Replies to post #16571 on Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

ml, I would agree with a "flat tax", if t included the 15% taxes paid now as social security (but to a limit of some $75,000 or so). Right now, the marginal tax rate of a small independent making about, $100,000 a year is close to 50%, while Bill Gate pays a marginal tax of between 10% to 20%. That is definitely unfair.

As for ardent's suggestions that corporations pay no taxes, it is by itself a loophole. It used to be (in the 60%) that corporation contributed close to 35% of the IRS revenues, now it is around 18%. Ask yourself why. The marginal tax rate on the "Rich" was some 70% or so, none of the "Rich" paid it, they incorporated and paid the rate of 40%, so more IRS revenues were classified as "Corporate". Now that the marginal rates are 35% for corporations and about 36% to 39.6% for individuals (not counting FICA), there is not much of an incentive to incorporate to avoid taxes and thus more of the total IRS intake is from individuals.

Going to no taxes on corporation will result in 70% of the population incorporating and paying no taxes.

Zeev

[BobMcP]

mlsoft: I often hear the statement that accountants would be very unhappy with a flat tax because it would decimate their business. Nothing is farther from the truth in my opinion. An accountant’s job is and always has been the measurement of income. We measure income under GAAP rules for financial reporting and under tax law to prepare tax returns. Most of the tax law deals with measurement issues such as when revenue is recognized and what expenses are allowed. Under a flat tax system the question of whether to allow certain deductions (for example, mortgage interest for home owners, charitable contributions, meals and entertainment related to business, and employee business expenses) would remain. When all is said and done, the most trivial part of preparing a tax return is applying the rate schedule to taxable income.

The 1986 tax act was heralded by the Reagan administration as a great simplification of the tax code. We went from rate schedules over a page in length down to just three brackets. It certainly seemed to simplify things. Unfortunately, this legislation gave us the passive activity loss rules, deemed collections on installment sales if debt levels were increased, new inventory cost capitalization rules, etc., etc., etc.

I agree whole heartedly that tax law should be simplified. There is no reason why a wage earner who owns a home should have to use a professional tax preparer. Unfortunately, lawmakers will continue to use tax law to guide public behavior whether we have one bracket or fifty.

Now if by flat tax you mean a national sales tax, then I would be worried. (g)

Bob McP