Previous Blog posts from my old Windows Live Space.
Rant: The Tax Code (4/10/2009)
The day that the the trough is filled for the insatiable, voracious spending machine known as the federal government to gorge itself on the livelihood of its citizens and then ask for seconds nears. If anyone asks if you believe in vampires, you can say that yes the IRS does exist (or would you rather call them blood sucking leaches). To be fair-ish, should you really blame Frankenstein (or more literally Frankenstein’s monster) for running amok? The IRS is America’s Frankenstein’s Monster (it definitely has run amok among the villagers, but seems to be less militant now than it was).Now to the mess (Pandora’s Box, whatever you want to call it) that is the tax code of the usa (cable network capitalized, country – not). The tax code is a punitive collection of complicated arcane incantations that no one person could ever know. The tax code is needlessly complex (hint – small print is never put there for your benefit) and highly inequitable. It should be in simple plain English. The us uses a graduated income tax with different levels that basically punish people for making more (exactly the kind of disincentive that Capitalism does not need). Nobody will ever convince me that is in any conceivable way fair. The tax is considered “progressive” as the proponents of it obviously got to name it. The only equitable (and democratic) tax is a flat tax with no deductions or credits. Income also has to be liquid to count (ie. no taxes on stock paper “gains” only tax when they are sold, and gains indexed for inflation). Actually, i am not in favor of taxing investment income – like interest or dividends (or stock sales). Taxes will never really be considered equitable by anyone. Fairness for someone is likely increasing cost to someone else. Bottom line – flat tax rate with absolutely no deductions (maybe one to ensure that it does not penalize saving/investing) is the way to go.
i heard a story in college about how Ronald Reagan once took the tax code in to congress on a forklift. That may be overkill, but it did make a point about the size and complexity of the tax code. Why has the tax code forsaken the country? For one, people of a certain persuasion – we will call them liberals; want to use the tax code to redistribute wealth. Bad, bad liberals (but then again has there ever been a good one). There are also problems with using the tax code for social engineering. Let’s see there was: the marriage penalty, giving benefits for using debt (both citizen and corporate), child tax credit (ostensibly gives an incentive to have children), and many more. The tax code has essentially morphed something that should be more pure into a form of voodoo (accounting). Non-cash flow expenses should not exist on a balance sheet (most aren’t even real costs) as they seem to be more government incentives to do something.
The fact that there are ever tax rebates shows me that the system is flawed. There is no reason there should be tax rebates (these stem from the odd deduction laws). The government knows what you make (after all the IRS has caught more drug dealers than the DEA). i want HR Block to go out of business (or at least that line of business, after all the main niche they fill is due to an overly complicated code designed to grab as much cash as possible).
Edit to add: There is another big facet of the current taxation system i dislike - withholding. It is kind of disturbing that the employer is saddled with the responsibility to pay most of the taxes (ostensibly for the worker). Tax withholding is non-productive money. Why can't a worker get their whole paycheck and deposit it in the bank (they could at least earn a couple of dollars in interest per year. I am sure some of my further points will be covered by these blog posts.
Ok, Here are Some More Blog Posts, Sorry
Taxation: Part One (10/9/2009)
Taxation: Part One: I am finally going to tackle it (sort of), to the consternation of the liberals and the indifference of the conservatives. So let’s set up the framework (some future post, I don’t know when, will cover the details). This is a new maybe three post series on my view on taxation. My views – the only ones you need to knowTM – not actually trademarked. Stay tuned for part 2…. Vampires, Leeches, or Vampire Leeches you decide.
What is
income and what should be taxable?
- Income
in this context is mostly wages
What
shouldn’t be taxable?
-
interest income, capital gains, investment “income,” income that has already
been taxed, gifts, inheritances
Now that
we got the really basics out of the way, let’s get down to details (sort of)
Ability
to pay:
-
Capital gains tax – this is a tax on appreciation of asset value. So, if
somebody invested well, they get punished by the government stealing their
money. One major problem with capital gains (besides its existence) is the
values are not indexed for inflation. Case in point, my grandparents bought 20
acres in 1935 (not sure of the actual year) for $5,000. If they sold it in 2007
for $150,000, how much money did they “gain?” The easy answer is $145,000 – but
that is totally wrong. Taking into account inflation, the value of $5,000 in
1935 is essentially equal to $74,812.32 in 2007. Therefore the tax basis should
be $75,187 not $145,000. My grandparents were told they couldn’t sell the
property because the taxes were too high. Let’s do another example. Suppose you
bought a Monet in 1929 for $10,000 and sold it in 2007 for $1 million. The value
of 10k of 1929 money in 2007 would be about $120K. Actually the real tax should
be zero. Oh yeah (westegg.com/inflation)
- Inheritance Tax – this is essentially government grave robbery (at a higher tax rate than the person may have paid in their lifetime). This tax is immoral and ethically dubious (at best). The government has already taxed the income/assets once. They have no logical right to tax the estate again. This is just an attempt by the government to seize assets they have absolutely no rights to (they really want to take it all). When the money transfers to the inheritors, it does not constitute income. Gift taxes – taxes should never be charged on gifts. Gifts amounts should always be unlimited (not $10k a year tax free or something like that). This is another instance of double taxation. More than likely the person giving the gift has already paid taxes on the income. Gifts do not constitute income to the receiver.
- Income earned overseas by us nationals – what it says, if a US national is living or working overseas their wages should not be taxed by the us government (especially if they are already being taxed by that foreign government. Corporations operate under different rules here.
Taxation: Part 2: Vampires, Leeches, or Vampire Leeches You Decide
Welcome to part 2 of x parts (where x = this post plus n, where n is greater than one). Here I tackle (or gloss over) more tax stuff like maybe… the “progressive tax system.” One way to make sure I won’t like a political idea is to put the word “progressive” in front of it. This is also part of the evil scheme known as the “ability to pay” system of taxation – where if you have the means to pay the government will find a reason why you have to. If you don’t get the metaphor in the title, I am saying that the government is like a vampire feeding off of the lifeblood and efforts of America for its own purposes. Maybe you would like to think of it as a parasite (in a way it is – taking resources from you for it own desires, not always needs). I guess government is not a bad thing in and of itself, but there is a point where it has gone out of control (it kind of passed that already). A free spending government is not exactly a good thing, as it is the tax payer’s hard earned money they are spending (a favorite cause seems to be programs that promote dependence – vote buying).Some people have the view that if you make more, you should be forced to pay more. I don’t go for that logic (whatever there is associated with that line of thinking). Sure, the richer person will have more total money after taxes, so what. The poorer person isn’t disadvantaged in a flat tax type scenario. Sure they are likely to have a higher MPC (marginal propensity to consume, basically how much of every dollar they take in they spend) and more of their income could be taken up by necessities (like food and shelter), but that is not a problem that the tax code is designed to deal with (at least it shouldn’t be).
Ok, some of you may be familiar with the “progressive” tax system in the US. The current brackets are 10%, 15%, 25%, 28%, 33%, 35% based off of income guidelines. Basically, this system charges higher rates as the income level goes up. Needless to say, I am not a fan. One thing Capitalism does really well is to provide incentives to innovate (and make more money), however the tax system wants to punish you (by charging you more taxes for success, at least a higher rate). Unfortunately the federal government decided that they would put in a system of tax credits and deductions. These could be seen as economic incentives to do things (like maybe, have kids).
This is basically using the tax code (the over-complicated mess that it is) for wealth redistribution. I am not really a fan. If you couldn’t tell, I am not a fan of government intervention and believes that this sends the wrong message. The message is that if you succeed (through your own efforts) you will be punished by the government (by having to pay a higher tax rate on portions of your income). The federal income tax is the single biggest source of revenue for the federal government (would it surprise you to know that social programs – ie social security, Medicare, etc are number two?). The government couldn’t balance a cube on perfectly flat ground, let alone a budget (if they even had an ounce of responsibility – I doubt it). There was a story once where Ronald Reagan brought the tax code into congress on a forklift.
Now for a segue into my third (and possibly final post in the series)….
What should be deductible and used for tax credits?
-Nothing, tax credits and deductibles are used largely for social engineering (to reward certain behaviors), that and completely confuse tax payers (and give rise to the tax preparation industry)
Is there a solution, one that is fair and makes sense? Yes there is (and perhaps you may have already heard of it, even if you are not Steve Forbes).
Taxation: Part 3: Taxation Equality – It Could be Yours. Oh yes, it could be yours (10/10/2009)
Welcome to the third and final (probably) part of my mini-post series of taxation. In this one I cover how the American tax system can become more equitable and fair.Normally, I view equality as an unattainable dream (of others not me), that is probably more trouble than it’s worth. It is kind of like the super-genius Wile E Coyote’s fruitless pursuit of the sadistic Roadrunner. There was an episode where Wile caught the Roadrunner (unfortunately the vast size difference proved a problem – he finally reached his goal of catching the roadrunner, but he couldn’t do anything about it).
In this case, though I fully believe in equality. People in the us should all pay the same federal tax rate. I know the liberals will decry this as a regressive tax that rewards the rich and punishes the poor. That is not what it is about. It is about citizens sharing the burden of paying for the running of the country at the same rate regardless of income. All deductions and tax credits should be eliminated and replace with a simple flat tax that is much easier to understand (and doesn’t require a semi-trained professional). Double taxation should also be eliminated as it is not fair to tax the same money multiple times.
So, do you want to see my flat tax plan (i'm working on a loose political platform)? I didn’t think so, but here goes.
- No
deductions or tax credits for both the individual and the corporation
- No
double taxation. Furthermore, no taxation on interest income, investment
income, capital gains, estates and dividends
- Serious
downsizing of the IRS, easy to fill out forms with no ambiguity and no
professional help required
- Exemption
of minimum wage employees from social security taxes (and the business too, I
would love to make social security all voluntary). That would save more money
for the worker than you think.
In my quasi plan, I set the federal corporate tax rate at 20% (the current range is 15-35%). The us has some of the most heavily taxed corporations in the world (last I saw #3 highest if you combine federal and state – Japan and India higher).
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