Taxes Blah

[spider]

[ QUOTE ]
Fair Tax act 2007. It basically eliminates the IRS and all income taxes. It is then replaced by a 30% tax on all goods and services.

[/ QUOTE ]

Main problem with this is that either you bring in substantially less revenue than before (which has to be offset somehow), or you redistribute substantially from the poor to the rich. But, IIRC you can mostly overcome this if you go to two rates rather than just one, though three is better. But honestly, an actual single rate flat tax is only proposed seriously by people with an axe to grind because it isn't feasible on it's own (and they never talk about how they'll offset this basic problem).

But the problem with any of these sorts of proposals is that they involve getting rid of a ton of deductions which is very very very difficult to do politically (but is a good idea). Think of the tax advantages for cap gains on houses and the home mortgage deduction. What happens if you try to get rid of those? What are the odds of pushing that through Congress? (Hint, zero.)

Anybody who really cares about this stuff with respect to the politics of it should read "Showdown at Gucci Gulch" by Murray and Birnbaum about the 1986 tax reform. Great book and actually fairly easy to read if you are at all interested in this stuff.

[TheMetetron]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
My 2007 taxes will be truly taxed at a 22% rate including federal income tax and self-employment tax. I don't owe state taxes. I do pay a 21% sales tax (VAT/IVA) in Argentina, however. This is making low-mid 6 figures.

Take advantage of all of the deductions that you can. You know what is sort of funny is that I believe I'd actually owe more taxes %-wise on $100k in income because of the Social Security tax phasing out after $90kish. Maximize your retirement.

[/ QUOTE ]

Just realized someone is probably going to want some proof of this. Note that these estimates are high because they don't take into account any business expenses I will be able to write off. Also, the foreign housing exclusion isn't included because I haven't been able to take it yet so I don't know exactly how it works.

I'm just going to copy/past from my blog:

As for the tax thing I've been meaning to touch on. I ran some rough numbers for my taxes next April (for the money I make in 2007). It is looking like I will make around $275k or so if I continue to make $25-30k per month for the rest of the year (I made almost nothing in January). Fortunately, I'm an optimist and I'm going to just pretend I will make $300k. It is definitely do-able and it is my goal for the year. I wanted to know how raped I would get by taxes making that amount and the results were surprising.

First I owe Self-Employment tax on that $300k. That works out to $14.8k on the first $97k and $5.8k on the next $203k (the social security part stops after $97k). So that is a total of $20.6k in SE tax. Now for income tax. I'll make $300k but I have a lot of deductions. First half of the SE tax ($10.3k) is deductible. Then I am going to max out my SEP IRA for another $45k deduction. Standard deduction is $5.3k or so. Then the foreign earned income exclusion is $82.4k (but is taken on the first $82.4k, not the last like the other exclusions).

What that means is that for the federal income tax I owe taxes on the tax schedule for the amount between $82.4k and $239.4k which works out to $47.9k for federal income taxes. So my total tax bill is $47.9k + $20.6k or $68.5k total on $300k in income. My effective tax rate including federal income tax and SE tax is 22.8%. That is so insanely low that it is almost sickening. I'm pretty sure my effective tax rate was higher last year when I made between $100k and $200k. Thank you social security cap, foreign earned income exclusion, and SEP IRA contributions; it wouldn't have been possible without you.

Still, I am paying the federal government $68.5k next year so I can't be too excited. Feel free to look over the rough numbers and tell me what you think and if I made any mistakes.

Like I said I believe the 22.8% figure to actually be higher than it will end up being, but it was just a rough calculation. I think by finding some more deductions and business expenses I can get it under 20% effective tax rate on $300k in income.

[/ QUOTE ]

I believe that gambling winnings are not 'earned income' and thus do not qualify for the exemption.

[/ QUOTE ]

If you aren't a pro, they aren't earned income.

If you file Schedule C, they are. By definition anything on Schedule C is earned income. And there are already court cases and the IRS themselves saying Schedule C is appropriate for a pro.

[spider]

[ QUOTE ]
2) this is complete not true. FICA/SECA is just income transfer from rich to poor

[/ QUOTE ]

Do some reading and get back to me. The formulas used by SSA give you more money in retirement if you put more money in while working. As I already mentioned, it's not 1 to 1, especially post-means testing, but you do get more the more you put in. So as I said, it is an argument that is partially true.

Also, not everyone knows it but at about 95k of income, you stop paying most of the FICA/SECA except for the health insurance part. So, the employer+employee rate is 15.3% below the threshhold but only 2.9% above that.

[ilikeaces86_]

[ QUOTE ]
[ QUOTE ]
2)
Also, not everyone knows it but at about 95k of income, you stop paying most of the FICA/SECA except for the health insurance part. So, the employer+employee rate is 15.3% below the threshhold but only 2.9% above that.

[/ QUOTE ]

Ahh I forgot about the only 2.9% abov 95k so my overall % payed is lower than I originally thought.

[ilikeaces86_]

[ QUOTE ]
A few counter-points:

1) It's easy to forget a lot of benefits you receive (roads, police, all that).

[/ QUOTE ]

Very true. I am happy to pay for roads police etc... its wasted money that I hate. Obviously for this country to continue to have such a high standard of living we need to keep up good roads and police forces etc..

[frozzor]

yeah so if someone puts in 500k in their lifetime, gets 250k back... the other 250k goes to the poor, who get a lot more than they put in. it's more of an income transfer system than a 'forced saving system', although the argument could be made for either. about 40% of gov spending is transferring from rich --> poor

[spider]

[ QUOTE ]
yeah so if someone puts in 500k in their lifetime, gets 250k back... the other 250k goes to the poor, who get a lot more than they put in. it's more of an income transfer system than a 'forced saving system', although the argument could be made for either. about 40% of gov spending is transferring from rich --> poor

[/ QUOTE ]

Exactly, which is why I have been using the qualifier "partial". [img]/images/graemlins/grin.gif[/img] You get some of the tax back, but not all.

I can't quote numbers here b/c I don't know what they are exctly but a lot of the transfer with Social Security is from people yet to get benefits to those who received benefits in the past. (Basically because people live so much longer than they used to and the rules haven't sufficiently changed to reflect this.)

Transfers from rich to poor are much stronger via income taxes. Estate tax also though that's a pretty minor tax overall, unless of course you are seriously rich.

[spino1i]

And now you know why so many cheat on their taxes..

[Sand]

[ QUOTE ]
[ QUOTE ]
yeah so if someone puts in 500k in their lifetime, gets 250k back... the other 250k goes to the poor, who get a lot more than they put in. it's more of an income transfer system than a 'forced saving system', although the argument could be made for either. about 40% of gov spending is transferring from rich --> poor

[/ QUOTE ]

Exactly, which is why I have been using the qualifier "partial". [img]/images/graemlins/grin.gif[/img] You get some of the tax back, but not all.

I can't quote numbers here b/c I don't know what they are exctly but a lot of the transfer with Social Security is from people yet to get benefits to those who received benefits in the past. (Basically because people live so much longer than they used to and the rules haven't sufficiently changed to reflect this.)

Transfers from rich to poor are much stronger via income taxes. Estate tax also though that's a pretty minor tax overall, unless of course you are seriously rich.

[/ QUOTE ]

I need to find the reference, but there was a large, comprehensive study published not too long ago that provided a surprising conclusion - the US is already a flat tax country. When you add up all the various taxes it turns out everyone pays about 40% regardless of income, age or location.

The whole Fair Tax initiative is a bit of a dumb lark. They are trying to accomplish that which is already in place.