US Income Tax Obfuscation?

[Visum]

Being tax season is here I thought I would post something about “Tax Protesters”.

I recently came across some information that “attempts” to clarify the 16th amendment (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts. ion) and its implications regarding tax. Cracking the Code (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) , by Peter Eric Hendrickson, is a book that aims to provide tax clarity and challenges the IRS. Hendrickson purports that he and many others have actually challenged the IRS by simply filing legally adjusted returns from prior years, and in effect recaptured previously withheld earnings. Further, it “appears” some are now filing returns with (0) taxable income and legally keeping all earnings. (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

In “The LRC Blog (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)”, James Ostrowski published a more detailed response by Scott M. Olmsted of Cracking the Code.
For a shorter version of the first few chapters of Cracking the Code: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

Note: I am not arguing for or against US Income Tax.





Visum added to this post, 15 minutes and 39 seconds later...

U.S. Seeks Order to End What It Calls a Tax Scheme (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

"The main action was against Peter Eric Hendrickson, 50, of Commerce Township, Mich., and his wife, Doreen, 51, who maintain that only a narrow slice of income is subject to tax. Mr. Hendrickson's self-published book, "Cracking the Code," shows people how to exploit what he considers loopholes in the Internal Revenue Service system for processing refunds."

[phej]

I don't feel like following this convoluted mess. The wikipedia has some interesting links:

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and

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It seems as though there is legal precedent for an income tax. So the schemes about not paying income taxes is a bit useless (and illegal)

[Visum]

Judge Orders Michigan Couple To Testify Against Themselves (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)
March 21, 2009

"Nonetheless, the DOJ and IRS have made careful and deliberate use of the "order"-- posting press releases claiming a victory in court, without mentioning that the "order" purports to dictate the content of the Hendricksons’ sworn testimony, and thus is inherently void. The agencies also fail to mention that the reason this "order" was sought is that without a change in the Hendricksons’ returns, there is no legal pretext by which the government can claim that any tax is due from the couple for the years involved."

"The Hendricksons have taken the matter to the Supreme Court. (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)" Link is a PDF

[Grimstad]

As can be shown from the recent string of confirmation hearings that the tax system is convoluted at best.
Even intelligent well educated people can't get it right.
I once argued with an H&R Block rep that I was NOT eligable for a particular credit but he insisted.
Thats when I was introduced to a fun little process called an audit.
Not just for that year but the ones before and after. Fun stuff.
I don't know if a flat tax is the answer but something needs to be done.

[phej]

The tax system is complicated because that's the way that we Americans want it.

Let's see: the House passed a bill to tax folks whose employer has taken 5 billion dollars of TARP money (but thankfully is stalled), there's a deduction for interest paid on a house mortgage (but not car or credit. This deduction is comes from deducting business interest from wayback when), there's a credit for having a child, there's a deduction for contributing to 523(c) charities, there's a deduction for a 401(k), there's a deduction for a traditional IRA (but only if your income is less than some number), there's the AMT tax to tax the top 155 households in the 1969 (but then Congress forgot to index it with inflation, so more and more people are getting hit by this, especially in states with high income taxes), if you take a distribution from and IRA---that's taxable income (but not if the IRA is a Roth, because you already paid taxes on it when you contributed), blah, blah, and blah.

We complain about the complexities of the tax system, but we are ok with making it more complicated year after year. Both the wretched Democrats and contemptible Republicans like to lather more and more tax complexity to satisfy the constituents. Short of a political revolution, the tax code will become more and more complicated: there are too many special interest groups vested in the various deductions to simplify the tax code.

But that might be ok, I haven't done my taxes on paper since I was in college: I've always used TurboTax or TaxCut to do my taxes. Dealing with taxes is one of the few legitimate places where automation is a good thing. When I did my taxes in February, it took me three hours because my tax-related transactions were imported from Quickent and I was correlating snail mail data with those transactions. My Dad, on the other hand, he does his taxes by hand and it always takes him days to do it

[Grimstad]

The tax system is complicated because that's the way that we Americans want it.

Let's see: the House passed a bill to tax folks whose employer has taken 5 billion dollars of TARP money (but thankfully is stalled), there's a deduction for interest paid on a house mortgage (but not car or credit. This deduction is comes from deducting business interest from wayback when), there's a credit for having a child, there's a deduction for contributing to 523(c) charities, there's a deduction for a 401(k), there's a deduction for a traditional IRA (but only if your income is less than some number), there's the AMT tax to tax the top 155 households in the 1969 (but then Congress forgot to index it with inflation, so more and more people are getting hit by this, especially in states with high income taxes), if you take a distribution from and IRA---that's taxable income (but not if the IRA is a Roth, because you already paid taxes on it when you contributed), blah, blah, and blah.

We complain about the complexities of the tax system, but we are ok with making it more complicated year after year. Both the wretched Democrats and contemptible Republicans like to lather more and more tax complexity to satisfy the constituents. Short of a political revolution, the tax code will become more and more complicated: there are too many special interest groups vested in the various deductions to simplify the tax code.

But that might be ok, I haven't done my taxes on paper since I was in college: I've always used TurboTax or TaxCut to do my taxes. Dealing with taxes is one of the few legitimate places where automation is a good thing. When I did my taxes in February, it took me three hours because my tax-related transactions were imported from Quickent and I was correlating snail mail data with those transactions. My Dad, on the other hand, he does his taxes by hand and it always takes him days to do it

I don't disagree at all. And at least one of those up for confirmation got screwed by Turbo Tax allegedly. Perhaps a sales tax would be better. No more filing except for businesses (mostly) and they would just have to pay what they already collected. Set aside a few staples so the poor don't carry too much burden.

[INTJRyan]

I always get a good chuckle over "tax protestors." Keep up the good fight guys! :laugh:

[phej]

I don't disagree at all. And at least one of those up for confirmation got screwed by Turbo Tax allegedly. Perhaps a sales tax would be better. No more filing except for businesses (mostly) and they would just have to pay what they already collected. Set aside a few staples so the poor don't carry too much burden.

I'd love a national sales tax (except for the actual rate). But are you ready for a sales tax of over 25%[1]? Did you know that a sales tax is a regressive tax structure? It would, however, encourage higher savings and investment.

The "Fair Tax"[2] proposal out there is the closest thing to a "reasonably safe political" sales tax, from what I remember. But it is not a simple program. To make it less regressive, they give each individual a rebate up to "typical" expenditures at the poverty level to cover the sales tax. Since we're redistributing income, the nominal sales tax rate will probably need to be higher than 30% to be federal deficit neutral. More blah, complexity, blah to satisfy constituents. Worse, while phasing it in, we'll probably still need to file an income tax. And since things in the government really never go away,we'll probably be stuck with two things: a national income tax, and a national sales tax. The worst of all taxation woes.

So if the complaint about taxation in the U.S. is complexity, well, get over it---there are tools to make the complexity manageable and the complexity is because the taxpayer takes advantage of it (the 1040EZ form is easy to fill out if your income and expenses are simple). If the complaint is about the tax burden, well, get over it---the public wants its benefits; the benefits need to be paid by someone. If the complaint is about fairness and taxation, well, get over it---the current U.S. tax system, warts and all, is probably as fair as any politically realistic replacement.

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[Grimstad]

I'd love a national sales tax (except for the actual rate). But are you ready for a sales tax of over 25%[1]? Did you know that a sales tax is a regressive tax structure? It would, however, encourage higher savings and investment.

The "Fair Tax"[2] proposal out there is the closest thing to a "reasonably safe political" sales tax, from what I remember. But it is not a simple program. To make it less regressive, they give each individual a rebate up to "typical" expenditures at the poverty level to cover the sales tax. Since we're redistributing income, the nominal sales tax rate will probably need to be higher than 30% to be federal deficit neutral. More blah, complexity, blah to satisfy constituents. Worse, while phasing it in, we'll probably still need to file an income tax. And since things in the government really never go away,we'll probably be stuck with two things: a national income tax, and a national sales tax. The worst of all taxation woes.

So if the complaint about taxation in the U.S. is complexity, well, get over it---there are tools to make the complexity manageable and the complexity is because the taxpayer takes advantage of it (the 1040EZ form is easy to fill out if your income and expenses are simple). If the complaint is about the tax burden, well, get over it---the public wants its benefits; the benefits need to be paid by someone. If the complaint is about fairness and taxation, well, get over it---the current U.S. tax system, warts and all, is probably as fair as any politically realistic replacement.

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I'm already paying a little over 1/3 of that plus income tax. Not to mention insane taxes on my smokes. It needs a little tweaking. Light or none on food and utilitues. Heavy on luxury items. Consider the cost of hiring an accountant to do my taxes. the stress of "tax day" that everybody shares. And probably several more factors I'm not thinking of. Any tax is regresive.
It won't rise or fall. Just change how it's collected, which has it's own benefits.

[eternaltriangle]

I'd love a national sales tax (except for the actual rate). But are you ready for a sales tax of over 25%[1]? Did you know that a sales tax is a regressive tax structure? It would, however, encourage higher savings and investment.

The "Fair Tax"[2] proposal out there is the closest thing to a "reasonably safe political" sales tax, from what I remember. But it is not a simple program. To make it less regressive, they give each individual a rebate up to "typical" expenditures at the poverty level to cover the sales tax. Since we're redistributing income, the nominal sales tax rate will probably need to be higher than 30% to be federal deficit neutral. More blah, complexity, blah to satisfy constituents. Worse, while phasing it in, we'll probably still need to file an income tax. And since things in the government really never go away,we'll probably be stuck with two things: a national income tax, and a national sales tax. The worst of all taxation woes.

So if the complaint about taxation in the U.S. is complexity, well, get over it---there are tools to make the complexity manageable and the complexity is because the taxpayer takes advantage of it (the 1040EZ form is easy to fill out if your income and expenses are simple). If the complaint is about the tax burden, well, get over it---the public wants its benefits; the benefits need to be paid by someone. If the complaint is about fairness and taxation, well, get over it---the current U.S. tax system, warts and all, is probably as fair as any politically realistic replacement.

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A few points - firstly, I agree that replacing the income tax with a national sales tax outright would be a bad move. That said, I think there are a lot of benefits to lowering income and corporate taxes, while bringing in a consumption tax (I have some counterpoints as well).

1. First, you are overstating the necessary size of the rebates. First, exclude rent payments from the sales tax, and second exclude food. All of a sudden two of the biggest ticket items for lower income people fall off the chart. Canada had (until recent cuts to the tax) a national sales tax of 7% (on top of provincial sales taxes of 8%). The size of GST rebates needed to offset the regressive nature of the tax was about $300 - not exactly a princely sum.

2. Economics is about incentives. The present administration has made a choice - they would rather make the politically easy choice to tax the entrepreneurs and innovators at the high end of the income scale. A national sales tax would have incentive implications as well, in that it would encourage saving. One of the reasons for this crisis is the fact that Americans (and their government) have stopped being savers. Savings are converted to capital, as banks get more money that they can lend out. Savings often get invested in the stock market and mutual fund - by individuals with a long-term investment horizon.

3. Having a mix of taxes diversifies the tax base. America has not taken advantage of this, and has one of the lowest rates of taxation of consumption in the world. The people hit by this recession are not the same people hit hardest by say, the early 90's recession, nor will the folks hit by the next recession be the same as those hit by the last. Secondly, while having multiple taxes complicates things somewhat (though to be fair, state governments already have both income taxes and sales taxes), the additional revenue from a sales tax can help pay for a flatter and simpler income tax. You are correct that a national sales tax would be unable to fully solve deficit woes or replace the income tax.

However, your 30% number seems off. A 7% GST in Canada (with rebates and exemptions for rent and food) raised 30 billion dollars in 2004/5, or 2.2% of GDP. Prior to Obama's current spending binge, a 10% national sales tax could easily have eliminated the deficit. Future surpluses could have been aimed at gradually lowering and eliminating corporate and personal income taxes. If you are able to work in the long-term, a lot becomes possible. Using the Canadian numbers, a fair guess is that a 10% sales tax would bring in 3.14% of GDP in tax revenues or about 440 billion dollars. If the government worked to limit spending increases to the rate of inflation, and progressively applied surpluses towards corporate and income tax reduction, at 3% per annum growth in real GDP, you could eliminate corporate and income taxes with a balanced budget in 20 years (running the government on excises, a 10% national sales tax, and social security/medicare taxes).
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I realize that this will never happen because governments lack the political will to hold government spending constant (even in real terms - so it would be going up at the rate of inflation), or to avoid politically expedient, deficit-funded tax cuts - much less stick to any kind of a program for 20 years. That said, wouldn't you want to live income tax-free 20 years from now?

[phej]

A few points - firstly, I agree that replacing the income tax with a national sales tax outright would be a bad move. That said, I think there are a lot of benefits to lowering income and corporate taxes, while bringing in a consumption tax (I have some counterpoints as well).

1. First, you are overstating the necessary size of the rebates. First, exclude rent payments from the sales tax, and second exclude food. All of a sudden two of the biggest ticket items for lower income people fall off the chart. Canada had (until recent cuts to the tax) a national sales tax of 7% (on top of provincial sales taxes of 8%). The size of GST rebates needed to offset the regressive nature of the tax was about $300 - not exactly a princely sum.

2. Economics is about incentives. The present administration has made a choice - they would rather make the politically easy choice to tax the entrepreneurs and innovators at the high end of the income scale. A national sales tax would have incentive implications as well, in that it would encourage saving. One of the reasons for this crisis is the fact that Americans (and their government) have stopped being savers. Savings are converted to capital, as banks get more money that they can lend out. Savings often get invested in the stock market and mutual fund - by individuals with a long-term investment horizon.

3. Having a mix of taxes diversifies the tax base. America has not taken advantage of this, and has one of the lowest rates of taxation of consumption in the world. The people hit by this recession are not the same people hit hardest by say, the early 90's recession, nor will the folks hit by the next recession be the same as those hit by the last. Secondly, while having multiple taxes complicates things somewhat (though to be fair, state governments already have both income taxes and sales taxes), the additional revenue from a sales tax can help pay for a flatter and simpler income tax. You are correct that a national sales tax would be unable to fully solve deficit woes or replace the income tax.

However, your 30% number seems off. A 7% GST in Canada (with rebates and exemptions for rent and food) raised 30 billion dollars in 2004/5, or 2.2% of GDP. Prior to Obama's current spending binge, a 10% national sales tax could easily have eliminated the deficit. Future surpluses could have been aimed at gradually lowering and eliminating corporate and personal income taxes. If you are able to work in the long-term, a lot becomes possible. Using the Canadian numbers, a fair guess is that a 10% sales tax would bring in 3.14% of GDP in tax revenues or about 440 billion dollars. If the government worked to limit spending increases to the rate of inflation, and progressively applied surpluses towards corporate and income tax reduction, at 3% per annum growth in real GDP, you could eliminate corporate and income taxes with a balanced budget in 20 years (running the government on excises, a 10% national sales tax, and social security/medicare taxes).
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I realize that this will never happen because governments lack the political will to hold government spending constant (even in real terms - so it would be going up at the rate of inflation), or to avoid politically expedient, deficit-funded tax cuts - much less stick to any kind of a program for 20 years. That said, wouldn't you want to live income tax-free 20 years from now?

I'm aware that the rebate could be small, but with a sales tax that is 20 - 40% in the U.S., it would be significant.

My estimate of the sales tax is simply Government Expenditure / GDP. It's almost 30%. The Fair Tax guys claim that it is 23%[1]. The 23% just includes taxes for the federal government. Where I live, sales tax after state and local levies is 8.25%. So for me, sales tax on any goods would be at least 30%. To be deficit neutral, the sales tax rate would be need to be higher since the Federal government spends like there's no tomorrow.

The present administration is taxing the entrepreneurs and investor class because they cannot see past the next election cycle. But then again, neither could the previous administration. When I mean election cycle, I mean the next election for the House of Representatives, not of a senator, and not of the president.

The only constant that I've seen for spending to go down is from Milton Friedman: he says that lowering taxes is the only way to control spending (at the cost of increasing the debt).[2] Another thing that seems to control the government debt is the credit ratings agency's claims to downgrade the debt. [3]

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[eternaltriangle]

A sales tax of say 30% would bring in less than 30% of GDP though. Presumably there would be exemptions on some things, and at least some transactions (particularly with a 30% sales tax) would be made under the table.

Also don't the Bush years kind of falsify Milton Friedman's argument?

[phej]

A sales tax of say 30% would bring in less than 30% of GDP though. Presumably there would be exemptions on some things, and at least some transactions (particularly with a 30% sales tax) would be made under the table.

Also don't the Bush years kind of falsify Milton Friedman's argument?

Yes, a sales tax of 30% would bring in less than the requisite 30% (so the sales tax will clearly need to be higher).

The Bush years don't falsify Friedman's argument. Today, there are a crapload of people who care about the size of the deficit. And there's a seemingly coherent group of Democrats (the Blue Dogs) who claim to be financially responsible. Whether or not that continues is unknown.