Right, we need this convoluted system of overpayment and refunds because of how rediculous and complicated our tax law is. If there were a flat tax, no refunds, no loopholes, then you would (whoever you are and however much you make) have 10% (example %) deducted from every paycheck, with no option of claiming or not claiming dependents and paying or refunding at the end of the year.

Even with a nice, flat tax it won't be that simple unless, of course, you are talking about applying the flat tax rate to revenue and not profit. For instance, I am self-employed. Each quarter I have to estimate what my tax burden is an make a payment accordingly. So let's say that my revenue for each quarter is $50,000 and for each of the first three quarters my expenses are $30,000. So, under a 10% flat tax, I would have paid a total of $6000. But now, in the fourth quarter, my expenses spike to $80,000 because I had to repair some equipment or make a large supplies/materials purchase or whatever. My total revenue for the year is $200,000 and my total expenses are $170,000 leaving me with a final profit for the year of $30,000 on which I should owe $3,000. But I've already paid $6,000. So you're saying that I just lose the other $3,000?

I agree. As it stands, with the with the graduated tax, anybody who pays anything, while someone else is not forced to, is paying more than their fair share. The unfairness appears to increase as you look higher and higher up on the earnings ladder, but that's what this thread is about - People in the upper rungs not paying anything while it's advertised that they're paying more than all the rest of us combined.

What that article, and much of the discussion, is really about is looking high and low to find outliers (a handful of wealthy people that paid little to no taxes) and then creating the impression that they are the norm and are representative of the level of taxes paid by all wealthy people. Let's look at the numbers from the article. It cites an IRS report as saying that 20,752 households with incomes greater than $200,000 paid no federal income tax. So what else did that report show? First, that 20,752 is out of a total of 3,975,288 returns at or above $200,000. So the article is focusing on barely one-half of one percent of those returns. Of that 20,752, only 10,080 of them had no worldwide income tax liability. The U.S. taxes people on all income regardless of where it is earned. However, you can get a credit for a portion of the taxes paid to foreign governments for income earned outside of the U.S. Keep in mind that we are not talking about income earned by outsourcing jobs to cheap countries -- that's almost exclusively a corporate tax issue. Here we are talking about things like someone teaching at a foreign university as a visiting professor or the spouse of someone stationed at a U.S. embassy or military base that works in the local economy.

Also cited as the primary reason for 13,011 of those 20,752 returns was tax-exempt interest payments. In other words, those government bonds that, without the tax exemption, would have to be paid by governments through higher taxes to pay the higher returns needed to attract investors. About a thousand of the others were due to medical and dental expenses (it doesn't take much for family with a $200,000 income to end up with no tax liability from even a single catastrophic event for which they don't have coverage.) and, remember, we are talking about a couple thousand out of nearly four million returns. A similar number were due to charitable contributions and another similar number had no tax liability because of partnership or S corp losses. As discussed in my prior post, these profits are reported and paid on the individual partner or shareholder's personal return. The same is true of losses.

So, very quickly, we are talking about somewhere in the vicinity of four to five thousand returns out of four million. I certainly would not find it surprising to learn that, in any given tax year, one high income household in a thousand had legitimate circumstances that happen to eliminate their tax liability that year. For instance, first year expensing of equipment (which usually shows up on a Schedule C and doesn't make it to AGI, but not always) alone could wipe out more than $200,000 of income. What would be a telling number would be to know the number of high-income returns that escaped paying all (or nearly all) taxes year after year (say in more than five of the last ten). I would love to know that number, but I would not be surprised to discover that it is fewer than a couple hundred and probably does not include more than a tiny handful of returns with AGI's over one million dollars.

Here is perhaps the single most relevant look at these numbers. This shows percentage of people that paid the effective federal income tax rate (i.e., the fraction of AGI) showed in the leftmost column by returns in each of the AGI ranges shown in the top row.

tax(%)||<$50k|$50k-$100k|$100k-$200k|200k+
0||60.0|9.0|1.1|0.5
0-5||20.8|22.2|6.1|1.2
5-10||17.1|42.1|27.2|2.1
10-15||2.1|20.1|46.5|10.0
15-20||*|5.6|16.6|37.2
20-25||*|*|2.5|30.4
25-30||*|*|*|16.7
30-35||*|*|*|1.8

* - means less than 0.05%

As just one data point, notice that 98% of people making less than $50k pay 10% or less (with 60% paying nothing) and 94% of people between $50k and $100k pay 15% or less. For people over $200k, more than 86% of them pay more than 15%. Despite all of these "loopholes" we keep hearing about that allow the rich to avoid paying "their fair share", a huge fraction of them sure seem to be paying a significantly higher rate than everyone else!

 

I can't get any deduction for my medical bills because you have to make over 100k or what ever their amount is to write it off. Why can rich people deduct medical bills, but poor/middle class can't.

I'm almost certain that's not correct. Maybe you need a new accountant.

PS: Sorry, this was already addressed. Didn't read the whole thread before commenting.

 

I'm more worried about what the tax money is spend for. I see inefficiency in public money spending everywhere I look. People should be able to actively participate and decide whenever (a lot of) public money is being spent.

 

First if you are eligible to claim the itemized deductions ... and the eligibility is you exceed the standard deduction and you choose to itemize, you can claim any medical expense (copays, mileage, prescriptions, surgery, etc) that exceeds 7.5 percent of your adjusted gross income. That is the rules for everyone.

Who ever said you can't deduct medical expenses either didn't explain the rules to you or they did not know the rules.

I think the problem is that my medical bills = up to 30% of my wages.

 

Where do you get this from? It's just the opposite. You can only write off medical expenses to the degree that they exceed 7.5% of your adjusted gross income (will become 10% under the new healthcare law). So someone whose AGI is $25k has to eat the first $1,875 but can deduct the rest while someone whose AGI is $100k has to eat the first $7,500. When the new limits go into effect, the $25k guy will lose $625 worth of deductions while the $100k guy will lost $2,500 worth.

A friend that's a shady accountant that does tax loopholes for rich people, turbo tax, and HnR Block.
I usually make around 35-45 AGI and pay out $5K - $15K depending on MRI's and Hospital visits.

 

This may be true of some people, but many of them make up the engine that makes this economy run.
Have you ever gotten a paycheck from a poor person?
I can also personally testify that, now that I am retired, my income has gone down, while our medical expenses have skyrocketed (partly because we have to pay for medical insurance). I can now deduct a significant portion of our medical expenses.

In fact yes. There the only ones running biz's in the US that aren't super corporations. One job I had me some of the workers and the owner all lived in the company warehouse for a year.

 

Even with a nice, flat tax it won't be that simple unless, of course, you are talking about applying the flat tax rate to revenue and not profit. For instance, I am self-employed. Each quarter I have to estimate what my tax burden is an make a payment accordingly. So let's say that my revenue for each quarter is $50,000 and for each of the first three quarters my expenses are $30,000. So, under a 10% flat tax, I would have paid a total of $6000. But now, in the fourth quarter, my expenses spike to $80,000 because I had to repair some equipment or make a large supplies/materials purchase or whatever. My total revenue for the year is $200,000 and my total expenses are $170,000 leaving me with a final profit for the year of $30,000 on which I should owe $3,000. But I've already paid $6,000. So you're saying that I just lose the other $3,000?

Under stantor's flat tax plan, you would only be taxed on money you pay yourself. Your paycheck. Your business is a seperate entity from you. Why tax your business? If I make it hard for you to do business, you might outsource. So, I let you have all the toys you can afford at work, but as soon as you try to take some home for toys at home, that's when I get you.

So during the first 3 quarters, you wouldn't have necessarily payed 6000$, you would have paid 10% of whatever you paid yourself. So if you're living in a box eating out of a dumpster and took absolutely zero dollars home with you, then you paid no tax. If you took every available dollar of the 20K each quarter, then yes, you paid 6000. then in the 4th quarter, when you spent more than you made, it would depend whether you went hungry or paid yourself with additional money that your business doesn't have.

I realize such a tax plan would require additional laws to keep people from abusing it, but I think it would still be several times simpler and more fair than what we have.

 

I heard last night that in 2011 we lost 165,000 millionairs and trillions in

personal wealth,Like Ron H. said he never got a paycheck from poor man.

Stopping public waste,you don't see the tea party on the street anymore.

In the last two weeks they have vote out Incumbant senators in primaries.

On a panel about elections,both sides have agreed to not talk about S.S.

What does that tell you about both parties,the third party.

 

Under stantor's flat tax plan, you would only be taxed on money you pay yourself. Your paycheck. Your business is a seperate entity from you. Why tax your business? If I make it hard for you to do business, you might outsource. So, I let you have all the toys you can afford at work, but as soon as you try to take some home for toys at home, that's when I get you.

So during the first 3 quarters, you wouldn't have necessarily payed 6000$, you would have paid 10% of whatever you paid yourself. So if you're living in a box eating out of a dumpster and took absolutely zero dollars home with you, then you paid no tax. If you took every available dollar of the 20K each quarter, then yes, you paid 6000. then in the 4th quarter, when you spent more than you made, it would depend whether you went hungry or paid yourself with additional money that your business doesn't have.

I realize such a tax plan would require additional laws to keep people from abusing it, but I think it would still be several times simpler and more fair than what we have.

Well corporations are their own people with a tax ID with is = to a SSN. So corporations would pay taxes along with their CEO's. We'd just need to figure out how to tax the LLC's and other smaller biz's properly.

Its sad with the amount of intelligence we have in this forum we could probably fix this country in 3 days if we were dictators.

 

A friend that's a shady accountant that does tax loopholes for rich people, turbo tax, and HnR Block.
I usually make around 35-45 AGI and pay out $5K - $15K depending on MRI's and Hospital visits.

So let's take as an example someone that is single with no dependents who had an AGI of $45k in 2011. Their standard deduction was $5,800 and their exemption was $3,700. Thus their taxable income was $35,500. The federal income tax liability would then have been $5,006. That's 11.1% of AGI and is THE MOST that person would pay. If the AGI was $35k, then the maximum federal income tax liability would be $3,404 (9.7% of AGI).

Now let's look at the medical expenses. First let's consider a low income year with high medical expenses. With an AGI of $35k, the medical expense floor is $2,625, so they could claim $12,375 on their itemized deductions. Assuming they had no other deductible expenses, this (combined with their one $3,700 exemption) would give them a taxable income of $18,925 and leave them with a tax bill of $2,414 (6.9% of AGI).

On the other end of the spectrum, if they made $45k, then their medical expense floor would be $3,375. In order to make using itemized deductions worthwhile (again, assuming that the medical is their ONLY itemizable deduction), then they would have to have $9,175 ($3,375+$5,800) in medical expenses before it started reducing their tax liability. With $15k in such expenses, their taxable income would be $29,675 and their federal income tax liability would be $4,026 (8.9% of AGI).

With the numbers you've given, if you are paying anything over $5k in federal income tax, then you are overpaying. If that's the case, then file ammended returns for the last three years to claim the overpayment and have it returned to you.

 

I'm more worried about what the tax money is spend for. I see inefficiency in public money spending everywhere I look. People should be able to actively participate and decide whenever (a lot of) public money is being spent.

With very rare exceptions, people will always be less careful and less efficient when spending other people's money. Having people actively participate in government decisions, beyond the town/city and, perhaps in some cases, county level just isn't practical in any meaninful way. The solution is to accept that government, by its very nature, is going to spend money inefficiently and to limit the government to only being able to spend money on those things that are (1) necessary, and (2) the proper role of government. Then accept that they still aren't going to do a very good job of it.

 

With very rare exceptions, people will always be less careful and less efficient when spending other people's money. Having people actively participate in government decisions, beyond the town/city and, perhaps in some cases, county level just isn't practical in any meaninful way. The solution is to accept that government, by its very nature, is going to spend money inefficiently and to limit the government to only being able to spend money on those things that are (1) necessary, and (2) the proper role of government. Then accept that they still aren't going to do a very good job of it.

I don't think it's impractical. It should even be fairly easy, everybody has internet acces. The biggest obstacle I think is that most people are not educated enough to make political decisions, most people cannot imagine the implications of such decisions.

I don't know how this looks in reality but Iceland is trying to go this way:
http://www.opendemocracy.net/richard-bater/hope-from-below-composing-commons-in-iceland
http://www.squidoo.com/participative-democracy

 

Look at cost of having banking or any type of account,with your consent

you have to follow tranactions rules. It cost you to receive money and cost

you to spend it. If you have more money,it cost you more. They always talk

about undisclosed rules in moving your money around,like savings investments.

If a trader need to pay some bills,they can move your money without your

knowledge. In most cases you don't have a way to find where your money

is located or a phone number.

So while you are watching government,you have no say about your spending

money,think about the fee's.

 

“A perfect democracy, a ‘warm body’ democracy in which every adult may vote and all votes count equally, has no internal feedback for self-correction. … [O]nce a state extends the franchise to every warm body, be he producer or parasite, that day marks the beginning of the end of the state. For when the plebs discover that they can vote themselves bread and circuses without limit and that the productive members of the body politic cannot stop them, they will do so…” They’ll vote themselves bread and circuses every time “until the state bleeds to death, or in its weakened condition the state succumbs to an invader [such as] the barbarians enter Rome.”

-Robert Heinlein

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, (which is) always followed by a dictatorship.”

-Alexander Tyler

I agree with these guys. There has to be some kind of government; everbody can't have what they want.
​

 

Under stantor's flat tax plan, you would only be taxed on money you pay yourself. Your paycheck. Your business is a seperate entity from you. Why tax your business?

Because, under current law, my business is NOT a separate entity from me. But I understand now where you are coming from and you are saying that, under your plan, a sole proprietorship would no longer be treated as indistinguishable from the owner.

From a political standpoint, your approach has the problem that people that derive their income from investments will not pay any tax and that will be decried as "unfair". This is a given since it is already decried as "unfair" that they aren't paying the full wage tax rate. Hell, look at "the Buffet Rule" which would require that people earning over a certain amount must pay at least 30% of their total income in federal income tax when virtually no one making under $100k is paying more than 15%.

Personally, I would like to see one of three options chosen:

1) Tax sales of good only.
2) Tax businesses only.
3) Tax individuals only.

Each of these has advantages and disadvantages, no surprise there. Notice that the key is for the government to pick a single source of tax revenue. The goal is to make the level of taxation more obvious to the people paying the taxes. Instead, what we have, is a largely hidden nickel and diming of us to death.

For a long time, I favored doing away with the personal income tax and only taxing businesses. My thinking was along the following lines: Instead of having 150 million tax returns to process, review, and enforce you have less than 28 million business (2007 numbers, the latest I could find at the U.S. Census Bureau's site) returns to deal with, meaning that you can peform the oversight with a fraction of the number of IRS agents. On top of that, a tiny fraction of that, nearly 22 million of those businesses have no payroll (i.e., only the owners) and those 22 million, combined, account for less than 3.4% of all business receipts. So you could ignore those firms entirely (i.e., don't tax them at all) and have little impact on tax revenue. Instead of ignoring them, you can simply make a one or two page Business-EZ tax form that any company that has no payroll can use. Now the IRS can focus its efforts on the 6 million returns that account for 96% of the business activity. I would have then have another EZ form for employers with payrolls of less than 100 employees which would be, at most, five pages for the entire return. You are now down to barely over 100,000 full-blown returns for companies employing more than 100 people. A company of this size should have the resources to afford legal and accounting staffs (or contract with outside firms) to deal with the full-blown return (which should still be simplified greatly).

The big problem with generating all of the tax revenue from businesses is that it highly encourages businesses to go elsewhere. This is especially true given that we already have the highest corporate tax rates of any industrialized country.

One thing that could be done that would wake a lot of people up would be to abolish witholding. If someone makes $5000 in one month, then they get a check for $5000. They then have to submit payment to the federal and state governments for their social security and income taxes by writing checks for those amounts. When they're writing two or three checks that are likely totaling well in excess of their rent/mortgage payment, they will realize just how much they are paying in taxes. Of course, this is for the increasingly small fraction of people that even pay taxes, but at least they will get to write out their check for FICA.

Personally, I think a flat national sales tax has a lot going for it. You are taxed on what you spend and not taxed on what you save.

The biggest problem for all of these is that the government will always want to use the tax code for social engineering. It would take an extremely firm and clear cut Constitutional Amendment, backed by a Supreme Court willing to actually enfore the Constitution) to prevent that.

 

-Robert Heinlein
-Alexander Tyler

I agree with these guys. There has to be some kind of government; everbody can't have what they want.
​

I agree as well. In fact, my personal belief is that civilization is a self-defeating concept.

 

Free cell phone,first time home buyer,child credit,food card. Business loans

for some people,student loans, name more stuff that you can receive from

local ,state and fed. Good home work on the sayings,that what we are going thru

now.

 

I don't think it's impractical. It should even be fairly easy, everybody has internet acces. The biggest obstacle I think is that most people are not educated enough to make political decisions, most people cannot imagine the implications of such decisions.

I don't know how this looks in reality but Iceland is trying to go this way:
http://www.opendemocracy.net/richard-bater/hope-from-below-composing-commons-in-iceland
http://www.squidoo.com/participative-democracy

If it can work anywhere, Iceland would probably have about the best shot. But let's consider Iceland, for a few moments; it is a small, closely contained population with a very homogeneous population and a highly monolithic economy.

The total population is only 300,000 (Colorado Springs has 416,000 and El Paso County, where Colorado Springs is located, has 637,000).
Half of the entire population lives in a small area, namely the Greater Reykjavik area, which has an area of barely over 100 sq miles (the city of Colorado Springs has an area of 176 sq miles).
Total area: 40,000 sq miles (about the same as the state of Ohio)
Nearly the entire population is native to Iceland with most of the rest being from Scandinavian coutries.
97% of people in Iceland belong to the National Church of Iceland.
The economy is dominated by one industry -- 72% of all exports are seafood.

So you have a small number of people that overwhelming share the same heritage and religion living in a small area dominated by one industry. Furthermore, you have a country that is not active on the world stage in any meaningful way and whose security is guaranteed by another country (specifically the U.S.). Thus, the issues that would be important to any significant group of Icelanders are going to be issues that are likely to be important to most or, at the very least, issues that are readily known to most. Thus a participative democracy has a fighting change of functioning for a while. I still do not believe it could survive in the long run.

But now consider a country like the U.S. with an area that is 100 times as large and a population 1000 times as large. It is also arguably one of the world's most diverse nations whether you look at it ethnically, religiously, economically, or professionally. In addition, it has extensive worldwide involvement and commitments. How reasonable is it to expect a typical voter to be able to make an informed vote regarding offshore lobster fisheries near Maine, oil and gas production in Alaska, concerns over water rights and usage in Colorado, issues associated with sea water mixing with lake water in the Great Lakes, timber issues in Tennessee, anti-piracy policy in the Indian Ocean, problems in the Middle East, trade issues with China, etc., etc., etc.

Heck, just think about issues that are important right now in the area where you live. Now, would you be comfortable accepting the outcome of a vote in which the overwhelming majority of people casting votes don't live in your area and don't have to live with the outcome of the vote?

 

How reasonable is it to expect a typical voter to be able to make an informed vote regarding offshore lobster fisheries near Maine, oil and gas production in Alaska, concerns over water rights and usage in Colorado, issues associated with sea water mixing with lake water in the Great Lakes, timber issues in Tennessee, anti-piracy policy in the Indian Ocean, problems in the Middle East, trade issues with China, etc., etc., etc.

Yeah, you are right about those issues. It is not reasonable.

There are some issues where everybody has an opinion though, an opinion that should be heard.

Thinking of just two of them, bank bailouts, involvement in costly military operations...

 

Yeah, you are right about those issues. It is not reasonable.

There are some issues where everybody has an opinion though, an opinion that should be heard.

Thinking of just two of them, bank bailouts, involvement in costly military operations...

Having an opinion and being able to cast an informed vote are two very different things. I certainly have an opinion regarding, say, the bank bailouts. But I also know that I don't have a fraction of the information that would be needed to cast an informed vote and I'm willing to admit that, given that information, my vote for bailing out Bank A may be different than my vote for bailing out Bank B.

As for military operations, the same thing applies only more so. Not only do I not have anywhere close to the information needed to cast an informed vote, but there is no reasonable way that I could be given access to much of that information because of security concerns regarding classified information and protecting sources and assets.

The same would be true (most people not having adequate information to cast an informed vote) for virtually every issue. This is almost universally true even in tiny groups. For instance, consider a townhome association with fifty units. The bulk of the people living there are always dead set against the HOA dues going up and don't see any reason why they should go up again this year since they went up last year and are often very vocal about it. If you just put all of the information on the HOA website and had everyone vote, virtually no dues increase would ever be approved. But the people that were elected to the HOA Board have to deal with the bills and what costs are going up and what costs they do and do not have any control over and have the responsibility for placing the HOA in a position to be able to meet the long-term maintenance schedule (such as painting, roofs, and asphalt replacement) on schedule or very close to it. They make decisions based on that information (and ALL of that information is freely available to ANY homeowner). In most HOAs, the Board has the authority to raise dues up to some limit (typically CPI) and must get the approval of a majority of the homeowners that attend the Annual Meeting for anything above that. Both of these are key to a well-run HOA. By giving the Board bounds within which it can make decisions, the elected representatives are able to carry out the bulk of the HOA's business and responsibilities on the behalf of all of the homeowners without further homeowner involvement (and homeowners are almost always welcome to attend any Board Meeting and provide input if they choose to, just like at Public Meetings in government). But the way that the second part is structured is also key. For decisions beyond the scope of the HOA Board's authority, the decision isn't made by just a vote of all the homeowners, it is made by a vote of all the homeowners that take the time and make the effort to attend the Annual Meeting, at which the issues are presented and discussed prior to a vote being taken. This is to ensure that the votes cast are informed votes.

Now, most HOA Annual Meetings have problems getting enough people to attend (even by proxy) to establish a quorum to do business, which frequently only requires 1/4 to 1/3 of homeowners be represented. The overwhelming majority of the rest simply can't be bothered to attend a meeting so that they can have a say (and keep in mind that their vote would likely be one of only a dozen or two that are cast) in how much of their money they have to give to the HOA each month and it is extremely rare for anyone not on the board to ever ask about the many details upon which the Board makes its decisions.

One of the things I do on the side is prepare an annual Reserves Studies for a handful of associations and have done so for a dozen years now. I pay close attention to the climate of the room at the Annual Meeting and almost without exception I can count on overhearing numerous conversations about how the dues better not be going up again. Early on, when all of the HOAs except one was operating way below its optimum dues (and all of them were getting into serious financial holes that took years to dig out from), we sometimes had to ask for dues increases of more than 25% and sometimes we had to do that for two or three years running. Had we just done some kind of online voting open to all the homeowners, it is almost certain that few, if any, of those increases would have been approved. But by having to come to the Annual Meeting and listen to the Board's reasons for its recommendations, we have (so far) has a 100% success rate in getting HOA dues increases approved by the homeowners and, much more often than not, they have passed unanimously. I remember one time when a former board member heard that we were contemplating a $28 dollar per month increase and he came to the meeting adamant that the dues would go up over his dead body and he was very vocal about it and lots of people where cheering him on. After we walked through the situation and the issues and how we arrived at the figure we did, that same guy made the motion for the increase and it carried unanimously.

So what's my point? I guess what I am saying is that people can and do make well reasoned decisions and cast well informed and largely dispassionate votes when they are basically forced to consider the relevant information that pertains to that decision. But even on something as simple and mundane as whether to increase the HOA dues a couple of dollars a month it takes an hour, give or take, to present that information because even such a simple thing as that rests on top of a surprising amount of details that have to be considered both individually and as a whole. With that in mind, what are the chances that votes taken on larger issues by people that don't have to make any effort at all to learn about the issue to be eligible to cast a vote will relect anything other than the most superficial and emotional considerations.

For that matter, think about all of the ads that we would have to be inundated with about every issue under the sun in order to get any meaningful fraction of voters to even gain an awareness of what the issue is before casting their vote.