Tax Cuts: A Lesson In Econmics

ForlornForlorn Banned Join Date: 2002-11-01 Member: 2634Posts: 6,495
http://www.suite101.com/article.cfm/investing/111646

I've been saying how the whole progressive tax system is enough and that lowering taxes are a good thing, but really hopefully people will get it after reading this painfully simple example.

QUOTE

How Income & Taxes are Distributed

Look at the example shown below (after the first table) -- very interesting.

# Top 1% earn 21% of all income; pay 37-1/2% of all taxes
# Top 5% earn 35% of all income; pay 56-1/2% of all taxes
# Top10% earn 46% of all income; pay 67% of all taxes
# Top 25% pay 84% of all taxes
# Top 50% pay 96-1/2% of all taxes
# Bottom 50% pay 3-1/2% of all taxes

Just in case you are not completely clear on this issue, we hope the following will help.

Tax Cuts - A Simple Lesson in Economics

This is how the cookie crumbles. Please read it carefully.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten people go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

# The first four people (the poorest) would pay nothing.
# The fifth would pay $1.
# The sixth would pay $3.
# The seventh $7.
# The eighth $12.
# The ninth $18.
# The tenth person (the richest) would pay $59.

So, that's what they decided to do. The ten people ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four people were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'? The six people realized that a $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth person and the sixth person would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each person's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

# The fifth person, like the first four, now paid nothing (100%savings).
# The sixth now paid $2 instead of $3 (33% savings).
# The seventh now paid $5 instead of $7 (28% savings).
# The eighth now paid $9 instead of $12 (25% savings).
# The ninth now paid $14 instead of $18 (22% savings).
# The tenth now paid $49 instead of $59 (16% savings).

”I Want my “Fair Share!”

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the people began to compare their savings.

"I only got a dollar out of the $20," declared the sixth person. He pointed to the tenth person "but he got $10!"

"Yeah, that's right," exclaimed the fifth person. "I only saved a dollar, too. It's unfair that he got ten times more than I got!"

"That's true!!" shouted the seventh person. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four people in unison. "We didn't get anything at all. The system exploits the poor!"

The nine people surrounded the tenth and beat him up.

The next night the tenth person didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

The above is a simple concept that very few in the Democratic Party understand.



Comments/Questions?
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Comments

  • FilthyLarryFilthyLarry Members Join Date: 2003-08-31 Member: 20423Posts: 337
    edited November 2004
    Here's the problem though: The wealthy and the poor do not eat at the same table despite what that cute story had to say.

    The problem is tax loop holes that the rich take advantage of; no dividend tax etc. etc.

    The issue is not one of the rich saving proportionately more, but not paying their quota in the first place IMO.

    And the flip side of the "OMG don't persecute the rich" is "maybe minimum wage should reflect human dignity and actually be a living wage".

    It's all about balance my friends.
  • ForlornForlorn Banned Join Date: 2002-11-01 Member: 2634Posts: 6,495
    QUOTE (FilthyLarry @ Nov 6 2004, 03:16 AM)
    Here's the problem though: The wealthy and the poor do not eat at the same table despite what that cute story had to say.

    The problem is tax loop holes that the rich take advantage of; no dividend tax etc. etc.

    The issue is not one of the rich saving proportionately more, but not paying their quota in the first place IMO.

    And the flip side of the "OMG don't persecute the rich" is "maybe minimum wage should reflect human dignity and actually be a living wage".

    It's all about balance my friends.

    Every loophole you can name is actually doing something taxes would normally be appropirated too

    There are no magical rules where somehow you don't lose money


    For example if I donate 1 million dollars to charity then that's still 1 million I don't have go to my company or to the government

    It's not avoiding taxes it's just spending them somewhere else.
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  • moultanomoultano Creator of ns_shiva. Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts Join Date: 2002-12-14 Member: 10806Posts: 4,219 Advanced user
    QUOTE (Forlorn @ Nov 6 2004, 04:09 AM)
    Every loophole you can name is actually doing something taxes would normally be appropirated too

    There are no magical rules where somehow you don't lose money


    For example if I donate 1 million dollars to charity then that's still 1 million I don't have go to my company or to the government

    It's not avoiding taxes it's just spending them somewhere else.

    That's not what people typically consider to be a tax loophole. Consider a situation where you invest a hundredth of your income somewhere and then classify yourself as a small business owner, thereby getting rid of half your taxes. That's a tax loophole.
  • TheWizardTheWizard Members, Constellation Join Date: 2002-12-11 Member: 10553Posts: 1,646 Advanced user
    QUOTE (moultano @ Nov 6 2004, 08:15 AM)
    QUOTE (Forlorn @ Nov 6 2004, 04:09 AM)
    Every loophole you can name is actually doing something taxes would normally be appropirated too

    There are no magical rules where somehow you don't lose money


    For example if I donate 1 million dollars to charity then that's still 1 million I don't have go to my company or to the government

    It's not avoiding taxes it's just spending them somewhere else.

    That's not what people typically consider to be a tax loophole. Consider a situation where you invest a hundredth of your income somewhere and then classify yourself as a small business owner, thereby getting rid of half your taxes. That's a tax loophole.

    My mother was a registered small business a few years ago before returning to the official grind of big business. It's not as simplistic as you point out.

    As for minimum wage: It will always be too low for people to live off of. There really is no way to have every job offer enough money to support someone. The real problem isn't that people work minimum wage and don't make enough money. The problem is not being able to find a job that offers a 40 hour work week.
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  • CyndaneCyndane Members Join Date: 2003-11-15 Member: 22913Posts: 3,010 Advanced user
    Agreed, with wizard.

    Finding a job that pays minimum wage is easy, its finding one that guarntees 40hrs a week if not more that is so frustrating. Which is why a lot of people on minimum wage or just barely above, cannot live very well. If there was more a federal regulation regarding hours in full-time positions, rather then left up to the states individually minimum wage wouldn't be that bad, after all it is about $17,000 a year, if you include a basic 20% tax deduction, which does vary state to state. smile-fix.gif
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  • xectxect Members Join Date: 2002-11-24 Member: 9807Posts: 5,762
    Only problem is that if no politicians have the guts to go the other way when it's neccesary, the restaurant owner suddenly ends up realizing that the costumers (costumer?) can pay enough that he can up prices. It's called inflation smile-fix.gif

    It's neccesary to go both ways, but what politician wants to raise taxes?
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  • killswitchkillswitch Members, Constellation Join Date: 2003-02-05 Member: 13141Posts: 684
    QUOTE ([email protected] @ Nov 6 2004, 06:02 PM)
    As for minimum wage: It will always be too low for people to live off of. There really is no way to have every job offer enough money to support someone.

    That's not really true, umm, at all. In Canada, at minimum wage of about $5.90, you'll make $12,272/y. You can quite easily find room, board, and transportation for $6000-$8000/y.
    That's quite a lot of wiggle room. The probablm of course arises when people start saying

    "Oh yeah? Well what about the single mother with 8 kids who has to drive 300 km to work everyday while paying for her leukemia prescription?"

    Well, that's an anomaly. And no amount of minimum wage will encompass the entire 'needs' of all the single mothers in any country. Because really, the people that make minimum wage are by far and away teenagers. And a higher minimum wage is the best way to keep these people unemployed, which is really a shame since that's when they need the experience the most.

    And Forlorn's tax analogy is of course correct. You can't get a tax cut if you're not paying any taxes.
    And the outlandishly rich will always find ways to beat tax laws. Tax laws are already complicated enough. It's the not-so-rich-'rich' people that will always pay the full fee: people making more than $200,000/y, up to about $1,000,000/y
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  • EpidemicEpidemic Dark Force Gorge Members Join Date: 2003-06-29 Member: 17781Posts: 3,104 Advanced user
    edited November 2004
    What a cute little patronising story. I do, however think it fails to take several things into consideration and poses poor people like some greedy bunch. The poor people are more likely to vest money in consumerism products instead of stocks, which essentially fuels the market, by aiding the poor, with increased taxation of upper tax brackets, aids companies. Win-Win biggrin-fix.gif But ok, the economy can stagnate because of it.
    This is just speculation though, I'm still in high-school and havent had a single class of economic, I just felt it was patronising and hateful.
    And I love the end, College professors, journalist, youth.. AND how 5 people out of 10 in the example doesnt pay anything tounge.gif
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  • WarningForeverWarningForever Members Join Date: 2004-05-06 Member: 28503Posts: 121
    Dumb story, you basically said "We shouldn't look down on those who cheat the system, because they could run off with lots of stolen money"

    That's like saying you shouldn't chase bank robbers because they might run across the border.

    The biggest argument for less tax on the rich is more or less the same as that for no welfare: If you put a price on success, you discourage people from succeeding, and destroy the concept of a meritocracy.
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  • ForlornForlorn Banned Join Date: 2002-11-01 Member: 2634Posts: 6,495
    wow killer, just wow...

    QUOTE
    What a cute little patronising story.


    What's funny is that you cannot even tell me why it's patronising nor can you point out a flaw





    This entire thread has turned into a joke, the only argument I've seen is "Loopholes" which apparently no one knows a thing about... man I'm pretty disappointed
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  • moultanomoultano Creator of ns_shiva. Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts Join Date: 2002-12-14 Member: 10806Posts: 4,219 Advanced user
    QUOTE (Forlorn @ Nov 6 2004, 10:19 PM)
    This entire thread has turned into a joke, the only argument I've seen is "Loopholes" which apparently no one knows a thing about... man I'm pretty disappointed

    It's a fictional story. There isn't much to debate about it.

    Even in the situation you describe though, its possible that it is completely unfair. It would depend on the utility curves of the people involved. I'd elaborate, but I already went into it in more detail in my thread on progressive taxes.

    Typically people deriding the Bush tax cuts as elitist would prefer the tax curve be steeper than it is. I haven't looked at the numbers, but I also haven't been vocally opposed to them for that reason (they're fiscally irresponsible, it doesn't matter whether they are fair.)
  • ForlornForlorn Banned Join Date: 2002-11-01 Member: 2634Posts: 6,495
    QUOTE (moultano @ Nov 6 2004, 10:27 PM)
    QUOTE (Forlorn @ Nov 6 2004, 10:19 PM)
    This entire thread has turned into a joke, the only argument I've seen is "Loopholes" which apparently no one knows a thing about... man I'm pretty disappointed

    It's a fictional story. There isn't much to debate about it.

    Even in the situation you describe though, its possible that it is completely unfair. It would depend on the utility curves of the people involved. I'd elaborate, but I already went into it in more detail in my thread on progressive taxes.

    Typically people deriding the Bush tax cuts as elitist would prefer the tax curve be steeper than it is. I haven't looked at the numbers, but I also haven't been vocally opposed to them for that reason (they're fiscally irresponsible, it doesn't matter whether they are fair.)

    Your utlity thing was a very interesting read. I liked that thread you posted. But the point of it was that you don't say who decides on your utlity? Who knows what you think is useful or not? Who is to say?

    Anyhow this is not a fictional story. Just because it uses metaphors does not mean it does not accurately describe the status of the United States today.
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  • EpidemicEpidemic Dark Force Gorge Members Join Date: 2003-06-29 Member: 17781Posts: 3,104 Advanced user
    QUOTE (Forlorn @ Nov 6 2004, 04:19 PM)
    wow killer, just wow...

    QUOTE
    What a cute little patronising story.


    What's funny is that you cannot even tell me why it's patronising nor can you point out a flaw





    This entire thread has turned into a joke, the only argument I've seen is "Loopholes" which apparently no one knows a thing about... man I'm pretty disappointed

    If we go the core of the point he is trying to make, assuming the tax cuts are equal to all tax brackets, he just summed some basic math up, and proceeding to trow some after-rationalising up, "the poor people attacked the rich people and the rich people didnt return"
    Really meatless skeleton you are going to suck the marrow out of. I already explained patronising part in my other post, I think.
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  • Marik_SteeleMarik_Steele To rule in hell... Members Join Date: 2002-11-20 Member: 9466Posts: 4,200 mod
    edited November 2004
    QUOTE (Forlorn @ Nov 6 2004, 10:19 PM)
    [...]

    This entire thread has turned into a joke, the only argument I've seen is "Loopholes" which apparently no one knows a thing about... man I'm pretty disappointed

    Alrighty, how about this as an argument against it. I shall start off with assertions, things I think are correct enough that I'm willing to risk using them as a foundation for the rest of this post.

    1. The story uses the pizza store to represent government. (owner cuts price to reward customers).
    2. The intended conclusion is that wealthy person 10, if sufficiently beaten up, would have no qualms about purchasing from other restaurants.
    3. Assertion 2 is an undesirable situation. It states that the quality of life could go down for persons 1-9, putting both them and the pizza store in a bit of a problem.
    4. Persons 9 and 10 are, by definition, most likely to already own all "needs" of a safe, healthy life. The rest of wealthy person 10's money is currently going to luxury or investments (where investments includes such options as charity, investing in society).

    Here's where I have my issue with the story: it doesn't make any mention of the fact that wealthy person 10 still has a reason to want the pizza store to run smoothly and churn out a high-quality product. The government's collective "product" is all the fun stuff we take for granted, such as national defense, law enforcement, public education, and--yes, I'm going to say it--welfare. [edit]clarification: I state that wealthy person 10 wants to support the pizza store (government) and its product (various programs, special-interest and not) because they create the stable environment in which wealthy person 10 can STAY wealthy[/edit].
    "But wealthy person 10 doesn't even need many/most of these! Wealthy person 10 uses private schooling, doesn't use welfare, and even with reduced taxes still helps maintain stuff like law enforcement and defense! Wealthy person 10 doesn't need these 'products'!"

    I state that yes, wealthy person 10 does. Wealthy person 10 lives with persons 1-9. One or more of persons 1-9 may even be wealthy person 10's employee.
    It's not a matter of immorally leaving the middle and lower class behind.
    It's not a mater of social darwinism.
    It's a matter of wealthy person 10 wanting competent employees working for him in companies he owns or consumes from. It's a matter of wealthy person 10 wanting happy, healthy families and negligible cases of homelessness, instead of crime rates or visually unappealing (sub)urban environments that can affect his business(es) and home(s).

    When Wealthy person 10 gets a slice of the pizza, he/she may be ignoring toppings he doesn't find personally necessary, like public schooling or unemployment/welfare checks. But their effects on the society he/she lives in do have a more immediate impact on his/her lifestyle than what happens when he/she consumes or invests in "restaurants" abroad.
    If the effects on the immediate surroundings are considered, wealthy person 10 may be much more willing to put forth a greater share of money for taxes. Wealthy person 10's quality of life isn't noticeably affected by greater taxes until it digs into his/her profits to the point that he/she is brought down to person 9 or 8's level--see assertion 4.


    [edit]I just realized one possible way to refute all of this post. If somebody happens to find what I'm thinking, maybe we can come to the same conclusion about why both my post and the story analogy are missing something in common.
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  • illuminexilluminex Members, Constellation Join Date: 2004-03-13 Member: 27317Posts: 784
    Sorry Marik, majority of the wealthy people I've met that built it through companies, etc, do not want and certainly have little interest in paying excessively high taxes to pay for people that are many times unwilling to better themselves.

    It really does come down to a person's belief in if the poor can succeed or will simply stay poor. Most of the wealthy hold true to the belief that the poor can succeed, with or without public funds. The wealthy recognize that without strict rules governing social programs and forced personal responsibility, there is a high chance that work productivity and worker quality will fall. Instead of a worker desiring to rise in the company or create something that will increase efficiency and/or profits, they get workers that are satisfied with simply higher wages than needed for the work done as well as no desire to become better.

    People on welfare do not always desire to get off of welfare. I met a guy this past summer who was bragging about staying on state funds for over a year, when he didn't really need it past a few months in. A $2000 check in the mail every month. That's what I will be making with my new raise this week and my hours being bumped up to around 50 per week, except I lose a decent portion to taxes.

    Are you starting to see the problem here? It seems pretty obvious to me. Your logic is basically saying that the rich have a vested interest in passifying "have nots" from "making crime" but of course the assumption is that Poor(unpassified)=crime. That assumption is baseless in all forms.

    American society has never needed hand outs to keep the peace, and the assumption that we do need them is a dangerous one.

    Hand outs limit success. If you give people the bare minimum, most people will stay there.

    Maybe we should take the money that the schools waste every day and teach kids how they can succeed without being a famous sports star or a gangster. America's point is to raise the standards. Why else do Chinese illegals come here? Why do millions of Mexican's cross the border every day? Because in America, they don't give hand outs; they give oppurtunity. If you are willing to work hard and make it happen, you can be successful here.

    BTW, $24,000 a year is enough to live on and provide for a family. It isn't enough to afford digital broadband super cable, with tivo included, 4 credit cards, a new car every 3 years, and an Xbox for the kids. The poor usually are victims of themselves, which means that they can turn their situation around, if they're willing. Guess what though? 10 years of debt, bad credit, bad spending, etc, is going to need a lot of time and energy to break even, but it is a burden that society can help with through charities.

    Forced charity through taxation is bad. It breeds a mentality of "you owe me something" versus the mentality of "I screwed up and I need help." And the people who come to a charity for help are willing to give back once they make it. It's a positive and great cycle that can break poverty.

    Throwing money at the poor doesn't help anyone. Robin Hood was cool when everyone was being forced down, but when it's the fault of the poor, it's just common theft in my book.

  • Marik_SteeleMarik_Steele To rule in hell... Members Join Date: 2002-11-20 Member: 9466Posts: 4,200 mod
    edited November 2004
    QUOTE (illuminex @ Nov 7 2004, 01:04 AM)
    [...]America's point is to raise the standards. Why else do [we get immigrants] every day? Because in America, they don't give hand outs; they give oppurtunity. If you are willing to work hard and make it happen, you can be successful here.
    [...]
    Forced charity through taxation is bad. It breeds a mentality of "you owe me something" versus the mentality of "I screwed up and I need help."[...]

    Agreed, America likes to raise standards.
    Agreed, we are known to keep ever-increasing opportunity as a primary goal.
    Agreed, there are better alternatives to forced charity through taxation; you will soon find me naming one.

    These are not mutually exclusive with helping the lower classes. The key is to make sure that the wealthy help the poor by actually giving them this beautiful thing called "opportunity." Giving the largest tax breaks to the wealthy and hoping it results in them expanding or creating businesses and jobs is exactly backwards from the method that would more reliably reach the goal: letting them expand or create businesses and jobs and giving them tax breaks as a reward.

    Do we agree on this? Do we agree that fixing this post-hoc, ergo propter hoc fallacy* would help increase the chances of the wealthy creating opportunity for the poor? If so, great, because it's time for me to get back to the pizza store analogy.

    The pizza store analogy falls from 2 things:
    Firstly, by using a business to represent government, it becomes too confusing to try to increase the realism of the analogy by inserting this new factor we're discussing: saying that the wealthy are capable of creating jobs. It gets all messy trying to differentiate from the pizza store being a government vs. another business being created by the wealthy. Being an analogy, by definition different from "the real deal," it's almost to be expected that it only stays accurate to a point.
    Secondly, and more importantly, the story tries to say:

    "Verbally or physically-abused wealthy ==>> wealthy putting their cash abroad;
    therefore, if poor stop bashing the wealthy and how they're recieving and spending their tax cuts ==>> prevent wealthy from putting their cash abroad"

    This ignores the problem that:

    "Wealthy recieve biggest tax cuts in hopes they'll increase business ==>> they can...but they might not, and even if they do, it might not be here"


    *"Wealthy can create jobs with money, therefore wealthy create jobs because gov't lets them have more money" is the fallacy I speak of. By using the word "Because," the fallacy tries to say that creating jobs is all the wealthy will do with their extra money; since it's not enforced, it's a strong assumption to be making.
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  • ekentekent Members Join Date: 2002-11-08 Member: 7801Posts: 781
    edited November 2004
    To reinforce the argument Marik just made:

    The problem, illuminex, with your argument, is the assumption that social welfare is equivelant to handouts. No one, at least I would hope, falsely believes that a wad of sweaty cash will stimulate the poor towards success. Even the Democrats under Clinton, after all, championed welfare reform in the mid ninties.

    The wealthy do have a stake in social welfare for the reasons mentioned above. A happy integrated society is one that looks after its own interests, minimizing weaknesses and exploiting strengths. In other words, it's not such a cut-and-dry case of the government vs the individual.

    Furthermore, allowing that waste and inefficiency are not the goals of anyone, and shouldn't be argued against (try imagining someone who would argue that your example of the $2000 fraudster is acceptable, let alone necessary), it should be possible to see that the government is not inherantly a poor alternative to charities. The government - at least - has a much larger mandate, and a much, much, much larger reach than all charities.
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  • BathroomMonkeyBathroomMonkey Feces-hurling Monkey Boy Members, Retired Developer, NS1 Playtester, Contributor Join Date: 2002-01-25 Member: 78Posts: 1,345
    edited November 2004
    Additionally, there's the knee jerk assumption that a higher tax rate is directly tied to income redistrubution. OMG THEY MUST BE GIVING MY MONEY TO WELFARE MOTHERS, we cry.

    However, the largest percentage of your federal tax dollar goes to defense, and for the past several years the second highest expenditure has been paying interest on the National debt.

    Not the principle. Interest. I've mentioned this before, but it bears repeating.

    So, you can try to lay this one directly on the doorstop of the Democrats-- and they certainly do share the blame for our fiscal woes-- but to cry foul and ignore the current administration's reckless deficits isn't very consistent.

    Also, I noticed our little anecdotal dinner party picks up the narrative when the bill arrives, but fails to describe the meal itself. I'll take a crack at it:

    The tenth person had the filet mignon, the ninth had the new york strip, the eight had the t-bone, the seventh had the hamburger, the sixth had the meatloaf, the fifth had spam, and the remaining four had the crackers and bread which came with the meal. Resume story.

    And sure, there are a lot of good restaraunts in the Caribbean, with the slight inconvenience of having to move to the Caribbean while still maintaining your income level, and losing your American citizenship. And Europe-- er, if you're looking to avoid taxes, it ain't a sure bet. Again, in most cases, the difference in the top rate is marginal, and probably isn't worth the associated inconvenience.

    QUOTE
    My mother was a registered small business a few years ago before returning to the official grind of big business. It's not as simplistic as you point out.

    Well, that's what good accountants are for . . . wink-fix.gif

    However, I don't think it's as simple as becoming a small business-- it's having a slick enough accountant or tax attorney to exploit the loopholes which are worthless to a small business, but invaluable to a larger, wealthier entity either posing as one directly, or laundering/hiding money through a proxy. I have a friend who used to do such work for wealthy clients, and while I can't recall offhand any of the devices he used (so take my anecdote with a grain of salt) he was essentially awed by what they could get away with.
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  • SirusSirus Members, NS1 Playtester, Constellation Join Date: 2002-11-13 Member: 8466Posts: 4,804
    The only way to truely eliminate loopholes is scrap the system and create a national sales tax that taxes consumption not creation.

    Actually BM, 57% of spending is entitlements. This is mandatory spending. Defense is 15%.
    These numbers are as of 2000. There may be a slight change but I wouldn't bet on large changes.

    Our largest problem in spending is due to the welfare state.

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  • moultanomoultano Creator of ns_shiva. Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts Join Date: 2002-12-14 Member: 10806Posts: 4,219 Advanced user
    edited November 2004
    QUOTE (Sirus @ Nov 8 2004, 12:38 AM)
    The only way to truely eliminate loopholes is scrap the system and create a national sales tax that taxes consumption not creation.

    I'd be hard pressed to come up with something that would increase disparities of wealth more than that.

    Savings is incredibly correllated with wealth. The lower your income level, the greater percentage of your income you spend.

    What you are proposing is worse than a flat tax. It's probably closer to a logarithmic tax.
  • BathroomMonkeyBathroomMonkey Feces-hurling Monkey Boy Members, Retired Developer, NS1 Playtester, Contributor Join Date: 2002-01-25 Member: 78Posts: 1,345
    edited November 2004
    QUOTE (Sirus @ Nov 8 2004, 05:38 AM)
    The only way to truely eliminate loopholes is scrap the system and create a national sales tax that taxes consumption not creation.

    Actually BM,  57% of spending is entitlements.  This is mandatory spending.  Defense is 15%.
    These numbers are as of 2000.  There may be a slight change but I wouldn't bet on large changes.

    Our largest problem in spending is due to the welfare state. 

    user posted image

    Fiscal Year 2000

    QUOTE
    Actually BM, 57% of spending is entitlements. This is mandatory spending. Defense is 15%.
    These numbers are as of 2000. There may be a slight change but I wouldn't bet on large changes.


    Correct, but now we're in the realm of payroll taxes. Social Security and Medicaid are FICA taxes, which are separate from federal income tax.
    ie,
    QUOTE
    Payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees. You are required to withhold state and federal income taxes as well as social security and Medicare taxes from your employees' wages. You are also required to pay a matching amount of social security and Medicare taxes for your employees and to pay State and Federal unemployment tax.

    Have each new employee complete IRS form W-4. You will use this form to calculate the amount of federal income tax to withhold from the employee's wages. Most of the states have income tax structures that are based on the federal system, so you will use the W-4 to calculate the amount of state income tax to withhold as well.

    Social security and Medicare taxes, also known as FICA taxes must be withheld from your employees' wages. As an employer, you must also pay a matching amount of FICA taxes for your employees. Currently the social security tax rate is 6.2%. You are required to withhold 6.2% of an employee's wages for social security taxes and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. The wage base for social security tax is $76,000 for the year 2000. Once that amount is earned, neither the employee or the employer owes any social security tax.

    The Medicare tax rate is 2.9% for the employee and the employer. You will withhold 1.45% of an employee's wages and pay a matching amount for Medicare tax. There is no wage base for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned.

    The employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). The FUTA rate is 6.2 %, but you can take a credit of up to 5.4% for SUTA taxes that you pay. If you are eligible for the maximum credit your FUTA rate will be 0.8%. The wage base for FUTA is $7,000. You will stop paying FUTA for each employee once his or her wages exceed $7,000 for the year. You will need to check with your state about SUTA tax rates and the wage base. Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. When your business is new, your SUTA tax rate starts at the maximum and declines if you build a history of few claims.

    For information on Federal payroll tax requirements, check out IRS publication 15, Circular E. For information on State payroll tax requirements, contact your state's taxation and revenue department.


    Emphasis mine.

    Note that the social security tax rate is 6.2%, capped at 76k. This means that that anyone who makes less than 76k has an additional 6.2 percent slapped onto their tax bill, but for anyone who makes more there's a linear reduction of that rate. Someone who makes 152k per year actually pays 3.1%, and so on and so forth.

    Edit: Actually, the provided a handy chart on their site which I've just now noticed. As you'll see, the vast majority of entitlement funding come from these separate taxes I've just described:
    user posted image

    But yes, I agree that a national sales tax is certainly something to explore. It could be argued that it would hinder sales, but I'm convinced it could be (though not necessarily would be) configured in a manner that wouldn't be too painful.

    But yeah, that would help-- also, getting rid of pork would be swell. From each state according to its ability, to each state according to its need. Yes, that's a gross oversimplification, and these numbers don't reflect pure pork, but there is a trend . . .

    Sure, the West Wing is predominately unrealistic idealized liberalism (Hell, even I can recognize that one), plain and simple, but you really do have to love this exchange:
    QUOTE

    Governor Robert Ritchie:  My view of this is simple: we don't need a Federal Department of Education telling us our children have to learn Esperanto, they have to learn Eskimo poetry. Let the states decide, let the communities decide on health care, on education, on lower taxes, not higher taxes. Now, he's going to throw a big word at you - "unfunded mandate." He's going to say if Washington lets the states do it, it's an unfunded mandate. But what he doesn't like is the federal government losing power. But I call it the ingenuity of the American people.

    Moderator:  President Bartlet, you have 60 seconds for a question and an answer.

    Bartlet:  Well, first of all, let's clear up a couple of things. "Unfunded mandate" is two words, not one big word. There are times when we're fifty states and there are times when we're one country, and have national needs. And the way I know this is that Florida didn't fight Germany in World War II or establish civil rights. You think states should do the governing wall-to-wall. That's a perfectly valid opinion. But your state of Florida got $12.6 billion in federal money last year - from Nebraskans, and Virginians, and New Yorkers, and Alaskans, with their Eskimo poetry. 12.6 out of a state budget of $50 billion. I'm supposed to be using this time for a question, so here it is: Can we have it back, please?


    Would it be too much to ask for either party to spit out a guy who talks like this?
    Post edited by Unknown User on
    Are you sure you read it in a book? Are you sure it wasn’t . . . nothing?
  • SirusSirus Members, NS1 Playtester, Constellation Join Date: 2002-11-13 Member: 8466Posts: 4,804
    BM if you're interested in reading about the "Fair Tax Act of 2003
    HR 25 S 1493" than you should check out National Retail Sales Tax Alliance. The sales tax doesn't tax necessities and those below the federal poverty line will recieve a complete rebate.
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  • BathroomMonkeyBathroomMonkey Feces-hurling Monkey Boy Members, Retired Developer, NS1 Playtester, Contributor Join Date: 2002-01-25 Member: 78Posts: 1,345
    edited November 2004
    QUOTE
    The sales tax doesn't tax necessities and those below the federal poverty line will recieve a complete rebate.
    . . .
    Replaces all payroll taxes including Social Security and Medicare taxes. Current Social Security and Medicare benefits would not change.

    Replaces corporate and self-employment taxes.


    Er . . . you had me at hello?

    However, as with any system, I'm sure there are some drawbacks to migrating to this system. Folks, post 'em if you got 'em. But for the time being, I do like this idea.

    Edit: Read more, and one thing worries me:
    QUOTE

    Imposes a 23% (tax-inclusive) sales tax on the purchase of new goods and services in the U.S.


    If the tax is a flat rate that's tied to the product's price, then I would be worried about the potential for this to flip into a regressive tax system.
    Post edited by Unknown User on
    Are you sure you read it in a book? Are you sure it wasn’t . . . nothing?
  • SirusSirus Members, NS1 Playtester, Constellation Join Date: 2002-11-13 Member: 8466Posts: 4,804
    Imagine, no loopholes and no IRS.
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  • moultanomoultano Creator of ns_shiva. Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts Join Date: 2002-12-14 Member: 10806Posts: 4,219 Advanced user
    edited November 2004
    QUOTE (Sirus @ Nov 8 2004, 03:32 AM)
    BM if you're interested in reading about the "Fair Tax Act of 2003
    HR 25  S 1493" than you should check out National Retail Sales Tax Alliance.  The sales tax doesn't tax necessities and those below the federal poverty line will recieve a complete rebate.

    The rebate makes it plausable at least. I've still got some questions/concerns.

    First off, If we were to plot the percentage of one's income that ends up being taxed, I suspect it end up with a maximum somewhere around the middle class. I'd be interested to see current statistics on the percentage of one's disposable income spent on non-essentials as a function of income level.

    Secondly, what are they going to use to differentiate between final products, and intermediate products? If both are taxed, then you'll see a huge blowup in the price of items with many inputs of raw materials and components (computers for instance), because every step in the supply chain would add 23% to the cost. In addition, companies that vertically integrate would have a huge advantage, and we'd see less competition overall. I'm assuming they'll have some way of discriminating, because this would be disastrous, and I'm curious as to how they would do it.

    Thirdly, I suspect this would have an overall depressing effect on the economy. The marginal cost of entertainment goods would decline relative to the marginal cost of non-good forms of entertainment. Some would say this is positive, in that it would diminish the culture of consumerism. Consumerism however is what keeps a lot of our economy going.

    Related to the last point, taxes dissuade consuming the item that is taxed by increasing the marginal cost of the item. Income taxes discourage working for an income. Sales taxes discourage buying goods. When people work less, more people can divide up the work. When people buy less, whole industries disappear. (This is a simplistic analysis, but I suspect it will bear mathematical scrutiny.)

    However, even with these issues, the idea has potential, and it may be worth implementing just to get rid of the IRS.
  • SirusSirus Members, NS1 Playtester, Constellation Join Date: 2002-11-13 Member: 8466Posts: 4,804
    You can probably have you questions answered by checking out S.1493
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  • moultanomoultano Creator of ns_shiva. Members, NS1 Playtester, Contributor, Constellation, NS2 Playtester, Squad Five Blue, Reinforced - Shadow, WC 2013 - Gold, NS2 Community Developer, Pistachionauts Join Date: 2002-12-14 Member: 10806Posts: 4,219 Advanced user
    QUOTE (Sirus @ Nov 8 2004, 07:29 PM)
    You can probably have you questions answered by checking out S.1493

    I read through most of the bill earlier in the day. Sadly, I don't think this would be sufficient to get rid of the IRS.

    QUOTE
    (b) BUSINESS PURPOSES- For purposes of this section, the term `purchased for a business purpose in a trade or business' means purchased by a person engaged in a trade or business and used in that trade or business--

                `(1) for resale,

                `(2) to produce, provide, render, or sell taxable property or services, or

                `(3) in furtherance of other bona fide business purposes.

    This answers one of my concerns, but there would still need to be a large government body to verify the claims of business expenses and audit periodically.
  • EpidemicEpidemic Dark Force Gorge Members Join Date: 2003-06-29 Member: 17781Posts: 3,104 Advanced user
    edited November 2004
    QUOTE (illuminex @ Nov 6 2004, 07:04 PM)
    Sorry Marik, majority of the wealthy people I've met that built it through companies, etc, do not want and certainly have little interest in paying excessively high taxes to pay for people that are many times unwilling to better themselves.


    It's easy to blame the poor and just concern oneself with one's own skin. But you cannot be serious to put *all* blame on the poor's shoulders, it's capatalism, and someone *has* to pay for the wealthy.
    It's jungle law basically, and I dont see no initiative from the conservative side on how to avoid the problem.
    I saw a radscorpion the other day.
  • the_x5the_x5 the Xzianthian Members, Constellation Join Date: 2004-03-02 Member: 27041Posts: 3,175
    QUOTE (Sirus @ Nov 8 2004, 03:45 AM)
    Imagine, no loopholes and no IRS.

    Then Earth gets invaided by covenant...
    Coined the qualitative attribute entropy in reference to game maps.
    Do not eat the dark energy balls, please.
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  • VerthandiVerthandi Members, NS1 Playtester Join Date: 2002-12-12 Member: 10687Posts: 1,061
    QUOTE (Sirus @ Nov 8 2004, 04:45 PM)
    Imagine, no loopholes and no IRS.

    Sure, and the government would run on what? Donations? confused-fix.gif
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