Trump vs Clinton vs Johnson on Taxes

[ludin]

Has a heavy tax on consumption ever worked? And why would you want to "improve" savings relative to consumption?

VAT taxes are all over the place in Europe and they have high income taxes to begin with.
I don't see them struggling that badly.

The difference here is that it is only a sales tax with no income tax.
and you pay no tax up to the poverty level of your family size.

 

[ludin]

Not only that but it is never explained how service "consumption" (labor?) would be taxed. The taxation of services makes the "fair tax" serve as an income tax (yet simply being called "consumption" tax). For example if you pay me $100 (for labor that you "consumed") to fix your fence, maintain your lawn or paint your house - who collects (and pays the federal government) that $23 (or whatever) in tax? Since I have no duty to report my income (IRS no longer exists) and you might "forget" to keep labor "consumption" records for your personal living expenses then who plays "fair tax" collector for service labor?

businesses already collect and pay sales tax now.

 

[ttwtt78640]

businesses already collect and pay sales tax now.

But consumers do not - remember that the "fair tax" completely replaces the federal income tax. I am a business (self employed handyman) that does not collect any taxes. I do pay state sales tax (on new material purchases) but have the customer reimburse me for that expense. I now pay income tax only on the portion of my labor reported by the customer to IRS via form 1099 (about 25% of my income).

 

[jonny5]

The "fair tax" is applied to new goods and services (except education and training services) so that is a different animal entirely.

Thats what I said. All first time sales between business and consumer.

 

[jonny5]

Not only that but it is never explained how service "consumption" (labor?) would be taxed. The taxation of services makes the "fair tax" serve as an income tax (yet simply being called "consumption" tax). For example if you pay me $100 (for labor that you "consumed") to fix your fence, maintain your lawn or paint your house - who collects (and pays the federal government) that $23 (or whatever) in tax? Since I have no duty to report my income (IRS no longer exists) and you might "forget" to keep labor "consumption" records for your personal living expenses then who plays "fair tax" collector for service labor?

You would still be legally required to operate as a business, and thus collect sales tax (for which you get a cut). Sure, you could do it illegally. BUT, when you take your untaxed income to walmart to buy something, it would be taxed. So the govt gets it anyway. Thats one of the benefits of a sales tax. It captures those hundreds of billions of currently untaxed income. Which means the rest of us dont have to pay as much.

 

[jonny5]

VAT taxes are all over the place in Europe and they have high income taxes to begin with.
I don't see them struggling that badly.

The difference here is that it is only a sales tax with no income tax.
and you pay no tax up to the poverty level of your family size.

And this wouldnt be a VAT either, which is applied at every stage of distribution. Its only on the final stage. Business would pay no taxes between themselves. Which makes compliance easier.

 

[ttwtt78640]

Thats what I said. All first time sales between business and consumer.

Since I sell my labor (as a self-employed handyman) then that service income would (somehow) be subject to a new federal sales tax - that sounds exactly like an income tax to me yet at a much higher rate.

The point is that since I did not (yet) consume that income I should not owe (or pay) sales tax until I spend it. The person that did "consume" my labor (my customer) is not likely to voluntarily fork over any consumption tax on my (unreported) income.

 

[cpwill]

That social game (first bolded above) requires some explanation. How and when. exactly, does one get that subsidy?

Looks like the Fair Tax, which gives a monthly stipend to everyone that covers the tax on spending up to the poverty line.

 

[ttwtt78640]

You would still be legally required to operate as a business, and thus collect sales tax (for which you get a cut). Sure, you could do it illegally. BUT, when you take your untaxed income to walmart to buy something, it would be taxed. So the govt gets it anyway. Thats one of the benefits of a sales tax. It captures those hundreds of billions of currently untaxed income. Which means the rest of us dont have to pay as much.

I most assuredly would "cheat" - taxation of my income as a "labor sale" is simply an accounting trick to call a 23% income tax a 23% sales (consumption?) tax. If 23% is taken off the top when I get paid (sell my labor) and another 23% must be paid when I (later) spend (consume?) my (already taxed?) income that is about a 50% (overall) tax rate. **** that idea.

 

[cpwill]

You've read 23%. I've read 28%. But even 28% is misleading - it's actually 39%.

Lies, damn lies, and statistics.

It's not 39% if you are comparing apples-to-apples with Federal Income Tax rates, which is what it is intended to do. What this article is attempting to argue is that we should score sales tax differently than we discuss income tax for the purpose of comparison.

So, for example, your FICA tax rate (at current) isn't 15.3% (between you and your employer), but rather 18%. The top FIT tax bracket isn't an additional 39.6%, but rather 65.56%.

 

[ttwtt78640]

Looks like the Fair Tax, which gives a monthly stipend to everyone that covers the tax on spending up to the poverty line.

Indeed it does. But a tax on services is simply calling an income tax a sales tax. My income is 100% from selling my labor (as a self-employed handyman). Expecting me to bump my labor rate by 23% and pass that "excess" along to the federal government (for a 1% kickback?) is silly. Who the **** is going to report me to the feds for not charging them 23% more for my labor?

 

[jonny5]

I most assuredly would "cheat" - taxation of my income as a "labor sale" is simply an accounting trick to call a 23% income tax a 23% sales (consumption?) tax. If 23% is taken off the top when I get paid (sell my labor) and another 23% must be paid when I (later) spend (consume?) my (already taxed?) income that is about a 50% (overall) tax rate. **** that idea.

No, there are two people involved. The customer who pays you $100 for your service, owes $23 in sales tax. You keep $77. If you then spend it on new sales, you owe 23% sales tax, $17.

Its the same with the income tax now. The customer earned $100, and the govt took about 23% (marginal). She then took her $77 remaining and paid you to fix her fence. You owe the govt 23% (marginal) of that in income tax.

The main difference is fair tax is simpler and more equal. One flat tax rate and only one point. No figuring whats income, whats deductions or credits, and what rate to pay on different types of income. And then filing 30 pages every year with all sorts of private info sent to the govt.

 

[jonny5]

Indeed it does. But a tax on services is simply calling an income tax a sales tax. My income is 100% from selling my labor (as a self-employed handyman). Expecting me to bump my labor rate by 23% and pass that "excess" along to the federal government (for a 1% kickback?) is silly. Who the **** is going to report me to the feds for not charging them 23% more for my labor?

No one. But youll still be taxed when you spend it. So it doesnt matter. Same goes for arms dealers, prostitutes, child sex smugglers. We'll still try to catch them, and you, for committing a crime, but in the meantime you wont be avoiding taxation to pay for it.

 

[ludin]

But consumers do not - remember that the "fair tax" completely replaces the federal income tax. I am a business (self employed handyman) that does not collect any taxes. I do pay state sales tax (on new material purchases) but have the customer reimburse me for that expense. I now pay income tax only on the portion of my labor reported by the customer to IRS via form 1099 (about 25% of my income).

You collect taxes all the time unless you are working under the table.

You pay income taxes, SS taxes etc. your jobs are priced out to include those costs
For the jobs you do. Just as you collect money for income tax that would go away and you
Would just collect the money for he sales tax. The difference is that you don't pay the sales tax on any
Materials that you buy. You would only pay sales tax on the final product.

The sales tax is inclusive of the cost. So if you charge 1000 dollars for the job 230 of that
Would go be filed to he government.

You pay no income tax, corporate taxes on that money. You pay no tax on the materials that you use.

 

[ttwtt78640]

No, there are two people involved. The customer who pays you $100 for your service, owes $23 in sales tax. You keep $77. If you then spend it on new sales, you owe 23% sales tax, $17.

Its the same with the income tax now. The customer earned $100, and the govt took about 23% (marginal). She then took her $77 remaining and paid you to fix her fence. You owe the govt 23% (marginal) of that in income tax.

The main difference is fair tax is simpler and more equal. One flat tax rate and only one point. No figuring whats income, whats deductions or credits, and what rate to pay on different types of income. And then filing 30 pages every year with all sorts of private info sent to the govt.

Slow down there, Skippy. I will discuss only the bolded above - tracking a single $100 bill paid for a few hours of labor. Out of that $100 the federal government, under the "fair tax", now expects to keep $23 when I get it and another $17 when I spend (what is left of) it - for total of $40 in federal tax paid on that single $100 bill (not counting any "prebates"). That, my friend, amounts to a 40% taxation rate (less any "prebates").

You go on to state that both of us now pay 23% income tax on that $100. That is pure fiction since many pay far lower (if any) effective FIT rates. For example, I now pay ZERO - my 1099 income does not exceed deductons so I do not even file.

 

[cpwill]

Indeed it does. But a tax on services is simply calling an income tax a sales tax.

For people like you, who are self-employed, so long as you are providing goods or services at the retail level, that is correct.*

I would point out, however, that the Fair Tax is replacing the self-employment FICA that you currently pay. So you aren't adding 23%, but rather 23-(15.3+[your income tax rate])%

So (guessing) if you are in the 15% tax bracket, you are reducing the taxes that you pay on what you earn from 30.3% to 23%.... and you are actually coming out ahead.

*I am not an advocate of the Fair Tax as my preferred structure. I merely consider it a superior option to what we already have.

My income is 100% from selling my labor (as a self-employed handyman). Expecting me to bump my labor rate by 23% and pass that "excess" along to the federal government (for a 1% kickback?) is silly. Who the **** is going to report me to the feds for not charging them 23% more for my labor?

Businesses who have to show their own purchase records - but probably not your average homeowner.

 

[cpwill]

Slow down there, Skippy. I will discuss only the bolded above - tracking a single $100 bill paid for a few hours of labor. Out of that $100 the federal government, under the "fair tax", now expects to keep $23 when I get it and another $17 when I spend (what is left of) it - for total of $40 in federal tax paid on that single $100 bill (not counting any "prebates"). That, my friend, amounts to a 40% taxation rate (less any "prebates").

You go on to state that both of us now pay 23% income tax on that $100. That is pure fiction since many pay far lower (if any) effective FIT rates. For example, I now pay ZERO - my 1099 income does not exceed deductons so I do not even file.

Huh - interesting. I know you don't have to pay FIT at that point, but do you not have to pay FICA?

 

[ttwtt78640]

b]You collect taxes all the time unless you are working under the table.[/b]

You pay income taxes, SS taxes etc. your jobs are priced out to include those costs
For the jobs you do. Just as you collect money for income tax that would go away and you
Would just collect the money for he sales tax. The difference is that you don't pay the sales tax on any
Materials that you buy. You would only pay sales tax on the final product.

The sales tax is inclusive of the cost. So if you charge 1000 dollars for the job 230 of that
Would go be filed to he government.

You pay no income tax, corporate taxes on that money. You pay no tax on the materials that you use.

That (bolded above) is precisely my point.

I now owe income taxes only on my customer reported income (1099 used by landlords to allow them to write off rental property repair costs). Under the "fair tax" nobody (including myself) would benefit from reporting my labor income since there is no longer an income tax.

 

[ttwtt78640]

For people like you, who are self-employed, so long as you are providing goods or services at the retail level, that is correct.*

I would point out, however, that the Fair Tax is replacing the self-employment FICA that you currently pay. So you aren't adding 23%, but rather 23-(15.3+[your income tax rate])%

So (guessing) if you are in the 15% tax bracket, you are reducing the taxes that you pay on what you earn from 30.3% to 23%.... and you are actually coming out ahead.

*I am not an advocate of the Fair Tax as my preferred structure. I merely consider it a superior option to what we already have.



Businesses who have to show their own purchase records - but probably not your average homeowner.

I only have income tax liability for that reported to IRS (by landlords or businesses) on a 1099 (about 25% of my income). It does not amount to enough to owe any income tax. As you said - homeowners don't bother to report non-deducible expenses.

 

[ttwtt78640]

Huh - interesting. I know you don't have to pay FIT at that point, but do you not have to pay FICA?

Nope - I now collect SS retirement.

Your SS benefit level is based on your highest 35 years of (inflation adjusted) reported earnings. Once you start collecting SS (or you already have worked 35 years and your reported income falls off) then you would be an idiot to keep reporting useless taxable income - why report income to pay more SS (self-employment?) taxes that do not raise (and may even lower) your SS benefit?

 

[jonny5]

Slow down there, Skippy. I will discuss only the bolded above - tracking a single $100 bill paid for a few hours of labor. Out of that $100 the federal government, under the "fair tax", now expects to keep $23 when I get it and another $17 when I spend (what is left of) it - for total of $40 in federal tax paid on that single $100 bill (not counting any "prebates"). That, my friend, amounts to a 40% taxation rate (less any "prebates").

You go on to state that both of us now pay 23% income tax on that $100. That is pure fiction since many pay far lower (if any) effective FIT rates. For example, I now pay ZERO - my 1099 income does not exceed deductions so I do not even file.

You make a good argument.

My mistake above was I forgot the customer wasnt paying income tax anymore. Pre fair tax, she paid you $100 out of her after tax earning. After fair tax, she would pay you $100 out of her full salary of $130.

And I assume you would raise your price to $130, so you would still get $100 (govt gets $30). And because of prebate you have $130 to spend (and govt gets $30).

But again, the point isnt in dealing with specific example. I think you SHOULD be paying tax. Everyone should be paying tax, as equally and simply as possible. A sales tax achieves that. Its simple. Everyone pays the same rate. No one escapes it.

 

[cpwill]

Nope - I now collect SS retirement.

Your SS benefit level is based on your highest 35 years of (inflation adjusted) reported earnings. Once you start collecting SS (or you already have worked 35 years and your reported income falls off) then you would be an idiot to keep reporting useless taxable income - why report income to pay more SS (self-employment?) taxes that do not raise (and may even lower) your SS benefit?

Well then that leaves us with an interesting question, as your situation seems fairly narrowly tailored to produce a real loss. Let's run the math on what happens when you toss in the prebate:


Single FPL is $11,880 - 23% of that would be: $2,732.
Married FPL is $16,020 - 23% of that (your Prebate) would be: $3,684.

(not sure if you are married - running numbers for both).

Standard Deduction for a single person is $6300, for married it's $12600.

2732/6300 = 43.46%; 43.64-15.3 (FICA) = a 28.34% FIT rate. For single individuals, the cut-off at which point you are paying 28% is $90,751, which is well above the standard deduction.

3684/12600 = 29.24%; 29.24-15.3 (FICA) = a 13.94% FIT rate. For married individuals, the cut-off at which point you are paying 10% is $18,450, which is somewhat above the standard deduction.




It kinda looks like, if you really do make less than the standard deductions, you're still going to come out ahead.

 

[jonny5]

That (bolded above) is precisely my point.

I now owe income taxes only on my customer reported income (1099 used by landlords to allow them to write off rental property repair costs). Under the "fair tax" nobody (including myself) would benefit from reporting my labor income since there is no longer an income tax.

Unless they want to avoid jail. Laws still have to be enforced.

 

[jonny5]

Well then that leaves us with an interesting question, as your situation seems fairly narrowly tailored to produce a real loss. Let's run the math on what happens when you toss in the prebate:


Single FPL is $11,880 - 23% of that would be: $2,732.
Married FPL is $16,020 - 23% of that (your Prebate) would be: $3,684.

(not sure if you are married - running numbers for both).

Standard Deduction for a single person is $6300, for married it's $12600.

2732/6300 = 43.46%; 43.64-15.3 (FICA) = a 28.34% FIT rate. For single individuals, the cut-off at which point you are paying 28% is $90,751, which is well above the standard deduction.

3684/12600 = 29.24%; 29.24-15.3 (FICA) = a 13.94% FIT rate. For married individuals, the cut-off at which point you are paying 10% is $18,450, which is somewhat above the standard deduction.




It kinda looks like, if you really do make less than the standard deductions, you're still going to come out ahead.

Its kind of moot though. After the fair tax he still pays no tax. All we're really doing is shifting the tax burden from income that his customer pays to sales tax that his customer pays. And in doing so getting rid of a lot of complexity and unfairness.

 

[ludin]

That (bolded above) is precisely my point.

I now owe income taxes only on my customer reported income (1099 used by landlords to allow them to write off rental property repair costs). Under the "fair tax" nobody (including myself) would benefit from reporting my labor income since there is no longer an income tax.

No you owe income tax on the money YOU make. It has nothing to do with what I make.
If you are a business then they shouldn't be sending you a 1099 to begin with.

You should be billing them with an invoice and they are paying by the job that you do.
it should like you are an independent contractor to them.

That can get messy if have they have classified wrongly.

If you are an indepedant contractor it wouldn't matter. You wouldn't pay any tax anyway.
You would only pay tax on the items that you purchase like normal.

If you are a business then you will have a registered sales tax stamp this will allow you to purchase your supplies tax free.
if you are not a business then you will pay the tax on items that you buy to do your job.
you will then have to invoice them for the required amount.

either way you will pay the tax one way or another.