Another aspect of the flat tax...

[jmjj215]

We've discussed the flat tax at length here , but one thing that I thought was missing from the discussion.

Some people are for the flat tax because it would be 'simpler' because you would just have one rate to deal with.

In the US the difficulty in computing your tax liability is NOT in using the graduated scale they have now. It's figuring out what your taxable income is.

For starters, if there were a flat tax, what would you consider income?

Capital gains on sale of stock, personal residence, personal automobiles. The profit from a business, your wages at an employer, etc. What if your employer also pays for your health insurance, babysitting, life insurance, etc. Is that income to you? Should you pay tax on it?

Therein lies a small glimpse into the complexity of the tax system. It's not the rate that's tough - it's everything else!

[VJW]

Quite.

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[cercis]

Yep and that's one of the issues several of us tried to express (to varying degress of success).

C

[boothev]

Earned income?

Unearned income, like rent recieved, capital gains, interest, unemployment?

Valerie

[jmjj215]

Rent received would be unearned income?

[VJW]

Yep.

The ‘Flat Tax’ advocates want to exclude unearned income. Surprise, surprise, that would largely benefit the wealthy.

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[PrincessPerky]

Originally Posted by VJW

The ‘Flat Tax’ advocates..... #

That implys that all in favor of a flat tax are in favor of this particular point.

since I am in favor of a flat tax, and NOT in favor of excluding income (earned or otherwise) I resent being lumped with the rest.

Course then again I was the silly one who assumed flat meant FLAT. meaning ALL people payed the same rate on ALL income. That I am in favor of.

[jmjj215]

meaning ALL people payed the same rate on ALL income. That I am in favor of.

PPerky, what would you consider 'income'?

Yep.

The ‘Flat Tax’ advocates want to exclude unearned income. Surprise, surprise, that would largely benefit the wealthy.

VJW, how the heck is Rent received unearned? What's their rationale? Unearned income to my accounting brain means someone has paid me upfront, and I haven't done the work yet. If someone pre-paid rent, then maybe I can see that you would have to recognize that rent over the period...

[cercis]

Unearned income includes gifts, winnings, interest, capital gains (investment income) and bequests.

The idea is that you didn't work at a "set job" in order to get those funds. It was a matter of luck: having the money, making the right choice and having that choice actually pay off.

I understand the argument against taxing bequests, but I also know that that is the only way some people are going to pay taxes on the money they use for living expenses.

[jmjj215]

Can you define unearned income w/o citing examples of unearned income? Is 'unearned', the way you're using it, synonymous w/ non-taxable income (or excludable income is another way to say it)?

[cercis]

It's unearned because you did not use a traditional method of employment. Anything outside of a "job" (whether your own business or working for someone else) is considered unearned.

[PrincessPerky]

Jmj,
I am not a tax specialist, to me I use an old fashioned definition,

income = money IN
outcome = money OUT

The only money in I would think should be tax free is gifts, cause the origional owner already paid taxes on it. but if the govt stopped taxing the same loot half a dozen times no one woul,d now what to do with all the extra loot (and of course no one would know which pet projects to have the govt drop)

[jmjj215]

Princess,
What about alimony, child support, or life insurance? By your definition, an employer could then pay the person's mortgage for them - bypassing the employee. The employee wouldn't have to pay taxes on the mortgage payment made on their behalf. These fringe benefits could go on and on (health insurance, vacations, products, etc.)

Cercis,
Advocates of the flat tax are saying you wouldn't pay any taxes on this unearned income? I'd never heard that before.

[VJW]

Originally Posted by PrincessPerky

That implys that all in favor of a flat tax are in favor of this particular point.

No, I was referring to those that are backing particular legislation in the Congress. All of that legislation would exclude unearned income. You have to deal with what is being proposed as law, not with what various individuals think.

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[VJW]

Jesse,

VJW, how the heck is Rent received unearned?

Earned income is generally wages (plus some etceteras). Unearned income is generally everything else. Interest, dividends, capital gains, and other investment income (which would cover rents).

Unearned income to my accounting brain means someone has paid me upfront, and I haven't done the work yet.

No, it has nothing to do with the timing of the receipt of the income. That might only effect the type of accounting ('accrual' versus 'cash basis').

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[jmjj215]

Earned income is generally wages (plus some etceteras). Unearned income is generally everything else. Interest, dividends, capital gains, and other investment income (which would cover rents).

I think now I'm understanding why the flat tax rate would have to be so high (according to your other posts) - to not tax all of that stuff would be - well - not a lot of tax revenue.

[Bruce Wayne]

Wouldn't it be so much easier if things were privatised and you paid for what you used?

[PrincessPerky]

Not when it comes to police, or local roads, sure you could turn all major highways into toll roads, but do you want to pay a toll to leave your own driveway? Or have to consider the total in your bank account before you call the cops about being mugged? (the total which is now less since being mugged)

For many things it would be easier, and by dropping the Fed involvement down to what was origionaly intended we could afford it again. It is the welfare (of more than just individuals) and 'pork' that keeps the budget so high.

[Bruce Wayne]

Originally Posted by PrincessPerky

Not when it comes to police, or local roads, sure you could turn all major highways into toll roads, but do you want to pay a toll to leave your own driveway? Or have to consider the total in your bank account before you call the cops about being mugged? (the total which is now less since being mugged)

For many things it would be easier, and by dropping the Fed involvement down to what was origionaly intended we could afford it again. It is the welfare (of more than just individuals) and 'pork' that keeps the budget so high.

I know, I was just being glib and agree with your second paragraph.

[VJW]

Originally Posted by Bruce Wayne

Wouldn't it be so much easier if things were privatised and you paid for what you used?

Easier for the rich.

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