tbg@apollo.uucp (Tom Gross) (07/04/86)
>> Looks like tax reform is cruising through the senate. Great idea to >> lower the marginal tax rate, makes it seem really attractive to >> just about everybody, BUT aren't we OBVIOUSLY going to have to raise >> taxes sooner or later to pay for the deficit? Aren't we really >> looking at a top marginal rate of maybe 40% but with no capital >> gains exclusion, IRAs, interest deductions, and all the other nice >> little things that have made 42% or 50% easier to live with? >> >> Tom Gross > >Actually, no. One of the problems with the current tax system is that >the cost of auditing all of those "personal deductions" even by computer >is now so expensive, that even the IRS can't afford it. The IRS, by the >way, has the third largest budget after "entitlements" and Defence. It's taking me a while to decipher your comment, but what I THINK you are saying is that tax reform will be make tax collection so much cheaper that it will eliminate the deficit! Is this the sort of logic that people use when they vote for Ronald Reagan? Why don't we just adopt a "free-market" tax collection system, and count on the honesty of the american people? Think of how cheap it would be to collect everybody's money if it were completely voluntary! Unfortunately, the IRS does NOT have the 3rd largest chunk of the federal budget; the TREASURY DEPARTMENT DOES! In their budget there are two items (according to my 1986 almanac, these figures are the latest available: 1984): the IRS has a budget of $6 Million, the other "big ticket item" for the treasury department is something called "interest on the public debt" which for 1984 was about $154 Million. Here in Massachusetts the state government has found that it actually PAYS to go after delinquent taxes! What a concept! Tom Gross Apollo Computer, Inc. Chelmsford, MA
cramer@kontron.UUCP (Clayton Cramer) (07/07/86)
> It's taking me a while to decipher your comment, but what I THINK > you are saying is that tax reform will be make tax collection so much > cheaper that it will eliminate the deficit! Is this the sort of > logic that people use when they vote for Ronald Reagan? Why don't 1. Tax reform can make tax collection considerably cheaper -- maybe not enough to eliminate the deficit, but certainly to make some progress. First of all, the current tax system is so complicated that it is not practical to check every tax return -- the most they can do is check the arithmetic. Reduce the number of special tax credits and deductions, and it's practical to audit more tax returns because it takes less time to check the supporting paperwork BECAUSE THERE'S LESS PAPERWORK. 2. If marginal tax rates decline, the incentive to engage in questionable tax avoidance schemes (legal and illegal) declines. Why take a chance on getting audited if you only save $500? If you save $1400, it makes the risk of being caught and paying penalties more acceptable. 3. Similarly true for people not reporting income -- reducing the marginal tax rate reduces the advantage of not reporting income. Also, spreading the brackets farther apart (or even taxing all income at the same rate) takes away reason to take questionable deductions so that you can get below a particular tax rate. (I know: I spent an hour once adding up the state utility tax on my electricity bills to get seven dollars more deduction to drop below a taxable income level to save more than $7 in taxes.) > we just adopt a "free-market" tax collection system, and count on > the honesty of the american people? Think of how cheap it would > be to collect everybody's money if it were completely voluntary! > > Tom Gross > Apollo Computer, Inc. > Chelmsford, MA It would save a lot of money all right -- we would find out how much government people really want -- and I assure you it would be a lot less. (Of course, special interest groups would suffer horribly without access to the public purse.) Clayton E. Cramer
halle@hou2b.UUCP (J.HALLE) (07/08/86)
Clayton E. Cramer writes >3. Similarly true for people not reporting income -- reducing the >marginal tax rate reduces the advantage of not reporting income. Also, >spreading the brackets farther apart (or even taxing all income at the >same rate) takes away reason to take questionable deductions so that >you can get below a particular tax rate. (I know: I spent an hour once >adding up the state utility tax on my electricity bills to get seven >dollars more deduction to drop below a taxable income level to save >more than $7 in taxes.) The above comment is nonsense. Increasing deductions solely to get to a lower bracket is ridiculous. Remember, it's a MARGINAL rate, not an overall rate. An example. 38% bracket. An additional $500 deduction will drop you to the 33% bracket. $500 deduction saves $190 in taxes. $600 deduction saves $223. Now suppose you are $1500 from the 33% point. $500 and $600 save you $190 and $228 respectively. The only way that the effect you gave ($7 yields $7) can occur is near a range in the tables. Since the tables are in $50 brackets and the taxes are computed for a midpoint of the range, dropping down can have such an effect. But who cares. The best you can do is to find an extra dollar to save about 20. No one at IRS will waste their time looking for that. The moral is not to worry about tax brackets when filing. Just find the deduction. The bracket is immaterial. Worry about it when doing tax PLANNING. Now the net effect can influence decisions.
ajf@pyuxa.UUCP (A Figura) (07/09/86)
While explaining the various benefits of simplifying the tax code, Clayton Cramer says: > same rate) takes away reason to take questionable deductions so that > you can get below a particular tax rate. (I know: I spent an hour once > adding up the state utility tax on my electricity bills to get seven > dollars more deduction to drop below a taxable income level to save > more than $7 in taxes.) While I agree that a simplified tax law will reduce the incentive for questionable deductions (and rightly so), I'm afraid that your referenced deduction is a little worse than questionable - it's probably a non-allowed deduction. I believe that the taxes on your utility bills (electric, phone, etc.) are considered excise taxes, and not sales taxes; excise taxes are not deductible. I hope the IRA will overlook the $7, but it looks like your hour was spent in vain :-). (On the other hand, I may be wrong; I wonder if I'll draw undue attention to myself if I file an amended return for my $7! :-)
ian@sally.UUCP (Ian Kaplan) (07/10/86)
In article <2eacf085.2a75@apollo.uucp> tbg@apollo.uucp (Tom Gross) writes: > > > ... the IRS has a budget of > $6 Million, the other "big ticket item" for the treasury department > is something called "interest on the public debt" which for > 1984 was about $154 Million. > > Tom Gross I find it rather hard to belive that the IRS budget is only 6 million. 6 million will fund a medium size computer development project for a year, but not the entire IRS. Ian Kaplan USENET: {ucbvax,decvax,ihnp4}!sdcsvax!sdcc6!loral!ian ARPA: sdcc6!loral!ian@UCSD
bzs@bu-cs.UUCP (Barry Shein) (07/12/86)
Whatever the exact budget of the IRS, there are lots and lots of other costs not accounted for in the current system. One among them is the IRS taking people to court (this incurs governmental costs for the court system, the IRS doesn't rent the courts and judges etc.) Also, lost revenue involved in things like selling off re-possessed properties (if it were worth the tax bill why didn't the owner just sell it?) Not to mention how many people take April 14th off every year...:-) -Barry Shein, Boston University Do I think the new tax system is a good thing? Not sure, could provide some interesting action in the stock market December and then January which is more interesting to think out loud about in net.invest...(ie. if you don't like paying taxes, don't make money...)
cramer@kontron.UUCP (07/15/86)
> > While explaining the various benefits of simplifying the tax code, > Clayton Cramer says: > > > same rate) takes away reason to take questionable deductions so that > > you can get below a particular tax rate. (I know: I spent an hour once > > adding up the state utility tax on my electricity bills to get seven > > dollars more deduction to drop below a taxable income level to save > > more than $7 in taxes.) > > While I agree that a simplified tax law will reduce the incentive for > questionable deductions (and rightly so), I'm afraid that your > referenced deduction is a little worse than questionable - it's probably > a non-allowed deduction. I believe that the taxes on your utility > bills (electric, phone, etc.) are considered excise taxes, and not > sales taxes; excise taxes are not deductible. I hope the IRA will > overlook the $7, but it looks like your hour was spent in vain :-). > > (On the other hand, I may be wrong; I wonder if I'll draw undue attention > to myself if I file an amended return for my $7! :-) The tax form said, "Other state & local taxes", and at least the year in question, the instructions didn't prohibit deducting state excise taxes (if in fact that's what they are). Clayton E. Cramer
miller@nlm-mcs.UUCP (07/16/86)
> > While explaining the various benefits of simplifying the tax code, > Clayton Cramer says: > > > same rate) takes away reason to take questionable deductions so that > > you can get below a particular tax rate. (I know: I spent an hour once > > adding up the state utility tax on my electricity bills to get seven > > dollars more deduction to drop below a taxable income level to save > > more than $7 in taxes.) > > a non-allowed deduction. I believe that the taxes on your utility > bills (electric, phone, etc.) are considered excise taxes, and not > sales taxes; excise taxes are not deductible. I hope the IRA will > overlook the $7, but it looks like your hour was spent in vain :-). > My understanding is that all state taxes, whether sales, excise, or automobile title, may be deducted. -- __ __ Nancy Miller <> <> | miller@nlm-mcs.arpa `-'
jld@ulysses.UUCP (07/17/86)
> > > > While explaining the various benefits of simplifying the tax code, > > Clayton Cramer says: > > > > > same rate) takes away reason to take questionable deductions so that > > > you can get below a particular tax rate. (I know: I spent an hour once > > > adding up the state utility tax on my electricity bills to get seven > > > dollars more deduction to drop below a taxable income level to save > > > more than $7 in taxes.) > > > > a non-allowed deduction. I believe that the taxes on your utility > > bills (electric, phone, etc.) are considered excise taxes, and not > > sales taxes; excise taxes are not deductible. I hope the IRA will > > overlook the $7, but it looks like your hour was spent in vain :-). > > > My understanding is that all state taxes, whether sales, excise, or > automobile title, may be deducted. This is not correct. The IRS has very specific (and narrow) rules as to what state taxes may be deducted. Most excise taxes are NOT deductible. The specific guidelines can be found in any thorough tax guide (like Lasser's). Jeff David