News A reply to an argument against government aid to the poor

[WhoWee]

The point is deomcrats want to raise income taxes to make the rich "pay their fair share." In reality, the rich pay far more than their fair share already, but political rhetoric is rarely based on facts these days...

fair - adjective, free from bias, dishonesty, or injustice.

It seems to me the only truly "fair" tax (in that "fair" is "free from bias") would be a flat tax where people are charged a flat percentage rate without regard to income, ethnicity, family circumstances, etc. Obama says that a balanced approach to the budget should be used, where tax increases are used to increase the federal income; problem is:

1. As you point out, income taxes are only 1/3 or so of the federal budget, and even confiscating ALL the money from the "super rich" would not balance it.
2. There is no plan to balance the budget at all. They have signed on something like under $50 bil in cuts, and raised the debt ceiling by over $2T .

The fair question might be who paid more in taxes Buffet and his company (at least $2.325Billion last year plus payroll matching taxes) or all of his (thousands of) employees combined?

Hoovers reports 260,000 employees in 2010.
http://www.hoovers.com/company/Berkshire_Hathaway_Inc/rftfji-1.html

 

[daveb]

fair - adjective, free from bias, dishonesty, or injustice.

It seems to me the only truly "fair" tax (in that "fair" is "free from bias") would be a flat tax where people are charged a flat percentage rate without regard to income, ethnicity, family circumstances, etc.

I'm convinced this is the crux of the debate between the two sides. One side (the "tax everyone the same" crowd) uses the "free from bias" definition. The other side (the "soak the rich" crowd) uses the "free from injustice" side, claiming that it is unjust the poor to pay more than they are capable and the rish to pay less than they are capable. Of course, even the term justice has multiple definitions to multiple people (and a dictionary meaning is different from a personal meaning anyway).

 

[WhoWee]

Does anyone think the average Berkshire Hathaway employee paid more than $8,900 in net federal, state and local income taxes?

 

[jambaugh]

One could also argue that since this is the means by which interstate commerce takes place, that it is authorized by the Constitution.

Good point, but I think a stretch. The commerce clause would justify the Federal Govt, regulating privately built roads as well as traffic (e.g. inspection stations). The power to e.g. regulate a bank can't be used to justify getting into the banking business, nor the power to regulate trade to justify government getting into the shipping business.

 

[daveb]

However, should we assume the economy will continue to decline - and thus more Government will be required in the future to care for the poor - or do we expect the economy to improve and Government doesn't need to grow as large (or fast)?

I would love it if the economy improved, everyone had jobs, etc. My belief is that things will get worse (overall), though. The economy (GDP, etc.) might improve, but IMO the poor will get poorer, the rich will get richer, etc.

A problem as I see it is that global competition is not only for markets, but also for workers. If it's overall cheaper (fiscally, socially, as well as politically) for Company X to go overseas to manufacture some goods, it would be idiotic for the Company X to stay here in the US out of some sense of patriotism (they can certainly do it, but in reality are doing a disservice to shareholders). So jobs go overseas. The rich, who are the ones investing, see a return on their investments. The poor, who no longer have their jobs, get poorer (and others who weren't poor no longer have jobs).

 

[Mech_Engineer]

The other side (the "soak the rich" crowd) uses the "free from injustice" side, claiming that it is unjust the poor to pay more than they are capable and the rish to pay less than they are capable.

"Free from injustice" would mean there is no injustice for or against either party, not just on the part of the "less wealthy."

 

[ThomasT]

Not the threat of diminished freedom, the threat of physical violence upon ones person. It is by this coercion that the freedom is diminished either upon breaking a law and thereby as far as the state is concerned relinquishing one freedom, or even when acting lawfully when the threat remains if the law is broken and thus the laws diminish freedom.

Ok, point taken. The terms of the agreement between government and the people are ultimately backed up by the government's ability to engage in lawful violence.

Laws constrain behavior and so diminish freedom. The threat (the contractual contingency) is that if one breaks the law, then one's freedom will be limited even further. And the threat of government sanctioned violence/coercion is the ultimate means of enforcing compliance.

And of course, the government is, in most cases, holding all the cards -- which can be frustrating when one considers a law to be a bad law, because the lawful process of getting laws changed is quite laborious and outside the scope of most people's abilities.

Nevertheless, we've all agreed (at least tacitly) by continuing to remain here, to conform to the system and behave lawfully, and we can know up front the consequences of breaking a law.

Anyway, yes, I agree with you that society is governed, ultimately, via the threat of sanctioned physical violence. How else could it be run?

...If one breaks the law one breaks the law. Failing to report for jury duty is not an act of violence. As I mentioned about "coercion" let's be clear on what each of us means by "violence". By violence I mean harm to an individual. Only an individual can possesses will and values which distinguish one event as helpful from another being harmful. Let's keep the definitions basic. If we wish to expand them then use qualifiers ... "meta-coercion" "pseudo-violence" or something.
[edit]Oh, and I'm as likely to strain definitions so call me on it if you spot it. I'll try to watch myself.[/edit]

Point taken. Yes, I was straining the definition of 'violence'.

Can we agree that government 'coercion' isn't necessarily a bad thing, insofar as it is a necessary thing.

The US government isn't forcing us to live here. Like your parched traveller who agrees to pay exorbitantly, we agree to behave lawfully. We're free to abide by the status quo, change it lawfully, or move on.

The same applies to a businessman being extorted by a racketeer. You can pay the protection money, or move out of the mobs territory. That doesn't justify the protection racket.

The racketeer's extortion/coercion is an unlawful practice wrt a higher authority and thereby unjustifiable in that context. There's no nonviolent mechanism associated with changing the situation created by the mobster.

The government's coercion is justified by the need to control and protect a vast population. There's no higher authority, and there are nonviolent mechanisms for effecting changes in the status quo.

Now if I could literally opt out my private property (real estate), make it a sovereign territory like Heinlein's Coventry, not subject to tax or invasion (but the state could impose tariffs on import/export and manage its borders) then maybe.

A large portion of the US population tried that, collectively, back in the 1860's.

An afterthought: The "opt out" social contract argument you make could be made valid by relegating social spending to the state and local level [But NOT via Federal mandate!]. I don't buy it at the Federal level. One must sacrifice too much to leave, and one must find a foreign sovereignty willing to allow you to immigrate. I can't see stretching that to a "free choice".

The 'freedom' of one's choices is usually proportional to one's wealth.

And I agree that since changing the status quo or moving on isn't a reasonable alternative for most people, then this is akin to the situation of the indigent worker whose circumstances force him (if he wants to feed himself and his family) to sell his labor at exploitative rates because the employer is holding all the cards.

 

[ThomasT]

It seems to me the only truly "fair" tax (in that "fair" is "free from bias") would be a flat tax where people are charged a flat percentage rate without regard to income, ethnicity, family circumstances, etc.

A flat tax and a simplified tax code with no 'loopholes' would be wonderful. Would that include taxing individuals whose incomes are below subsistence level?

But my guess is that the very rich, including corporations with big bottom lines, would be against it, preferring instead the current progressive tax structure and an immensely complicated tax code with lots of 'loophole' possibilities.

 

[ThomasT]

A problem as I see it is that global competition is not only for markets, but also for workers. If it's overall cheaper (fiscally, socially, as well as politically) for Company X to go overseas to manufacture some goods, it would be idiotic for the Company X to stay here in the US out of some sense of patriotism (they can certainly do it, but in reality are doing a disservice to shareholders). So jobs go overseas.

Yes, this does seem to be a problem for the US general economy.

Is the US government promoting this?

 

[BobG]

You are assuming poor people actually need to work. If you are a single mom, you don't have to work until you're all out of kids to raise.

While the federal government provides grants to state welfare programs, provided the state programs follow some general guidelines, each state runs its own welfare program.

Because of that, your comment is tough to evaluate.

What's the average duration that a single mom spends on welfare in your state and how does that compare to the national average?

Keep in mind that welfare has changed significantly since 1996. In spite of that, the reports that justified the 1996 change still seem to creep up to the top in search engines. Those aren't particularly useful today.

I don't think you can support the comment you made, but, like I said, that's hard to say for sure since there's 50 states and each has their own welfare program and each has a varying rate of success in reducing welfare rolls.

Slightly rephrasing this would be accurate, however. One of the changes that accompanied welfare reform was an increase in Earned Income Credit and that does contribute to the negative income taxes paid by low earners. They do have to work to receive Earned Income Credit, however. But, single moms are more likely to receive EITC for the entire time their kids are living at home. (Another change included improved child support enforcement, increasing the number of absent parents that support their children.)

 

[Mech_Engineer]

A flat tax and a simplified tax code with no 'loopholes' would be wonderful. Would that include taxing individuals whose incomes are below subsistence level?

In my opinion, it should include everyone.

My reasoning for this is how do you decide what the "subsistence level" is? People might argue the subsistence level in the bay area is $50k/year, where as someplace like central Idaho it might be $15k/year. So then you have politics attached to trying to quantify standards of living and costs of living and adjustments based on state and county... it would be a mess.

I would instead like to see a flat tax rate of something like 10-15% across the board. No deductions, no exemptions. Just think how simple the tax code would be! Savings in tax law and enforcement would be huge!

But my guess is that the very rich, including corporations with big bottom lines, would be against it, preferring instead the current progressive tax structure and an immensely complicated tax code with lots of 'loophole' possibilities.

Everyone is against having their taxes raised, it isn't specific to the "greedy rich." The main problem is if the taxes are only on income, how you decide what is considered income can get a little fuzzy. Paired with uncertainties like earnings on savings, tax-exempt retirement accounts etc. further complicate the situation.

 

[WhoWee]

I would love it if the economy improved, everyone had jobs, etc. My belief is that things will get worse (overall), though. The economy (GDP, etc.) might improve, but IMO the poor will get poorer, the rich will get richer, etc.

A problem as I see it is that global competition is not only for markets, but also for workers. If it's overall cheaper (fiscally, socially, as well as politically) for Company X to go overseas to manufacture some goods, it would be idiotic for the Company X to stay here in the US out of some sense of patriotism (they can certainly do it, but in reality are doing a disservice to shareholders). So jobs go overseas. The rich, who are the ones investing, see a return on their investments. The poor, who no longer have their jobs, get poorer (and others who weren't poor no longer have jobs).

A decision must be made to invest in manufacturing facilities or equipment in thoses countries or allow a company to manufacture proprietary products. The first scenario puts capital at risk and the second puts trade secrets at risk.

As for who invests overseas - does your 401K fund manager know you don't want any of your funds put to work offshore?

As for the definition of "poor" - is a worker in China making $3,000 per year poorer than the US worker collecting unemployment and an EITC or making work pay redistribution or a welfare recipient receiving housing, food, utility and medical subsidies?

 

[mege]

A flat tax and a simplified tax code with no 'loopholes' would be wonderful. Would that include taxing individuals whose incomes are below subsistence level?

But my guess is that the very rich, including corporations with big bottom lines, would be against it, preferring instead the current progressive tax structure and an immensely complicated tax code with lots of 'loophole' possibilities.

While I am a big fan of a simpler 'everyone pays evenly' tax code with almost zero exemptions - one thing I am afraid of where it comes to corporations: tax them more and they'll move to other countries. The US already has higher than normal business taxes (nearly all of Europe has lower corporate taxes, but their cost of doing business otherwise is a bit higher which equalized it currently)

 

[BobG]

While I am a big fan of a simpler 'everyone pays evenly' tax code with almost zero exemptions - one thing I am afraid of where it comes to corporations: tax them more and they'll move to other countries. The US already has higher than normal business taxes (nearly all of Europe has lower corporate taxes, but their cost of doing business otherwise is a bit higher which equalized it currently)

If the US raises corporate taxes, then the rest of the world will follow accordingly. Historically, other countries set their corporate taxes just a little lower than the US regardless of whether that means cutting their own taxes or raising their own taxes.

(At least for now. You'll know the balance has changed for good when "the world" starts adjusting their corporate tax rates to some other country.)

 

[jambaugh]

We seem to be making some progress, at least in setting up the framework of the essential arguments.

...
And of course, the government is, in most cases, holding all the cards -- which can be frustrating when one considers a law to be a bad law, because the lawful process of getting laws changed is quite laborious and outside the scope of most people's abilities.

Not quite all the cards. Here in the US there are provisions for private citizens to lawfully use the same violent means, especially in situations where government agents are unavailable. e.g. citizens arrest and self defense.

Nevertheless, we've all agreed (at least tacitly) by continuing to remain here, to conform to the system and behave lawfully, and we can know up front the consequences of breaking a law.

I'll have to consider this. I don't think agreement is the same as pragmatic observance given the coercive incentive to abide by the law. And there are of course those who are perpetually violating the law yet remaining here or who remain here yet publicly assert their independence from the law.

But I think this issue is not relevant. And my argument for that brings to mind some points relevant to the main subject. It seems we are trying to hash out what we can agree is the way government ought to be. Clearly we are each applying our own personal sense of ethics with some expectation of commonality on many points. We may ethical stances which are not fully formed and the exercise, even if it comes down to recognizing an irreconcilable difference in moral values, if fruitful for the sake of making that difference explicit. Thus in the social contract model we are negotiating for the best government, and in the "necessary evil"([edit]pragmatic) model we are seeking the minimum "evil".

Anyway, yes, I agree with you that society is governed, ultimately, via the threat of sanctioned physical violence. How else could it be run?

Some may argue other ways but I do not see such systems as Government, rather the lack thereof and at the same time do not believe such systems are realistic or stable.
And so yes we can...

[...] agree that government 'coercion' isn't necessarily a bad thing, insofar as it is a necessary thing.

It is a tool which may be used for good or ill.

So starting with the essential coercion for the enforcement of law, we look now at the justification of particular laws and classification of laws in terms of roles of government.

I think we should consider both government in general and what (I hope) we can agree upon as the idea form, free government, let's say liberal government understanding "liberal" in the http://en.wikipedia.org/wiki/Classical_liberalism" but allowing by my concession some "welfare liberalism" if reason and our values lead us there.

I seek to argue on two points.
1.) I assert that over the long term an aggregate, more harm is done by governmental social welfare than good. And I define "harm" here in the same value system used to justify the social welfare.

2.) I assert that even if point 1.) were definitively not true, the coercive nature of governmental social welfare makes it unjust. We should reap what we in the private sector, sow even if it is starving mobs looting our property out of desperation.
(this one may come down to a matter of my own distinct value system but let's explore it and see.)

I'll do some thinking on how to present my arguments as clearly and succinctly as possible.

The 'freedom' of one's choices is usually proportional to one's wealth.

Yea, and that brings up two differing definitions of 'freedom'. We can agree I hope on the base definition of "freedom = freedom from coercion", rather than a more general "freedom = freedom from obstacles".

And I agree that since changing the status quo or moving on isn't a reasonable alternative for most people, then this is akin to the situation of the indigent worker whose circumstances force him (if he wants to feed himself and his family) to sell his labor at exploitative rates because the employer is holding all the cards.

The indigent worker example is complex and I would like to bring it up later, but I agree... given sufficient qualifiers especially the employer actively hindering competing employers or collective bargaining, using deception or coercion, establishing a monopoly on necessary services to workers, etc.

 

[jambaugh]

Another note on my dislike of the social contract model. In terms of our support/opposition of government there is a gradation of actions we may take, not just a simple take it or leave it:
active support (such as enlisting in military or civil service, reporting of crimes,...)
passive support (voicing arguments in support of policies and laws, patriotic demonstrations...)
passive resistance (protesting)
active resistance (civil disobedience) and,
active rejection (emigration or ...)
"♬ ♪ You say you want a revolu-u-tion, we-ell you know♪♬ we all want to change the world!♪"

 

[WhoWee]

Another note on my dislike of the social contract model. "♬ ♪ You say you want a revolu-u-tion, we-ell you know♪♬ we all want to change the world!♪"

In business, most contracts have a specific termination date and/or renewal options - the social contract is open-ended until it runs out of money (the Golden Goose is consumed).

 

[daveyrocket]

In my opinion, it should include everyone.

My reasoning for this is how do you decide what the "subsistence level" is? People might argue the subsistence level in the bay area is $50k/year, where as someplace like central Idaho it might be $15k/year. So then you have politics attached to trying to quantify standards of living and costs of living and adjustments based on state and county... it would be a mess.

I would instead like to see a flat tax rate of something like 10-15% across the board. No deductions, no exemptions. Just think how simple the tax code would be! Savings in tax law and enforcement would be huge!

That would almost completely destroy small businesses and self-employment as an option for people.

 

[Evo]

That would almost completely destroy small businesses and self-employment as an option for people.

I think a flat tax at that rate is fair. I can't get that low.

 

[WhoWee]

A flat tax on income is fair.

However, a business has direct (cash) expenses such as Cost of Goods Sold, Labor, Occupancy, Marketing, and G&A that must be considered. The cash payments on debt service (or leased equipment) must also be accounted for - rather than depreciation.

The recipients of those funds may also have expenses - eventually though every dollar of profit would be taxed by the person who realized the final profit.

 

[Evo]

A flat tax on income is fair.

However, a business has direct (cash) expenses such as Cost of Goods Sold, Labor, Occupancy, Marketing, and G&A that must be considered. The cash payments on debt service (or leased equipment) must also be accounted for - rather than depreciation.

The recipients of those funds may also have expenses - eventually though every dollar of profit would be taxed by the person who realized the final profit.

Currently businesses are allowed to lose money for three years, right? Or has that been changed? Many people *go into business* for those three years, even if they aren't serious about running a business, it just allows them to avoid taxes and get low government subsidized loans. It's pretty much a scam at taxpayer's expense, IMO.

We need to distinguish between individual income tax and business income tax. They are two completely different animals.

I would think most of us are concerned with individual income tax since the topic is individual welfare.

 

[mege]

A flat tax on income is fair.

However, a business has direct (cash) expenses such as Cost of Goods Sold, Labor, Occupancy, Marketing, and G&A that must be considered. The cash payments on debt service (or leased equipment) must also be accounted for - rather than depreciation.

The recipients of those funds may also have expenses - eventually though every dollar of profit would be taxed by the person who realized the final profit.

Why would those things need to be evaluated under a flat tax system, if applied as such to businesses? That is the type of business-tax gamesmanship that we're trying to avoid (but I don't have a good solution because there are companies that have high taxable revenues but are losing money in the short term)

 

[mege]

I would think most of us are concerned with individual income tax since the topic is individual welfare.

And individual taxes are 5-8x the revenue of corporate taxes in recent years.

 

[daveyrocket]

Currently businesses are allowed to lose money for three years, right? Or has that been changed? Many people *go into business* for those three years, even if they aren't serious about running a business, it just allows them to avoid taxes and get low government subsidized loans. It's pretty much a scam at taxpayer's expense, IMO.

We need to distinguish between individual income tax and business income tax. They are two completely different animals.

I would think most of us are concerned with individual income tax since the topic is individual welfare.

The way the system currently works, an individual can go into business for themselves without going through the trouble of incorporating and having separate bank accounts for the business, keeping two sets of books, etc. As far as taxes are concerned, they *are* the business and they pay taxes as a single entity, the individual.

Now consider this scenario. An individual has a small business that brings in $150k, and costs $100k to run, leaving them with $50k to pay their mortgage and feed their kids. But since you have a flat tax system, they can't write off any of the business expenses and they end up paying 3 times the amount of money that someone with a $50k job working for someone else would. How is that fair? What if they actually lose money on their business? Then they have to pay taxes on top of the loss? What if the business grows and they want to hire employees? Then you are taxing incomes twice. That's not fair either.

A huge number of businesses use this model. Plumbers, electricians, doctors, accountants, mom-and-pop restaurants, etc. Many small professional-type businesses start out this way because of the simplicity. Many end up staying this way throughout their entire lifetimes. I used to work for a computer store that was open for 20 years or so, did about a million dollars in business a year with about 6 employees and it was never incorporated or anything.

If you want to distinguish individual and business taxes by allowing businesses to write off expenses, you've defeated the purpose that you set out to do. For starters, the very rich have most of their assets wrapped in business entities anyway. So nothing changes there. But you wind up punishing people who want to be entrepreneurs but don't want or need to spend their time dealing with government red tape to create a business tax entity, setting up separate bank accounts, etc. It would end up choking off entrepreneurship except among those willing / able to hire a lawyer and an accountant to handle that stuff, or those that have enough of that knowledge already.

 

[Evo]

If you want to distinguish individual and business taxes

I meant that we need to clarify what we are discussing in this thread, the topic is about welfare to individuals, so discussing businesses wouldn't apply. We really need to stick to *individuals* for the sake of not getting off topic.

 

[WhoWee]

Currently businesses are allowed to lose money for three years, right? Or has that been changed? Many people *go into business* for those three years, even if they aren't serious about running a business, it just allows them to avoid taxes and get low government subsidized loans. It's pretty much a scam at taxpayer's expense, IMO.

We need to distinguish between individual income tax and business income tax. They are two completely different animals.

I would think most of us are concerned with individual income tax since the topic is individual welfare.

I'm thinking of the small business owner. A family owned pizza shop for instance. While the gross profit on sales might be 70% - the net cash flow after all expenses might be 15%.

If gross revenues are $300,000 and net cash flow $45,000 then a flat tax of $4,500 to $6,750 is reasonable.

 

[jambaugh]

And individual taxes are 5-8x the revenue of corporate taxes in recent years.

Don't forget some of those individual taxes are double taxes on the same profit the corporation makes. The corp. pays taxes on profits before paying dividends and capital expenditures which contribute to capital gains. Corporate taxes should be zero. The profits are already taxed via income tax on executive bonuses dividends and capital gains. (Although as a practical matter we'd need to add provisions for a modified mark to market annual capital gains tax.)

But by the same token Corporate tax rates or they plus dividend rates, should be no less and no greater than the highest income tax rate. Neither incorporating nor failing to incorporate should be motivated by tax advantage. This way small businesses and individual enterprises are not put at a disadvantage tax-wise to larger corporations.

But this is off topic.

 

[daveyrocket]

I'm thinking of the small business owner. A family owned pizza shop for instance. While the gross profit on sales might be 70% - the net cash flow after all expenses might be 15%.

If gross revenues are $300,000 and net cash flow $45,000 then a flat tax of $4,500 to $6,750 is reasonable.

An in order to do that, you have to allow the small business owner to make deductions. Really, that's no different than the current system in the US.

 

[daveyrocket]

I meant that we need to clarify what we are discussing in this thread, the topic is about welfare to individuals, so discussing businesses wouldn't apply. We really need to stick to *individuals* for the sake of not getting off topic.

The point of my post was that there are *individuals* who go into business, and for tax purposes, they pay taxes as an individual. They don't have a special tax class. They don't file taxes separately for their business. As far as taxes are concerned, they *are* the business. They add up revenues and deduct expenses for their business on their personal taxes. A flat tax rate that doesn't allow individuals to make deductions would eliminate this business model and add significant barriers to entrepreneurship except for people who already have access to vast resources. IMO, that's a very bad thing. Discussing this type of business does apply because they aren't required to file to create a separate tax entity.

But here's another scenario to consider. Man and woman get divorced. Man has a job paying $50k, woman is unemployed. The court orders man to pay $12k a year to woman in alimony or child support. Since the man is not allowed to deduct the alimony, not only has the government forced him to give up that money (he has no choice on what to spend it on, and can't make decisions to manage that expense), he still gets taxed on it. Then that $12k is income for the woman, and the government taxes it again. It's not fair for Uncle Sam to take advantage of people's misfortune in order to line its own pockets.

 

[WhoWee]

An in order to do that, you have to allow the small business owner to make deductions. Really, that's no different than the current system in the US.

The profits of a business typically flow to the owner as income. The expenses paid by the business flow to another business (or perhaps an employee) - someone will eventually earn a profit/realize income and pay taxes on those funds.

 

[daveyrocket]

I'm talking about people who file taxes as self-employed. The revenues of their business are their income, and the expenses are their personal deductions. They do this on their individual tax returns, and they don't file separate taxes for their business.

 

[WhoWee]

The point of my post was that there are *individuals* who go into business, and for tax purposes, they pay taxes as an individual. They don't have a special tax class. They don't file taxes separately for their business. As far as taxes are concerned, they *are* the business. They add up revenues and deduct expenses for their business on their personal taxes. A flat tax rate that doesn't allow individuals to make deductions would eliminate this business model and add significant barriers to entrepreneurship except for people who already have access to vast resources. IMO, that's a very bad thing. Discussing this type of business does apply because they aren't required to file to create a separate tax entity.

That is total nonsense. Please support how someone can deduct business expenses personally and yet not file a business return.

 

[ThomasT]

@ jambaugh
As you mentioned, some things have been clarified. In the interest of simplification and a timely resolution, I'm going to focus on your two points below.

I should note that I don't want to argue anything about fairness, or whether aid to the poor can be justified in some/any moral sense. My only reasons for advocating government welfare to the poor are entirely selfish, and they are 1) that it minimizes the presence of homeless/indigent people on the streets and, in particular, their encroachment into the 'nicer' areas (wrt this I was somewhat disappointed to find that there seemed to be an increase, from my memory of the 70's, in the number of homeless/indigent people wandering the streets of Fort Lauderdale), and 2) that it benefits the general economy.

I seek to argue on two points.
1.) I assert that over the long term an aggregate, more harm is done by governmental social welfare than good. And I define "harm" here in the same value system used to justify the social welfare.

My current opinion is that there is an increasing percentage of people in our society who could work but who are just not needed in the workforce (in addition to the people who are just unemployable). So, one question concerns whether it's beneficial to the economy to give all of them aid, or only some of them, or none of them, or what.

I don't have any definitive ideas on this -- just the gut feeling from my own experience in several businesses that the aid helps the general economy both in the short and long term.

So, I'm interested to see what you (or any other posters) have to say about the net harm done by governmental social welfare.

2.) I assert that even if point 1.) were definitively not true, the coercive nature of governmental social welfare makes it unjust. We should reap what we in the private sector, sow even if it is starving mobs looting our property out of desperation.
(this one may come down to a matter of my own distinct value system but let's explore it and see.)

I thought we agreed that government is, necessarily, coercive, and that that's not necessarily a bad thing. So is it the coercive nature of government associated with social welfare programs, or just social welfare programs that you want to argue against? The latter I should think.

And your first argument is that we should, apparently collectively, 'reap what we sow'. But how, in what way, did the rest of us produce the bad attitudes and behavioral problems (drugs, alcohol, etc.) that characterize the otherwise employable homeless and indigent?

The way I look at it, the idea is to minimize the disruption to normal society that the homeless and indigent (for whatever reasons) cause -- and I think (pending further enlightenment on the subject) that government social welfare does that to a certain extent.

 

[WhoWee]

I'm talking about people who file taxes as self-employed. The revenues of their business are their income, and the expenses are their personal deductions. They do this on their individual tax returns, and they don't file separate taxes for their business.

Enough misinformation.
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Your assertion that "revenues of their business are their income, and the expenses are their personal deductions" is incorrect and quite naive.

 

[daveyrocket]

That is total nonsense. Please support how someone can deduct business expenses personally and yet not file a business return.

It's not nonsense, it's used all over the place. It's clear you know nothing about self-employment.

http://en.wikipedia.org/wiki/Sole_proprietorship
A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

http://www.irs.gov/businesses/small/article/0,,id=98202,00.html
See where in the table it says that if you are liable for income tax, you use form 1040, the personal income tax form.

http://www.nolo.com/legal-encyclopedia/how-sole-proprietors-are-taxed-30292.html
As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. (The IRS calls this "pass-through" taxation, because business profits pass through the business to be taxed on your personal tax return.) ... The main difference between reporting income from your sole proprietorship and reporting wages from a job is that you must list your business's profit or loss information on Schedule C (Profit or Loss from a Business), which you will submit to the IRS along with Form 1040. You'll be taxed on all profits of the business -- that's total income minus expenses -- regardless of how much money you actually withdraw from the business.

(All this is US tax stuff.)

 

[daveyrocket]

Enough misinformation.
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Your assertion that "revenues of their business are their income, and the expenses are their personal deductions" is incorrect and quite naive.

Schedule C is attached to 1040, your *personal income tax form*. Taxes for the sole proprietorship business and *not* assessed separately.

 

[russ_watters]

Davey, do yourself a favor and actually have a look at the Schedule C form. You are quite wrong about what it means to be self employed and there is no logical reason to think an individual tax reform would necessarily affect the schedule C. Politicians do dumb things sometimes, but they aren't all complete idiots.

 

[WhoWee]

It's not nonsense, it's used all over the place. It's clear you know nothing about self-employment.

http://en.wikipedia.org/wiki/Sole_proprietorship
A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

http://www.irs.gov/businesses/small/article/0,,id=98202,00.html
See where in the table it says that if you are liable for income tax, you use form 1040, the personal income tax form.

http://www.nolo.com/legal-encyclopedia/how-sole-proprietors-are-taxed-30292.html
As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. (The IRS calls this "pass-through" taxation, because business profits pass through the business to be taxed on your personal tax return.) ... The main difference between reporting income from your sole proprietorship and reporting wages from a job is that you must list your business's profit or loss information on Schedule C (Profit or Loss from a Business), which you will submit to the IRS along with Form 1040. You'll be taxed on all profits of the business -- that's total income minus expenses -- regardless of how much money you actually withdraw from the business.

(All this is US tax stuff.)

Form 1040 line 12 pulls data from schedule C
http://www.irs.gov/pub/irs-pdf/f1040.pdf

Schedule C is the Business tax form I posted a few minutes ago.
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Again - stop with the misinformation - please.

 

[daveyrocket]

The tax code for individuals is simple at a coarse scale.

Income - Deductions = Adjusted gross income.

Anything that adds to your AGI is income, and anything that subtracts from it is a deduction. It's simple. You pay a tax on your AGI (not a flat tax, but the tax paid is a piecewise linear function of the AGI). (I'm ignoring things like credits which aren't really relevant). Business expenses are a deduction because they reduce your AGI.

This is what I was originally responding to:

I would instead like to see a flat tax rate of something like 10-15% across the board. No deductions, no exemptions.

(emphasis mine)
If you take a loss on your business, that's a deduction. The business expenses themselves are a deduction, and it goes on your personal income tax if you're a sole proprietor.

Business expenses are a deduction. It's a fact. They're a deduction for a corporation, and they're a deduction for sole proprietorship. If you want to say, certain types of deductions are allowed for individuals and other types aren't, then that's fine. But that's not qualitatively different than the current situation in the US. You can't deduct money you spend on food to feed your kids, but if you take a client out to lunch you can deduct the cost of the lunch if you pay it.

Have you been self-employed? I have. Have you hired a tax accountant and had discussions with him over how taxes for your self-employment business work? I have. Do you have experience on this, or are you just dropping things you read off wikipedia?

 

[WhoWee]

The tax code for individuals is simple at a coarse scale.

Income - Deductions = Adjusted gross income.

Anything that adds to your AGI is income, and anything that subtracts from it is a deduction. It's simple. You pay a tax on your AGI (not a flat tax, but the tax paid is a piecewise linear function of the AGI). (I'm ignoring things like credits which aren't really relevant). Business expenses are a deduction because they reduce your AGI.

This is what I was originally responding to:
(emphasis mine)
If you take a loss on your business, that's a deduction. The business expenses themselves are a deduction, and it goes on your personal income tax if you're a sole proprietor.

Business expenses are a deduction. It's a fact. They're a deduction for a corporation, and they're a deduction for sole proprietorship. If you want to say, certain types of deductions are allowed for individuals and other types aren't, then that's fine. But that's not qualitatively different than the current situation in the US. You can't deduct money you spend on food to feed your kids, but if you take a client out to lunch you can deduct the cost of the lunch if you pay it.

Have you been self-employed? I have. Have you hired a tax accountant and had discussions with him over how taxes for your self-employment business work? I have. Do you have experience on this, or are you just dropping things you read off wikipedia?

My links were to the IRS - please stop the misinformation and show where I posted a Wiki link or retract that nonsense.

Given your extensive business experience, how do you defend this statement "Originally Posted by daveyrocket
I'm talking about people who file taxes as self-employed. The revenues of their business are their income, and the expenses are their personal deductions. They do this on their individual tax returns, and they don't file separate taxes for their business."

Does a self employed carpet cleaner not pay for equipment, maintenance, supplies, (possibly) labor, business insurance, a commercial vehicle, fuel for that vehicle, a yellow page ad, legal and accounting, permits, office equipment and supplies, telephone, (perhaps) a storage building with utilities and insurance, a business phone number, and other business related expenses?

IMO - it would not be fair to tax him on the gross revenues under a flat tax system, as the above detailed expenses would flow to other businesses (or an employee). Taxing all businesses on gross revenues would result in double taxation.

 

[daveyrocket]

My links were to the IRS - please stop the misinformation and show where I posted a Wiki link or retract that nonsense.

Given your extensive business experience, how do you defend this statement "Originally Posted by daveyrocket
I'm talking about people who file taxes as self-employed. The revenues of their business are their income, and the expenses are their personal deductions. They do this on their individual tax returns, and they don't file separate taxes for their business."

Does a self employed carpet cleaner not pay for equipment, maintenance, supplies, (possibly) labor, business insurance, a commercial vehicle, fuel for that vehicle, a yellow page ad, legal and accounting, permits, office equipment and supplies, telephone, (perhaps) a storage building with utilities and insurance, a business phone number, and other business related expenses?

IMO - it would not be fair to tax him on the gross revenues under a flat tax system, as the above detailed expenses would flow to other businesses (or an employee). Taxing all businesses on gross revenues would result in double taxation.

Absolutely they pay for those things, and it would absolutely be unfair to not allow them to deduct those expenses. If their business is a sole proprietorship, they itemize their expenses on Schedule C and attach it to their personal income tax return when they file. Schedule C is not filed separately from a personal income tax form, and the business is not taxed separately. It's all part of the personal income taxes. The income from the business is added to their income, and the expenses are subtracted to contribute to the AGI. If the business expenses exceed the business income, the loss is still subtracted from their personal income from other sources.

Let's stick to a couple of basic facts that I think we can agree on:
1) Business expenses are deductible.
2) A sole proprietorship is not taxed separately from its owner.

The logical conclusion, and the reality of the current system, is that the deductions that come from the business are a part of the personal income tax form.

I think we can both agree that (1) is as it should be. I'm not sure about your opinion on (2) but I would argue that (2) is important for reducing the barrier to entry for entrepreneurs.

 

[russ_watters]

davey, Mech _E did not intend what you are attributing to him. You are overinterpreting.

 

[daveyrocket]

Then I'd like to hear a clarification of what he meant by "no deductions."

Also, I posted this example, which has nothing to do with businesses. And maybe it got lost in the other discussion, but I'd like to know how this scenario would work and be fair in a system of "no deductions."

But here's another scenario to consider. Man and woman get divorced. Man has a job paying $50k, woman is unemployed. The court orders man to pay $12k a year to woman in alimony or child support. Since the man is not allowed to deduct the alimony, not only has the government forced him to give up that money (he has no choice on where that money goes, and can't make decisions to manage that expense), he still gets taxed on it. Then that $12k is income for the woman, and the government taxes it again. It's not fair for Uncle Sam to take advantage of people's misfortune in order to line its own pockets.

 

[SixNein]

Have you been self-employed? I have. Have you hired a tax accountant and had discussions with him over how taxes for your self-employment business work? I have. Do you have experience on this, or are you just dropping things you read off wikipedia?

I have, and you are correct. In a sole proprietorship, there is no legal separation between the business and the individual. If a sole proprietorship gets sued, personal and business assets are treated the same. The same is true for taxation.

-IMO-
Please forgive me for a second for venturing off topic. But why do many scientists and mathematicians tend to stop thinking rigorously or scientifically about government? I'm beginning to wonder if there is even a point to discussing politics because nobody is really willing to study government scientifically. I'll be the first to admit that there is a great deal of uncertainty involved in government, but there is a great deal of uncertainty in studying the universe. Why has nobody been bold enough to declare ideology dead?

I'm beginning to think Leibniz had the right idea.We need to start looking at government from an entirely different angle so that we can calculate who is right and wrong. I'm willing to bet that liberals and conservatives both would discovery a great many things they believe are wrong.
-/IMO-

 

[SixNein]

IMO - it would not be fair

What makes you think that the fair tax system is not as corruptible as our current tax system? The greatest problem we have in our current tax system is the countless loopholes.

In my mind, the only way to fix the tax system is to close all loop holes then hand the responsibility over to an independent agency like the fed so that politics is kept as far away from it as possible.

 

[WhoWee]

What makes you think that the fair tax system is not as corruptible as our current tax system? The greatest problem we have in our current tax system is the countless loopholes.

In my mind, the only way to fix the tax system is to close all loop holes then hand the responsibility over to an independent agency like the fed so that politics is kept as far away from it as possible.

Just for the record, I bolded the part you selected, my full quote was:
"IMO - it would not be fair to tax him on the gross revenues under a flat tax system, as the above detailed expenses would flow to other businesses (or an employee). Taxing all businesses on gross revenues would result in double taxation."

Did I comment on the potential for corruption - feels like a troll?

Please define a loop hole. As for "then hand the responsibility over to an independent agency like the fed so that politics is kept as far away from it as possible" - care to elaborate how that might work?

 

[SixNein]

Just for the record, I bolded the part you selected, my full quote was:
"IMO - it would not be fair to tax him on the gross revenues under a flat tax system, as the above detailed expenses would flow to other businesses (or an employee). Taxing all businesses on gross revenues would result in double taxation."

Did I comment on the potential for corruption - feels like a troll?

Please define a loop hole. As for "then hand the responsibility over to an independent agency like the fed so that politics is kept as far away from it as possible" - care to elaborate how that might work?

Well, I'm not commenting on any particular point you were making; instead, I'm commenting on your overall argument for a 'fair' tax system. Sorry for the misunderstanding.

Define tax loopholes:

(Tax Loophole) An ambiguity, omission, discrepancy, uncertainty, vagueness, or exception (as in a tax law, tax regulation, tax ruling, and tax court case or decision) that provides a way to avoid a specific tax without violating its literal requirements; esp. ...

www.income-tax-planning.com/tax-terms-dictionary.htm

Loopholes are special exceptions in the tax code which allows those who qualify (virtually always corporations and special categories of rich people) to escape paying part of their taxes. ...

www.massline.org/Dictionary/T.htm

On an independent agency, it would work the same way as let's say interest rates. I don't see any point to trying to fix our tax system unless we get it off the table of election cycles.

 

[WhoWee]

Well, I'm not commenting on any particular point you were making; instead, I'm commenting on your overall argument for a 'fair' tax system. Sorry for the misunderstanding.

Define tax loopholes:


On an independent agency, it would work the same way as let's say interest rates. I don't see any point to trying to fix our tax system unless we get it off the table of election cycles.

That's fine - just looking for clarity. As per loopholes - I wanted to make sure we weren't referring to standard business deductions as anything other than an expense item.

As per the independent agency - you want it to set tax policy - not replace the IRS for enforcement - correct?

 

[BobG]

I'm talking about people who file taxes as self-employed. The revenues of their business are their income, and the expenses are their personal deductions. They do this on their individual tax returns, and they don't file separate taxes for their business.

This is not correct. They list their expenses on Schedule C and subtract them from the money they brought in. Only the net profit on the business or self-employment is considered income. You don't even have to itemize deductions to have your self-employment expenses deducted from your self-employment revenues.

For example, I was a soccer referee in my spare time and also held down a full time job. I reported my refereeing income on Schedule C and deducted the expenses related to refereeing (travel, uniforms, equipment, registration fees, insurance fees, etc). Only the net profit from refereeing was reportable income. On the other hand, I also had to pay a self-employment social security tax, which was a personal exemption from my total income (vs a refereeing expense).

Edit: Actually, reading one of your later posts, I think the point you're trying to make is that because the Schedule C is part of your personal income tax form, a flat tax would eliminate the business expenses that are listed on Schedule C. I don't think that would be the effect of eliminating personal deductions. The personal deductions that would be eliminated would be for dependents? Education credits? Child care credits? I'm not really sure if they're proposing a true elimination of all personal deductions or a semi-flat tax that would be at least in the remote realm of possibility.

But I'd be all for taxing married couples at the same rate as single people - why should a couple get a lower tax rate when their living expenses per person are lower than a single person's?

 

[BobG]

But here's another scenario to consider. Man and woman get divorced. Man has a job paying $50k, woman is unemployed. The court orders man to pay $12k a year to woman in alimony or child support. Since the man is not allowed to deduct the alimony, not only has the government forced him to give up that money (he has no choice on what to spend it on, and can't make decisions to manage that expense), he still gets taxed on it. Then that $12k is income for the woman, and the government taxes it again. It's not fair for Uncle Sam to take advantage of people's misfortune in order to line its own pockets.

This is a valid point. Theoretically, it could be solved by not taxing an ex-spouse on alimony, since it's already been taxed once. However, that would royally screw anyone already paying alimony, since, at least hopefully, the tax consequences were considered when the amount of alimony was agreed to. There is no fair way to get from here (current tax regulations) to there (flat tax).

(You don't get to deduct child support. One of the parents already gets a tax deduction for supporting their children. They don't get an extra deduction just because they divorce.)