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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (1051)	4/17/1998 3:21:00 PM
From: Douglas Webb	Read Replies (1) \| Respond to of 5810

I really don't have the time to get into a debate with you on this, much as I would like to. I'll try to address your points... You mentioned the removal of tax credits as being unfair to people who use them, and gave the example of a landscaper using gas for off-road use getting a credit for the road-tax build into the price of gas. Well, the fact is that taxes like that get dumped into the general fund, rather than into a specific highway-use fund. Then, the highway-related programs get funded based on an estimate of how much tax is collected via the road-tax. But no adjustments are made either way when the two figures don't match. The same thing happens with every other specific-purpose tax, most notably FICA. None of this convoluted accounting would be tolerated by the IRS if a business tried to operate this way, so why should we tolerate our government operating this way? HR 1040 doesn't address this directly, but a companion bill needs to passed which will either replace all specific-use taxes with general fund excise taxes (which is how they're actually used) or actually create separate trust funds which cannot be 'borrowed' to pay for other programs. These trust funds would have to be allowed to build up a surplus or operate at a deficit, and should be reported seperately when figuring the total federal deficit. Back to your landscaper example: Your average homeowner who buys gas for his lawnmower has as much right to the credit as the professional landscaper, but probably does not get it because a) he doesn't know he's eligible b) he can't figure out how to get it c) he doesn't have the time, space, or inclination to save seven years worth of receipts to prove eligibility in case of an audit. So, generally speaking, only the businessman gets to take advantage of this credit, and the larger the business the more likely the credit will be applied for. The big special interest gets a tax break, and the average American gets screwed. Your second example was They say "to make it easier" people will report wages, Salaries and Pension voluntarily. But their TAXES ON CAPITAL GAINS on STOCKS will be SEIZED IMMEDIATELY UPON SALE. Then you went on to complain about how brokers would figure out how much tax you owe. But, you're completely wrong here. Taxes on wages and salaries would be collected by your payroll department, just like they are now. Taxes on pensions probably would be collected before you were paid too, but I'm not exactly sure how pensions are paid out (whether by the company, or through a bank or some other account manager.) There would be no tax on capital gains. There would be no tax on dividends or interest for individuals, because businesses would pay their taxes before distributing dividends or interest, instead of after distribution, like they do now. This prevents the income from being taxed twice, like it is today. Finally, you questioned if 17% was an approriate rate, when applied to gross income. Then you gave an invalid example of how a bunch of taxes add up. The fact is that the income tax would be 17% of your taxable income, not gross income. Taxable income is your gross income minus (a) $23,200 for married filing jointly (b) $11,600 for single (c) $14,850 for head of household minus an additional $5,300 for each dependent. That leaves most people paying less in federal income taxes than they do today. FICA, Unemployment, Excise, Sales, and any other taxes are unchanged by this bill, so there's no point in you bringing them up. What's important is that most people will pay less under this plan than they do now. The reduction in federal income is phased in over three years, by starting the flat tax at 20% and the exemptions somewhat lower, and moving them to 17% and what I wrote above in the third year. This is tied into about $40 billion in spending cuts, which is reasonable even if that's per year and not a three-year total. Doug.