The Gaming Den

..or fifteen or eighteen million a year instead of twenty. Even a small increase in the tax rates on the rich produce huge amounts of dollars, because 5% of a hundred million is five million.

We wouldn't even need to bump the numbers that much higher to get some serious cash moving around.

Edit: For my own two cents, I think what the US should do is drop the tax rate for the wealthiest and the biggest corporations from 35% to 20 or 25%, but close the loopholes. GM's tax return runs over a thousand pages, and it patiently, thoroughly, and legally explains why GM makes billions every year but pays not a cent to its home country in taxes. Romney's tax rate worked out to be ~13%, from the two years he's released his tax returns. If an individual makes over a million dollars a year--or a corporation makes more than a billion in profit--they should pay a flat chunk of that to the infrastructure and society that makes their good fortune possible. And, when you get down to it, it's the enlightened thing to do. It makes sure they will continue to have their home/most profitable market/etc.

Closing all the loopholes sounds like a good idea, but I wonder if it actually is one.

Surely there are some credits and deductions worth preserving, and in that case then we have to move the discussion from closing all to preserving which loopholes.

I presume a lot of loopholes are things like where they can consider which expenses deduct from their taxable profits, things like investment in R&D and employing American workers. Things we don't wish to de-incentivise.

Maxus wrote:If an individual makes over a million dollars a year--or a corporation makes more than a billion in profit--they should pay a flat chunk of that

Here's the problem:
Article 1, Section 8: The Congress shall have Power To lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States, but all Duties, Imposts, and Excises shall be uniform throughout the United States. ...

Article 1, Section 9: ... No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. ...

Amendment 16: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Now, define "income".

I am openly skeptical of any "loophole closing" plan that comes bundled with a reduction in the overall tax rate on the upper incomes. There is simply no reason to do that. If you're trying to increase revenue, you close some loopholes and you leave the tax rate alone or even raise it. Lowering the tax rate at the same time as you're trying to raise revenue is shooting yourself in the foot.

What you'd probably get is rich people pulling a scam on you where the lowering of the base tax rate combined with the closing of whatever loopholes added up to an overall lowering of their total tax burden.

-Username17

Some additional thought exercises:

1) I get paid $100 salary. Income?
2) I start a business from scratch, now it is worth $100. Income?
3) I buy a piece of property for $100, and sell it for $200. Income?
4) I bought a piece of property last year for $100, and sell it now for $200. Income?
5) I give my friend $100. Income?
6) I die and leave my friend $100. Income?
7) I buy two pieces of property, for $150 each. I sell one for $100 and one for $200. Income?

And so on. A bunch of the code is complicated because they have to define the tax consequences for all the possible transactions people can engage in.

As to the specific example, it's just not that simple. Here's an easy problem:
I am Star Athlete. Major Sports Team wants to pay me $5 million a year to throw a ball, but I don't want to pay taxes. I form Me, Inc., a corporation in which I own all the stock and am the sole officer and employee. Me, Inc. pays me a salary of $1 million per year, and licenses me to Major Sports Team for $5 million per year, payable to the corporation I own.

If you set the the corporate and individual thresholds to be the same, I form seven corporations: Me on Monday, Inc. Me on Tuesday, Inc., etc. Each licenses me for one day a week, and pulls in about $715,000/year from Major Sports Team.

If you say that wholly owned corporations count as the person, then I add my wife as an equal shareholder.

And so on. Much of the code is complicated because they need to make sure people aren't dodging the "simple" provisions.

But, it's also the case that roughly half of the tax the federal government would collect is instead forgone through deductions, credits, and other "we'll hide government spending in the tax code" provisions. It's much easier to pass a tax credit than a subsidy, even if the actual effect is the same. You can't treat the tax code as separate from everything else the government does. Any "simplification" will have to look at rates, loopholes, and government spending.

Answering these as per my knowledge of current federal individual income tax. (and not for example what I think should count)

Whatever wrote:Some additional thought exercises:

1) I get paid $100 salary. Income?

Probably most of it.

However you may be buying some forms of health savings or retirement accounts or student loan interest with pre-tax dollars your employer withholds and those purchases and debt payments are not quite income. Those things get reported as "total income", but then subtracted out of Adjusted Gross Income and left out of further tax calculations.

2) I start a business from scratch, now it is worth $100. Income?

Not at that scale. But multiply those numbers by a thousand or so and it might be.

If you as an individual have something and it goes up in value you do not realize the capital gain until you sell it.

However, as a sole proprietorship you are also a small business who has to file a schedule C, and in that case you must designate an accounting method. The vast majority of very small businesses (under about 10k) use the cash accounting method, which is to count income as it is received in and expenses as they are paid out. However, larger businesses often use the accrual accounting method (count income when someone agrees to pay, count expenses as they are incurred). And in that case, it's at least possible that the increase in value of the business itself gets counted as it happens rather than if/when the business is sold - but I could be wrong, I only trained in tax prep, not general accounting.

3) I buy a piece of property for $100, and sell it for $200. Income?

Not if it was your primary residence (which has specific definition in the tax code).
From the example below I assume that this is an immediate flip, so it can't be a primary residence and is therefore a short-term capital gain.

4) I bought a piece of property last year for $100, and sell it now for $200. Income?

If it's not a primary residence, then this is also income. If it's held less than one year it's a short-term capital gain. If it's held more than one year it's a long term-capital gain. In either case, it's income.

The example does not specify when in the year it was bought and sold, so I can't tell.

5) I give my friend $100. Income?

Well never for you, and probably not for your friend.

The federal gift tax does not kick in on amounts below $13,000.

However, if there is a tit-for-tat involved, such as giving your friend $100 because he helped you move, then that "gift" could legally be an attempt to dodge wage taxes and your friend may be required to file a Schedule C.

(although in reality no one will notice a single transaction at that scale unless the IRS is already scrutinizing you for other inconsistencies)

6) I die and leave my friend $100. Income?

Yes, but not taxable unless it's on top of several other truckloads of $100s, thanks to Dubya's revisions.

7) I buy two pieces of property, for $150 each. I sell one for $100 and one for $200. Income?

Yes, but

potentially offset by the loss. If neither is a primary residence, they are both held for less than one year, and you have no other short-term capital losses (or long term capital loss carry forward) this works out to the zero sum it looks like. However if they are held for different periods and/or you have other capital losses this gets trickier.


*****

Note that those answers, as heavily qualified as they are apply only for federal individual income tax. (and in one case a spousal joint partnership). If "you" refers to a Partnership, C-Corp, or S-Corp the rules may be different. Additionally your State and/or municipality may have alternate methods of counting income in some cases.

erik wrote:Closing all the loopholes sounds like a good idea, but I wonder if it actually is one.

Surely there are some credits and deductions worth preserving, and in that case then we have to move the discussion from closing all to preserving which loopholes.

I presume a lot of loopholes are things like where they can consider which expenses deduct from their taxable profits, things like investment in R&D and employing American workers. Things we don't wish to de-incentivise.

Generally, tax loopholes refers to misuse of those things. But yeah, the tax code is complicated for an actual reason. Mostly to try to minimize the extent to which people pull stupid crap to get out of taxes while still incentivising things.

Also, the IRS enforces the tax code as written, not as intended, because that's kind of how rule of law works.

DSMatticus wrote:

npc310 wrote:Joseph recommends that Pharaoh appoint a wise man to ration grain during the fat years, holding one-fifth in reserve. This reserve will be used by the country to get them through the lean years. Pharaoh puts Joseph in charge, who then executes this plan. Seven years of surplus are followed by seven lean years. Joseph saves during the fat years, and releases the savings to the populace during the lean years.

This bit of Judeo-Christian mythology is not describing a deficit.

Yes, it is describing a deficit. You apparently don't even know what that word means, why are you talking about it? The seven lean years, where Egypt consumes more grain than it produces? That's a deficit. During the seven fat years, where Egypt produces more grain than it consumes? That's a grain surplus. I'm guessing that you're confusing deficit and debt. This hypothetical Egypt ran a deficit without going into debt because it had existing reserves, but it's still a deficit because that's just what that word fucking means.

Sorry, but you are wrong. Check out dictionary.com.

deficit
1. the amount by which a sum of money falls short of,the required amount.
2. the amount by which expenditures or liabilities exceed income or assets.
3. a lack or shortage; deficiency.
4. a disadvantage, impairment, or handicap: The team's major deficit is its poor pitching.
5. a loss, as in the operation of a business.

In the bit of mythology cited by Frank, the second definition is the best fit for the situation. The grain they were releasing to the starving masses did not create a deficit. Those were assets saved during the time of plenty. Contrariwise, in our real-world situation, we are not releasing savings that we built up during surplus to get our people thru lean economic times. We are borrowing ludicrous sums. We don't have the assets. We borrowing them. That is the deficit.

The story about Joseph and Pharaoh is not a deficit. Sorry.

*BOOM* And NPC makes logic explode in a puff of stupidity.

Actually, those terms are pretty apt to his example. And even if they weren't they are what the words mean when talking about budgets.

Totally unsurprisingly, the dictionary.com definition is not a rigorous definition used anywhere in economics. Wow! Here's a quote from the wikipedia article on deficit spending, which is exactly the problem domain we are talking about.

Wikipedia in "deficit spending" wrote:Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time

Emphasis mine.

The next step is just busting out economics textbooks ad infinitum, which will all say the same thing.

This is what pisses me off to no end about Economics. Nobody unqualified (well almost nobody) would argue with a molecular biologist about genetics ; however when Economics come up, every nullwit like npc come out of the woods to talk out of their asses. What hope is there for a rational discussion with someone who is unable to grasp a concept as simple as deficit, basically arguing that it isn't a deficit because there's been a surplus before ?

Either npc is a troll or democracy cannot work.

EDIT : Did he ever say anything about his occupation ? He really sounds like the typical 18-year old randroid who thinks his getting a job at Wendy's is proof that 'anybody can get by'.

There is nothing wrong about arguing with a specialist. As long as you're willing to accept that you don't know everything and are willing to let them explain things to you.

The Vigilante wrote:This is what pisses me off to no end about Economics. Nobody unqualified (well almost nobody) would argue with a molecular biologist about genetics ;

Apparently, you've never seen Creationists trying to argue against evolution with molecular biologists. Or climate deniers arguing against climatologists.

One should remember that ignorant people are often too ignorant to know it.

Questioning experts isn't inherently a bad thing. If you're a complete ignoramus, it might make you annoying (in addition to being wrong). But having a title doesn't mean you know everything - or that you're right about everything you know.

A related question - What the hell is the reasoning behind people advocating that income tax is immoral? The fact they keep pointing at very specifically income tax implies the practice is uniquely unjust, and that any other form of gov't imposed levy isn't immoral?

AFAICT there is no single consistent line of reasoning. Basically, people who hate progressive taxation pay various think-tanks to come up with reasons why income tax is immoral, and so you have as many different lines of reasoning as they can come up with.

It's worth pointing out that we are now 15 years into a 10% Goods and Services Tax on, close enough to everything, here in Australia.

It was sold as coming along side income tax and other tax cuts that would totes make it "no extra tax" and no one would be worse off. That of course turned out to be bullshit and the government that (somehow) brought the tax in became the highest taxing government in Australian history (then pissed all the money away on bullshit, yes I know that's not how tax and government spending work, but THEY don't, they're Tories).

And yeah, it briefly brought about the first recorded negative economic growth in just about forever as a result of it coming in.

Oh and as an added bonus the government decided to basically offload basically all their tax administration to businesses as part of the whole debacle. Which is great since as a small business person I get to do tax accounting four times a year. And that's only after the special exemption they were forced to bring in for smaller businesses, they tried to wring out a hell of a lot more.

Anyway. This jump from no GST to 10% GST happened not only within my lifetime but within my time running a small business.

It's been 15 years. We still get the odd customer (of all types and sizes) attempting to get a discount for buying things "off the books" with cash money. We've never done that but it's common enough I'm pretty sure it is a wide spread practice. We basically never got that sort of stuff before the GST.

That is the result of a tax that was sold with claims that it wouldn't effect prices and would (through voodoo witch powers or something) actually ELIMINATE the "black economy" (rather than pretty much create it from nothing).

This is the sort of thing regressive sales taxes do. Oh yeah. And they say it's 10% and will never rise, but now they want 20%, by means of first edging it up to 15%. There is a push on. Right in the middle of stagnant wages, ongoing consumer hurt from lack of proper economic recovery from the GFC, a worse housing/land bubble than ever and almost anywhere and what is now apparently THE highest private household debt in the world. Oh yeah and poverty and homeless rates that for some reason have skyrocketed over the last 15 years since about the same time the GST came in (it's a coincidence, that's just basically the same period that crazy Tory jerks have had free policy reign over the nation). Thats the economy they want to hit with another +5-10% GST.

Oh yeah and don't forget. When they promise you the new giant sales tax will mean the abolition or proportional cut of all other taxes will happen. It's a lie. You basically will end up with the mess you have PLUS a giant sales tax.

Oh yeah and also the GST also was framed as a way of creating all sorts of elaborate Federal vs State government and State vs State shenanigans for the benefit of the then ruling Federal party against it's then opposing state parties, that would only particularly make sense with long explantations only an Australian would care about.

virgil wrote:A related question - What the hell is the reasoning behind people advocating that income tax is immoral? The fact they keep pointing at very specifically income tax implies the practice is uniquely unjust, and that any other form of gov't imposed levy isn't immoral?

In general, all moral arguments against taxation are one variety or another of this:



The idea is that people have property "rights" to [thing] and that the government taxing their [thing] is equivalent to theft or extortion or something. Depending on what you believe you are entitled to, what you have a "right" to possess, different forms of taxation will appear to cross the threshold from social constructs to an immoral abrogation of your rights.



The moral argument against income tax is that whatever people earn as income is produced by their own free labor. That it is "theirs" in the axiomatic sense that one owns one's own body. That anyone who takes a portion of that income is stealing from them.

It's an immature argument and even the most hard core minarchists rarely make it. After all, if you produce things your income is less than the value of what you produce. The capitalist has already taken a portion of what you have made by your hand before your paycheck is even written. And if the capitalist is entitled to some of the sweat of your brow for providing the capital that allowed you to produce in the first place, how then would the government not be entitled to some of the sweat of your brow for providing all the roads and legal infrastructure and shit that is equally necessary for you to go to work and subsequently enforce your contract to get paid for it?

The reality is that while the "You Didn't Build That" speech did cause a bunch of right wing temper tantrums, it's totally correct. The people who stamped their feet and shouted "I built that!" at Obama looked ridiculous and they were in the wrong. The government is a huge investor in the capital that allows you to live and work in the first place, and as such they are at least as entitled to a portion of your production as your boss or venture capitalists.