Literally tens of thousands of unemployed IRS and treasury workers. Probably hundreds of thousands of tax attourneys, accountants, book keepers, tax advisors, and financial planners out of work. And most importantly, no more politicians giving out special "gifts" of tax credits, cuts, or deductions to certain groups for the purpose of gaining votes and campaign contributions. That is why it will never change.

Property taxes were a real hotbutton issue in California. Little old ladies on social security were having to sell the home and move they had lived in for 50 years because they property values in their area were skyrocketing. If they rented their rents were being raised all the time to keep up. Farmers were going to have to give up land they had been farming for generations because of it. Businesses were getting eaten alive as property values soared and were forced to close. So the people placed a ballot initiative on the election ticket called prop 13. Proposition 13 capped property tax increases and made it so you couldn't just keep reassessing people's homes to give them bigger and bigger bills. Properties are only reassessed for property taxes after they are sold. This protection has made a huge difference. Some tax hungry pols complain they are loosing money but so many homes changed hands during the last few years that the argument makes them look foolish. There are people paying as much in property taxes in two years as my parents paid for their home. It doesn't take a rocket scientist to figure out that this sort of tax would be cruel and unusual to many people.

I can comment on federal income taxes, but not property taxes. I've heard the argument before that if a 10% flat tax is good enough for the Church, it ought to work for govt too. There are a few differences between the Church and the govt that make this more difficult than it looks.

1. The Church gets more than 10%. Lots of people make donations in excess of tithing. Lots of people leave their entire huge estates to the Church upon death. No one ever voluntarily pays more taxes. Of course, you have to net that against people who don't pay tithing at all.

2. Volunteers. The Church is a huge employer, as is the govt. But the Church also has a massive volunteer force of ecclesiastical leaders and service missionaries. If the Church had to pay salaries, health benefits, and pensions to everyone then way the govt does, it would significantly increase Church expenses.

3. Other sources of income. The govt's income comes from taxes and from charging nominal amounts for certain services (like entry fees to national parks). If the govt needs to raise money, it sells bonds. Someone correct me if I'm wrong - can the govt invest in the stock market and own businesses? I don't think they can, but I'm not sure. It just doesn't seem legal for the govt to own all the stock of a newspaper, for example, the way the Church owns the stock of Deseret News. I don't think the govt can compete with private businesses at all, whereas the Church can own a private business as long as they pay taxes and don't take any money besides ordinary dividends out of the business. So the Church not only raises money from tithing, but from earning dividend income on investments and ownership of businesses.

4. (This paragraph talks about the complexity of the tax code, not so much the amount of tax.) Businesses don't tithe, only individuals pay tithing. The Church puts people on the honor system and doesn't bother defining income (hence the discussions about whether to tithe on the net or gross). Church tithing only applies to individuals, not corporations. The part of the tax code that applies to individuals is actually quite small. Defining 'income' for corporations is quite complex. Say you have a multinational corporation. You have to define what income is taxed in the U.S., and what income is taxed in Mexico, where the factory is located. There are pages and pages on how to define the income of a life insurance company, because of the way they take in regular payments, and then have a huge payout once per policy. Insurance companies essentially have their own section of the tax code because their income and outgo are so mismatched. And holding companies - if the stock appreciates, is that income? Our tax code says it's only income if you sell it. Well, what if you trade it for a specialized piece of equipment? You can get the stock and the equipment appraised, but what if your appraisers disagree? Lots and lots of the tax code is just defining income for corporations. And you have to define the income to impose a tax rate, even a flat tax rate.

That said, I do think the tax code is a horrible mess and needs to be simplified. The difficulty is how to simplify it. There are very good reasons for some loopholes and deductions. For example, the tax code could stop discriminating against renters by getting rid of the mortgage interest deduction for homeowners. But the govt wants to encourage home ownership, so they give homeowners a deduction. In addition, encouraging environmental responsibility has resulted in deductions and credits for corporations to reduce pollution. Should we do away with those?

Anyway, I am in favor of simplifying the federal tax code. The problem I see is that most people don't appreciate the reason it's so complex in the first place. They want to just throw it out and start over. The difficulty with that is the opposite of what Jason suggests - far from putting all those financial and tax experts out of work, you'd provide them with overtime employment for a decade while they tried to figure out the new system. It's like the repeal of the death tax. People talked about how that would put estate planning attorneys out of work. The estate planning attorneys I knew jokingly called it "The Estate Planning Attorney's Full-Employment Act" because of the default rules that it was being replaced with. (Most people don't know about the default rules because that was too complicated for the newspaper reporters to describe. But the estate tax protected estates against certain default rules that now apply. Personally, I hope the estate tax comes back.)

It's complicated. Beefche, you were probably just talking about Indiana state income tax, and I just gave you a treatise on federal income taxes. Most states just tie the state income tax to the federal income tax, with a few differences.

Now on the issue of property taxes, I liked Jason's comment. I don't think property taxes should be able to double so quickly. It ought to be a controlled increase when necessary, that doesn't exceed a certain percentage increase per year.

beefche wrote:

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Can someone smarter than me please explain the ramifications of changing from our current taxation system to a flat tax system?  

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I resent the slanderous accusation that I may be smarter than anyone here. 

Anyway, one thing lots of people like about the current tax system, is that we can use govt to mold society.  You like Americans to own homes?  Have the morgage interest credit.  You want them to save for retirement?  Make IRA's deductible (or Roth IRA's tax-free upon withdrawl).  You think wealth accumulation and generational transfer is evil?  Tax the crap out of big inheritances.  You think it's America's rich's duty to help America's poor? Make the rich pay higher percentages of tax.

Flat tax gets rid of all that.  Suddenly, there's no tax incentive to buy a home, get married, have kids, gain an education, save for retirement, or create trusts for your kids.  Now, how bad is that?  I'm not exactly sure.  But that's one big objection to the flat tax that seems to cross political boundaries.

LM

I was only going to munch my popcorn, but I will add this bit of opinion. I would be okay with a flat tax only IF the government also simplied their spending. That's a whole other can of worms, but I think flat tax would be worth it if it went hand in hand with less spending.

Good insight, LM.

Good points, as well Janey.

This is just my assumption, I think most people think flat tax and like it because it conceptually replaces all other taxes out there... the various sales and use taxes, capital gains, property, estate, communications related, etc. And, under that assumption, people think... Hmm 17%, that is still a heck of a lot better than all the cumulative amount that comes out of my pocket when added up.

I used to work for a guy (a former Bishop of Poncho and mine) who had his own business. He had it all figured out that by the time everything was added up, between local, state, and federal income tax and then the annual property tax on his inventory (kind of a catch twenty-two, you either pay taxes on the revenue earned by sale of the inventory or you paid property tax if it didn't sell -- and you continued to pay property tax on the value of the inventory until it did sell), he estimated that his base tax rate was around 25-27%, and then you had to add in all the other things like the sales tax and property tax, and it easily compared and exceeded the taxation levels spoken of in The Book of Mormon where the one recording on the plates indicates it was oppressive.

Is he a rich man? No. He's a retired police officer who was successful in starting and running a small specialty retail business on the side years before he retired. He has worked his butt off from the day he was old enough to earn a dime. He didn't have a silver spoon in his mouth at birth. He has been lucky in many things and has been prudent in his finances in just about everything else. And, I think he has been blessed in many intangible ways from being faithful to the gospel after he (and his family) learned of it and joined as an adult.

The point is, he ain't a Rockafeller (). He is a typical normal U.S. citizen. And one of the things he pointed out to me in the years I worked with him and managed his store was that what politicians call tax reform is rarely true reform in terms of benefiting the payer of taxes. It all gets moved to different buckets and eventually you end up paying more. I think Janey is kind of referring to this...

The only real way to fix taxation in the nation is for a radical change, simplification, and enforcement. In order to effect radical tax law change, there has to be radical changes to society and government at every possible level. And, as LM pointed out, as long as government and taxation can be used to further agendas of social justice or the like, there will be absolutely no incentive for anyone to come to a consensus on even looking at the problems of the current taxation paradigm in our nation and states and counties and cities.

Janey wrote:

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 Personally, I hope the estate tax comes back.)

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There still is an estate tax.  The minimums are high though but they especially hit farmers hard because of the value that is placed on farm land even though no matter how hard you work that piece of ground will only grow x quantity of crops every year.  So you are alone on that one.  I've watched my dad make payments for nearly 20 years in order to keep the farm.  Estate taxes are the most punitive, unfair, and in my mind most evil taxes around.  Not only did papa die and we're dealing with his death but now we have to scramble to try and figure out how to keep the family farm or business.  It has lead to the closing of many a family business or farm.  First dad had to pay on his father passing away and then on his mother.  The IRS only two options were pay it all now or take out a loan from us and pay it for years in smaller bites, and if you alter your business significantly it all comes down immediately.  So instead of using that money to grow the business or hire more people it gets sucked into the vacuum of the government.  I will crusade forever against estate taxes and have personally written letters to my elected representatives to get rid of them for everyone.  Why should dieing entitle the government to a huge windfall?

But, hic, you're assuming no one would ever increase their income.  Most people will either get raises/bonuses from their current employer or seek other employment that offers a higher salary/incentive.

beefche asked:  "Ok, what about a proportional flat tax? If you earn over $100,000/yr you pay 25%, $50,000-$99,999 = 17%, etc."  (I can't get the quote feature to work.)

That's what we have now.  If you get into a higher tax bracket, you pay a higher percentage of taxes.  

Jason, your story about the estate tax and the family farm is exactly why the estate tax was repealed.  There are exceptions from the estate tax for family farms, but only if the inheritance is structured right, which takes an attorney.  Since few farmers went to estate planning attorneys, they got caught with a major tax burden.  Congress could have fixed it by making the loopholes for the family farm bigger, so it wouldn't require meeting with a lawyer.  Instead, Congress got rid of the estate tax entirely.  And there are some good reasons to have an estate tax.  But yes, the estate tax burden on the family farm was horrible and I am very sorry you're dealing with it.

But you wanna know what happens to the family farm now that there isn't an estate tax?  You don't have to pay taxes until you actually sell the land, and that may be all you need to avoid the problems you're talking about.  It's just the timing that has changed.  Under the estate tax, the tax was due at death.  Now the tax is due upon the sale of the land.  The amount is different too, but whether it's higher or lower than the estate tax would have been is based on the value of the land.  Please talk to a lawyer before you sell!  Paying a couple thousand in legal fees is much better than tens of thousands in taxes.  Where working family farms are involved, there are lots of exceptions, but you'll need a lawyer to find them for you.  Sorry that isn't my area of specialty, so I can't help you.

I've been thinking about it, and I think that Janey is quite right that as long as the tax is on income that there will be all kinds of legal dodges to hide your income or make it appear to be less for tax purposes. Even if you have a flat tax of 15% on income, then what are you counting as income? Does child support count as income, for instance?
So, the only fair way is to go back to the way things used to be done, which is just apportion the tax. Everyone in your state will be paying the same dollar amount. The tax code would be really simple, then. Of course, it would also mean vastly scaling back the reach of government, but I can only see that as a good thing.
There's another thing that I wanted to bring up. Cat mentions that his former boss estimated that about a quarter of the cost of the items he sold was due to taxes. But in reality, it's worse than that. His suppliers had to pay taxes too. Lets take the random example of flags. The person who sews the flag pays taxes, as does their employer. The person who produces the thread, and their employers, pay taxes. The person who makes the dye pays taxes, as does their employer. There are so many places in the process where the government takes their bite. Transportation of the flag, producing the container in which it is sold, marketing, the farmer growing the raw materials, etc. all pay their bit of taxes. Those performing those services aren't just going to eat the cost. They pass the expenses on to you! Aren't you lucky!
I've heard estimates that around 75% of the cost of most items is due to taxes at some point in the process of the production, marketing, and sales of said item. If we scaled back our massive government, it would be great for the economy. Companies could lower prices and people would have a lot more spending power.

It's practically a flat tax system once you are making enough money, and it's easy to tweak, the whole 40% and $100,000 parts were mostly arbitrary.

pt314 said: "I don't like the tax bracket system. The discontinuous jumps has the effect of discouraging certain people to even bother making making slightly more money if it would put them into the next bracket."

If a person is just over the cutoff for the bracket, only the amount in that bracket gets taxed at the higher amount. I'll make up numbers for an example. Say it's like this;

Less than $10,000 is taxed at 5%
Between $10,001 and $15,000 is taxed at 10%
Between $15,001 and $20,000 is taxed at 15%

If you earn $17,000 then you pay tax at 5% on the first $10,000 of that, then tax at 10% on $5,000 and tax at 15% on only the final $2,000. So even though you're going up in the brackets, you're whole income is not taxed at fifteen percent. Just the portion over the 15% bracket cutoff gets taxed at 15%.

It's easy to be misinformed about taxes. But just think! Now you can go climb tax brackets! 

we will soon be changing tax brackets... but the other direction than Janey is talking about...