Tax - best and worst system's

Came up recently off topic, So finally got around to making it's own dedicated topic to talk about the one thing we all hate

Globally tax system's vary from one nation to the next, As do the result's of such system's. Some times they have small flat rates or large tax rates that are open to a magnitude of tax write off's and loop holes. Too many tax write off's and/or loop holes and the citizens of the nation usually miss out, Too high a tax and companies generally are reluctant to invest.

I find the best tax system's are the simplest tax system's with the fewest tax bracket's and/or write off's/loop holes. It is why I find the US tax system so confusing, A nation that is pro capitalist having a tax system so muddled it actually discourages investment by some companies. Even income tax rates in the US are needlessly confusing.

I previously mentioned that the lowest tax bracket was 10% for people earning up to $9,225, Though was pointed out to me between the $6,100 standard deduction and the $3,900 personal exemption that actually disappears, If that is the case why bother having any of the three as all it does is add unneeded red tape and cost to the system for zero gain. Other area's of the income tax also seem counter productive in the red tape the produce for what is gained back such as the 35% tax bracket that would net $927.50 not including all the tax write off's. The US tax system look's from the outside to be a joke (No offense).

To some extent it is a very tricky area, That said other nation's have shown it doesn't have to be as tricky as many believe.

For the record even though I have only mentioned the US so far this is not any intended US bashing, Merely out of the advanced economies the US has the easiest system to pick flaw's out of largely caused by businesses looking out for their own individual interests rather then the system as a whole, politicians looking to get reelected rather then do their job and represent the people.

Cheers, v_n

 

Why is the US tax system so convoluted?

Over 200 years of growth without being torn down and completely rewritten.
Most other countries have populations and landmass equivalent to individual States.

But most importantly we hired people to make laws. If they stopped making new laws they'd be out of a job.



Yes our system is bloated and counterproductive. However considering our current Executive and Legislative branches I doubt much will change.

 

Best: As little as possible.
Worst: Too much.

There is no such thing as 'government money'.
It's our money. We hand it over under threat of force.
No matter what level of safety net or services you feel a government should provide, that 'handover' compromise should always be in the citizenry's favour, not 'theirs'.

 

It strikes me as wrong to have anyone making less than, say, $20,000 a year (just an arbitrary number I picked) pay any taxes at all. But they do, especially in the form of regressive sales taxes.... i.e. tax on groceries, medicine etc. Some states do that, often as high as 10%. It's a "hidden" tax which people often don't really think about paying, but it adds up.

Call me crazy but I'm in the camp that income taxes aren't so necessary.... indeed slightly less than half of US federal revenue comes from this. Greater tariffs could cancel most of this out - but the politicans seem to treat tariffs like leprosy nowadays, while taxing the native citizenry doesn't bother them too much - the great irony is that we elected them hypothetically to represent us, yet this is the attitude they take.

The state I live in (Florida) has no income tax, rather getting the bulk of its revenue from property tax, which stinks for some people but which I believe is basically fair. The state I was born and raised in, Alabama, has about as regressive a tax structure as one can have.... high sales taxes on everything under the sun, poor people paying income tax, and virtually no property taxes.

As for why the US tax code is so convoluted... four words..... special interests, special favors. The trick is being able to make it work for you.

 

National sales tax on FINAL sale of anything to the consumer.

 

The problem with fixing tax messes is that most of the herd have no idea how it works and so there's no push to fix anything. Everyone wants to tax somebody else - the rich, business, corporations; anybody but themselves. The collective herd can never grasp that the rich, business, corporations don't ever pay taxes. They shift it to consumers of their product. The consumer pays the tax. And the poor consumer takes the biggest bite since a relatively larger share of their earnings go to purchases of goods and service rather than savings or investments.

As long as the tax is hidden in the cost of goods and services the herd is happy. Politicians are like a bad magician: "The coin was hidden in your ear!"

 

Which reminds me, US corporate tax rates are far too high, usually running almost 40%....... the European average is about 20%, Pacific Rim about 27%, global average about 23%

 

Right. And we (the consumer) pay that tax. And the buyers of exported products pay that tax, which makes our products relatively more expensive and less marketable. And then it makes it more tempting to move production overseas.

And the herd keeps screaming "tax the rich!"

 

great thread noobie......why a deduction for children?? then, not only do you get a deduction, you get hundreds of dollars given to you if you have kids and don't make a certain amount.... why a $10000 deduction for adopting a foreigner!!!??? if you have a kid in the US, you don't get a $10000 deduction!! I want a new boat, can I get a $10000 deduction?? ....the US tax system is unbelievably ridiculous....a deduction for this...a deduction for that.....then they have ANOTHER NEW LAW to tax you if you don't have healthcare....
they need a complete halt to raising taxes, halt at creating anymore government jobs, and start CUTTING spending, government workers, and the fat from the government...
they should not have any discussions on raising taxes...it should be discussions on how to cut spending...

 

Deleted

 

The problem is unlike income taxes with sales taxes it would be impossible to implement and progressive model. It is actually easier to have a flat tax across the board however it would be less effective unless the rest of the tax system is fixed.

While on the face of it the corporate tax rate in the US is the highest in the world (in general, Some nations tax certain sector's higher such as Norway in the oil and gas sector) what one need's to take into account is the tax write off's, Which often will knock a large percentage off the tax rate, Down to levels seen in Europe. You could actually drop the tax rate down to 20 - 25%, Knock off all the tax write downs and still collect about the same amount, If not a little more and all the while reducing the amount of red tape involved and making business in America look more appealing.

 

Looking at the US you would be better off copying the Canadian system. Rates would likely be different from Canada due to different circumstances but it's the closest system to that of the US, Should also try and do away with the different tax rates from one town to the next, They are highly inefficient.

Rough idea for US tax system:

Corporate:

20% - 25% federal,
15% state (Give or take, States preference)
Scrap the local taxes, Make it up in slightly higher state tax.

Income:

Do away with all the different categories such as single, couple, married etc etc etc, Just have the tax rates based on the earnings, That's it. Also scrap the tax write off's.

Federal:

0% - $0 - $30,000
10% - $30,001 - $60,000
20% - $60,001 - $120,000
30% - $120,001 - $240,000
40% - $240,001+

State:

Same tax bracket's. Set at a rate of their choosing

Local:

Scrap them.

Sales:

Most people hate them but they do good, More so when you have a competent government. A 10% sales tax federally and 5% state (or 5% federal and 10% state) would probably be the best and for the record would be a sales tax on the low end by global standards. Normally I'd say tax everything across the board but with US education and Health care being so expensive compared to other nations taxing them would just be hurting families already tinkering on bankruptcy so perhaps in the case of the US leave health, education and food out of it.

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Just my thought's on the matter, Little bit of lower tax rates, remove a lot (preferably all) of the write off's and raise the income amount for the low income earner's.

 

You can't just jiggle the cost over here or over there to "fix" it. What everyone fails to grasp is that no corporation or business ever pays a tax. Ever. They just raise the price of the commodity. It's overhead. British Petroleum (whoever) doesn't care if you tax the hell out of them in Norway. The consumer just pays more at the pump and BP makes the same amount at $10 a gallon in Europe as they do with $2.50 in the US.

I'll try to make this simple. It's important. All taxes (ALL TAXES) are passed down the economic chain to the end user. The consumer at the bottom of the food chain. The company that extracts the raw material passes costs to the transporter who passes it (along with his additional taxes) to the manufacturer, who passes it to another transporter or distributor - with each link adding their overhead and taxes to the cost. We (you and I) pay ALL the taxes. We always will. The poorest among us pay the highest percentage of their income to maintain that tax.

The pernicious part of this is that the taxes are hidden and most people never grasp the reality. If you ask a European about taxes most of them will say our income taxes are the similar to yours, etc, etc. Yet, if you ask what a pound of hamburger or a gallon of gas costs you'll soon realize that an additional 50% (or more) of their income is taken out of their pockets in the hidden taxes passed along to them.

Americans are just as bad about grasping this reality.

I would argue that you could eliminate at least 50% of government services and jobs without even noticing. Eliminate all corporate and business taxes since it's a hidden tax on consumers. Institute a flat tax on income (with NO loopholes) and move on.

 

Problem with that Kodiak is that you will drive America bankrupt faster then it is already going. No corporate taxes and the US stop's running, No money for education, defense, health or infrastructure. A flat tax on income would be even wore as it will bring in almost nothing or it will hurt the poorest earner's worse then they already are and still bring in less then what it does today.

Yes stuff in the EU cost's more then that in the US, What you don't mention is that in the EU (and other nations) they have better cheaper health care, They have better cheaper education, they have better infrastructure etc etc etc. When you account for the health care and educations costs in the US compared to the EU then it is a drastically different story, Not to mention the poor US infrastructure.

Countries can not run with out decent tax level's, and when the country can't run its self then the companies don't stay, They pack up and leave.

 

There are no corporate taxes! They are consumer taxes, so why not just tax the consumer directly so he realizes this? If you did, you'd create an incentive to control spending and lower taxes. The way it is now, most consumers are too stupid to realize they are paying all the taxes, thus: "Tax the rich, tax the evil corporations, blah, blah, blah." Politicians love this. They can raise taxes on the "other guy" to reward their sponsors. If the average guy saw that it was coming directly out of his pocket he'd fire the bastiches!

What's needed is clarity, not smoke and mirrors.

 

How about you make it clearer to me, Give me a rough idea on what taxes you think there should be and at what rate? If I'm undertaking your view correctly you want zero corporate tax and a single tax on income regardless of how much is earned, So give me your figure.

 

All business taxes are horribly regressive simply because the lower income earners have to pay a larger percentage of their income to pay the added cost of hidden taxes in goods and services. In effect, a larger percentage of their income goes into everyday needs rather than saving or investments.

A flat tax proposal a few years ago argued that in the US, a flat income tax of 17% would cover every dime of revenue taken in by the current (then) system. That's probably no longer true. It might be as much as 20 or even 25%. I don't know, but it's easy enough to figure out by examining revenue and gross income.

The other side of it is that the costs of goods and services would drop. The lowest earners get the largest benefit from that since again, a larger percentage of their income goes into material goods.

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Actually you are way way way off.

Having a single flat tax for all across the board would actually increase the wealth gap further then what it is. House hold income across the US is roughly $7.5 trillion, Any advanced economy need's at a minimum 25% of the GDP to operate, Accounting for the size of the GDP your flat tax rate would have to be 58%. All that does is makes the rich richer and the poor poorer. And none of that raises the needed revenue to fix the infrastructure.

 

Completely off-topic here, but just out of curiosity when was the last time you started a thread or posted to one that has to do with WW2? I mean no offense by this comment at all and don't take it personally -- I'm just curious.

 

No, it wouldn't. At least not in real terms. Without all the loopholes, the rich guy would have to pay 25% (or whatever) of his income. He can't hide it in an expense account or offshore because there are no loopholes. If you live in the US, all income is taxed. Period.

I suspect your math is badly flawed. High income earners already pay 70% of the taxes, but most of their income is not taxable - it's not "household income" and not counted that way. Without the loopholes, they couldn't hide their income from the tax man, but then with a rate of 25% (whatever), they wouldn't need to.

And AGAIN, the working class suckers are already paying at least 58% of their income in taxes. It's just that most of that is hidden in the inflated cost of food, fuel, power, etc, that they pay to cover "business" taxes.


Try to step back and look at the situation with clear eyes. You sell apples for $1 each with a combined business and income tax of 30%. Now, the government says you must pay 40%. You're not going to pay it. You're going to increase the cost of your apples. The buyer pays your taxes. Unfortunately, most consumers are too stupid to realize it.

Why play that shell game? Have direct taxes on income across the board. Then if the government wants to raise taxes, EVERYBODY can see the cost of raising taxes from 25 to 27% and the damned politicos had better have a pretty good argument. They can't hide the cost in a byzantine tax code.