So I assume in this world there would be no deduction for wages paid
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
This is the problem we are faced with: What "deductions" are you
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.
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.
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
Doug Miller (alphageek at milmac dot com)
On Sun, 16 Dec 2007 03:39:14 GMT, firstname.lastname@example.org (Doug Miller)
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".
On Sun, 16 Dec 2007 13:14:24 GMT, email@example.com (Doug Miller)
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
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
If you're going to be dumb, you better be tough
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.
Doug Miller (alphageek at milmac dot com)
On Sun, 16 Dec 2007 22:32:01 GMT, firstname.lastname@example.org (Doug Miller)
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.
[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.
Doug Miller (alphageek at milmac dot com)
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
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.
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:
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.
Tim Daneliuk email@example.com
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
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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