RE: Flat tax needs to be revisited?

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RE: Flat tax needs to be revisited? - 9/5/2009 9:13:38 PM

tazzygirl

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quote:

■A capital gain occurs when a capital asset is sold or exchanged at a price higher than its basis (its purchase price plus commissions and the cost of improvements net of depreciation). Similarly, a capital loss occurs when an asset is sold for less than its basis. Gains and losses (like other forms of capital income and expense) are all measured in nominal terms-that is, unadjusted for inflation.
■Capital gains and losses are considered long term if the asset was held for one year or more, and short term if held for less than a year.
■Taxpayers in the 10 and 15 percent tax brackets pay no tax on most long-term gains; taxpayers in higher brackets face a 15 percent rate. In 2011, those rates will revert to 2001 levels: 10 percent for those in the 15 percent tax bracket or lower and 20 percent for all others. Recaptured real estate depreciation (that is, gains up to the amount of depreciation deductions previously claimed) are taxed at ordinary income tax rates up to a maximum of 25 percent. Gains on art and collectibles are taxed as ordinary income up to a maximum 28 percent rate. The maximum rates apply under both the ordinary income tax and the alternative minimum tax (AMT). The figure shows how the maximum long-term capital gains tax rate has changed over the years.
■Capital losses may be used to offset capital gains and up to $3,000 of other taxable income. The unused portion of a capital loss may be carried over to future years.
■Taxpayers may realize up to $250,000 of gains on their principal residence tax-free. Married taxpayers filing jointly may exclude up to $500,000 from tax.
■The basis for an asset received as a gift equals the donor’s basis. However, the basis of an inherited asset is "stepped up" to the value of the asset on the date of the donor’s death. The step-up provision effectively exempts from income tax any gains on assets held until death. Assets inherited from people who die in 2010 (when the estate tax is repealed) qualify only for a limited step-up of $3 million for gifts made to a spouse plus $1.5 million for gifts made to anyone.
■Individuals may exclude up to 50 percent of capital gains on stock held for more than five years in a corporation with gross assets under $50 million on the date of the stock’s issuance.
■C corporations pay the regular corporate rates on the full amount of their capital gains and may use capital losses only to offset capital gains, not other kinds of income.
■Capital gains may face effective tax rates above the statutory rates because of phase-outs in the tax code. For example, taxpayers in the phase-out range of the AMT exemption incur an implicit surtax of 6.5 percent (for taxpayers in the 26 percent AMT bracket) or 7 percent (for taxpayers in the 28 percent AMT bracket).
■If you find this description mind-numbingly complex, you have captured the essence of capital gains taxation.

http://www.taxpolicycenter.org/briefing-book/key-elements/capital-gains/how-taxed.cfm

Seems to me like there are alot of rules and exclusions for all of it to be taxed at some point.

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RE: Flat tax needs to be revisited? - 9/5/2009 9:18:49 PM

Honsoku

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It was all taxed when the money used to buy physical assets was earned. In the case of stock compensation, the tax was paid by the company and again when the gains are realized. Capital gains are subject to mild double taxation, while dividends in particular are subject to direct double taxation.

< Message edited by Honsoku -- 9/5/2009 9:20:59 PM >

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RE: Flat tax needs to be revisited? - 9/5/2009 9:26:07 PM

tazzygirl

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Is it not easy to convert capital gains into shelters, thus avoiding many of the taxes?

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RE: Flat tax needs to be revisited? - 9/5/2009 9:38:29 PM

Honsoku

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Not to my knowledge, which is why tax accountants get paid so much (because it bears repeating: I am not a tax accountant). You either pay the tax man or the tax accountant

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RE: Flat tax needs to be revisited? - 9/5/2009 10:02:30 PM

hsimlexx

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There is a basic confusion over the difference between tax rates flat vs progressive and the actual calculation of income. Most of the tax codes of the Federal Government as well as States deal with defining what is subject to taxes and not the rates. Anyone who thinks the IRS goes away if a flat tax is instituted doesn't understand the existing system or the proposals for a flat tax that get floated periodically.

Another thing forgotten is that progressive tax rates back in the Nixon era were extremely high. What we have now is significantly lower and it is no suprise why wealth in the US has become so concentrated amongst the wealthy compared to then. The percent tax burden on the middle class has grown due to the regressive payroll taxes despite moderation in the income tax rates. Rich people who collect passive income don't get hit with payroll taxes. In fact they get significantly lower rates on the stocks that they buy and sell. Its good to be wealthy.

Finally, demanding all pay for their services to appreciate them, is that really how we should take care of the weakest and most vulnerable amongst us? Like folks in nursing homes or services provided to the mentally ill?

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RE: Flat tax needs to be revisited? - 9/5/2009 10:11:44 PM

OrionTheWolf

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~FR~

Now everyone research capital gains made outside the US, especially if the money is kept outside the US. Capital gains are usually derived directly from investments of some kind, you know petty actual cash into our own economy. Not to mention many people with money have the cars they use, and other personal assets owned by the corporation so they can take expense write offs on them. There are many loopholes that can be used legally to reduce a wealthy individuals taxes.

Now the fairtax.org has many more possibilities, such as a probate (sending you a check to offset the tax you may pay on the retail side). You can also make groceries, prescriptions, and healthcare items excempt from that tax if you wish. One of the things a tax at the consumer level will do is:

1) Criminals are paying the tax. How many from low level drug dealers to high up OG Crime figures spend a lot of their money on non-necessities. Many here illegally that do not file, would be paying the tax. Basically it would catch all of those that have found a way to not pay income taxes, and the probate would offset the poverty level income earnings.

2) Only the percentage, probate and exemptions from the tax could be manipulated by the politicians.

3) It would eliminate a huge amount of waste in the IRS and Treasury departments. Basically the IRS would not be needed.

4) We are a country of consumers, and a consumption tax makes sense.

5) The tax is on the retail level, so if you spend less you pay less taxes. This gives a benefit to those that want to invest, basically putting the capital into areas that would allow of small and medium business expansion. This expansion would be in distribution, and manufacturing since there would be no tax on materials required to create a finished good.

6) Tax payers would get their entire paycheck, and do with it as they may. This would be done without reducing benefits of SS or Medicare.

7) Employers would actually have a huge imbedded tax burden removed, and that money saved could be used for raises, better benefits, company expansion or the short sighted greedy ones could pocket it.

www.fairtax.org

It is not perfect and needs a lot more serious examination and tweaking, but the upsides seem to outweigh the downsides. It takes into account poverty level people, promotes investments/savings and may attract some larger corps to keep manufacturing here, or move it back.

One of the drawbacks is that companies could make and spend money outside the country, but still have it benefit their corps. Archer knows much more than I and maybe he will weigh in.

< Message edited by OrionTheWolf -- 9/5/2009 10:12:12 PM >

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RE: Flat tax needs to be revisited? - 9/6/2009 12:04:27 AM

NeedToUseYou

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edited....
Nevermind, guess I should read the posts before posting, previous post pretty much says what I was saying.

< Message edited by NeedToUseYou -- 9/6/2009 12:06:24 AM >

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RE: Flat tax needs to be revisited? - 9/6/2009 8:18:48 AM

Musicmystery

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quote:

a consumption tax makes sense.

I have long advocated a value-added tax. People don't directly see it, even "illegal" vendors and "tax-free" reservation sales (who are supposed to charge taxes on sales to non-reservationists) would have paid it implicitly in the wholesale price. People wishing to cut their "taxes" can cut their expenditures. I'd like to see a reduction in property taxes. Or just tax the sale of property, then leave it be.

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RE: Flat tax needs to be revisited? - 9/6/2009 8:23:16 AM

Musicmystery

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~FR~

Incidentally, I don't have a problem with many of these "loopholes" -- the complicated barely legal ones, yes, but others serve a public purpose. Municipalities can finance projects at better rates with tax-free bonds. Capital gains taxes encourage investment over other uses for that capital. These practices benefit the overall economy.

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RE: Flat tax needs to be revisited? - 9/6/2009 8:58:31 AM

SL4V3M4YB3

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Although I believe in the fairness of the varied tax rate system I'd say in any case the biggest reason a flat rate tax will never happen is politics. The majority of voters are in the middle to low income bracket so insisting they pay more and the higher earners pay slightly less is political suicide.

I think any tax system should be built to address the poverty gap and saying we’ll make low income people pay more and then they can be eligible for more benefits would not motivate people to take jobs. There are people that will turn down work because working means they will be financially worse off. When you have these problems aiming for a flat rate tax is going in the wrong direction.

We all live in the same society (rich and poor) the costs of things are based on what people are willing to pay, if there is a big gap between the wealthy and the poor then you’ll find even the essential items become far too expensive for the average person to afford. Most people that bleat on about flat rate tax are the high earners moaning that they can’t live on their current income. My thoughts are that if you are affected by the highest tax rate and can’t find a way to live comfortably then you must be very wasteful and should question how lower income people survive on a fraction of those earnings.

This above however is a political viewpoint not economic. I’m not a fiscal economist but I think if you had a flat tax rate you’d have a bigger deficit and less disposable income for the majority of people thus leading to less luxury items bought and so further unemployment. It may be unjust but the simple reason it’s done is that it doesn’t make as big a difference to a high earner (the minority).

< Message edited by SL4V3M4YB3 -- 9/6/2009 8:59:13 AM >

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RE: Flat tax needs to be revisited? - 9/6/2009 5:23:41 PM

CallaFirestormBW

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quote:

Try it some time before you gripe that the lower rungs aren't paying their 'just' share.

I had to comment on this, because there seems to be a perception that everyone responding in favor of this is rich. I am not. I make about 1/3 less than the median income in the United States, and have -no- benefit for being married but -do- have all the expenses of putting 4 children through college, etc., without financial aid (because everyone in our household makes too much money.)

I have been -desperately- poor. I've lived on the streets and played guitar for enough money to pay the bus fare to a climate that didn't freeze when NY winters began -- a choice that meant not eating to put my guitar-case earnings away for that bus fare...

When my oldest child was born, my ex was a PFC in the Army. He enlisted because he'd lost his job and there wasn't any work to be found in the little upstate NY town in which we lived. While he waited to leave for basic training, and while he was IN basic training, I lived in a single room in a ratty rooming house, selling shoes to keep me in food. When he left for advanced individual training (AIT) we shared a duplex shack in Georgia while he was in school, and paid out of pocket, because he wasnt authorized to have a spouse join him on his ToD -- so our son's first christmas was a 'drink and wet' baby with a potty (because I needed to potty train him because I couldn't afford to keep him in diapers any longer) under a tree made out of a 50 cent box of christmas lights, pinned to the wall with push-pins in the shape of a Christmas Tree. I worked in a natural foods grocery for the discount and first-pick of the produce and dairy discards to keep us fed (my ex had to live on post, make curfew, take his meals, and maintain his domicile in the barracks, because he wasn't authorized to have dependents or depending housing within his command).

Now... let's get up on that high horse yet again...

Dame Calla

< Message edited by CallaFirestormBW -- 9/6/2009 5:27:59 PM >

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RE: Flat tax needs to be revisited? - 9/7/2009 6:43:01 PM

Honsoku

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It sounded like that was what you were saying. In the context of the time you just described, do you really think that it would have been to your benefit to be paying more in taxes so you would 'appreciate' the services you were getting?

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RE: Flat tax needs to be revisited? - 9/9/2009 7:51:42 PM

couldbemage

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Would you have been fine with 10 to 20 percent less?

Frankly, I don't see how anyone who has run a real buisness could look upon the flat tax proposal as anything but a horriffic joke.

"close the loopholes"

The big loophole is expenses. And it can never be closed.

Most buisnesses have less than a 10 percent profit margin.

sigh...

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RE: Flat tax needs to be revisited? - 9/9/2009 8:27:02 PM

OrionTheWolf

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Wow! My clients must be business gods since they all operate at a much higher net than 10%. This is of course before the executive and employee bonuses they hand out to reduce taxes. So if it is a horrific joke, how much in employee taxes would you say a company expenses, percent wise?

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