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"Edwin Pawlowski" wrote:

If you have exemptions, then it is no longer a flat tax, and tax lawyers and accountants will still be employed.
Lew
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Where did I once read; "first we kill all the lawyers"?
Hank
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Hank wrote:

Shakespeare, Henry VI, Act 4 Scene 2. And it wasn't a good thing.
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--John
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Again, C'mon John.
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wrote:

to employees, no deduction for the purchase price of items you then sell, no deduction for your factory's utility costs, etc., etc. So the grocery store that sells $1,000,000 worth of groceries would pay the same tax as the jewelry stoe that sells $1,000,000 worth of crap, even though the grocery store had $950,000 in costs while the jeweler had $500,000 in costs. HMMM, seems wrong.
Oh, now you are saying that there would be deductions for cost of goods sold, or rent, or utilities, or wages paid.... So just what deductions were you eliminating for those millionaires??? I don't think the mortgage interest deduction on your home is the big tax shelter abuse.
Dave Hall
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allowing? The system is now so complex that it is wildly out of control. IMHO it should not be so that lawyers/accountants are absolutely required to even design a business model. We should strive to get near the proposal, let's say with eliminating 10% of the "loopholes" or whatever you want to call the deductions each year.
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Han
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I agree with that. The basic concept should certainly be that taxes are for the purpose of raising revenue, not for incenting activity or punishing some othet activity. The objective should be to make the system such that people didn't have a reason to design business or personal decisions around tax consequences. That itself is a complex concept and isn't going to be accomplished by these "flat tax" concepts that have no thought behind them.
Dave Hall
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No reason at all to think that. You seem to be misundertanding what is meant by a tax deduction -- which is something subtracted from adjusted gross income to arrive at taxable income. In your example above, the grocery store's adjusted gross income is $50K while the jewelry store's is $500K. What's the problem?
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Doug Miller (alphageek at milmac dot com)
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On Sun, 16 Dec 2007 03:39:14 GMT, snipped-for-privacy@milmac.com (Doug Miller) wrote:

So tell me, what goes in to computing "adjusted gross income"? It is Gross income minus certain semi-specified DEDUCTIONS. Clearly many will agree that cost of goods sold is a valid deduction, what about labor? Yes? Then what about sales labor? Yes? Then what about payment to sales people for when they take potential customers to strip joints? Nevr mind... back to costs of goods sold. I assume we get to deduct materials put into production? What about utilities to run the shop equipment? What about shop overhead? What about say the truck the foreman uses to go from location to location? The list of things to ask whether they are "valid" deductions is endless and once you allow a deduction you are back on the track of lobbyists paying off congress persons to allow their favorite "deduction".
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Look at your Form 1040.

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Doug Miller (alphageek at milmac dot com)
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On Sun, 16 Dec 2007 13:14:24 GMT, snipped-for-privacy@milmac.com (Doug Miller) wrote:

Last I looked income from a business is not computed on a 1040. Most of the whining about deductions and most of the tax avoidance schemes are business based and the only part that shows up on a 1040 is the part AFTER the deductions were taken and the income shielded. Maybe you ought to get a clue before you invest too much into your flat tax schemes.

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Dave Hall wrote:

So, what exactly is this idea of "shielding" income in relation to legitimately computing the profit relative to a product? Just because a business sells an item for $1000 does not mean that business has made $1000. If the cost of the raw good was $500, the cost of the sales staff to sell it was $250, the cost of the building and utilities $200, and the cost to advertise the good to get it out the door $100, the business has not made an income of $1000,but has a loss of $50. Has nothing to do with "deductions" or some nefarious scheming -- its simply a fact of business life.
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You're missing the point, which is that the deductions which would be eliminated under a flat tax scheme are things that have no relationship whatsoever to producing income: mortgage interest, medical expenses, charitable contributions, state and local taxes, and so forth.
Income = gross revenue minus costs of producing it.
Taxable income = income minus deductions such as those listed above.
*Not* the same situation at all.
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Doug Miller (alphageek at milmac dot com)
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On Sun, 16 Dec 2007 22:32:01 GMT, snipped-for-privacy@milmac.com (Doug Miller) wrote:

Yeah, I get the point. However just about every significant abusive tax dodge that I know of has something to do with computing business income. Be that depletion allowances. accelerated depreciation, business charitable deductions, or some of the many dodges that Enron played, the bottom line is they showed up on the business tax forms, not a 1040.Doesn't matter whether the business forms relate to corporations, partnerships or proprietors - whether it is a separate corporate form or a simple Schedule C or even a Trust return - income computations are the easiest means to develope an abusive tax position. Certainly get a lot closer to a "fair" tax by eliminating the many abusive business tax income determination dodges than by eliminating mortgage interest deductions. In any case, it won't be a "flat" tax because some kind of "deductions"(even as simple as cost of goods sold) will always exist and lawyers, accountants and lobbyists will always "help" legislators "decide" what those deductions will be.
Dave Hall
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[snip numerous valid examples]
Yes, but now we get into an entirely different issue. The tax on business income is a convenient fiction, nothing more. Congress loves to tell us how they're going to make corporations "pay their fair share" -- but the fact is that corporations do not pay taxes. Their customers pay them, in the form of higher prices for the goods or services that the corporations provide. The corporations only collect and remit the tax, they do not actually pay it. Like raw materials, wages and salaries, capital equipment, repair and maintenance, and so on, the so-called corporate income tax is simply another cost of doing business, and is passed on to the customers just like all the other costs.
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Doug Miller (alphageek at milmac dot com)
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[snip]

This is a favorite argument of the flat-taxers, but I think it has misstated some important complications:
Personal Income tax rates were graduated because of a basic assumption that people with lower income needed to use more of their income for normal living expenses, and therefore needed a lower tax rate to keep from cutting into their "living expenses." Gradually those living expenses became better defined, so that differences in living expenses resulted in differences in taxable income. Some of the expenses which Congress felt should be included in normal living became mortgage interest, city and state taxes, medical expenses, charitable giving, etc. -- each of which varied from person to person.
A flat tax would not differentiate between someone making $50,000 with a paid up mortgage and no medical expenses, and someone with high mortgage expenses and $20-30K of medical expenses. In the view of many the person with high medical expenses should pay a lower income tax, as a matter of government compassion and policy.
I've lived in places with a flat personal tax rate, and for those areas it has always worked well. OTOH, in the U.S., too many of us have made long-term decisions on our life that included the tax impact of those decisions, such as which house to buy and how much of a mortgage to sign up for. To change the tax rules now in mid-stream would have an unfair impact on many, just as changing the overall business tax structure would be unfair to those who have already made long-term business commitments.
A flat tax is not necessarily a fair tax, and major upheavals in tax policy will not inspire confidence in those being taxed. This will instead drive major businesses to move to locations where the business climate is more favorable and predictable.
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JimR wrote:

Many good points noted above, but:
1) Ideas like "Fair Tax" take into account that people with less income should pay less (or no) taxes, and yet are also a VAT/Flat Tax system.
2) For all but the homeless poor at the bottom of the economic ladder, there is some opportunity of all the rest of us to decide what we will buy. Even the poor have a surprisingly significant amount of "discretionary expenditure". See this for a summary of what "poor" includes in the US:
http://article.nationalreview.com/?q=MjE3NTA4Yjc0NjQxMDA4ZjhlZjczMWM0YWNlM2JhOTg
In some degree, then, almost all of us have some choice how deeply we wish to be taxed in a consumption tax system.
3) Major upheavals in tax policy is *exactly* what we need, notwithstanding the planning we've all done based on today's debauched system. The existing system benefits only two classes of people: A)The tax professionals (lawyers and accountants) who benefit richly from the byzantine system that exists, but at the expense of having a highly inefficient taxation mechanisms, and B) The various political scoundrels (i.e., Almost all of them) who wish to use taxation to either perform acts of social engineering and/or buy votes with Other People's Money.
4) A properly designed consumption flat tax will lay levies against the so-called "underground" economy. Drug dealers, gamblers with big winnings, organized crime, and so on all make money precisely because they want to *spend* it. Today, much of that is untaxed. But in a flat consumption tax universe, their ill gotten gains translate into a more equitable distribution of the tax burden.
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Tim Daneliuk snipped-for-privacy@tundraware.com
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[snip]

Not at all -- there well-established accounting rules for determining costs of production, and they have little to do with other special entitlements that may come from Congress.
Accountants do an audit and one of their decisions is whether the accounting in use meets the generally accepted practices.
You haven't differentiated between generally accepted accounting practices and special circumstances that Congress may have been lobbied to approve, to meet purported special circumstances of the industry in question. In reality, it's an accountant's job to figure out what costs go into the costs of production, and that includes most of the things you mentioned, although by lumping utilities and overhead you're double-counting the same costs.
What Congress may do is help define some of the details, such as permitting the IRS code to use a three-year schedule vice 5 years for depreciation, or (as they did for baseball) make an industry exempt from anti-trust concerns --
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JimR wrote:

So you're going to leave what's allowable up to the accountants to decide? Then what happens if they decide that everything is deductible? Are you then going to have a long, drawn out court case to determine whether they were following "generally accepted practices"? And what happens when the Supreme Court, having found that the District Courts of Appeals have decided in mutually incompatible ways what constituted "generally accepted practices", decides that the statute is "unconstitutionally vague" and throws out your entire tax code?

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Lew Hodgett wrote:

You need to go review the "Fair Tax" plan. It is a flat tax that fixes the problem you identify.
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Tim Daneliuk snipped-for-privacy@tundraware.com
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