Next Gen Tax Prep

[Lee B]

I read an article yesterday explaining that several Central American Governments were in the process of passing laws 

that would require all businesses to give each government's revenue agency direct access to each business's financial records.

From that information, the revenue agency will prepare the tax returns.This would certainly increase the amount of small business write up work.

I could see this spreading to other countries, like India and Italy where it's estimated that only about 60  %  of Taxable Income is actually reported.

 

[Abby Normal]

I prefer the simplicity of a financial transactions tax that is a tiny percentage collected every time money changes hands. Not that it could totally replace an income tax or other taxes.

[Catherine]

I  much prefer a consumption tax; "The Fair Tax" book by Lindzen & Bootrz makes a great case.  No tax on income at all; one embedded tax on sales of new items (clothing, houses, cars) and not on subsequent sales.  Monthly "prebate" for lower income people.  Done.  It also gets all the "grey market" people.  No, no one is going to charge the tax on drugs or hookers - but when the dealers buy gold jewelry and the pimps buy fancy cars, they pay their share of tax on those purchases (which don't get caught on an income tax form).  

[Edsel]

I'm told the VAT (Value Added Tax) eliminates the underground (unreported) economy.  Don't know how, except it is applied at every level and the final sale takes credit for all VATs previously paid.

I want my clientele to have the lowest possible taxes.  But I am vociferously opposed to not reporting income.

[Roberts]

The Fair Tax is fine but in the book they claim that people would get to keep 100% of their paycheck and they later VERY quietly admitted that was an error and completely false. Their math had the company saving money so they'd hire more people to overcome higher prices but the corporate savings were achieved by cutting paychecks by the tax savings. I haven't followed their movement in years so maybe they've changed the pitch.

Which states in Latin America are proposing this change?

[Abby Normal]

The 'fair tax' is highly regressive, increasing the tax burden on the poor. Also, I'm sure a national sales tax would lead to a lot off-the-books cash deals, because it's such an easy way to avoid the tax. I much prefer the Robin Hood Tax.

[Edsel]

I've been hearing about this "fair tax" ad infinitum.  It's hero is Neal Boortz, and the wealthy people love it because they can stash away everything over the cost-of-living into wealth tax-free.  A family earning $300,000 per year would NOT spend 6X as much as a family earning $50,000, contrary to what proponents would have us believe.

For all practical purposes, Alabama has a "flat tax" of 5%.  Folks down there hate the AL tax code just as much as people anywhere else.

And with this "flat tax" the only way to cut your taxes is to spend less.  Won't that be great for the economy?

Abnormal, I'm in your corner on this one.

[jklcpa]

What Alabama has is not a flat tax system. It still has 3 brackets, even if they top out at a very low level, and it also has all kinds of deductions, credits, and exemptions.

[Edsel]

The 3 brackets phase in at $1000 (single) and $2000 (married) - the final one phases in at $3000 single and $6000 married.  These are so low that anyone who is a warm body will exceed and be at the 5% level.  All govt pensions (regardless of what govt) are exempt, and over 2000 commercial pensions are exempt.

The standard deduction is so low that almost anyone can itemize - and the Sch A is much more generous than Federal with the exception of state income taxes.

And to make the scheme even more regressive - the federal income tax liability is deductible.  That means high income people with heavy FIT liabilities have an incremental rate of much less than 5%.  Robin Hood in reverse.

The "flat tax" of 5% is the maximum incremental tax anyone can possibly pay.  The wealthy pay much less.