If you want to simplify tax and maintain a small tax authority do NOT start allowing different goods to have different rates, basic lines at one rate, standard/luxury at another or anything like that. It is one of the most complicated areas to put into practice and to police.

With a previous employer I recall a ludicrous long discussion, over weeks, with the Inland Revenue because as a promotion we had put a packet of coffee (= food so sales tax 0%) into a tin (= not food so tax @15% at the time). Was tax due on the whole thing? or none at all? (if the coffee was directly in the tin it would be 0%) or only the cost of the tin? What is the cost of the tin? etc, etc, etc.

Don't.

Just don't.

Dangermouse: There is little thats fiscally conservative about the modern "conservatives".

I mean, Regean called himself a fiscal conservative, and then promptly cut taxes, and then went on an orgy of spending.

The hilarious part is the last fiscally conservative president we had was Bill Clinton.

Draugnar said: "why should I pay higher taxes on the $80,000 profit? ...It was my hard worjk researching and picking the stocks that made me the money. The fact that I have a brain and don't do physical labor (software developer here) even for my payroll based income doesn't mean I don;t work for it,. "

Fair enough... you worked for it. Why should this kind of work be taxed at a far lower rate than other kinds of work?
Answer:
"I work harder than most ditch diggers"
Really?
Have you dug ditches? I have. I've also, coincidentally, written software, and I've taught, waited tables, managed people, baked cookies, stocked shelves, done carpentry and masonry, done environmental and geotechnical consulting, and a few other things. These are each hard in their own way. But digging a ditch is about the hardest most thankless job there is. But then, it's not about how hard you work in this country... its about how much money you bring home (due to supply and demand). And in the most conservative/libertarian view, you should be taxed at the same rate as the poor sop in the trench - a flat tax. Everyone else is to the left of that position and believes that you, as a major bread winner - in the top 5 or 10% of the population, should pay a bit more than that. Yes - because you can. How does it feel to be to the right of everyone? You actually believe that you should be taxed at a lesser rate than a manual laborer because you "work harder". Wow.

i dont really give a shit what you have done. i hate these ive done this and ive done x which makes me qualified to talk about y.

Im an economics major so i can talk about the economy. A flat tax is fair and very few people ask the desperately poor to pay any tax at all.

Or were you a a award winning economist as well?

Jack Klein said: "I mean, Regean called himself a fiscal conservative, and then promptly cut taxes, and then went on an orgy of spending.

The hilarious part is the last fiscally conservative president we had was Bill Clinton. "

Indeed. And the last one before that was Carter. You can't call Nixon fiscally conservative because of the price controls and freezes he implemented (rather communistic, actually). And all the presidents since WWII paid down the debt as a percentage of GDP with the exceptions of Reagan and both Bushes. Kudos to Eisenhower. The last truly conservative Republican president.

"i dont really give a shit what you have done. i hate these ive done this and ive done x which makes me qualified to talk about y.

Im an economics major so i can talk about the economy. A flat tax is fair and very few people ask the desperately poor to pay any tax at all."

Don't be a turd. My point wasn't to brag - the point was in regards to what type of work is "hardest" - which would necessarily be a subjective view. And at 48 I have some varied experience to base my view on. Unless, as an economics major (oh, I'm so impressed) you can tell me how Milton Friedman feels about the relative hardness of different jobs. Besides, I wasn't arguing against a flat tax. Draugnar was.

@dexter - specifically digging ditches, well, yes. I am a Marine after all and we did have to dig ditches to bivouac in. Also, I've worked surveying (shooting elevations and distances) in cowfields with more than a foot of mud and 2 foot of freezing water in the middle of winter and done the usual assortment of retail (Waldenbooks and Radio Shack), restaurant (Pizza Hut), fast food (Arby's), and even rent-a-cop work. I was saying I work harder as in more hours without compensation to make up for it. I work a typical 60 hour week.

And, no, I don't think I shoould have to pay more taxes on what I make off of the money I've already been taxed on. In fact, I generally avoid that by using a Roth IRA as this is all for retirement anyhow, so that I won't pay taxes on it. Once you've been taxed on money, you should never have to pay taxes on it again. If you use it to make more money, then that should be tax free as it is with a Roth IRA. But I accept that the amount I kept in a traditional brokerage will be taxed a small amount so that I have the freedom to use it to pay off my house in a couple more years.

im sorry im in a bad mood and my post was harsh. i apologize. and i like your use of the aphorism "dont be a turd" one of my personal favorites.

And actually, I have no problem with a flat tax. I was saying that, just because I make more, doesn't mean I have an obligation to pay more (as a percentage mind you) than someone who makes less. I fully support either a national sales tax or a flat tax with an initial excemption so anyone under a certain income has no obligations and that exception should vary depending on number of dependents in the household. Beyond that, no writing off of interest on student loans or mortgages. You chose the long term loan on the expensive house, so you are still paying the tax on your income.

I'm just saying that it should be equal contribution as a percent and not punish those who make more by charging them a higher percent just because they got ahead in life.

And Buffet secretary still needs to find a good tax guy. 30% is fucked. There is no reason for that. I take 1 deduction and fall in a much hihger tax bracket than 60K a year, yet I don't pay that much in payroll taxes. I think his folks were adding all deductions (like health insurance) and calling it a tax when it isn't. That or their state and local taxes are way up there. But I don't see Omaha or Nebraska being that high in the taxes.

I agree that deciding which individual items should be subject to the tax would only add to levels of government regulation and that would be counter productive. However, a broad category of food items needn't be subject to that level of scrutiny. It's a pretty simple process these items are to be eaten and therefore they're food, no tax. Those items are not and therefore they aren't, tax. In the above example it seems like your boss got a hold of a civil servant that was way too interested in splitting hairs. The coffee was what you were selling not the tin (unless it was a special design tin that would be expected to have worth after the coffee was consumed).

It doesn't really matter how conservative the president is as much as who has the greatest desire to reform taxation.

"im sorry im in a bad mood and my post was harsh. i apologize. and i like your use of the aphorism "dont be a turd" one of my personal favorites."

:-) No hard feelings. ...one of my favorites too.

I was just thinking that there could be a class of "VAT Free" items if you like, where they were the basics needed to keep a house or live. Basic stove, fridge, washing machine, dryer, gym shoes, dress shoes, shirt, slacks/jeans, socks, undergarments, etc, but they'd all have to fall under a very stringent price block to be VAT free. However, yes, this could be a logistical nightmare. But we already have a bunch of accoutning types who'll need new jobs in the IRS as they will have it much easier, so those extras could go run that department.

@Draugnar, you've got me as far as the prize for the hardest job (though I have dug in frozen ground in Alaska - but you still win :-) ). Anyway, in regards to flat tax... I think I need to explain myself. Usually flat tax refers only to income tax. As you point out, you work for your capital gains... this is labor. You are self-employed in trying to make money from money - much like in a business. The money that fuels this is not taxed twice - your income, your initial investment is not taxed again when you sell your stock or bond or whatever. It is, as you know, only your capital gain that is taxed. And as far as you are concerned this is new money. Taxed once as it comes in. And, as you yourself admit, it comes through hard work. Personally I believe that capital gains should be seen exactly like a salary. So - in the current arrangement, capital gains are taxed at a lower rate than a salary. This I see as unfair and counter to the philosophy of a flat tax. As I see it, a flat tax concept should mean that all income (regardless of source and stripped of all loopholes) should be taxed at the same rate. Capital gains and salary are both income by a different name. That is what I was getting at.

@Draugnar, I mean this as a naive question: Why the fascination on the right with a VAT tax or a sales tax rather than an income tax. Seems to me that if a flat tax structure with exceptions for the poor is what one is after then the easiest way to do that would be a flat income tax that starts above the poverty line (or similar line). Seems like there would be less accounting involved and less management then attaching it to all purchases and trying to exempt specific items (diplomat's example with the coffee tin illustrates it well). Collect the tax once a year based on income and you're done. I am truly curious what you think the advantages are (both socially and administratively) to the sales tax approach.

I can live with that. But Warren Buffett advocates higher taxes for capital gains than payroll income tax. I say lump it all together, deduct a basic deduction for your household based on the number of dependents, and take 25% of what is left. I could live with that.

As far as retirement money... If it was put in pretax (still allow triditional IRAs) then tax 25% of everything when it comes out (less the aforementioned basic deductions) and if it was post tax (ala Roth IRA) take 25% over the principle (which is easily enough mantained), or in other words, the profit from the investment.

The only exception I would see is if a person was willing to give up their allotment of Social Security when they retire, then any IRAs should have their tax liability reduced or eliminated as they aren't taking from the government so that 25% is needed to compensate for the lack of Social Security they are claiming despite having already contributed to it.

"I can live with that. But Warren Buffett advocates higher taxes for capital gains than payroll income tax. I say lump it all together, deduct a basic deduction for your household based on the number of dependents, and take 25% of what is left. I could live with that."

Heck, I could live with that too. Certainly would stop the two day ordeals I have every year doing my return. ...and it would eliminate loopholes that only the rich take advantage of (thus making the current system regressive in some ways).

"The only exception I would see is if a person was willing to give up their allotment of Social Security when they retire, then any IRAs should have their tax liability reduced or eliminated as they aren't taking from the government so that 25% is needed to compensate for the lack of Social Security they are claiming despite having already contributed to it. "

An interesting thought. What happens to someone who opts out and then loses their money in a stock market crash when they are late middle age?

@Draugnar
"In the above example it seems like your boss got a hold of a civil servant that was way too interested in splitting hairs."
Nope, it was civil servants (several of them) who were trying to raise as much money as possible. That example was extreme but you do get into quite legitimate discussions about what rate applies. An exemption for all food is (relatively) straightforward but I can only imagine the debates about whether stove X is a basic model or not (what features can a basic stove have? what features make in luxury?).

Just as a flat income tax is appealing for it's simplicity & ease of administration (amongst other things) so is a simple sales tax code.

Another word of caution: to avoid burdening small businesses with a lot of admin it is usual to exempt them from VAT when trading below a certain level. Right in principle but this opens up all sorts of tax evasion.

The opt out would be at withdrawal time. If they lost it while it was still in, there is nothing to pay taxes on anyhow because there was no profit and they would just take social security and squeek out an existance because they weren't wise in diversifing their portfolio. And obviously, there would have to be some form of adjustment if there was a 9/11 type crash. We have to be flexible under those types of situations.

Re: Stove, fridge, etc. You set a base price point. If it MSRPs for less than that price point, then it is basic. And you monitor so that nobody sells VAT free goods above MSRP, making it a federal crime to do so.

I have seen a few income, corporation and sales tax systems around the world. My conclusion: the simpler the better for everyone.

Aside: nuttiest system I encountered was in Syria, about 15 years ago. The tax authority assumed that everyone was cheating so charged corporation tax at 110% of profit. So, the only way to stay in business was to cheat by keeping a fake set of books for the taxman. Doh!

So stove today might have the VAT break set at $200. You can get a basic electric or gas drop in stove ad oven combo for that. Want a glass top or one with an electronic ignition, it will most likely go up above that price point. But if a manufacturer can add that feature and still keep the MSRP below that price point, then they will see the lionshare of the business from other manufacturers. It actually adds incentive to companies to make products that can compete in the VAT free world and still make luxury products.

Price controls. They are fun too. Is the delivery cost included in the MSRP? What about disposal of the old one? Warranty? What period? Can I throw in a set of pans?

This kind of stuff will keep accountants, tax lawyers and government bureacrats going for ages. And don't forget all the IT systems that need changing ....

..... wait, you are a programmer aren't you? ;-)

Sorry, I am sounding a bit negative.

Actually, I am in favour of a flat income tax with a good allowance to leave low paid without tax, very simple sales tax, very simple corporate tax (minimum deductions). Donations tax free. Tax on sale of assets should taper off with the length that they have been held.

The latter could include death taxes so that when Fred dies his family does not have to sell his business, house, Picasso until they want/need to. If he bought the Picasso last week they get stiffed but when they sell the business he started 30 years ago the rate would be low.

@diplomat - Yes, I am... ;-)

"The opt out would be at withdrawal time. "
Of course. So - pay into Social Security all the way along - but upon withdrawal of IRA or some such similar device, amount paid into Social Security along the way is subtracted from the tax owed... or something like that. Seems reasonable to me. After all, social security is supposed to be our money in some sense not normally afforded to a tax.

This reminds me of the estate tax exemption for charity. Portion goes to the greater good no matter what... through the government, unless you think you can do it better through private means - then go for it.