Sunday December 8, 2013
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I was thinking about something on another string, one of those ideas you just toss out for discussion but immediately see is full of flaws, when I got an idea.
Right in the middle of typing a sentence it suddenly dawned on me what is wrong with our income tax system, and how to fix it.
It is so simple, and so completely fair.
We start with the total national income. We calculate what percentage of the total national income each of us made. Let's say, just for the halibut that you earned 1% of the total nation income so that we have a simple figure to work with.
Then we take the total national budget, and we charge each person his fair portion of the total national budget. If you made 1% of the total national income, your tax is 1% of the total national budget.
Totally fair. No loopholes of any kind. Just pay your fair share of the outgo, calculated according to your share of the income.
Try to find something unfair about that!
Suppose you and I, and two other people, own a company that makes $10,000,000 a year, and each of us makes $2,500,000. Suppose the cost of running the business is $1,000,000. Would it not be fair if we each paid our share? It would be $250,000 each.
Now, take the same business, making the same amount of money and costing the same amount to run. But this time, let's let me earn $5,000,000, and let's let each of you earn just $1,250,000. Would it not be fair if I paid a larger share of the costs since I'm earning a larger share of the income; in fact half of it? Why shouldn't I pay half the costs if I am making half the money? I'd be paying $500,000 and each of you would pay $125,000. I'd still be making $4,500,00 and each of you would be making $1,125,000. Absolutely fair and honest.
That's the fair way, isn't it?
Oops! In the second example, I changed the number of owners to five instead of four to make it easier for you to see the numbers, but I forgot to mention it. Of course, somebody could have been embezzling a few bucks there. Maybe I should have calculated it that way to make it look more like the real world. :-)
But Tom in second example the increase in profit could not have happened without an increase in production and an increase in production probably means an increase in wages and now there are more employees paying taxes and just how much the Government need?
Then there is Mr/Miss/Ms/Mrs/ citizen who does not contribute but consumes. What rate to you charge them. No one shouldn't pay. There should be no free lunch. Go figure.
This is the one and only completely fair tax you are ever going to see. It is like a flat tax in that it spreads the load evenly, but in this case it spreads it according to what you are getting out of the system. Everybody works to increase everyone's earnings because everyone benefits by doing it. If the company you work for makes more money, then the executives will make more money, and they will pay more money, thereby reducing your load.
It's so strange. This whole idea blossomed in my head in ten seconds, in what is called a "gestalt" in psychology--a single piece.
"...now there are more employees paying taxes and just how much the Government need?"
Perfect question. The government lays its needs on the table--the annual budget. Then the tax amount for each person is calculated according to what he or she earned.
As for free lunches, that is a separate decision. It has nothing to do with taxes, but I can tell you what's wrong with the system now. We decide who, if anyone, gets help from the government. That is a decision we make according to how we view our responsibilities toward each other. If you fall by the wayside, no matter what the reason, we decide if we will help, how we will help (in what form**), and how much we will help. That's part of the national budget we all share. If we decide not to help, then that's that. If we decide to help, then we pay for our decisions--as a nation. Never again will there be a situation like the one we have now, where a few people decide what we should so, and then we pay for it in a manner which is all out of proportion to what we earn. If you ask for there to be welfare to protect you, then you pay for it during your working years.
** One problem with the current welfare program is the form in which we give help. If someone is on the street, he or she does not need cash, he or she needs housing. If he or she needs food, then he or she needs food, not cash to spend on booze, Nikes, or sagging jeans. In other words, welfare in this program would be help in kind, and most of the "kind" would be taking care of your six kids so you can work hard enough to support them yourself.
But you know what nobody reading this string has yet asked me?
Wait till you hear this!
What about other taxes?
Guess what? There ARE no other federal taxes. Just one tax--income tax.
No property tax, no death tax, no sales tax, no excise tax, none of the taxes that are leftovers from the days when only the privileged had money, and so only they were the only ones taxed, and were therefore the only ones who had a vote.
Taxes on property punish those who save their money, or invest it in a home or a decent car. They are anti-democratic, a form of socialism, though no one ever seems to realize that.
I can't say what the states would do, but I would like to see the same thing at the state level too. One tax, just one, apportioned according to earnings.
Think of how wonderfully fair this is. Right now, some politician says, "Oh, we want to build stadium so that a football team will come here. And even though you will pay for it, you will gain from it too because of the increased income."
And right now, that's crap. I may pay for it, but it's not likely that any of the money is going to trickle down to me. But under the new system if we build one, and there are gains to someone--including me--then it will show up in my earnings and I will pay more taxes to pay for it. Absolutely fair.
The whole idea is based on a concept that popped into my head all at once. Everyone gains when the country is well run, and has a balanced budget. So we balance the budget (and pay off our debt) and we all gain. And since we all gain, we all pay. And the more we gain, the more we pay. The whole nation becomes one great, united, earning system.
It does not unfairly tax the wealthy, nor does it place an unfair burden on anyone. Since there are no loopholes and no exceptions, the entire tax structure is leveled.
And if the Supreme Court wants to declare a corporation to be a person...?
And by the way if you live here, and you earn a buck--anywhere--you are taxed on it. I don't care whether you build a factory on the moon. If you live here and enjoy the benefits of this great nation, then you pay for living here. If you build a factory in China and leave your money over there, or transfer it to a Swiss bank, or send it to off to some off-shore bank, we're taking our cut first. Otherwise, pack your bags and go live where your real nationality is.
Your fix for income tax and your reform of the initiative system, would fix most of the troubles of this nation.
I'm willing to pay my share!!!!
isn't there a federal excise tax on every oz. of gasoline, tobacco and alcohol products we use?
Yes, Pat, there certainly is.
And with this tax they would all be gone. One tax. Just one. Income tax. No other tax of any kind.
And no more hidden "tax the rich more" taxes either.
In other words, whether you register a KIA or Rolls Royce, and no matter what year it was made, you pay the same registration fee, which would be--as it should be--based on weight with a wide limit as to what is called a "car" so as to avoid having have too many classifications. So a semi, which raises the devil with the road, would pay more, but any normal vehicle would pay the same. Right now, you get punished every year because you worked hard, saved a buck, and bought a decent car
No inheritance tax. No property tax. No sales taxes. Nothing.
Just one tax. You pay your flat rate fair share of what it takes to run the country and that's it.
If someone wants to start a company he just files for a license and does it. No yearly taxes to break his back. And no big companies being given tax breaks while smaller companies in the same field struggle to stay in business.
Just one tax. Go start up a business and earn as much as you can. All we are going to tax you on is earnings--all earnings, of course. No loopholes of any kind. That includes every nickel that congressmen get for mailing and so on. NO exceptions. If you have one kid, ten kids, or no kids you pay the same tax. No exceptions. If you earn your money by working or through investments you pay the same tax. No exceptions. That's the trouble, you see. Once we start allowing exceptions we open the door to corruption.
The only exception right now is corporations. If the Supreme Court insists on calling a corporation a person, then corporations will have to pay, just like any other person. You can't have it both ways. But if they were to reverse that ruling....
I thought you said above there was no fed. tax except income tax, but you meant there would not be any other. Right ?
Right. There are now. But there wouldn't be if someone decided to do this. It's the only fair way to tax us. One shot at it each year and that's that. No exceptions, no exemptions, no nothing.
Do you remember when there was an excise tax on women's purses? There were several other things to but I can't remember what they were right now. I think one may have been jewlery.
It was during World War II.
I am full of bits of useless trivia. (:
The whole world is full of "useless" trivia we are supposed to forget.
That's why the politicos get away with so much.
You have no idea how many things you pay a federal excise tax on. You know all those funny little things added to your phone bill and electricity bill? Guess what?
Here's a partial list:
"Whiskey, wine,tobacco, gasoline, tires, luxury cars, "gas guzzler" vehicles, coal, vaccines, recreational equipment, firearms, communications services, air transportation, betting, water transportation, seabed mining, chemicals, contributions to certain types of retirement plans, and several others."
And here's a shock for you. You spend a lot higher percentage of your income on excise taxes than the ultra rich do, which becomes obvious when you think about it. Here are some numbers. If you earn less than $20,000 then a whopping 1.4% of every dollar you make goes to the federal government for excise taxes. For $20 to $40 thou it's still 1%. For $40 to $80 thou it's 0.75%. But when you get above that it's only 0.2%. Which means that someone who is just barely making it pays seven times as much in excise taxes as do the ultra rich. That's one reason I favor a flat tax. Because we have to support the low income people it's actually you and I who pay more taxes to make up for that disparity.
But you ain't heard nothin yet. Look at these gasoline and diesel taxes.
First the feds: 18.4¢ and 24.4¢
Now some states:
AZ 37.4¢ and 43.4¢
CA 69¢ and 79.5¢
MA 41.9¢ and 47.9¢
NY 69.6¢ and 75.1¢
And tobacco? Oy!
NY $4.35 plus! NYC $1.50
And wait till I show you what happens if you try to buy cigarettes out of state in some ripoff city or state like NYC: (Next post)
There's an online site where you can go for legal information. Here's the link:
Some poor woman in NYC was buying her cigarettes online from Virginia. Fair enough. People buy things online all over the place. But look what happened when NYC took the Virginia company to court. Here's her letter asking for advice.
"On 8/25/06 I recieved an official letter from the NYC Dept of Finance and signed by Carlton T. Butler, Asst. Commissioner, Office of Taxation requiring that I pay $1005 in taxes due on the internet purchase of cigarettes from eSmokes for the period of July 2002 through June 2003. Many people in the city of New York are receiving similar letters (see story: [url]www.nyc.gov/html/om/html/2006a/pr069-06.html[/url]) The letter informs me that the NYC Dept of Finance, through a settlement reached with eSmokes (a Virginia based business which is now defunct and out of business) had recieved my order history and contact information. The letter states that I purchased 67 cartons of cigarettes and that I was assessed a $1,005 back tax payment ($1.50 per pack) and that I am required to make payment in full within 30 days. My question is what are my rights? I know that I did purchase a number of cartons of cigarettes from this company; how many and what time frame I cannot confirm nor dispute. Here are my specific points: 1) What jurisdiction does NYC have on a Virginia based company's sales practices? If there was criminal activity on the part of the vendor that resulted in purchases being sent through the mail, would this not constitute a violation of the US Mail System and therefore be a matter for Federal jurisdiction? 2) What consumer privacy rights may have been violated as a result of this settlement that resulted in the release of my order history and contact information to the City of New York for tax assessment. 3) The settlement that was reached clearly benefitted the City of New York ($33 million estimated); what safeguards, mediators, courts were involed that were arbitrarily interested rather than personally vested? 4) I can not afford this expense. At the time I couln't afford the City's increasing taxes on cigarettes and believed the vendors' claims of tax-free cigarettes. The City fully admits that the company, eSmokes, "misrepresented itself" in this claim -- shouldn't the vendor be responsible for any revenue the City feels it is owed, rather than the consumers who believed the misrepresentation? 5) Finally, the letter is not addressed to me in my full, legal name; but rather a shortened nickname version of my first name. No official court papers or judicially signed documents have been received -- must I comply? Should I expect a court order to be forthcoming from the City and, if it too does not name me by my legal name; would this be an additional argurment for not responding? -- I know -- I'm "grasping at straws" legally.......[more coming]
"I really need your help as I can not afford to pay this back tax (now 4 years old!) on my meager salary! Further, the letter warns that I may be assessed a penalty of up to $200 per carton if I do not make payment within 30 days. ($14,400 in total!) If I MUST pay to satisfy what has become mayor Bloomberg's personal agenda run rapmant; then may I pay a little along; something like $20 until paid off? Further, could I choose to send the payments to an entity other than NYC Dept of Finance who may actually see the money (i.e. the NYC School System, NYC Parks Department) rather than some "fat cat's" pockets? Sorry for the rant, but any constructive advice is most appreciated."
Here's the "advice" she got:
"OK, stop smoking and use the money you save to take a lesson or two in proper Engligh writing.You have knowingly committed tax fraud - don't expect a lot of compassion."
How about that for a kick in the teeth? She even got insulted because she made some typos.
How did she "knowingly" commit tax fraud? She went online and legally bought out of state. How was she to know that the company she was doing business with had some kind of outlet or something in New York? How would she know that NYC was taking the company to court? How do you, personally, know that everything you buy online is not taxable, and that some state or city might not jump on you at any minute?
You don't. You can't. There is no way to know it.
Great advice. Great site. Great government!
If it were me I'd move out of New York City and tell Mayor Bloomberg to use his law as a suppository!
Tom, I applaud your concern regarding fairness in the tax code. However, a truly debt-free monetary system is the first place to start if you are concerned with fairness. The rest can be sussed out afterwards.
Are you familiar with the findings of the Grace Commission? They reported that 1/3 of our income taxes are wasted by inefficiency, 1/3 is not collected due to the underground economy, and the final third goes to pay off the INTEREST on the federal debt. Therefore, zero income tax dollars collected are actually used for any services provided by government.
While I agree the current tax code is anything but fair, I believe you are barking up the wrong tree. We need debt-free money to remove the yoke the international banking cartels have around our neck. Once that is accomplished, we can discuss the fairness of income taxes.
A debt free money system would indeed be a wonderful way to break the back of the high tax rates we now endure.
I still side with Tom on the idea of re-forming the tax collection system. Is it possible to make reform on both fronts simultaneously?
You're right about the need for a debt-free budget. We need to start paying off the national debt. One way to do that is to get rid of waste. The other way is begin paying in enough taxes to cover the cost of legitimate government needs. We need to reform the tax system so that we pay in whatever is needed to balance the budget. No exceptions. What you earned is what you pay on. No other taxes. None. All taxes other than income taxes take a disproportionate percentage of taxes from the lowest pay groups.
Getting debt free is a great goal. I'm all for it, but I don;t think you have really looked at who we owe the money to. Most people don't now it, but about half of what we owe is money Congress took out of trusts which were not supposed to be touched, as for example the Social Security Trust Fund. In other words, Congress has taken your retirement money and spent it on whatever it wanted. When that money is put back the national debt will drop by about half.
I would favor an Amendment, which would (a) require that the debt now owed to trust funds be paid back in part by reducing Congressional pay (including a whopping tax on the estate of anyone who served in Congress and is still alive). (b) Stop Congress from passing any law which took money out of a trust fund. (c) Require a balanced budget, including pay-off of the national debt, achieved by cutting non-entitlement spending each year for the next 15 years.
Example of waste and how much we can save? Schools. Right now schools are encouraged to classify perfectly normal kids as learning disabled so that they they can get funding for them. The kids go into special classrooms which never have more than 8 kids in them, and which usually have an aide and as teacher. If the average pay for a teacher is (lowballing it) $42,000, and that for an aide (lowballing it) $22,000, that comes to $8,000 per kid--just for teaching staff, as opposed to the usual $1,300. You might as well toss the extra $6,700 down the sewer because you get nothing for it. Add to that the cost of a required School Psychologist, Counselors, and clerks to handle the paperwork required to support keeping the kids in that classroom. Then divide up Payson's share of paying for 154 full time people in Phoenix who do nothing other than handling the paper work at this end, and the tens of thousands of people at the Washington end. Then add in the cost of writing, printing, administering, grading,and documenting tests that prove nothing. The cost of educating our kids has been exactly doubled since NCLB went into effect. We simply cannot afford it.
Get rid of NCLB, and save at least $25 billion a year, and perhaps a lot more. The trouble is that we have to make the changes gradually, over a period of--say--five to seven years to allow the loss in jobs to be spread over enough time to allow retirements to take care of most of them. That's okay. The program grew over the years; it can be dismantled over the years.
The same is true of many programs. We either do not need them, or they can be made much more cost effective. The trick is to look at what our national income is, and pay that much in taxes, so that we start paying off the national debt.
Ask yourself this kind of question:
There are many places where we just spend money because we want to do something. Well, there are a lot of things I would like to do, but I don't do them unless I have the money for them. That's the way things have to work in Washington and Phoenix too.
Here is another example of the kind of waste that is going on. We have been told that the cost of doing an environmental impact study for the 260 acres on which the proposed ASU campus would be built is $170,000. My question is simple: What for? I am a lifetime conservationist and I know two things: 1. The time and manpower needed to walk a half mile by one mile piece of land, checking for the possible environmental impact of a change in use, and doing the same for surrounding land is roughly four days and two men. 2. The Forest Service is, or should be, already aware of anything on or around that section of land which is of environmental importance; that's their job.
So why are we going to pay two men $85,000 apiece for four days in the woods, and a couple of days to write up their report?
And worse than that, why are we going to pay the Forest Service, which should already know what is there on or around that land, an additional $200,000 to read what is in a report they should already know?
This is the kind of waste that is at the heart of our budget problems. People who do not have to foot the bill set prices for things at ridiculous levels. You could get--free of charge--a U of A professor and his graduate level class to come up here and do a complete, thorough, and unbiased study. And once done, there is no need to pay anyone in the Forest Service to read it. That's their job. That's what we are already paying them for. Why should we pay again? Or better still, we might ask: Just where is that $200,000 going?
Or if we wanted to sweeten the pot we could offer the prof and his 12 to 15 student class their expenses plus $50 apiece. They would be thrilled to get it, and the total cost would be perhaps $1500.
We need to get some realism into the cost of "studies."
Perhaps they could be accomplished simultaneously. However, one must hack at the root first.
In my mind, the removal of the debt based monetary system is the best placed cut.
You will find no argument from me regarding your points addressing waste, inefficiency, and shady use of trust funds. But I believe we are comparing apples to oranges. It's my fault. I should have been more clear.
You are discussing being in debt. As in owing money to another entity.
I'm addressing the manner in which money is actually created and put into circulation.
Two different beasts.
We are currently living under a debt-based monetary system where every dollar created has to be paid back with interest. An example of a debt free monetary system would be Abe Lincoln's Greenbacks.
Perhaps further discussion would best be done in another thread, as I do not wish to hijack your discussion of a fair tax system.
Speaking of unfair taxes, and I hope this qualifies, A friend recently told me of his dilema with Social Security.
Did you know that if you decide to accept Social Security Retirement benefits before the age of record, that you are restricted to how much money you are able to earn.
My friends problem:
In July of 2009, at age 60, my friend was laid off from his job in Witchita. They gave him a severance package but it didn't last him long. He searched and searched for work but there wasn't any and after two months, when the money was gone, applied for unemployment insurance. They took his application but it was three more weeks before it was approved and the amount was significantly less than he needed to live on.
During the process my friend used his credit cards to get by and pay bills and in that process established a debt of more than $20, 000 trying to keep his family afloat. He continued to receive unemployement benefits until he found a part time job in Aug, 2010. He took the part time job because it paid more than unemployment but didn't pay his bills. Then in Feb. 2011 he turned old enought to start getting Social Security Retirement benefits. He signed up but was warned that he was only allowed to earn $XXXXX a year or he would have to pay a penalty. My friend did not want to take his SSI early, his plan was working until he was the legal age. Life didn't let him.
$20,000 in debt, a part time job paying less than $12,000 a year and SSI paying about another $12,000 a year. That helped. But here's the rub.
The part time job recognized my friends value and promoted him. He went to full time and got a raise.
Let me stop here and say, isn't that what our capitalistic free enterprise system is all about?
Pleased with the promotion and raise my friend began using the increased funds to start paying down his debt. He gave up frivolities, it was a necessity state he lived in.
From the time of the increase in salary until last month the money went to help him become solvent again.
Then the letter came. SSI said, we overpaid you based on your IRS statement and therefore you owe us $2000. Which we will take over the next two months.
The SSI says he can file an appeal. What do you think his odds are?
If they take that chunk out of his income, it will destroy his credit which he has worked hard to maintain.
Here is what makes me mad.
How does this government, where did this government, get the idea that if a senior citizen, legally entitled to claim SSI as described by law, takes advantage of the law and must now be subject to remain poor because the government dictates how much they can take advantage of what should be a free enterprise system?
Who put that law on the books and when.?
"I'm addressing the manner in which money is actually created and put into circulation.'
Ah! I have never agreed with the idea of just printing more money when you need some.
"Perhaps further discussion would best be done in another thread, as I do not wish to hijack your discussion of a fair tax system."
Go for it. I'm sure people would like to hear about it.
"Did you know that if you decide to accept Social Security Retirement benefits before the age of record, that you are restricted to how much money you are able to earn."
Dan, you've got it a bit wrong. SSI was set up to provide a given amount of benefits, to a given number of people, when they reached a given age. The system, and the rules, were written into the original law when it was calculated what the monthly deductions would be, and have been in the packets that SS has been sending out since day on. You must reach the correct age to retire with full benefits, and the amount you earn has an effect on how high your benefit is until you reach age 70.
This has always been part of the law. The Social Security Trust Fund was set up to take in enough money to meet the standards set by Congress when they created it. In order to change the law we would have to change the amount we pay in to cover the extra cost. Most people do not want to do that.
I think your friend didn't read his retirement packet carefully. He's the first person I've ever heard of who complained about the fact that the system does not cover taking a greater percentage out of monthly income to allow people to earn anything they want after thay ask to be put on SS.
"The SSI says he can file an appeal. What do you think his odds are?"
His chances are zero.
I'll post the rules that your friend was verbally made aware of when he had his SS briefing, which were in the packet he received, and which are in the packet every retiree gets every year when SSA sends him his annual news.
(Been this way forever, Dan.)
Social Security Earnings Limit
If you take social security benefits before full retirement age, and you earn income in excess of the annual earnings limit, your social security benefit will be reduced. (Keep in mind, investment income does not count toward the annual earnings limit; the only income that counts is earned income - the income you earn by working.)
In 2010 and 2011, the annual earnings limit is $14,160. That means you can earn up to $14,160 and your benefits will not be reduced. If you earn over $14,160 the amount of reduction you incur will depend on your age.
Income Earned Before The Year You Reach Full Retirement Age
If you are collecting social security benefits and earn more than the annual earnings limit, social security will take back $1 of social security for every $2 over the limit.
This reduction applies to any year before you reach full retirement age, but it only applies to income earned after you start collecting social security benefits. So if you work a partial year, the income you earn before the month you start collecting social security benefits does not count toward the annual earnings limit.
Income Earned During The Year You Reach Full Retirement Age
During the year you reach full retirement age, and up until the month you reach full retirement age, social security will deduct $1 for every $3 you earn that is over the annual earnings limit. During this year social security only counts earnings that you receive before the month you reach full retirement age.
Income Earned After You Reach Full Retirement Age
Once you reach full retirement age, you are no longer subject to the annual earnings limit; you can earn as much as you like without incurring a reduction in your social security benefits.
Before Lolly and I retired we went to a great one-afternoon meeting where we were briefed n all kinds of possible problems of getting old and retiring, even things like being a target for fraud, and how elder law operated. It was great! Everything you could ever want to know.
I wonder how many people take advantage of things like that?
We got the information about the briefing through the social security office, but I believe it was a state run program--and very well run too!
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