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

[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.)

 

[SixNein]

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?

Yes, just like the fed sets monetary policy.

 

[WhoWee]

Yes, just like the fed sets monetary policy.

That would put a great deal of power into the hands of the Fed Chairman.

 

[Tosh5457]

Redistribution of wealth to lower income families boost the economy. Economy is very dependant on consumption, and consumption mainly comes from low or median income families, while rich families consume less as a percentage of their income. If there is a very high and rising inequality, consumption will drop and consequently the investment expectations will be worse.

You can argue that if that money stayed with the rich, it would be saved rather than used to consume and that would be more beneficial. Savings make interest taxes go lower, incentivating investment. But if the investment expectations are bad because of low consumption, lower interest rates wouldn't help much.

 

[Evo]

Temporarily closed pending cleanup to bring this back to the topic.

Those of you that wish to discuss corporate taxes, please start another thread. I'll postpone deleting posts until tomorrow, so that you can copy anything you wish to use in your new thread.