Tax Brackets & Progressive Taxation

[VASI]

[Jay Rose]

Yes, of course. It's a reasonable explanation of a very simple concept...

 

But anybody on this board who lives primarily on freelance or sole-proprietorship income should already know this. It's basic business, something you'll encounter the first time you do your taxes.

 

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Where taxes get interesting (or disgusting) is when you start seeing how many dodges are available to people with money, to let them pay in a lower bracket than their marginal income would justify. 

[Rich Reilly]

That, Jay, could be a good argument for flat tax. But..it gets REALLY interesting when you examine income taxes versus sales tax. Imagine if you went to a store and there was a multilevel sales tax applied in accordance with determined income or wealth. By the way, has anyone else here felt weird about deducting "losses" and/or expenses from taxation? I mean..wouldn't it make more sense to have a flat rate and what you do or don't do has to live within that?

[chris_bollard]

If you listen to economists personal income tax is all regressive. The way forward is sales tax on everything (no exceptions) and zero personal income tax; or do they say. It would be nice not to have to complete the yearly income tax return....

[johnpaul215]

That, Jay, could be a good argument for flat tax. But..it gets REALLY interesting when you examine income taxes versus sales tax. Imagine if you went to a store and there was a multilevel sales tax applied in accordance with determined income or wealth. By the way, has anyone else here felt weird about deducting "losses" and/or expenses from taxation? I mean..wouldn't it make more sense to have a flat rate and what you do or don't do has to live within that?

 

That would bankrupt a lot of businesses. There are many industries where the profit is razor thin, but they deal in volume. They may legitimately not be making a ton of profits (as opposed to creative bookkeeping), but it's enough to sustain them. That's also why some businesses can only survive by being huge. 

[Jay Rose]

By the way, has anyone else here felt weird about deducting "losses" and/or expenses from taxation?

 

 

 

I'm on a cash book, so I can't deduct 'losses'. I don't pay tax on 'gains' either. I pay tax based on my business earnings, less the expenses necessary to operate the business. What's wrong or weird about that?

 

If I have to buy a recorder in order to make a living, I amortize its cost over the life of the recorder. If I have to buy blank DVD-R to deliver product to my clients, I deduct the cost of those blanks immediately. If I client gives me $1000, I pay taxes on that grand less what it cost me to make that money. That's basic bookkeeping, and basic business.

[Rich Reilly]

"less the expenses necessary to operate the business"

 

Choices as to what's "necessary" are often subjective. A tax code that can essentially subsidize more heavily a pricier piece of gear etc over one less so (yet potentially capable enough) seems to me a perverse arrangement. Just one element of weirdness..

 

John Paul,

I'm not understanding your point. Are you addressing flat tax or deductions?

[Jay Rose]

Choices as to what's "necessary" are often subjective

 

Hardly.

 

For those of us in the lower/middle/upper-middle brackets, there are plenty of guidelines. Your accountant can help you figure out what's 'regular and necessary', which is all the IRS wants to know.

 

For those of you/them in the upper 2%, they're still objective. But they've been written into law by heavily per$uaded legi$lator$, who have been convinced it's in the best interests of the economy* to subsidize certain expenses. And a high-priced accountant can make sure your deductions fit into those objective definitions.

 

Point is, don't think of it as subjective. That way lies trouble with the IRS.

 

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*Well, of course it's their own campaign economy we're talking about. But they've got the best interests of the country in mind, obviously, and just want to make sure they get re-elected so they can carry them out.

[Rich Reilly]

For example, the decision to buy a Tascam or Nagra pocket recorder. Buyer's choice, categorically the same in IRS view...this type of thing applying to all businesses in their own ways.

[Jay Rose]

Choices as to what's "necessary" are often subjective. A tax code that can essentially subsidize more heavily a pricier piece of gear etc over one less so (yet potentially capable enough) seems to me a perverse arrangement. 

 

 

Of course Nagra v Tascam is a conscious decision: it's up to the buyer's judgement whether to spend thousands or hundreds on a portable recorder they'll use at work. But I'd hope a mixer makes that judgement on objective grounds (ROI, TCO, etc) rather than subjective ones ("I think Nagra's logo is prettier"). Even the decision to buy a particular brand because it's more accepted by your potential customers -- or to go Tascam because you can't afford Nagra, or want to sell at a lower price point -- is still mostly objective.

 

But the tax code doesn't "subsidize" Nagra more than Tascam. It lets a professional mixer deduct the cost of either one, over a period of years, from the income they pay taxes on.

 

The alternative -- allow a fixed amount for any 'potentially capable' recorder -- would require the IRS to decide that a Nagra is exactly as productive as a Tascam... that is, productive in the sense of contributing exactly the same amount to a mixer's annual income. And that would be a subsidy for Tascam, since the government would be influencing people to buy the cheaper recorder.

[Rich Reilly]

Another alternative would be to skip the deductions and the distortions it produces.

[OmahaAudio]

Imagine if you went to a store and there was a multilevel sales tax applied in accordance with determined income or wealth.

That's an excellent idea!

[OmahaAudio]

For example, the decision to buy a Tascam or Nagra pocket recorder. Buyer's choice

That's just another idea that would lead to the "dumbing down" in quality terms at least, of the industry as everyone would buy Tascams (or even cheaper machines).

[Rich Reilly]

Ah...I'm not surprised you like the "progressive" sales tax. Maybe color coded with IRS ID cards? Tax bracket badges?

 

"

For example, the decision to buy a Tascam or Nagra pocket recorder. Buyer's choice

That's just another idea that would lead to the "dumbing down" in quality terms at least, of the industry as everyone would buy Tascams (or even cheaper machines)."

 

Hmm? What I was getting at is that tax benefits that favor more expensive pieces of gear are a distortion. I wasn't promoting one machine over the other. Neither should tax code, IMHO.

[Jay Rose]

Rich, I'm curious... how would you pay for government?

 

A flat tax on all income? Including interest income and capital gains? For every entity, including corporations (which are equivalent to people for religious and speech purposes; why not for tax purposes)?

 

Or if a corporation's income is to be subsidized because it creates jobs, how about for individuals who run proprietorships and create jobs?

 

Or a flat tax on all purchases? Including groceries or clothing? How about on the purchase of a service, like having those groceries turned into a restaurant meal?

 

Would you include purchases of stocks and other investment vehicles... or would those purchases be subsidized, while buying professional money-making tools like a Nagra be taxed?

 

Would the tax on buying a Nagra be identical to the tax on buying a Tascam? How about on buying a $30 cassette recorder?

 

Would the tax on buying a Mercedes be the same as the tax on buying a Yaris? What about if you used either of them for a delivery service?

 

It gets complicated...

[Rich Reilly]

Complicated? The current system is far more complicated...and perhaps so complicated and entrenched ever making it sensible and coordinated terribly unlikely.

 

But..for the sake of discussion,

 

Flat tax on all income, all entities that have income? Yes.

 

Continue excluding "essentials" like food? Maybe not. Think of the "food" in stores that qualifies for that exemption. Want tax free food? Grow it or join an in kind/alternative system.

 

No special treatment for stocks, none for Nagras vs.Tascams, none for Mercedes vs. Crown Vics. Never suggested different tiers of taxation for different gear or any other product that someone chooses to use for their business...suggesting precisely the opposite.

 

But again, I consider this all largely academic since the tendency in this area is for all folks to be vested in/want to preserve what bennies they feel they have because they perceive others having more. On..and on...

Great for accountants..