Tuesday, April 17, 2007

Such a Pro...

...crastinator I am. Just mailed the last of six 2006 tax returns with 30 minutes to spare before the PO closed. F'en CA adjustments mess me up every time. And stinkin' underpayment penalties... how ya s'posed to know how much ya gonna make when you're not a traditional worker type?!? And even the kids had to file (uhhh, I mean, I had to file for them) and, get this, they each owed $1 precisely. Honest, to Uncle Sam. $1 each. And for that I had to waste another coupla hours with TurboTax, including tracking down basis info for stock sold that was originally a spin-off six years ago. Basically, I just guessed...

Why, oh why can't we have a simpler tax system?? I really don't understand what is going on--and I have a Masters degree in Math! I just put numbers in and trust it (TurboTax) does the right thing. I do believe in progressive taxation--the better-off should pay more, after all how did they/you/we get to be better off in the first place?! But jeez, can't it all be simpler??


TnA said...

Not to pick any nits or anything...but don't "better-off" people pay more with a "flat tax" too? I'd think a guy with a math degree would understand percentages ;-)

That's my solution. Flat tax, only deduction for mortgage interest and state and local taxes. Period.

Won't ever fly though...there's too much money in keeping the system as complicated as possible so that you need special software or accountants to get you through it all.

Marco Fanelli said...

Pick away, you're good at that. Typical engineer!

When I wrote it, I considered being more precise wrt progressive tax... Of course with a true flat tax the more you make, the more you pay. But I also think it should be structured so that there is a somewhat higher *percentage* in higher income levels too. i.e., a progressive tax.

Not to extend this discussion, but why even have deductions for mortgage interest and state/local taxes?

Why not tax consumption? How about a national sales tax instead? On things beyond basics for living...

TnA said...

Well...the problem I have with progressive tax rates is twofold. First, you tend to cause disincentive for people to earn more at the higher income levels. The choice may be between expanding a small business (and creating more jobs, more money to spend, etc.) and just keeping things as they are since the "payback" isn't worth it for the extra effort. Second, who gets to determine how the rates should progress? Why does THAT person get to decide whether or not you're making "too much" money and should be taxed at a higher percentage, hmmm? I guess it's the libertarian part of me coming through.

I included continuing deductions for mortgage interest and state and local taxes since dynamiting the current tax code and going to a simple flat tax would already wreak havoc on the whole tax preparation industry...add wreaking havoc on the real estate and housing markets and it would just make it way too bitter of a pill to swallow. Maybe eventually...but the problem is changing "the rules" midstream for people who are trying to plan for retirement. Besides, IMO, deductions should be saved for behaviors you want to encourage...and home ownership is one of those things that should be encouraged for a multitude of reasons.

Sales tax has it's own problems...again, how does one determine (fairly) what the "basics" for living are? As you know, people can have dramatically different ideas of what the "basics" entail. On top of that, taxation tends to discourage behaviors...do you really want to discourage people from spending and the resulting hit on the economy?

Marco Fanelli said...


Dang! too late...

First of all, I assumed that Libertarians would generally be in favor of a National Sales Tax, given that a tax is needed. Of course, they really don't like taxes at all. Pretty easy to sit back in the comfort of the good ol US of A, with all our conveniences and safety, and feel that way, eh!?!

I, on the other hand, don't trust individuals and corporations to make sensible decisions that impact us IN THE LONG TERM. But that's another topic...

Re tax issue:

You said:
> who gets to determine how the
> rates should progress?

I do. And so do you. Via our elected representation in Government.

Here's my 5-minute-thought tax plan, and it's a combination of a progressive simple tax, and a consumption tax.

Income Tax:
0% on income between $0 and $20,000
5% marginal on $20,000 to $50,000
10% marginal on $50,000 to $100,000
15% marginal about $100,000.

No deductions.

Consumption Tax (to make up the deficit):
-Tax food based on the number of ingredients. Thus, no tax on fruits, vegetables, meat, dairy, etc. Have some scaling relationship with increasing tax on prepared foods and highly processed "food" full of other stuff.
-Tax all non-renewable energy sources commiserate with their true cost on society.
-Tax cigarettes big time, and any other health vices.
-Tax big polluting SUVs and other vehicles that damage roads, environment, people.
-Tax harmful pesticides and fertilizers.
...you see where I'm going.

Hey, if that knocks us down a bit, too bad... at least it'll encourage behavior in our society and economy that isn't so destructive.

Of couse, I leave it to the student to fine-tune the numbers!

Marco Fanelli said...

Oh yeah, and who cares if it puts a bunch of tax accountants and lawyers out of business. Put 'em to work doing something more productive; they're obviously smart people, they'll survive!