the government is taking all their well earned money. This conversation is ridiculous. You would want a flat tax that would most likely increase poverty in America simply to be "fair" to rich people? We would solidify our caste system with such a move! Our government already does too much for wealthy America. Lets at least make the rich people pay for all the benefits that they reap from our society.

most people are rich because of hard work and lifestyle/career choices.

[Grizlaw]

most people are rich because of hard work and lifestyle/career choices.

The truth of this statement depends on how you define "rich." If you're talking about everyone who is upper-middle class or wealthier, then you're right; most of them are working people (doctors, bankers, and *gasp* lawyers).

However, currently the bulk of the tax *dollars* paid in this country are paid by the wealthiest few percent, and at that level of wealth, you are talking primarily about inherited wealth. That's actually the more appropriate comparison to make, because while you're correct that there are more *taxpayers* that you might call "wealthy" who are working people, the bulk of the actual tax *dollars* paid that we're talking about are paid by people who have inherited wealth.

--GL