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The Tax Man Cometh

Matt Morgan • Jan 16, 2014 at 3:00 PM

We've had our holiday fun, now it's time to pay. Settle in, this one's long.


While I hope you find the body here insightful, if you want the "TL;DR" scroll to the bottom.


Many businesses and individuals have already started to prepare their taxes as they figure out how much of their money they can keep from the government. Did I phrase that correctly? Moving on, it is interesting to see just how convoluted our system is. I'm not talking about rates, just "the system" itself. We have special software to help us (especially in business) keep track of it all. For those that don't, or who want a personal touch, I'd suggest looking up accountants in your area. You have probably also seen that booths like Jackson Hewitt have already popped up in places like Walmart.


With due respect and honest appreciation for my own accountant, isn't that crazy? How much time and effort could our society save with a tax syste that didn't need an act of Congress to "simplify" into only a lesser-convoluted mess of paying penalties for not knowing every minor detail of your life? On top of that, have you ever stopped to consider that by withholding taxes from your paychecks you are giving the government an interest-free loan before you feel rewarded that they gave your own money back to you?


Before we look at domestic alternatives, let's take a peek at other places around the world to see what they do. Please forgive me the sin of using Wikipedia as my first source of info, I don't try to do it often. Kids, if you are reading this at home don't make this a habit either. Your teachers will know.


A few quick definitions. Corporate tax is a tax placed on the profits of a firm. Individual taxes are placed on the incomes of a person. Payroll taxes are what your employer is required to pay when you are paid. Value Added Taxes (VAT, also known as Goods & Services Tax) are a bit different from what we Americans know as Sales Taxes. The value added to a product by or with a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.


Stick with me, don't let your eyes glaze over just yet!


-Corporate: 35%

-Min. Indv.: 9%

-Max Indv.: 35%

-Payroll: ---

-VAT/GST/ST: 21%



-Corporate: 30%

-Min. Indv.: 10%

-Max Indv.: 50%

-Payroll: ---

-VAT/GST/ST: 2.5-20%


-Corporate: 33.33%

-Min. Indv.: 0%

-Max Indv.: 75% (starting 2014, previously 45%)

-Payroll: 66%

-VAT/GST/ST: 19.6% or 7% or 5.5% or 2.1%


-Corporate: 29.8%

-Min. Indv.: 0%

-Max Indv.: 45%

-Payroll: 41%

-VAT/GST/ST: 19% or 7%


Almoooost there! Just a few more. Sip a beverage. Stretch. How was your day? Good? I'm glad. Ok back to it.


-Corporate: 16.5%

-Min. Indv.: 0%

-Max Indv.: 15%

-Payroll: 5%



-Corporate: 38.01%

-Min. Indv.: 5%

-Max Indv.: 50%

-Payroll: 25.63



-Corporate: 21% (starting 2014)

-Min. Indv.: 0%

-Max Indv.: 45%

-Payroll: 25.8%-0%

-VAT/GST/ST: 20% Standard Rate; 5% Reduced Rate for home energy and renovations; 0% Zero Rate for life necessities - groceries, water, prescription medications, medical equipment and supplies, public transport, children clothing, books and periodicals.


-Corporate: 0%-39% (federal) + 0%-12% (state) + 0%-3% (local)

-Min. Indv.: 0% (federal) + 0% (state) + 0%-3% (local)

-Max Indv.: 55.9% (max of federal+state+local); 10%-39.6% (federal) + 0%-13.3% (state) + 0%-3% (local)

-Payroll: 15.3%-2.9% (federal) + 0%-2% (state) + 0%-2% (local)

-VAT/GST/ST: 0%-11.725% (state and local)


Of course for this last example, let's not also forget these other taxes we pay: estate tax, gift tax, property tax, tariffs, and the Affordable Care Act. Let's not forget that some members of Congress want to impose a VAT in addition to all the other taxes above. Are your eyes crossed yet?


So in looking around the world we can gauge where we are as a country for better or worse. Our current tax system was implemented on February 3, 1913 through the Sixteenth Amendment and has since been ceaselessly manipulated for now over a hundred years. QUICK! Off the top of your head do you know your bracket? Do you know what your deductions are allowed to be this year? Last? Next? Do you see that seemingly no matter how much you pay it is never enough?


How can we address this? How can we empower the average citizen to actually know the tax system that compels them?


Solutions, the TL;DR (too long; didn't read) version:


1. Flat Tax. Do you make $10,000? Do you make $100,000,000? Are you a corporation or make your money off capital gains? You pay the same percentage. Everyone contributes. No deductions. No exemptions. One number. Your tax form is the size of a postcard.


2. Fair Tax. Instead of the above which focuses on income, the Fair Tax only looks at new goods and services you purchase. It is a national sales tax that replaces both income and payroll taxes. You keep 100% of your check to spend on what you want, and when you do, only then do you pay taxes. By doing this, it also collects money from the underground economy of drugs and other crime.


3. Repatriation "holiday". Allow individuals and businesses to bring their overseas money back into the U.S. without tax penalty. Some specify that the tax-free, foreign-generated money must be used within the country or to directly build company infrastructure, hire employees, or other tangible benefits to the general population. There are also some systems like Monaco's which give an advantage to domestic companies. 


Theirs is summarized: "33.33% if more than 25% of a company's turnover is generated outside of Monaco. Otherwise, companies do not pay any direct tax on their profits. After various allowable deductions, this results in an effective corporate tax rate of under 6%." Estonia's reads: "0% on profit retained in company; flat 21% when earned profit is distributed to shareholders."


4. Stop meddling. Keeping our clunky, outdated tax system the same is an option too with the addendum that Congress must cease constantly tweaking the code to create perpetual ignorance, instability, questions, and uncertainty. Leave it alone. Let people learn the convoluted twists and turns so that they can plan their lives around it.


5. Tax Day on a Monday. Specifically, all taxes aren't due April 15. Taxes are due the first Monday of November. Why, that so happens to be the day before Election Day! Isn't that convenient? If this policy was in place this year, some citizens would be treated to a triumverate of Tax Day, Election Day, then Guy Fawkes Day after. But that's a story for another time...






= = = = = = = = = = Too Long; Didn't Read = = = = = = = = = =

Our current tax system is disorganized and convoluted, as well as structured to penalize someone for not being familiar with its every detail. How does this compare to other countries?


What tax suggestions do you have to help us modernize our antiquated system?

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