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Peijen's Tax Law

PostPosted: Thu Apr 17, 2008 1:41 pm
by Peijen
Going to write up how I thought the tax should be done. Anyone know of a place that allows me to run simulation against past data?

PostPosted: Wed Apr 23, 2008 11:04 pm
by skanks
I have no idea. But I'm interested to hear your hypotheses.

PostPosted: Wed Apr 23, 2008 11:37 pm
by quantus
Nope, no idea either... Why do we need a new system? I would like sales tax abolished though...

I think that overall, the tax laws are not terrible, but there are way too many special cases. Some of them are necessary to avoid double taxation or promote certain asset allocation behaviors. Others just make things more complicated than they really need to be. The over complication is what I'd like to see go. Instead, I'd like to see clearly stated intentions of what is being accomplished.

For example, we can stop taxing income spent on education. See how simple to state and easy to understand that is? Now, everything is triggered by particular income levels and is really hard to understand. For me, I fit under none of those income levels and am lucky I can fit the education expenses under un-reimbursed business expenses so that I can deduct any part over 2% of my AGI. In moving to a service economy heavily dependent on knowledge, education should be as low cost as possible for all.

Another area that needs to change is the AMT. It needs to be reworked a bunch or removed. I even got hit by it this year because of all the deductions for education expenses and state/local taxes I took.

Long-term capital gains should be taxed as income as well. Doing otherwise is giving the wealthy a huge advantage over the rest of us earning a salary. It's a double standard, plain and simple.

Dividends probably should not be taxed for the corporation paying them since they're basically an expense and only the recipients of the dividend should be taxed as income. As it works now, I believe the earnings are taxed twice. Our system is set up to avoid double taxation. Really, I'm not totally convinced this is something that needs to be changed, but I figured I'd mention it as an issue.

I'm not opposed to moving to a different tax system. However, it'd be a hard sell to everyone already used to what we have and all the special interests it caters to now.

PostPosted: Thu Apr 24, 2008 1:03 am
by Jonathan
quantus wrote:Nope, no idea either... Why do we need a new system? I would like sales tax abolished though...

Move to Oregon. Booyah!

I think Joe points out all the problems with the current tax code, whether they're outdated concepts or just plain regressive. I think any change will wind up being as complex as the current system. For better or for worse, tax credits and deductions are one of our policymakers favorite tools to change the public's behavior. You can't focus solely on the revenue without taking the policy into account.

PostPosted: Thu Apr 24, 2008 2:54 pm
by Peijen
I believe the tax should be fair with those that earn more share heavier burden. Also the tax should be simple, and all tax saving benefit should be available to everyone without a phase out limit or tax cap. It is not fair that people earn more than 100k doesn't have to pay SS while at the same time doesn't qualify for IRA contributions. Also there should not be a distinction between salary income and other forms of income (investment, rental, etc). The key words are fair and simple.

Stop payroll tax
We should recognize the fact that social security and medicare need to be paid for, and everyone should pitch in for the promises made to our parents and grandparents' generations. Instead of pay roll tax, we should simply put aside a portion of income tax revenue to pay for the programs. The government should allocate 15% of income tax to pay for social security programs and 10% of income tax to pay for health care programs. We should also realize that younger generation will not be getting retirement benefits by the time we retire, the 15% allocated for social security programs should be slowly shifted to health care program overtime.

Single Income Tax Rate
There should be a single progressive income tax rate for all forms of income. Each person will pay taxes for their income based on the rates outlined below. The new rates will replace current income tax, capital gain tax, and alternative minimum tax. The rate bracket should be raised or lowered indexed for inflation. I still believe that we should encourage investment and saving, but it will be handled through accounts with special tax privilege outlined below. Married couple or household with multiple income can split the income between each filing individual as long as they earn part of the reported income. So salary earned by John cannot be reported by Jane, however rental payment made to Adam and Steve can by reported by Adam, Steve, or split between them. Dependants income have to be filed with the person that claims them as dependants, however each dependant qualifies for some kind of tax credit (see below).
640,001 - INF 35%
320,001 - 640,000 30%
160,001 - 320,000 25%
80,001 - 160,000 20%
40,001 - 80,000 15%
20,001 - 40,000 10%
10,001 - 20,000 5%
0 - 10,000 0%

Exemption, Deduction, and Credit
There will be no exemption or deduction in the new tax system, the exemption and deduction system is too complex and had too many special clauses designed to favor few. In place of exemption and deduction the tax credit will be used, and negative tax credit means the government will pay the individual. There should be no income restriction on tax credit, as long as the filer fulfill the requirement they should receive tax credit regardless of their income. Example tax credit are depend care, education, and green purchase. Tax credits can be limited to the amount of spending to eliminate the scenario of person profiting from negative credit when the given tax credit was not designed for that purpose. For example, if education credit is $1,000 and I take a course for $50 (soccer practice), I should not get $950 tax credit paid to me.

Pre-taxed Spending Account
Everyone is allow to establish a pre-tax spending account modeled after health spending account. The limit for this spending account is $10,000 per year, but not greater than the person's income for that year, indexed for inflation at $100 increment/decrement. This account can be open with any financial institution that offers the service, through work, medical/insurance provider, or government program. The contribution to the account can be used to purchase designated items or services such as health care, child care, medicine, or whatever item the government deem fit and will not count toward their income. This plan will replace all pre-taxed spending accounts that exist today. Each individual should receive a pre-paid debit card from their plan administrator and can pay for qualified items and services with the debit card. At the end of the year the unspent amount will be subject to a 5% administration fee pay to the plan administrator with the rest refunded to the individual and considered as income for that year.

Pre-taxed Retirement Account
Each person should be allowed to open a pre-tax retirement account similar to today's 401(k) plan. The account can be open with any financial institution that offers the service or through work. This plan will replace all Pre-taxed retirement accounts such as 401(k), 403(b), traditional IRA, SEP IRA, etc. All current account types replaced by this will be converted to pre-taxed retirement account. All employer matching and contribution currently allowed under 401(k) type plans will be converted for this plan. The matching and contribution cannot be greater than 150% of individual contribution or 20% of their total income for the year. Each individual is allowed to contribute $10,000 per year, but not greater than their income for the year, indexed for inflation at $100 increment/decrement. A person cannot withdrawal from this account until they reached retirement age of 65, and the distribution from this account is considered as income for the year a withdrawal is made. If a withdrawal is made before the person reaches retirement age, an additional 10% of tax will be imposed on the withdrawal as penalty. Earning in this account is tax deferred.

Taxed Retirement Account
Replacement for Roth IRA/Roth 401(k). $5,000 per year, indexed for inflation at $100 increment/decrement.

Taxed Savings Account
Similar to Roth IRA with the exception withdrawal can be made from this account at anytime tax free. $5,000 per year, indexed for inflation at $100 increment/decrement.

Other investment options (life insurance, annuity, etc) to come later

PostPosted: Thu Apr 24, 2008 3:05 pm
by Peijen
I posted what I had before reading joe's post, but it seemd like some of joe's issues have been addressed. I have some ideas for dividends and sales tax too, but that will come later.

PostPosted: Thu Apr 24, 2008 4:30 pm
by Jonathan
I don't see you specifically address the mortgage deduction, which is the single largest special tax interest in the country.

PostPosted: Thu Apr 24, 2008 4:38 pm
by Peijen
Dwindlehop wrote:I don't see you specifically address the mortgage deduction, which is the single largest special tax interest in the country.

No mortgage deduction, probably not going to work without it, but it's no like anyone would ever use my system.

PostPosted: Fri Apr 25, 2008 1:47 am
by George
Wow, I think we don't agree on the definition of the words fair and simple.

George's fair and balanced or at least simple plan

Flat tax rate on all income and other net-worth increasing exchanges of services or goods (just in case someone tries to pay a worker in chickens). Tax rate set automatically without legislature intervention to cover the current budget plus some rainy day saving plus pay down any shortfalls from the previous year based on current rather than projected GDP/income figures. With a flat tax almost any common form of income could be automatically withheld, including tips, interest, dividends, and brokerage accounts.

No deductions or exemptions. Functioning reproductive organs shouldn't reduce your tax rate, even if you choose to demonstrate them. If you really feel the need to do social engineering, many of the current forms can be done through direct subsidies instead. Want to promote higher education? Pay $X or X% of every college student's tuition. Not to or through the student but directly to the school. Ditto for health care, housing, day care, solar panels, etc. But subsidies have historically caused harm in addition to good, so these would have to be carefully considered.

Tax rate reset date would be subject to gaming, since people could time capital sales to take advantage of changes. Hmm, but if you made the tax rate change every day the budget changes (like every time any bill involving spending passes), then you might limit the advantage and get the side effect of people voting with fiscal responsibility. I.e., seeing your taxes increase immediately when your senator votes for the "Buy every third child a puppy" bill might make you question the next ridiculous spending bill.

For retirement and general encouragement of savings, I might declare all gains on savings and investments exempt from immediate taxation. The account has to track the amount you put in and where that money goes. If you leave it in for, say, twenty years, the gains aren't taxed. So it's still automatable (though it makes the bank's bookkeeping harder). All other gains are taxed at the time the money is moved to a spendable account.

Obviously the first several years, the whole debt thing would screw up the automatic rate. Maybe that would be the minimum tax rate and the legislature could determine the amount of debt to attempt to pay down in addition (with some minimum to make sure they don't just leave it to the next generation).

Social Security and Medicare would be paid out of the general treasury rather than taxed separately. I'd probably create a short term "irresponsibility tax" as an extra rate on top of the usual one calculated from the budget shortfalls for each year after the person reached voting age. Still automateable, since all you need is the birthdate. It would automatically be phased out as the generations so taxed die off.

And, there are a few other oddball sources of revenue available besides the income tax, so the rate would be pretty confusing to figure out. How exactly projected and actual import duties, government investments, fines, foreign exchange credits, etc factor in is probably non-trivial. Maybe just treat them as rainy day savings on the assumption that some disaster or war will come along to consume them.

Hmm, I didn't say anything about business level taxes, but as I recall, you do need them to prevent certain exploits. Ditto sales tax. Estate tax is pretty much standard income. A divorce might be messy, since you might have to figure out if one party ended up with more than they contributed, thus profiting.

PostPosted: Fri Apr 25, 2008 1:53 am
by George
And, no. I don't think anyone would ever support my tax system, though I do believe it would work well if it could be put in place. It would probably be more popular than my solutions to illegal immigration and welfare.

PostPosted: Fri Apr 25, 2008 4:07 am
by Jonathan
There are many fantastic episodes of Jack Of All Trades, but one that stands out is the one where the French government institutes a poverty tax so that poor people can't afford to be poor anymore.

Re: Peijen's Tax Law

PostPosted: Wed Mar 18, 2009 7:10 pm
by Dave
Dave's Tax Law System

Tax Rates.
0-10k - 0%
10-20k - 1%
20-30k - 2%
30-40k - 3%
50-60k - 4%
70-80k - 5%
80-90k - 6%
90-100k - 7%
100-125k - 10%
125-150k - 15%
150-200k - 20%
200-300k - 30%
300-400k - 40%
500k+ - 50%

Not sure why I typed this because it makes little sense after all this copy paste. But I needed a post in this forum.

Re: Peijen's Tax Law

PostPosted: Wed Mar 18, 2009 7:19 pm
by quantus
Wooh, I'd be paying less in taxes! I like this idea.

Hah, ruined your clean sweep!

Re: Peijen's Tax Law

PostPosted: Wed Mar 18, 2009 7:27 pm
by Dave

Well I think it sorta works this way already, but someone making 200k pays the same amount on their 1st 100k as someone only making 100k. I just like the brackets more better!

Re: Peijen's Tax Law

PostPosted: Wed Mar 18, 2009 8:33 pm
by quantus
I want to make between 40k and 50k or between 60k and 70k or between 400k and 500k so I don't have to pay any taxes... preferably the latter. :P