Consumption and sales tax rear their head when you start considering people on disabilities and those that no longer draw incomes. Is it fair to tax those people even though they don't draw incomes? If you're, again, tying it to "well if you make less than 50k, you're okay" then what is the difference from a straight income tax? You want to have some free interest while you wait for the rebates to get mailed out?
The exemption can be handled as a rebate check or by not requiring point of sale withholding (which means there is no wait). The difference between an income and consumption tax is really what happens above the exemption. Under a consumption tax, more will be saved, but when you buy things, you will just factor the tax into the cost (just like how sales taxes work now). If people choose to save all their money and never spend anything, national savings rates increase, which has a number of benefits for the economy. If people choose to spend (and most people will continue to buy things like cars, houses, clothing, meals out, etc) then the government will collect its taxes on that spending, including spending by companies (which will have more available capital to spend, since people will be investing more of their income in those companies).
On the question of the disabled, I guess the question is why wouldn't we tax them? If they have money in excess of the exemption and choose to spend it, I'm not sure that I understand how that is a problem. We tax people on disability income now (at least in certain circumstances), so it wouldn't really be different.
Obvious problem:
When consumption goes down due to exogenous event that isn't rooted in increased savings or results in increased savings, government's sole source of income is drastically affected.
Self reporting on sales taxes doesn't work. There's a reason states have been fighting with Amazon.
Self reporting on sales taxes doesn't work the way that we currently enforce them. But, if for example we required you to provide a tax payer identification number along with all purchases, then withholding would occur at the point of sale. That said, the US tax system is the most successful self reporting system in the world, and the administrative cost associated with each dollar collected is amazingly low. But I'm not advocating a change to a consumption tax in this thread (to be honest, I'm not sure how I feel about one, even after years of having all of my tax policy professors from both political parties argue in favor of a consumption tax at NYU law).
Huh? The Federal tax system is far from self reporting. In fact, it's the people who do self report that have the biggest incidence of tax avoidance, intentional or accidental.
Huh? The Federal tax system is far from self reporting. In fact, it's the people who do self report that have the biggest incidence of tax avoidance, intentional or accidental.
Agreed, we had a contractor who was livid we asked him for his tax ID. He tried to fight us/ignore us, but eventually he gave in because we would have ruined him if he didn't hand it over.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
OP is using a strange example for how tax simplification is difficult. Most, if not everyone, I know that favors tax simplification isn't thinking about changing the definition of income, which will always be tricky and require many rules. In fact, we could just continue using the current rules and not be that far off base.
Usually tax simplification is about removing some/most/all (depending on who you talk to) of the hojillion deductions, exemptions, and credits (e.g. black liquor). And maybe taxing more types of income at similar rates (e.g. carried interest).
The point of the post was not to say these specific issues are hard (although I actually do think that the definition of income is not a straight forward question (there are multiple academic papers written on the subject in any given year), and any systemic tax reform will have to at least decide if we wanted to stick with our current (complex) definition). The point was that while it is easy to be anti-tax loopholes, when you get into the weeds you see that many of these loopholes do serve an important purpose in the code, or represent a very deliberate policy decision.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The problem with your respectful disagreement is that it flies in the face of of the historic evidence. During the period of low income inequality in the 50's and 60's, the US had a strongly progressive income tax with high upper brackets. As the brackets were flattened, income inequality has increased.
There have also been a lot of changes in the financial industry since those times, so it is difficult to say what role the tax system played in a flatter income distribution. If you started taxing hedge fund managers and private equity guys at 70%, they're still going to be making much much more than the average.
Huh? The Federal tax system is far from self reporting. In fact, it's the people who do self report that have the biggest incidence of tax avoidance, intentional or accidental.
Agreed, we had a contractor who was livid we asked him for his tax ID. He tried to fight us/ignore us, but eventually he gave in because we would have ruined him if he didn't hand it over.
I should have said "self-assessment" not self-reporting. My apologies for the confusion. But unlike most countries, where taxes are assessed by the taxing authority, in the US we assess our own taxes and the government issues us refunds or requires further payments if our assessment differs from the amount that was withheld.
On the self-reporting avoidance point, it is hard to say exactly how much of a problem it is, but it is currently an IRS priority.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
When consumption goes down due to exogenous event that isn't rooted in increased savings or results in increased savings, government's sole source of income is drastically affected.
You are assuming that companies who will have more cash on hand due to increased investment during a high savings period will choose to sit on those cash reserves instead of expending them to grow and pursue new opportunies. I suppose that could happen, although it is hard to imagine shareholders (or executives whose bonuses are based on earnings, not capital reserves) being ok with it for long. If everyone (individuals and corporations alike) decided to save all of their money, then yes, there could be a problem for the government, although it would also be able to borrow at favorable rates during any such period.
When consumption goes down due to exogenous event that isn't rooted in increased savings or results in increased savings, government's sole source of income is drastically affected.
You are assuming that companies who will have more cash on hand due to increased investment during a high savings period will choose to sit on those cash reserves instead of expending them to grow and pursue new opportunies. I suppose that could happen, although it is hard to imagine shareholders (or executives whose bonuses are based on earnings, not capital reserves) being ok with it for long. If everyone (individuals and corporations alike) decided to save all of their money, then yes, there could be a problem for the government, although it would also be able to borrow at favorable rates during any such period.
... Have you not been watching current events? You've just described what is happening currently. And there hasn't been a shareholder revolt.
Because you can have limited liability without personhood. In fact, that's a goosey argument.
I'm not sure what a goosey argument is. While you can have limited liability without personhood (such as with a limited liability partnership) there is no real functional difference between a corportation and an LLP, except that the LLP is administratively burdensome. What exactly is the problem with corporate personhood though? I literally never heard anyone complain about it until occupy wallstreet, and have not heard a coherent argument against it from any OWS people.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
... Have you not been watching current events? You've just described what is happening currently. And there hasn't been a shareholder revolt.
Right now, we are in what I see as a short-term drop in corporate spending, similiar to what happened in 2008/2009, although not nearly as severe. There is still a good amount of deal activity (which is very different from 2008/2009), although the credit markets are not great (I actually think the difficulty in obtaining money on good terms is the main cause of the slow down, not a desire by companies to sit on cash reserves).
The exemption can be handled as a rebate check or by not requiring point of sale withholding (which means there is no wait).
How do you prevent the former from resulting in a situation were I theoretically spen $0 and just make $5000 at the end of the year?
It's very easy: we just don't care. If you can make it a year without spending any money, congratulations, you're $5000 up!
While in practice this might not be a problem, in principle with a critical mass of people spending <$50,000 a year, it would be possible for the government to refund more money than it actually took in in taxes.
Because you can have limited liability without personhood. In fact, that's a goosey argument.
I'm not sure what a goosey argument is. While you can have limited liability without personhood (such as with a limited liability partnership) there is no real functional difference between a corportation and an LLP, except that the LLP is administratively burdensome. What exactly is the problem with corporate personhood though? I literally never heard anyone complain about it until occupy wallstreet, and have not heard a coherent argument against it from any OWS people.
They are mad that because money is considered speech and corporations are persons, that means they can spend corporate money as donations in large amounts, and that influences the politics because it gives corporate officers access to politicians. it is less about corporate personhood, and more about corporations buying politicians.
Without going into much detail, a consumption tax with a large exemption (i.e., no tax on the first $20-50k in consumption for the year) has gained widespread support among academics for a number or reasons, including the fact that it encourages saving, and saving is positively correlated with economic growth. A consumption tax also lowers certain barriers to the efficient movement of money which exist under an income tax (i.e., if you are invested in a company and see that there is another company you'd rather invest in, you may choose not to move your money due to the tax hit for selling your stock in the original company).
...Which academics?
There are schools of academia in the U.S. (namely, the economics cliques in Chicago & Harvard) that are absolutely not to be trusted, partly because of massive conflicts of interest they have and partly because they have an incredibly disastrous track record for making failed predictions, giving bad advice and failing to see gaping wounds that the market had inflicted upon itself.
Does anyone know if the MA sales tax is regressive?
Yes, because it's a sales tax. It's like asking if the Pacific Ocean is wet.
That is incorrect. You can structure a sales tax so that the incidence is uniform or even progressive (such as luxury taxes). If you had a sales tax that only applied to luxury cars, clothing over $500 per item, and yachts, I don't think it would make sense to classify it as regressive.
Um, yes, it would still be regressive. It would only be regressive in the pool of impacted individuals, but it would still be regressive.
Not really, at least if we're going by portion of income/wealth taxed. Massachusetts doesn't tax food and clothes, which are the items that don't scale by income.
Without going into much detail, a consumption tax with a large exemption (i.e., no tax on the first $20-50k in consumption for the year) has gained widespread support among academics for a number or reasons, including the fact that it encourages saving, and saving is positively correlated with economic growth.
My understanding is that this correlation runs in the opposite direction, causally, than is implied.
In other words, you imply that savings increases economic growth. My understanding is that savings is an effect of economic growth. You can have a high savings rate and a slow economy (see: Japan's lost decade); but if you have a strong economy, then people will have more money, therefore they'll have more money to save. If you increase the savings rate by discouraging consumption, you're going to have a deleterious effect on demand for those goods and services that you're taxing, which is going to have a slowing effect on the economy.
it is hard to imagine shareholders (or executives whose bonuses are based on earnings, not capital reserves) being ok with it for long. If everyone (individuals and corporations alike) decided to save all of their money, then yes, there could be a problem for the government, although it would also be able to borrow at favorable rates during any such period.
... Have you not been watching current events? You've just described what is happening currently. And there hasn't been a shareholder revolt.
Feral on
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
the "no true scotch man" fallacy.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
It would also reduce tax rates across the board, much fewer deductions and a lower tax as a result, also lower overhead because you won't need an accountant. So yes like the current system except less deductions and more uniform taxation of businesses. And also normalizing corporate taxation so that it is more in line with business taxation need not be so much as a direct pass-through that is very much a false dilemma, but the current system is terrible. Investors are penalized for being prudent with taxation on dividends, and not when the company continually reinvests. And non profits and religions, they get taxed too. Too often they get used as tax shelters so they get taxed. Really I just want GE to eat their tax bill instead of legally get out of paying taxes most years.
Again, its easy to say "let's get rid of the deductions" but the reality is that the deductions and credits in the code are complex and mostly serve legitimate purposes. Getting rid of tax breaks for specific industries is easier, from a tax policy perspective, but you definitely would not want to get rid of deductions like payroll or benefits, and probably would not want to get rid of expensing/depreciating capital assets, since these deductions encourage companies to hire people and spend money.
This idea that many tax exempts are shelters is not true. IRS audits of tax exempts is quite common, and it is extemely rare for a tax exempt to lose its exempt status. Even where tax exempts do lose their exempt status, it is more commonly for things like lobbying, not allowing people to evade income taxes.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Without going into much detail, a consumption tax with a large exemption (i.e., no tax on the first $20-50k in consumption for the year) has gained widespread support among academics for a number or reasons, including the fact that it encourages saving, and saving is positively correlated with economic growth. A consumption tax also lowers certain barriers to the efficient movement of money which exist under an income tax (i.e., if you are invested in a company and see that there is another company you'd rather invest in, you may choose not to move your money due to the tax hit for selling your stock in the original company).
...Which academics?
There are schools of academia in the U.S. (namely, the economics cliques in Chicago & Harvard) that are absolutely not to be trusted, partly because of massive conflicts of interest they have and partly because they have an incredibly disastrous track record for making failed predictions, giving bad advice and failing to see gaping wounds that the market had inflicted upon itself.
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
Typically tax exempts also have to report all unrelated business activities. If they exceed a certain threshhold, they have to file and pay taxes like an ordinary corporation.
There's also a lot of confusing about when you look at an issuers 10-K and only see an accrual-basis income statement and balance sheet where they have tax assets and tax liabilities booked. I think adding some transparency would include also issuing an OCBOA statement prepared on an income tax basis for issuers, primarily so you can actually see if these corporations are, indeed, paying taxes.
Additionally, international earnings and Subpart F income needs to be looked at more closely. The IRS has begun to crack down more on double-dutching/transfer pricing, but there's still the issue of indefinitely reinvested earnings abroad and international interest shielding. here's a little more on Subpart F income
Complicated subpart F rules govern the taxation of transactions between a U.S. parent company and its foreign subsidiaries. The difficulty with interpreting the subpart F rules and applying them to complex derivative transactions has been the subject of extensive tax literature. Few of the proposed solutions have been simple enough to implement quickly and
efficiently without wholesale changes to the subpart F system. This Comment focuses on the inconsistent tax treatment of economically equivalent transactions that currently exists under subpart F and the incentives that this system creates for U.S. companies to engage in expensive tax-planning strategies to avoid subpart F taxation. These tax-planning strategies—used to
achieve an economically identical result—cost both the government and U.S. companies unnecessary money.
This Comment uses the Schering-Plough Corp. v. United States decision to highlight the difficulties in properly complying with subpart F and the lengths to which a taxpayer must go to avoid subpart F. It explores the reasons why the subpart F system was created the way that it was, as well as the competing theories on international taxation that led to the subpart F system. This
Comment then proposes that economically equivalent transactions should be taxed the same, either by using the transfer pricing rules—currently used to govern asset sales between a parent and its foreign subsidiary—more extensively in governing cash loans and loans of property between a parent and its foreign subsidiary, or alternatively, by treating asset sales between a
foreign subsidiary and its domestic parent as a repatriating event—the same way that a loan between a foreign subsidiary and its domestic parent is currently treated—and taxing the entire transaction under subpart F. Either option would give greater consistency to transactions governed by subpart F and would be relatively simple to implement within the political process.
Does anyone know if the MA sales tax is regressive?
Yes, because it's a sales tax. It's like asking if the Pacific Ocean is wet.
That is incorrect. You can structure a sales tax so that the incidence is uniform or even progressive (such as luxury taxes). If you had a sales tax that only applied to luxury cars, clothing over $500 per item, and yachts, I don't think it would make sense to classify it as regressive.
Um, yes, it would still be regressive. It would only be regressive in the pool of impacted individuals, but it would still be regressive.
Not really, at least if we're going by portion of income/wealth taxed. Massachusetts doesn't tax food and clothes, which are the items that don't scale by income.
As far as a sales tax being modified to be 'progressive', you might also want to review the Canadian GST/PST system to see why, in application, it simply doesn't work-out the way you might think it will (we don't get charged GST on a lot of basic household items, but then some items get categorized as 'luxury' simply because they aren't the cheapest shit on the shelf - which translates to low income people buying old, inefficient products / low-nutrition food and wealthier people buying fresh food & sustainable products with the small flat tax attached.
It creates a really, really ugly disparity in quality of life, and to be frank, the regressive nature of it made it very, very easy for the conservative government to start chopping away at it (while, of course, not creating any new taxes to make-up for the loss in revenue. Because that's so fiscally responsible!).
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
So, your claim of this particular species of tax reform becoming widespread in academia is based one forum of lawyers at one university?
Additionally, since I know it's going to come up in the inevitable mortgage interest deduction debate, here's a really boring link going over tax expenditures.
These types of tax benefits provide larger subsidies to higher-income individuals because the value is the amount deducted or excluded times the marginal tax rate. Many deductions are itemized deductions, which provide no subsidy to the 65 percent of mostly low- and middle-income tax filers who do not itemize deductions on their tax returns. And all deductions and exclusions provide no subsidy at all to people with no income tax liability -- even though they may pay payroll taxes, federal excise taxes, and state and local taxes -- despite the fact that they comprise about 43 percent of all tax units.
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
So, your claim of this particular species of tax reform becoming widespread in academia is based one forum of lawyers at one university?
The Colloquium offers students the opportunity to pursue tax policy and theory, along with related issues of public economics, at an advanced level. The primary focus of the Colloquium will be papers and works in progress by scholars from around the country, including NYU faculty.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Without going into much detail, a consumption tax with a large exemption (i.e., no tax on the first $20-50k in consumption for the year) has gained widespread support among academics for a number or reasons, including the fact that it encourages saving, and saving is positively correlated with economic growth.
My understanding is that this correlation runs in the opposite direction, causally, than is implied.
In other words, you imply that savings increases economic growth. My understanding is that savings is an effect of economic growth. You can have a high savings rate and a slow economy (see: Japan's lost decade); but if you have a strong economy, then people will have more money, therefore they'll have more money to save. If you increase the savings rate by discouraging consumption, you're going to have a deleterious effect on demand for those goods and services that you're taxing, which is going to have a slowing effect on the economy.
My understanding is that with the increased investment brought about by increased savings, companies are able to increase their capital expenditures, which is a driver of growth. I don't know enough about Japan's economy to discuss it, or what factors may be influencing its slow growth.
Actually I've heard that Japan's consumers have a higher marginal propensity to save, which makes it more difficult to get GDP to where you want it because of the multiplier effect. I mean, it's harder to have an economy where people are buying stock when money's not flowing freely.
I'm betting that people actually buying shit is a lot more helpful than buying stock. Plus, the former creates jobs, at least if the management doesn't decide to lay off a bunch of workers and give the CEO a huge bonus instead.
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
So, your claim of this particular species of tax reform becoming widespread in academia is based one forum of lawyers at one university?
The Colloquium offers students the opportunity to pursue tax policy and theory, along with related issues of public economics, at an advanced level. The primary focus of the Colloquium will be papers and works in progress by scholars from around the country, including NYU faculty.
Further to this, in the colloquium we read most of the in progress papers from the major writers in tax policy, and professors from Yale, Chicago, Columbia and other schools would come every week to participate in the discussion. I also had the opportunity to read most of the seminal works on tax policy as part of some other course I took in law school. It was a really great academic experience for anyone with even a passing interest in tax policy.
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
So, your claim of this particular species of tax reform becoming widespread in academia is based one forum of lawyers at one university?
The Colloquium offers students the opportunity to pursue tax policy and theory, along with related issues of public economics, at an advanced level. The primary focus of the Colloquium will be papers and works in progress by scholars from around the country, including NYU faculty.
Further to this, in the colloquium we read most of the in progress papers from the major writers in tax policy, and professors from Yale, Chicago, Columbia and other schools would come every week to participate in the discussion. I also had the opportunity to read most of the seminal works on tax policy as part of some other course I took in law school. It was a really great academic experience for anyone with even a passing interest in tax policy.
Without going into much detail, a consumption tax with a large exemption (i.e., no tax on the first $20-50k in consumption for the year) has gained widespread support among academics for a number or reasons, including the fact that it encourages saving, and saving is positively correlated with economic growth.
My understanding is that this correlation runs in the opposite direction, causally, than is implied.
In other words, you imply that savings increases economic growth. My understanding is that savings is an effect of economic growth. You can have a high savings rate and a slow economy (see: Japan's lost decade); but if you have a strong economy, then people will have more money, therefore they'll have more money to save. If you increase the savings rate by discouraging consumption, you're going to have a deleterious effect on demand for those goods and services that you're taxing, which is going to have a slowing effect on the economy.
My understanding is that with the increased investment brought about by increased savings, companies are able to increase their capital expenditures, which is a driver of growth. I don't know enough about Japan's economy to discuss it, or what factors may be influencing its slow growth.
Well if that were true then the consumption tax wouldn't punish the middle class because the massive amount of investment from the super rich would enable extraordinary capital expenditure by the recipients of investment and keep the cash moving around
... oh wait that's true
carry on
(though I have heard many conclude that the Japanese stagnation was linked to the savings issue, there was really no mention or evidence of causality one way or another. I think you'd have to really check with some hardcore economists on that one.
I'd tend to think that it hurts, because the in the pipeline between Person #4623's minute savings account and meaningful capital investment, something is lost in the process, like the manpower it takes to micromanage that stuff on an individual basis, and then of course the Person could always withdraw the money basically at will, which lends its self to potentially brutal sort of fluctuation. The fact is that Persons could make massive withdrawals of savings at any time...)
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Not really, at least if we're going by portion of income/wealth taxed. Massachusetts doesn't tax food and clothes, which are the items that don't scale by income.
It's still regressive.
You are right, but only in the narrowest and most technical sense. It is hard to imagine someone arguing that a consumption tax should not be imposed on luxury goods as a policy matter, because it can be regressive to a specific income segment which is not needy.
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zepherinRussian warship, go fuck yourselfRegistered Userregular
This idea that many tax exempts are shelters is not true. IRS audits of tax exempts is quite common, and it is extemely rare for a tax exempt to lose its exempt status.
You've got your cause effect relationship wrong. Tax exempts are used as tax shelters because it is extremely rare for tax exempt to lose tax exempt status. The rules on what you can do as a non profit are tremendously loose. It is easy to abuse.
First off, I find it odd that a discussion one how tax reform is so hard begins with talking about how difficult it is to even define income. We've already defined income - that part is done. Because, you know, we have an income tax already.
Transitional issues aside, wouldn't it be feasible to just leave the "what is income?" part of the tax code alone (more or less) and work on eliminating exemptions?
I also find it someone curious to talk about how all these exemptions are so hard to get rid of because they represent conscious policy decisions. I mean, of course they do. The tax code just doesn't magically wink into existence, it is written as a result of politicians wanting to implement social policy. The main complaint of those in favor of tax reform (or simplification) is that these policies suck a big nut. (I also think it's amusing that a point against tax reform is that it would distort the market. The market is so distorted already that it can practically suck its own dick.)
One of my complaints about the current tax code is that it warps the impression of who's paying what. People whine about how rich folks have to pay 35% in tax. 35 whole percent! Except they only pay around 15-20% in effective taxes. Sort of like we have the highest corporate tax rates in the world, even though most of our biggest corporations pay aprroximately 0% in taxes because of exemptions.
I submitted an entry to Lego Ideas, and if 10,000 people support me, it'll be turned into an actual Lego set!If you'd like to see and support my submission, follow this link.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Typically tax exempts also have to report all unrelated business activities. If they exceed a certain threshhold, they have to file and pay taxes like an ordinary corporation.
There's also a lot of confusing about when you look at an issuers 10-K and only see an accrual-basis income statement and balance sheet where they have tax assets and tax liabilities booked. I think adding some transparency would include also issuing an OCBOA statement prepared on an income tax basis for issuers, primarily so you can actually see if these corporations are, indeed, paying taxes.
Additionally, international earnings and Subpart F income needs to be looked at more closely. The IRS has begun to crack down more on double-dutching/transfer pricing, but there's still the issue of indefinitely reinvested earnings abroad and international interest shielding. here's a little more on Subpart F income
Complicated subpart F rules govern the taxation of transactions between a U.S. parent company and its foreign subsidiaries. The difficulty with interpreting the subpart F rules and applying them to complex derivative transactions has been the subject of extensive tax literature. Few of the proposed solutions have been simple enough to implement quickly and
efficiently without wholesale changes to the subpart F system. This Comment focuses on the inconsistent tax treatment of economically equivalent transactions that currently exists under subpart F and the incentives that this system creates for U.S. companies to engage in expensive tax-planning strategies to avoid subpart F taxation. These tax-planning strategies—used to
achieve an economically identical result—cost both the government and U.S. companies unnecessary money.
This Comment uses the Schering-Plough Corp. v. United States decision to highlight the difficulties in properly complying with subpart F and the lengths to which a taxpayer must go to avoid subpart F. It explores the reasons why the subpart F system was created the way that it was, as well as the competing theories on international taxation that led to the subpart F system. This
Comment then proposes that economically equivalent transactions should be taxed the same, either by using the transfer pricing rules—currently used to govern asset sales between a parent and its foreign subsidiary—more extensively in governing cash loans and loans of property between a parent and its foreign subsidiary, or alternatively, by treating asset sales between a
foreign subsidiary and its domestic parent as a repatriating event—the same way that a loan between a foreign subsidiary and its domestic parent is currently treated—and taxing the entire transaction under subpart F. Either option would give greater consistency to transactions governed by subpart F and would be relatively simple to implement within the political process.
I don't practice this type of tax anymore (I am a tax and benefits lawyer focusing on the taxation of executive compensation, health and welfare benefits, and tax qualified plans) but when I was starting out I worked on a transfer pricing tax controversy, and all I can say is they are among the most complex rules in the code, and even the IRS can't agree on how to properly determine how to allocate value. The only thing I worked on that compares in terms of complexity is FIRPTA. . .
They arrive there through the combination of exemptions and incentives.
You can't have a functioning private non-charity business entity with a 0% tax rate, because at some point, someones salary is not tax exempt somewhere along the way, and exemptions deal directly with expenditure.
Incentives can be just flat amount of cash that you don't have to pay.
Most notably in our current economics, energy research incentives, which is how folks like GE manage to drive their tax bill down to practically nothing.
Incentives... probably good. You can make that argument.
Exemptions. Very flawed. Ask any half rate business person about exemptions, and they'll tell you all about how they try to justify every little item as a tax exemption, from personal cell phones to eating lunch in the presence of business associates.
Our corporate tax rate IS high in an effort to combat the snake pit of exemptions we have to deal with.
One reason I don't hate Paul Ryan is because he acknowledges that and understands that tax reform will not come without blowing those shitty exemptions out of the water.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
I'm betting that people actually buying shit is a lot more helpful than buying stock. Plus, the former creates jobs, at least if the management doesn't decide to lay off a bunch of workers and give the CEO a huge bonus instead.
Buying stock means giving money to the companies, which they can reinvest in expanding their business. I'm honestly not sure whether consumer spending or corporate capital expenditures has a greater effect on economic growth (I think there is actually disagreement on this among academics) but both help.
I'd like to see some studies about how taxation of dividend income at ordinary income rates would affect companies who accumulate huge amounts of retained earnings. Primarily because the accumulated earnings tax uses the dividend rate to tax what it defines as excessive earnings, just so we could see companies sitting on huge piles of cash from operations not just sit on them.
Additionally, buying and selling stock in a secondary market does not actually give the issuers any more cash: they probably already got that in an IPO, underwritten or not. Also personal use of cell phones being deducted on a business tax return is always a red flag for an IRS audit (this means it shouldn't be done), and business lunches are limited to 50%.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
This idea that many tax exempts are shelters is not true. IRS audits of tax exempts is quite common, and it is extemely rare for a tax exempt to lose its exempt status.
You've got your cause effect relationship wrong. Tax exempts are used as tax shelters because it is extremely rare for tax exempt to lose tax exempt status. The rules on what you can do as a non profit are tremendously loose. It is easy to abuse.
Please provide any empirical evidence you have of this widespread abuse. I ask because my own experience working with a lot of non-profits (both paying clients and pro bono) at a firm with one of the largest exempt orgs practices in the country has been that tax exempts are extremely cautious when it comes to what they can and cannot do as exempt orgs.
I'm betting that people actually buying shit is a lot more helpful than buying stock. Plus, the former creates jobs, at least if the management doesn't decide to lay off a bunch of workers and give the CEO a huge bonus instead.
Buying stock means giving money to the companies, which they can reinvest in expanding their business. I'm honestly not sure whether consumer spending or corporate capital expenditures has a greater effect on economic growth (I think there is actually disagreement on this among academics) but both help.
Yes, they can do that. Or they can give the executive board big bonuses. Guess which one happens more often these days?
I'd like to see some studies about how taxation of dividend income at ordinary income rates would affect companies who accumulate huge amounts of retained earnings. Primarily because the accumulated earnings tax uses the dividend rate to tax what it defines as excessive earnings, just so we could see companies sitting on huge piles of cash from operations not just sit on them.
It would hurt stock prices for companies who aim to keep disproportionate amounts of cash on hand, because the reason to have a big war chest relative to the size of your company is to signify that your company is stable and strong. If you slice something out of that then it might disproportionally impact companies who maybe deal with more volatile sectors.
Like it probably would hurt a retail clothing operation more than it would hurt Exxon. Wall Street doesn't really doubt that Exxon is strong. But a clothing company with not much cash during a recession... untouchable to investors.
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Obvious problem:
When consumption goes down due to exogenous event that isn't rooted in increased savings or results in increased savings, government's sole source of income is drastically affected.
Huh? The Federal tax system is far from self reporting. In fact, it's the people who do self report that have the biggest incidence of tax avoidance, intentional or accidental.
The point of the post was not to say these specific issues are hard (although I actually do think that the definition of income is not a straight forward question (there are multiple academic papers written on the subject in any given year), and any systemic tax reform will have to at least decide if we wanted to stick with our current (complex) definition). The point was that while it is easy to be anti-tax loopholes, when you get into the weeds you see that many of these loopholes do serve an important purpose in the code, or represent a very deliberate policy decision.
There have also been a lot of changes in the financial industry since those times, so it is difficult to say what role the tax system played in a flatter income distribution. If you started taxing hedge fund managers and private equity guys at 70%, they're still going to be making much much more than the average.
The tax is collected at the point of sale, not on the consumer. The consumer never has to fill out a tax document unless he sells something.
I should have said "self-assessment" not self-reporting. My apologies for the confusion. But unlike most countries, where taxes are assessed by the taxing authority, in the US we assess our own taxes and the government issues us refunds or requires further payments if our assessment differs from the amount that was withheld.
On the self-reporting avoidance point, it is hard to say exactly how much of a problem it is, but it is currently an IRS priority.
You are assuming that companies who will have more cash on hand due to increased investment during a high savings period will choose to sit on those cash reserves instead of expending them to grow and pursue new opportunies. I suppose that could happen, although it is hard to imagine shareholders (or executives whose bonuses are based on earnings, not capital reserves) being ok with it for long. If everyone (individuals and corporations alike) decided to save all of their money, then yes, there could be a problem for the government, although it would also be able to borrow at favorable rates during any such period.
... Have you not been watching current events? You've just described what is happening currently. And there hasn't been a shareholder revolt.
I'm not sure what a goosey argument is. While you can have limited liability without personhood (such as with a limited liability partnership) there is no real functional difference between a corportation and an LLP, except that the LLP is administratively burdensome. What exactly is the problem with corporate personhood though? I literally never heard anyone complain about it until occupy wallstreet, and have not heard a coherent argument against it from any OWS people.
Right now, we are in what I see as a short-term drop in corporate spending, similiar to what happened in 2008/2009, although not nearly as severe. There is still a good amount of deal activity (which is very different from 2008/2009), although the credit markets are not great (I actually think the difficulty in obtaining money on good terms is the main cause of the slow down, not a desire by companies to sit on cash reserves).
While in practice this might not be a problem, in principle with a critical mass of people spending <$50,000 a year, it would be possible for the government to refund more money than it actually took in in taxes.
Except we would not in fact be doing that if we didn't withhold tax at point of sale as he was suggesting.
...Which academics?
There are schools of academia in the U.S. (namely, the economics cliques in Chicago & Harvard) that are absolutely not to be trusted, partly because of massive conflicts of interest they have and partly because they have an incredibly disastrous track record for making failed predictions, giving bad advice and failing to see gaping wounds that the market had inflicted upon itself.
Not really, at least if we're going by portion of income/wealth taxed. Massachusetts doesn't tax food and clothes, which are the items that don't scale by income.
My understanding is that this correlation runs in the opposite direction, causally, than is implied.
In other words, you imply that savings increases economic growth. My understanding is that savings is an effect of economic growth. You can have a high savings rate and a slow economy (see: Japan's lost decade); but if you have a strong economy, then people will have more money, therefore they'll have more money to save. If you increase the savings rate by discouraging consumption, you're going to have a deleterious effect on demand for those goods and services that you're taxing, which is going to have a slowing effect on the economy.
Also, this:
the "no true scotch man" fallacy.
Again, its easy to say "let's get rid of the deductions" but the reality is that the deductions and credits in the code are complex and mostly serve legitimate purposes. Getting rid of tax breaks for specific industries is easier, from a tax policy perspective, but you definitely would not want to get rid of deductions like payroll or benefits, and probably would not want to get rid of expensing/depreciating capital assets, since these deductions encourage companies to hire people and spend money.
This idea that many tax exempts are shelters is not true. IRS audits of tax exempts is quite common, and it is extemely rare for a tax exempt to lose its exempt status. Even where tax exempts do lose their exempt status, it is more commonly for things like lobbying, not allowing people to evade income taxes.
I can only talk to the people I know at NYU law, and the visting faculty that attended a weekly tax policy colloquium that I was part of back when I was a student. I have no idea if their views have changed in the years since I went to NYU.
There's also a lot of confusing about when you look at an issuers 10-K and only see an accrual-basis income statement and balance sheet where they have tax assets and tax liabilities booked. I think adding some transparency would include also issuing an OCBOA statement prepared on an income tax basis for issuers, primarily so you can actually see if these corporations are, indeed, paying taxes.
Additionally, international earnings and Subpart F income needs to be looked at more closely. The IRS has begun to crack down more on double-dutching/transfer pricing, but there's still the issue of indefinitely reinvested earnings abroad and international interest shielding. here's a little more on Subpart F income
http://www.law.emory.edu/fileadmin/journals/elj/60/60.2/Soleimani.pdf
It's still regressive.
It creates a really, really ugly disparity in quality of life, and to be frank, the regressive nature of it made it very, very easy for the conservative government to start chopping away at it (while, of course, not creating any new taxes to make-up for the loss in revenue. Because that's so fiscally responsible!).
So, your claim of this particular species of tax reform becoming widespread in academia is based one forum of lawyers at one university?
http://www.grist.org/politics/2011-09-22-tax-expenditures-a-boring-thing-you-should-be-outraged-about
http://law.nyu.edu/academics/colloquia/taxpolicy/index.htm
My understanding is that with the increased investment brought about by increased savings, companies are able to increase their capital expenditures, which is a driver of growth. I don't know enough about Japan's economy to discuss it, or what factors may be influencing its slow growth.
Further to this, in the colloquium we read most of the in progress papers from the major writers in tax policy, and professors from Yale, Chicago, Columbia and other schools would come every week to participate in the discussion. I also had the opportunity to read most of the seminal works on tax policy as part of some other course I took in law school. It was a really great academic experience for anyone with even a passing interest in tax policy.
unless it counts towards my CPE hours!!
Well if that were true then the consumption tax wouldn't punish the middle class because the massive amount of investment from the super rich would enable extraordinary capital expenditure by the recipients of investment and keep the cash moving around
... oh wait that's true
carry on
(though I have heard many conclude that the Japanese stagnation was linked to the savings issue, there was really no mention or evidence of causality one way or another. I think you'd have to really check with some hardcore economists on that one.
I'd tend to think that it hurts, because the in the pipeline between Person #4623's minute savings account and meaningful capital investment, something is lost in the process, like the manpower it takes to micromanage that stuff on an individual basis, and then of course the Person could always withdraw the money basically at will, which lends its self to potentially brutal sort of fluctuation. The fact is that Persons could make massive withdrawals of savings at any time...)
You are right, but only in the narrowest and most technical sense. It is hard to imagine someone arguing that a consumption tax should not be imposed on luxury goods as a policy matter, because it can be regressive to a specific income segment which is not needy.
Transitional issues aside, wouldn't it be feasible to just leave the "what is income?" part of the tax code alone (more or less) and work on eliminating exemptions?
I also find it someone curious to talk about how all these exemptions are so hard to get rid of because they represent conscious policy decisions. I mean, of course they do. The tax code just doesn't magically wink into existence, it is written as a result of politicians wanting to implement social policy. The main complaint of those in favor of tax reform (or simplification) is that these policies suck a big nut. (I also think it's amusing that a point against tax reform is that it would distort the market. The market is so distorted already that it can practically suck its own dick.)
One of my complaints about the current tax code is that it warps the impression of who's paying what. People whine about how rich folks have to pay 35% in tax. 35 whole percent! Except they only pay around 15-20% in effective taxes. Sort of like we have the highest corporate tax rates in the world, even though most of our biggest corporations pay aprroximately 0% in taxes because of exemptions.
I don't practice this type of tax anymore (I am a tax and benefits lawyer focusing on the taxation of executive compensation, health and welfare benefits, and tax qualified plans) but when I was starting out I worked on a transfer pricing tax controversy, and all I can say is they are among the most complex rules in the code, and even the IRS can't agree on how to properly determine how to allocate value. The only thing I worked on that compares in terms of complexity is FIRPTA. . .
They arrive there through the combination of exemptions and incentives.
You can't have a functioning private non-charity business entity with a 0% tax rate, because at some point, someones salary is not tax exempt somewhere along the way, and exemptions deal directly with expenditure.
Incentives can be just flat amount of cash that you don't have to pay.
Most notably in our current economics, energy research incentives, which is how folks like GE manage to drive their tax bill down to practically nothing.
Incentives... probably good. You can make that argument.
Exemptions. Very flawed. Ask any half rate business person about exemptions, and they'll tell you all about how they try to justify every little item as a tax exemption, from personal cell phones to eating lunch in the presence of business associates.
Our corporate tax rate IS high in an effort to combat the snake pit of exemptions we have to deal with.
One reason I don't hate Paul Ryan is because he acknowledges that and understands that tax reform will not come without blowing those shitty exemptions out of the water.
Buying stock means giving money to the companies, which they can reinvest in expanding their business. I'm honestly not sure whether consumer spending or corporate capital expenditures has a greater effect on economic growth (I think there is actually disagreement on this among academics) but both help.
Additionally, buying and selling stock in a secondary market does not actually give the issuers any more cash: they probably already got that in an IPO, underwritten or not. Also personal use of cell phones being deducted on a business tax return is always a red flag for an IRS audit (this means it shouldn't be done), and business lunches are limited to 50%.
Please provide any empirical evidence you have of this widespread abuse. I ask because my own experience working with a lot of non-profits (both paying clients and pro bono) at a firm with one of the largest exempt orgs practices in the country has been that tax exempts are extremely cautious when it comes to what they can and cannot do as exempt orgs.
It would hurt stock prices for companies who aim to keep disproportionate amounts of cash on hand, because the reason to have a big war chest relative to the size of your company is to signify that your company is stable and strong. If you slice something out of that then it might disproportionally impact companies who maybe deal with more volatile sectors.
Like it probably would hurt a retail clothing operation more than it would hurt Exxon. Wall Street doesn't really doubt that Exxon is strong. But a clothing company with not much cash during a recession... untouchable to investors.