the Corporate Patriot Enforcement Act

[Timber Loftis]

Well, if the feds changed the entire rate, or readjusted the bracket, it would make some sense of what happened to you. Otherwise, I too am hard-pressed.

But, I do know that the way the tax code reads, using the above hypothetical, is:

Up to $30,000 Income: Your tax responsibility is equal to your Taxable Income X 0.20.

Up to $ X,000 Income: Your tax responsibility is equal to $6,000.00 plus your Taxable Income less $30,000 X 0.25.

Note that this clearly taxes 20% of the first bit (6K = 30K X .20) and only takes 25% of the amount over. So, the code itself goes so far as to use the actual dollar amounts to make it very clear.

[Timber Loftis]

Bumping so folks may get a second chance to read about tax myths during tax time.

As MagiK says, "der bumpen."

[Thorfinn]

And now for my reply to the myths about the myths.

Taxes on capital gains or dividends or interest are immoral, and based purely on envy and greed.

If you went went out and spent $100 on dinner, or on new CDs or any other good or service, at most, you have to bribe the state and local gov'ts about $6 for permission to buy it from the vendor, i.e., pay the sales tax. You enjoy that good or service, all done.

Contrast that with a person who wants to defer his enjoyment of that $100. He gives it to some company or investment broker and it ends up being used to improve productivity, so that when he gets paid his money back, he can actually buy more of those things than could have if he had bought them with the original $100. (Note this is yet another example of a positive externality -- the fat-cats who have money invested in capital improvements decrease the prices everyone else pays for their goods, and in return, all they hear is complaints about fat-cats.)

So it becomes obvious that those who blew their paychecks Friday night are just envious of those who lived more frugally, and saved their pennies for a rainy day.

Now that we have established the fact that tax on "unearned" income is just avarice, wanting something that belongs to someone else so much that you are willing to authorize the government to use force to take it from them, let's go on to the effect of that policy.

The more you tax "unearned" income, the less incentive there is to save. Indeed, towards the end of the "greatest" boom in history, we experienced a negative savings rate, something that has not been seen since *drum roll* 1933. Economically speaking, we had removed enough incentives to save that people became net consumers, destroying more real wealth than we were generating. Paradoxically, a lot of the "problem" was caused by the capital gains tax rollback, though that makes no sense from a purely economic standpoint. It does make sense, though, when you realize that investors understood that it was only a matter of time before greedy people wanted those tax "loopholes" (loopholes = tax breaks the other guy gets) closed, so far more investment capital fled than could sustain a growth rate to keep up with population growth. A contraction was inevitable, only because investors took a good deal now because they knew it would not last.

So what is the ideal tax on unearned income? Considering that only through capital improvements can we increase productivity and standard of living for all people, the ideal rate should be 0%, encouraging people to invest in the infrastructure that will make the lives of all people, and especially those of future generations that much better. Particularly since the only legacy we have to pass on to them at the moment is a massive bill...

[ 04-17-2003, 03:17 PM: Message edited by: Thorfinn ]

[Timber Loftis]

Income is income is income. Some people make it their jobs to invest - when you have enough money, you can certainly run your life that way. You are taking them out of the tax code completely. Why is their income not "earned." You are rubber-stamping a notion that the "wealthy should only get wealthier." What about Donald Trump? He has no job, no "earned" income. All he does is invest. Under your scheme he pays no taxes. You are taking all land barons, day traders, and CEO and VP golden parachutes out of the tax scheme.

As well, you are ignoring the transaction issue. Income changed hand from one "person" to another. To use your example, it would be like ignoring one person in the sales tax chain - why do they get such perks? They shouldn't -every "sale" gets taxed if any do. Plus, you are removing any "price" from the corporate entity form. Please, tell me what "price" we pay for the EXTREME benefits of the corporate form under your scheme. There must be some - believe me the corporate form is a VERY POWERFUL tool.

Further, this all just ignores my post where I listed ways to avoid that tax anyway. Form your own LLC, buy a Lincoln Navigator, claim it as a business expense and subtract it from the LLC's "income" this year. Then, depreciate it, getting further windfalls in later years. (Don't forget, it's big enough to get the heavy equipment accelerated depreciation rate - wooo ho!). It's all a sham. SO, I guess it's all moot and I'll just shut up. :-X

[Thorfinn]

Income is income is income.

Actually it is not. Until '93, Social Security benefits for retirees was not income. (Odd that people forget it was Democrats who changed the taxes to steal money from widows and orphans and pensioners, isn't it?) Food Stamps are not income. Last I heard, neither was welfare. Income from other taxing districts is not income, under certain conditions.

Just as not all work is the same (the plans the Japanese put into place to revitalize their economy included digging holes and filling them back in, which classical Keynesians would say would have done the trick) not all income is the same. Some is vastly more beneficial to the economy. Foremost among them are investments that yield dividends and capital gains, since consumer spending only adds some fraction of the profit to capital expansion, compared to the entire amount of investment. Rather than worrying about who is getting a tax break for helping out the economy, we should be thinking about how to get everyone in on a piece of the action. A good first start would be to eliminate that vast sucking sound of the payroll taxes that steal at least 20% of everyone's labor income...

Some people make it their jobs to invest - when you have enough money, you can certainly run your life that way. You are taking them out of the tax code completely.

And? Actually, I'd prefer to take everyone out of the tax code, but just because someone opted to save for a rainy day should not be a reason to steal more from him -- indeed, he should be rewarded for that.

And I agree that the corporation is a vast evil, and the concept should be stricken from the face of the earth at the earliest possible opportunity. I agree that between Congress and IRS, we have a tax system that is skewed heavily in favor of corporations. When was the last time you expensed the maintenance on your car? I did, just a few days ago.

[EDIT]
Urk. I forgot to reply to the "money changing hands" bit. Nope. It did not change hands. Since you are a stockholder, that means you are a partial owner. It is not the company paying you, but you paying yourself. Reporting dividend income or capital gains is little different than having to report the amount of time you spend mowing the lawn, since by not paying the neighbor boy to do it, you were in effect paying yourself. Similarly, housewives (or househusbands) should report income as if they were doing it for pay. Clearly, that is nonsense. Why should one form of paying yourself be taxed, while another form is not?
[/EDIT]

[ 04-17-2003, 04:33 PM: Message edited by: Thorfinn ]

[Timber Loftis]

Sorry, no maintenance expense. But, I would expense trips to Hawaii for Continued Legal Education weekend retreats where the classes end at 1 pm and they pass out a list of the best golf courses - if my firm didn't pay for it, which it does.

[antryg]

Thorfinn, you haven't "proved" anything in your statements. We are just supposed to accept that everything you say is correct. Since I don't use charge cards, go out to movies, buy cd's, etc. and have 1 subcompact car for a family with 3 drivers it would be hard for you to accuse me of not being frugal and yet I have no savings. Maybe it's jsut my poor level of education. I realize that a Mater's degree isn't worth that much these days. Maybe it has something to do with the fact that most of my life has been spent in low-paying jobs because I choose to help others. If you want fair taxation I will be glad. How about every person earning an income pays the same percentage with no deductions for anything. Since I feel that paying taxes is one of the prices for the level of freedom we enjoy, I don't make use of the legal loopholes available. I never believed that it was moral to see what excuses I could use to get out of supporting my country.

I work as hard and long, with comparable education and skills, to most who post here at IW. Though your comments were not aimed at me personally, i am tired of the boogeyman ie. the poor/slothful/spendthrift who is dragging our country down used as an excuse to hide their own wrongdoing. Let's face it, there are good rich people as well as devils. The same is true for the middle-class and the poor. Using perjorative, emotion-laden words to express a viewpoint do not help either understanding or resolution of a problem.

[Thorfinn]

Sorry if you took it that way. I did not intend that at all, though on reflection, I can see where you got that. I was using the extremes of the spendthrift-frugality scale, not bothering to mention that it was, in fact, a continuum. Oh, and which sources would you like to see? Most of the argument is regurgited from college economics texts. I would be happy to recommend a few if you like.

I understand that some very frugal people live paycheck to paycheck. Tell me this: would it help at all to have an extra 25% tacked onto your paycheck? That is the effect of the payroll tax -- stealing about 20% of it before you ever see it. Especially considering that most people alive today will live to see the end of the pay-as-you-go social security system, and benefits will have to be cut to the bone and taxes increased to keep it solvent.

Though it may not sound like it, this problem is near and dear to my heart. Despite announcing the best economy ever in the late '90s, over 3/4 of the workforce is making less than it did in the late '60s or early '70s. Real income has dropped precipitously, particularly among the lowest wage-earners. Dollar income has increased, true, but inflation (i.e., stealth tax) has more than eaten up the gain. Now part of this decrease is an increased number of part-timers, taking an extra job at the video store to make ends meet, but way too much of the loss is real.

Seriously, when I was a kid, virtually any family could get by easily with a single breadwinner. Now, only the top crust of the white collar can afford the "luxury" of having a parent stay home with the kids.

It should not be called progress when your "working poor" get poorer and more numerous every year.

I just don't see any way of turning it around without putting the brakes on government spending, and letting people, all people, keep more of what is rightly theirs. Increasing taxes on "unearned income" merely lowers the incentive to invest, making sure that the working classes stay that way, and class warfare rhetoric has convinced many that "the rich" are taking away a piece of their pie, when in truth, the opposite is true.

[Timber Loftis]

Originally posted by Thorfinn: Though it may not sound like it, this problem is near and dear to my heart. Despite announcing the best economy ever in the late '90s, over 3/4 of the workforce is making less than it did in the late '60s or early '70s. Real income has dropped precipitously, particularly among the lowest wage-earners. Dollar income has increased, true, but inflation (i.e., stealth tax) has more than eaten up the gain. Now part of this decrease is an increased number of part-timers, taking an extra job at the video store to make ends meet, but way too much of the loss is real. Seriously, when I was a kid, virtually any family could get by easily with a single breadwinner. Now, only the top crust of the white collar can afford the "luxury" of having a parent stay home with the kids.

Too true. I could not afford to live at all without my wife working. Between taxes and law school loans, I lose 50-55% of my income. [img]graemlins/wow.gif[/img] I'm serious, I'm a lawyer who makes decent money, and I am struggling.

But, CEO average salaries are over $10 million a year. I don't care who you are, you are not worth that. When our congress is haggling over whether the absolute recovery limit for the loss of a leg in medical malpractice should be $200K or $250K, these guys make that much in two weeks.

I say we amend the tax code to do the following:
1. Take 25% of all income earned in excess of $1 million;
2. Take 25% of all capital gains (let's face it, money is not safe under a mattress, and income must be hidden, so people will *still* invest it no matter what);
3. Take 20% of all corporate profits (before you yell yikes, I just cut the current rate in half); and
4. Leave the rest of us out of it.

[Thorfinn]

That was kind of the intent of the original income tax back in, what, 1917? IIRC, only the top 1% would have to pay taxes at all, and they had a rate of just 7%.

As always, though, if you take too many people out of the "paying" column, there is no incentive left to keep taxes down. Heck, if you dropped the income tax to only the top 10% of wage-earners, you could probably get half of the voters to agree that the rate should be 50% or 80%. They are not paying for it anyway.

Nah, I think it's high time for a Hammer and Champy-style Reorganization. Look at what functions we want gov't to do, figure out the most cost effective means of doing so without respect for the current piecemeal institutions. Then spread the damage out to everyone, maybe a consumption tax, so that everyone will have a reason to elect fiscally frugal representatives. If you want to have some special overpass constructed in your district, pass the hat. Don't force people half the country away to kick in for it.

Seriously, we spend 18% of our GDP on government, and we all know that is overkill. Heck, the budget now is 4x what it was during Reagans massive military buildup, and we don't face anyone nearly as formidable as the Soviets. Surely we could get by with the same size FedGov we had in the '80s. Which would mean only about 4% of our GDP, well within the bounds of a consumption tax. Heck, even if we started at 18% there would be broadbased pressure to reduce gov't spending, and you would still be paying less, and none of the April 15 (or quarterly) hassle.

So how about that? Eliminate all the current taxes and the vast amounts of paper and effort to comply and evade, and slap on a flat consumption tax. Become a tax haven where companies move to, rather than from, since the jobs are going to go where the companies do...