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Hello everyone!
I'm so ignorant about economics that I make even Loki look like an expert, so I was hoping one of you guys could explain something to me.
Why is the tax code so complicated, and what's keeping the government from simplifying it??
How can/should it be simplified, and what obstacles must be destroyed to achieve the goal of simplification??
Just out of curiosity :)
Hasn't it been shown that it is the nature of all bureaucracies to grow and perpetuate themselves? That those who wish to improve the system will stay where they are while those who take advantage of it will rise to the positions where they make the decisions?Quote:
Originally Posted by Aimless
The latter override the wishes of the former, thus the bureaucracy always grows and increases in complexity. At least that's my understanding of how these things work.
The first will require someone who knows something about taxes, the latter I think would require pruning the system of dead weight, which is an uphill struggle at best.Quote:
How can/should it be simplified, and what obstacles must be destroyed to achieve the goal of simplification??
From a lay person's view it's complicated because we have so many levels of taxation. Federal, state, county, municipal, township.Quote:
Originally Posted by Aimless
Lots of posters here will talk about the "fairness" of taxing, or who pays their fair share, or when it's income re-distribution and social engineering.
Case in point is Ominous Gamer sharing his income and tax credits, to where he gets more back than he paid in. Some tax brackets can actually make a little profit by not making enough money or paying income tax. Consumption taxes vary state by state. PA has no tax on essential food or clothing, for example. We actually get bus loads of tourists from US and abroad, just to buy clothes at malls.
Some states tax heavily on property ownership or automobiles (things like surcharges and transfer fees on new cars, or plate registration and safety inspections can make it cheaper to buy a car in Kentucky and drive it back to New York) or "luxury items". PA has a 6% state tax, CA's is higher, others are lower.
Some states have NO income tax, but they'll still pay federal payroll tax to fund things like Social Security.
It is overly complicated due to various credits and deductions that are targeted to certain voter groups. Soon every interest group wants a piece of the action.Quote:
Originally Posted by Aimless
The way to fix it? Eliminate all deductions and tax credits and change to the fair tax. :)
That's not a real solution as there is no solution. The pendulum just swings from simple to complicated all the time.Quote:
Originally Posted by Lewkowski
Ohh ho ho...whose fair tax now? Yours or a realistic one based on the actual meaning of the word fair?Quote:
Originally Posted by Lewkowski
I don't know for sure but I think the complexity comes from all the exceptions and loopholes that lobbysists and other connected people have influenced legislators to put into the code.Quote:
Originally Posted by Aimless
It should be simplified but it can't be without overthrowing the government with a totalitarian government. Nobody wants that here so we're stuck with corruption instead.Quote:
How can/should it be simplified, and what obstacles must be destroyed to achieve the goal of simplification??
Quote:
Originally Posted by Lewkowski
I'd go along with eliminating most deductions and keeping a simple income bracketed progressive tax. Taxes themselves fulfill the utilitarian roll of providing the money necessary to run the government and fund projects private enterprise can't/won't do. Deductions can be used to influence behavior as well - like a deduction for making your house more energy efficient or to pay part of the cost for children's pre-school. Stuff like that. But they should be temporary and limited.Quote:
Originally Posted by Illusions
The tax code gains in complexity from well-intentioned lawmakers who are trying to help out specific groups with tax advantages. It might be something like increasing a credit for children, or education expenses, or complex rules about carrying small business losses back into 'good years', etc. They generally all make 'sense' in the abstract, but make filing a major headache, especially for higher income earners with multiple pots of money. Hell, even my own fairly paltry taxes got pretty damn complex this year, and I'm only 24. The complexity increases tax evasion (both intentional and accidental) significantly, and administration of the system by the IRS is a huge waste of money (to the tune of billions of dollars a year). The Alternative Minimum Tax is a classic example - it's awfully complicated to appropriately work through the calculations, and most people just ignore it even when they should be checking whether they need to pay it.Quote:
Originally Posted by Aimless
The tax code is rarely simplified for the simple reason that there's little incentive to do so - each complexity of the code has a reason, and the bureaucratic cost is invisible to the lawmakers. I wouldn't say we should do away with progressive taxation or the system of credits and deductions entirely, but I imagine it could be significantly streamlined. Little-used exemptions and the like could be eliminated entirely, deductions that are on average for small amounts should be done away with, and most complicated provisos for high earners should be simplified. I would imagine that the reforms would not significantly change the tax bill for most people, but should improve compliance and decrease the administrative/enforcement burden. Not bloody likely that it's going to happen, though.
The tax code is difficult because it's been used to buy votes... plain and simple.
And while I think most of Lewk's opinions are hogwash, I can't for the life of me think of a tax revision that has been researched as much as the 'Fair Tax'.
It's so complicated that even our Sec of Treasury couldn't do his correctly. :mad:
Most of 'us' are forgetting judges who also have helped decorating the tree.Quote:
Originally Posted by ImAnOgre
As for a 'fair' tax, I do actually a simple system with limited brackets and virtually no deductions does make sense; the way things are going now we give our money to the government for the government to give part of what we give back in cash. That's just a silly system that only keeps bureaucrats in business. Government should tax to the extent that it can cover the expenses of the budget.
The "Fair Tax" they're talking about is actually completely doing away with the income tax and replacing it with a national sales tax, with prebates issued to cover the cost of taxes on household necessities, and make the tax progressive on consumption.
The only problem with it is that it's a regressive tax (i.e. rich people will spend a lower portion of their income on it than will poor people, since the former only spend a portion of their income while the latter spend all of it).
I'm tempted to support it anyways, since I'm not a big consumer. It'd be the first change the government made in my lifetime that I can remember that would actually make my life better.
Typically lower income folks will get the rebates that Wraith was talking about. You can also not tax certain items such as food/medicine/clothing. Not all of these but the basic no frill stuff so the poor don't pay as much for it.Quote:
Originally Posted by Loki
Tax on consumption as opposed to income is good. It will probably hamper the economy in the short run but in the long run we will all be better off. No one really thinks its a good idea to continue to consume past the point of rationally being able to pay for it.
I've never understood why this system would be somehow better at combating fraud, though. A VAT-type system is nice in that each level of production enforces the level beforehand so they aren't stuck holding the bag. But with a prebate system and the single point-of-sale tax, it seems open to as much compliance issues as our current system, if not more.
I'm not wholly opposed to it, but the currently proposed plans are probably not going to raise enough revenues, and have the aforementioned regressive tendencies *at least compared to current tax law*. Additionally, tax revenues would crash in the event of a recession, when average income generally drops quite a bit less than consumer demand. It's also inherently unfair to Americans who have saved post-tax money in the assumption of free consumption in the future (e.g. Roth retirement accounts and the like) - generally a problem for people on fixed tax-advantaged income.
And it involves complete government involvement in all markets for goods and services. This is supposed to be the less intrusive, more "free market" option, somehow? No, that's a load of bullshit. If it ever got implemented, you'd read or see what it actually entails and start screaming your head off about socialism. I know you don't believe it, Lewk, but an income tax fits your ideology better than any VAT would. You're just stuck in "grass is greener on the other side" mode.Quote:
Originally Posted by Lewkowski
Would you have any issues with an income tax for businesses and investment gains (ie: anything except wages) along with a national sales tax?Quote:
Originally Posted by Loki
Of course, then there is the question of whether a rich person's $5,000,000 yearly income from his company (assuming he pays himself $5,000,000) is a wage or an investment gain. :\
Or, how about: just an income tax if you are in the top 1 percentile of income-earners? But then that would require everyone to file their incomes just like now. (though most wouldn't pay taxes...)
This wouldn't raise nearly enough money. We need over 3 trillion dollars a year.Quote:
Originally Posted by agamemnus
I'd probably support having a highly progressive income tax without deductions (but much smaller than it is today; make the highest marginal rate say 20%), together with the VAT (at whichever rate is needed to get the necessary tax revenue). Of course this isn't practical if the government isn't willing to run surpluses during good economic times, and we know the likelihood of that happening.Quote:
Originally Posted by agamemnus
Yet we have a large number of millionaires who don't have any income, and thus pay no tax.Quote:
Originally Posted by Loki
But there is already a sales tax on most items already, this is simply increasing that tax.Quote:
Originally Posted by LittleFuzzy
Whether something is regressive or progressive depends on income, not wealth.Quote:
Originally Posted by ImAnOgre
Er.... but It'd be a change in the taxation system, not the pure sum of money being taken in.Quote:
Originally Posted by wiggin
Over time, though, the more successful system would both taking in more money and grow the economy...
I fail to see how that makes any sense.
This?
In other words, given that a government starts with two tax systems that take in the same amount of money but in different ways, over the long term, in one of those systems, there will be a better economy (measured as GDP/capita, gini coefficient, etcetc) because one of the tax systems is less distortionary of the markets as a whole.Quote:
Over time, though, the more successful system would both taking in more money and grow the economy...
Uhm... but you can't raise the 'same amount of money' through an income tax on the top 1% of earners. It's not revenue-neutral. They don't make 3 trillion dollars a year.
Furthermore, if you had such a disproportionate tax, you'd probably have wholesale wealth flight from the US, further hitting tax receipts.
1. The top 1% of earners make maybe 50% or more of the income.Quote:
Originally Posted by wiggin
2. You're the only one who mentioned this 3 trillion dollar figure. That's way too much in any case.
3. What about "national sales tax" did you not understand?
The reason I said "top 1%" is because there must be a way for money to flow out of the rich. I said nothing about proportion to the sales tax.Quote:
Furthermore, if you had such a disproportionate tax, you'd probably have wholesale wealth flight from the US, further hitting tax receipts.
The top 1% earn 22.8% of all the income...
http://www.taxfoundation.org/news/show/250.html
Whatever it is... it's a big number. Nice table btw.
In 2007, the top 1 percent of tax returns paid 40.4 percent of all federal individual income taxes and earned 22.8 percent of adjusted gross income. Both of those figures—share of income and share of taxes paid—are significantly higher than they were in 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes.
(from Loki's link)
Interesting...so who still thinks they don't pay their fair share?
I like how Loki left out the adjusted part.Quote:
Originally Posted by Veldan Rath