Time for tax reform?

[David S]

The current income tax system is confusing and riddled with loopholes and complications. The IRS has been hauled before congress several times for abusing the rights of taxpayers. Is it time to dump the income tax and the IRS?

[Schmitz in 1972]

Yes, it is time to dump income tax for the simple reason that it is unconstitutional. One man (I forget his name) did a very comprehensive study of the "ratification" of the 16th amendment back in the mid 80's and found that the amendment had not been properly ratified. He wrote a book called The Law That Never Was which made public the information. People who refuse to pay income taxes use that book as their main defense, but the courts always dismiss it as a "frivilous argument". Of course that's not the real reason the judges rule the way they do, the real reason is that if they upheld the book's arguments total chaos would ensue around the IRS. People would be demanding for 50 years worth of taxes and the government wouldn't have nearly enough money.

[True Federalist (진정한 연방 주의자)]

What is needed most is tax simplification, not tax replacement.  The first thing to do is to elimnate any tax provision that requires taxpayers to keep records that preceed the current tax year in order to file a return.  That means no tax on capital gains, no credit for depreciation, etc.

[John Dibble]

Gradually decrease spending and the income tax along with it. Eventually, get spending to a point where income tax is not necessary or at the very least half of what it is now. Eliminate the IRS if possible, if not possible, simplify the tax code as GM Ernest recommended.

[TexArcana]

Income tax is only a small percentage of total government receipts.  Most income to the treasury is from excise taxes, mineral royalties, import duties, etc.

All of which are 100% constitutional

We would not have to cut spending by any huge amount in order to completely do away with the income tax.

[Josh/Devilman88]

a flat rate of about 15%

[True Federalist (진정한 연방 주의자)]

Income tax is only a small percentage of total government receipts.  Most income to the treasury is from excise taxes, mineral royalties, import duties, etc.

All of which are 100% constitutional

We would not have to cut spending by any huge amount in order to completely do away with the income tax.

You must be looking at either some very old or very inaccurate data.  The portion of receipts from sources other than the income and social security taxes in 2003 wasn't even 10% of total governemnt receipts.  The last time they counted for even a quarter of all receipts was 1942.

[TexArcana]

Income tax is only a small percentage of total government receipts.  Most income to the treasury is from excise taxes, mineral royalties, import duties, etc.

All of which are 100% constitutional

We would not have to cut spending by any huge amount in order to completely do away with the income tax.

You must be looking at either some very old or very inaccurate data.  The portion of receipts from sources other than the income and social security taxes in 2003 wasn't even 10% of total governemnt receipts.  The last time they counted for even a quarter of all receipts was 1942.

Yup, you are right.  

I must have gotten some bad intelligence.  ;p

Thanks for the correction.

http://www.census.gov/statab/hist/HS-48.pdf
Latest figures form census bureau:  (2003 est - But 2002 figures were very similar)

total receipts:     1836218  (all figures in millions of dollars)
% of GDP              17.1 % ( down from 20.8 in 2000)
Total pers inc tax: 849,053                  46.2%
Total corp inc tax: 143,186                    7.8%
Soc Sec  & med     726,593                  39.5%
Excise (Note 2)       70,414                    3.8%
Other (Note 3)        91,750                    4.9%

(note 2) Includes excise taxes for alcohol,
tobacco, crude oil windfall profit, telephone, ozone depleting chemicals/products, transportation fuels, and other.

(note 3) Includes estate and gift taxes, customs duties, Federal Reserve deposit earnings, universal service fund receipts, and receipts from tobacco legislation.

Of course, the real answer is to downsize the federal government to the point where personal income tax is not needed, and to privatize Soc Sec so that the money stays in the accounts, and is not siphoned off right away for the general fund.

[Posterity]

I'd like to see the 16th Amendment repealed along with elimination of the IRS and have the federal government funded by the state legislatures, apportioned by population.  The states could define for themselves how to raise the money within their state, whether by a flat or progressive tax on income, sales tax, or a tax on certain businesses (like casinos in Nevada), or whatever method they decide is best given the economic factors of their state.

I really don't like the idea of a national sales tax since the money still goes directly to the federal government, which gives the feds too much power.  What would prevent the fedgov from simply raising the tax rate and catering to special interests again?  Nothing!  What's missing today, and what's needed in any tax reform, is a way to hold the fedgov accountable for its budget.  Having the state legislatures involved in the process would help provide that accountability.

[??????????]

Being as the 16th Amendment was ratified on questionable grounds it is unconstitutional and should be repealed.

[David S]

The government has gotten us into quite a pickle. Current budget is about 2.3 trillion. Of that 400 billion is deficit spending. So we need to eliminate 400 billion in spending just to balance the budget. Eliminating the personal income tax would take out 850 billion more for a total of 1.2 trillion or about half of the budget. That's a big chunk of change. I'm all for getting rid of the income tax but its going to take some serious spending cuts.

[Nym90]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

[David S]

I'd like to see the 16th Amendment repealed along with elimination of the IRS and have the federal government funded by the state legislatures, apportioned by population.  The states could define for themselves how to raise the money within their state, whether by a flat or progressive tax on income, sales tax, or a tax on certain businesses (like casinos in Nevada), or whatever method they decide is best given the economic factors of their state.

I really don't like the idea of a national sales tax since the money still goes directly to the federal government, which gives the feds too much power.  What would prevent the fedgov from simply raising the tax rate and catering to special interests again?  Nothing!  What's missing today, and what's needed in any tax reform, is a way to hold the fedgov accountable for its budget.  Having the state legislatures involved in the process would help provide that accountability.

Your plan is basically what the founders intended. It's hard to argue with that. It seems to me that there were two bad amendments, the 16th and the 18th. The 18th was repealed.

[Posterity]

Your plan is basically what the founders intended. It's hard to argue with that. It seems to me that there were two bad amendments, the 16th and the 18th. The 18th was repealed.

Yep, and I've come to understand why they intended it to be that way.  Division of power help keeps power in check.  That's also why I support repealing the 17th amendment and having senators appointed by the state legislatures.  The 16th, 17th, and 18th amendments were all bad, IMO.

[Fmr. Gov. NickG]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

This is an excellent idea.

[John Dibble]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

This is an excellent idea.

This idea is very problematic. The main problem is, if you do no greatly decrease spending, you would have to increase the rate by about 5 times(I think, rough estimate). This would have to apply all around, because if you tax the rich too much eventaully they aren't rich anymore, so their incentive to work hard to become rich is nullified, you might just end up with wealth concentrated in an even smaller percentage of the population. And since the rate increases the tax affects individuals more than companies, so the middle class will start to have less money and will decline, spending less money on goods, resulting in less jobs. Sorry, but I think this idea is horrible, even if you manage to cut spending.

[TeePee4Prez]

No.  Same a Nym90, but need some reforms.  Rollback top two brackets, eliminate maximum capital gains and dividend rates, separate corporate retained earnings portion of net taxable income (flat tax of 15%) and let dividends and capital gains be taxed at the indivdual's marginal rate.  This essentially eliminates the concept of "double taxation" which IMO is unfair and the GOP has a micro point here.  The estate tax should NOT be eliminated but indexed to inflation as should the AMT exemptions.      

[Fmr. Gov. NickG]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

This is an excellent idea.

This idea is very problematic. The main problem is, if you do no greatly decrease spending, you would have to increase the rate by about 5 times(I think, rough estimate). This would have to apply all around, because if you tax the rich too much eventaully they aren't rich anymore, so their incentive to work hard to become rich is nullified, you might just end up with wealth concentrated in an even smaller percentage of the population. And since the rate increases the tax affects individuals more than companies, so the middle class will start to have less money and will decline, spending less money on goods, resulting in less jobs. Sorry, but I think this idea is horrible, even if you manage to cut spending.

Why would the rates increase by 5 times??  Most of the revenue to government collects right now is in income and payroll taxes, so you might have to increase overall rates a little, but not by much.

Moreover, because it is the middle class and working poor who bear most of the burden of the payroll tax, their rates would actually be dramatically cut by folding everything into the income tax, improving the  economy.

[A18]

I'm for a Federal Sales Tax administered by the states, as the Fair Tax Bill would have it. Since something like 45 states already have a sales tax, they would just add on the federal rate, and then send it to the Feds.

The idea of taxing the states makes sense too. Either one would be a brilliant change, IMO.

[John Dibble]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

This is an excellent idea.

This idea is very problematic. The main problem is, if you do no greatly decrease spending, you would have to increase the rate by about 5 times(I think, rough estimate). This would have to apply all around, because if you tax the rich too much eventaully they aren't rich anymore, so their incentive to work hard to become rich is nullified, you might just end up with wealth concentrated in an even smaller percentage of the population. And since the rate increases the tax affects individuals more than companies, so the middle class will start to have less money and will decline, spending less money on goods, resulting in less jobs. Sorry, but I think this idea is horrible, even if you manage to cut spending.

Why would the rates increase by 5 times??  Most of the revenue to government collects right now is in income and payroll taxes, so you might have to increase overall rates a little, but not by much.

Moreover, because it is the middle class and working poor who bear most of the burden of the payroll tax, their rates would actually be dramatically cut by folding everything into the income tax, improving the  economy.

Why 5 times - as I said, it was a guess. My memory may be faulty on this, but I remember from another thread somewhere that someone said income tax was about 20% of the government's revenue. So, thusly to pay for 100% of all stuff, 20% * 5. I was also assuming the payroll tax was part of the income tax(they're the same if you ask me, I get taxed more if I have more on my check - and a bad thing about it is if my boss pays me every three weeks[which happens sometimes] instead of every two weeks, I get taxed at a higher rate just because there's more money on the paycheck.) Considering the payroll tax takes a little over 20% of my check, and about the same for everyone else, taxes somewhere would indeed have to be raised drastically in some department - likely the income tax(unless you cut spending). And as I said, you can only put so much of that burden on the rich - eventually you'll have to burden the middle class with it(which hurts the economy, it's my opinion that the middle class is the backbone of the economy).

Let's also not forget there are other taxes. Sales taxes would have to be replaced by the income tax under this system. I'm sure you'd be all for it, but you really have no idea how much would have to be added to the income tax. There are taxes you don't even know about. Do you know why cars cost so damn much? Taxes. The Ford Taurus costs about $23k dollars when you buy it, but if it were not taxed at virtually every stage of production it would only cost about $12.5k - now imagine how cheap a little 16k sedan would become and how easily people could afford it if it weren't taxed so much. But, as I said, shift EVERY tax to the income tax, and you increase the income tax so much it creates problems. Also, another problem is counties might have a harder time getting money(especially if they are low business high residential suburban type counties), so outside funding(from state and federal) would increase, which in my opinion is a problem because when county officials screw up they can just blame it on not getting enough funding.

I'd say the best course of action would be to cut spending and waste, then get rid of the income and payroll taxes(which, as you say, would indeed benefit the poor and benefit the economy) and any other taxes we can afford to.

[Bogart]

Actually, even if the 16th Amendment were to be repealed, the Supreme Court, subsequent to Pollock v. Farmers' Loan & Trust, called tax on incomes to be "inherently indirect" and, thus, not subject to apportionment.

The ratification of this Amendment was the direct consequence of the Court's decision in 1895 in Pollock v. Farmers' Loan & Trust Co., 1 whereby the attempt of Congress the previous year to tax incomes uniformly throughout the United States 2 was held by a divided court to be unconstitutional. A tax on incomes derived from property, 3 the Court declared, was a ''direct tax'' which Congress under the terms of Article I, Sec. 2, and Sec. 9, could impose only by the rule of apportionment according to population, although scarcely fifteen years prior the Justices had unanimously sustained 4 the collection of a similar tax during the Civil War, 5 the only other occasion preceding the Sixteenth Amendment in which Congress had ventured to utilize this method of raising revenue. 6  


During the interim between the Pollock decision in 1895 and the ratification of the Sixteenth Amendment in 1913, the Court gave evidence of a greater awareness of the dangerous consequences to national solvency which that holding threatened, and partially circumvented the threat, either by taking refuge in redefinitions of ''direct tax'' or, and more especially, by emphasizing, virtually to the exclusion of the former, the history of excise taxation. Thus, in a series of cases, notably Nicol v. Ames, 7 Knowlton v. Moore, 8 and Patton v. Brady, 9 the Court held the following taxes to have been levied merely upon one of the ''incidents of ownership'' and hence to be excises: a tax which involved affixing revenue stamps to memoranda evidencing the sale of merchandise on commodity exchanges, an inheritance tax, and a war revenue tax upon tobacco on which the hitherto imposed excise tax had already been paid and which was held by the manufacturer for resale.


Because of such endeavors the Court thus found it possible to sustain a corporate income tax as an excise ''measured by income'' on the privilege of doing business in corporate form. 10 The adoption of the Sixteenth Amendment, however, put an end to speculation whether the Court, unaided by constitutional amendment, would persist along these lines of construction until it had reversed its holding in the Pollock case. Indeed, in its initial appraisal 11 of the Amendment it classified income taxes as being inherently ''indirect.'' ''[T]he command of the amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived, forbids the application to such taxes of the rule applied in the Pollock case by which alone such taxes were removed from the great class of excises, duties, and imports subject to the rule of uniformity and were placed under the other or direct class.'' 12 ''[T]he Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged.'' 13  

http://caselaw.lp.findlaw.com/data/constitution/amendment16/01.html#2

[Fmr. Gov. NickG]

Yes, I am very much for tax simplification.

I support eliminating everything but the income tax. All other taxes, user fees (except those that are needed to reduce demand which would othewise be way too high; for example, street parking in Manhattan shouldn't be free) etc. would be eliminated.

Also, greatly simplify the tax code; get rid of ALL loopholes. Make it very simple.

This is an excellent idea.

This idea is very problematic. The main problem is, if you do no greatly decrease spending, you would have to increase the rate by about 5 times(I think, rough estimate). This would have to apply all around, because if you tax the rich too much eventaully they aren't rich anymore, so their incentive to work hard to become rich is nullified, you might just end up with wealth concentrated in an even smaller percentage of the population. And since the rate increases the tax affects individuals more than companies, so the middle class will start to have less money and will decline, spending less money on goods, resulting in less jobs. Sorry, but I think this idea is horrible, even if you manage to cut spending.

Why would the rates increase by 5 times??  Most of the revenue to government collects right now is in income and payroll taxes, so you might have to increase overall rates a little, but not by much.

Moreover, because it is the middle class and working poor who bear most of the burden of the payroll tax, their rates would actually be dramatically cut by folding everything into the income tax, improving the  economy.

Why 5 times - as I said, it was a guess. My memory may be faulty on this, but I remember from another thread somewhere that someone said income tax was about 20% of the government's revenue. So, thusly to pay for 100% of all stuff, 20% * 5. I was also assuming the payroll tax was part of the income tax(they're the same if you ask me, I get taxed more if I have more on my check - and a bad thing about it is if my boss pays me every three weeks[which happens sometimes] instead of every two weeks, I get taxed at a higher rate just because there's more money on the paycheck.) Considering the payroll tax takes a little over 20% of my check, and about the same for everyone else, taxes somewhere would indeed have to be raised drastically in some department - likely the income tax(unless you cut spending). And as I said, you can only put so much of that burden on the rich - eventually you'll have to burden the middle class with it(which hurts the economy, it's my opinion that the middle class is the backbone of the economy).

Let's also not forget there are other taxes. Sales taxes would have to be replaced by the income tax under this system. I'm sure you'd be all for it, but you really have no idea how much would have to be added to the income tax. There are taxes you don't even know about. Do you know why cars cost so damn much? Taxes. The Ford Taurus costs about $23k dollars when you buy it, but if it were not taxed at virtually every stage of production it would only cost about $12.5k - now imagine how cheap a little 16k sedan would become and how easily people could afford it if it weren't taxed so much. But, as I said, shift EVERY tax to the income tax, and you increase the income tax so much it creates problems. Also, another problem is counties might have a harder time getting money(especially if they are low business high residential suburban type counties), so outside funding(from state and federal) would increase, which in my opinion is a problem because when county officials screw up they can just blame it on not getting enough funding.

I'd say the best course of action would be to cut spending and waste, then get rid of the income and payroll taxes(which, as you say, would indeed benefit the poor and benefit the economy) and any other taxes we can afford to.

Revenue to the IRS breaks down roughly like this:

Personal Income Tax - 50%
Payroll Taxes - 35%
Corporate Income Tax - 10%
Excise/Gift/Estate taxes - <5%

Where did you think most of the revenue came from?  Maybe you're talking about all taxes collected, not just federal?  Of course, the government has a huge deficit right now, so we would have to raise the rates by more than this to pay for what we are spending.  

But since most familes pay more in payroll taxes than income tax, so even doubling their income tax would be a significant tax cut for them.

[John Dibble]

Revenue to the IRS breaks down roughly like this:

Personal Income Tax - 50%
Payroll Taxes - 35%
Corporate Income Tax - 10%
Excise/Gift/Estate taxes - <5%

Where did you think most of the revenue came from?  Maybe you're talking about all taxes collected, not just federal?  Of course, the government has a huge deficit right now, so we would have to raise the rates by more than this to pay for what we are spending.  

But since most familes pay more in payroll taxes than income tax, so even doubling their income tax would be a significant tax cut for them.

Well, as I said, I saw something on another thread, faulty memory I guess. This may be my faulty memory again, but I don't think the IRS is the only tax collection agency for the federal govt(I'm pretty sure anyways, would appreciate if a knowledgeable third party would inform us one way or the other). Edit - and yes, I was talking all taxes, not just federal, states do income taxes too.

So, let's shift around stuff based on your stats to the income tax. Estate and gift taxes go to individuals(let's say this is 2.5%), and excise taxes are split about evenly between the individuals and corporations. So, about 53.75% on individual and 11.25% on corporate. Payroll tax is purely on individuals, with the exception of Social Security taxes(which I don't think the IRS has anything to do with, but I could be mistaken). So, 88.75% now on the individual income tax. The amount of money being paid in is still the same, quite simply. Now, while you would want to give the bill to the rich, I'm sure, but as I said, you can only do that so much before the bill has to be given to the middle class.

Anyways, we can argue shifting the taxes all we want. We know it isn't gonna happen, and we can't really prove our points as all models are theoretical. But what I can safely say is that reduction in spending and waste followed by a reduction in taxes would benefit everyone, and I think we would agree the first place to cut would be the payroll tax.

[swarch]

Revenue to the IRS breaks down roughly like this:

Personal Income Tax - 50%
Payroll Taxes - 35%
Corporate Income Tax - 10%
Excise/Gift/Estate taxes - <5%

<snip>

<snip>

So, let's shift around stuff based on your stats to the income tax. Estate and gift taxes go to individuals(let's say this is 2.5%), and excise taxes are split about evenly between the individuals and corporations. So, about 53.75% on individual and 11.25% on corporate. Payroll tax is purely on individuals, with the exception of Social Security taxes(which I don't think the IRS has anything to do with, but I could be mistaken). So, 88.75% now on the individual income tax. The amount of money being paid in is still the same, quite simply. Now, while you would want to give the bill to the rich, I'm sure, but as I said, you can only do that so much before the bill has to be given to the middle class.

<snip>

The payroll tax (FICA = social security + medicare) is borne equally by individuals and employers. The rate is ~7.5% each, for a total of ~15%. Effectively, of course, individuals pay the whole thing, because salaries are ~7.5% less than would otherwise be the case. If you're self-employed, you pay the full 15%.

With regard to social security, there is no "trust fund" or "lock box". This is R&D tripe. The revenues are used to pay current beneficiaries, and the surplus is usually spent on other programs. The government replaces the frittered money with bonds, but these are not true assets because they must be paid from future taxes. It's a Ponzi scheme, totally unsound actuarially. If a private fund were run this way, all of its directors would go to prison for fraud, which is what should happen to all politicians who support the scheme. It will eventually lead to generational warfare, because taxes will have to go to the moon to pay baby-boomer retirees. I don't have the statistics at hand, but around the year 2040, a tax rate of something like 75% will be necessary to pay retirees their social security benefits.

How to defuse this time-bomb? Harry Browne suggested selling off federal lands and buildings to create an actuarially sound fund. The federal government owns a sizeable percentage of the land in many western states. Once the fund is properly financed, people would transfer their portions to private retirement accounts--essentially IRAs--so that politicians could never reinstitute a Ponzi scheme. From a libertarian perspective, future contributions should be voluntary from that point on, but the risk is that some people won't contribute enough and will later expect taxpayers to fund their retirement anyway. Therefore, so long as entitlements are ingrained in many voters' psyches, I wouldn't object to mandatory contributions.

[True Federalist (진정한 연방 주의자)]

The IRS collects all internal taxes including excise taxes on domestically made products while US Customs and Border Protection (formerly the US Customs Service before the rearrangments from creating the Dept. of Homeland Security moved it from Treasury and merged it with the Border Patrol, and portions of INS and the Dept. of Agriculture) collects all external taxes (i.e., customs duties and excise taxes on foreign goods sold in the US.)