Discussion:Huckabee and flat tax

John Huddleston Seattle Bellevue Tax Accountant

Daniel Moynihan, a brilliant man, did not like the idea for a different reason. He gave a dissertation on the hydraulic effect of separate rates on one type of income. If rates are lowered on long term gains, there would be a rush to convert ordinary income into capital gains.......Moynihan had been there in the 70s and early 80s and saw first hand how tax shelters worked.

If anyone wants to have some 'fun', find a 1985-86 tax return and look at the front page.....look at the adjustments to income and see EBE prominently displayed. Or look at Schedule A. People sometimes wonder about the lower rates of audits: put EBE on Sch A where it is diluted.

Problem I have with Sales Tax is I can recall when I worked for a small accountant who did small cash businesses.....sales tax preparation was a game with people who reported what they wanted to report.

That hydraulic effect is going on today, as Moynihan predicted. I'd also like to see more discussion on here of tax free fringes. For instance, maybe we are not recommending the C. Corp. enough?? I've never sat down and really analysed it, but it seems that if you managaged it closely regarding salary, you could come out ahead... speaking as under today's system. P.S. Hope JR1 is not around to have a heart attack, lol.

My problem now is in the year of dissolution, I would rather collect Social Security.

"Tax reform means, 'Don't tax you, don't tax me. Tax that fellow behind the tree."

I met a PA Sales Tax auditor who handled the "Reliable" case in Philly. This was an appliance dealership that stole millions; besices the owners a number of employees went to jail. The depth of this 1990s matter went so far that the auditor recalled they had to collect some of the tax at the very old rate of 5%. Of course, the consumption tax person will say 'well they were caught' but only because an employee blew the whistle.

He's the one with liability on audit which rates to be item by item inventory. This is what you bought, what happened to it? The advantage of VAT is the working models. How rugged can the adjustment be when you know exactly how to set up the books and controls?

40000 car will have a tax of 6000 not including the sales tax of another 7 to 8 adding another 2800. I think the car industry would suffer dearly. Grocery stores, and gas stations would love it, pay no tax and sell the same.

1981

• Social Security began to be taxed;
• Threshholds for taxing unemployment were eliminated; sick pay was eliminated

1986

• Consumer interest was rubbed out;
• The 2% Miscellaneous deduction floor went in, and sales tax was wiped out. EBE went from being a deduction for AGI to Sch A, as did moving expense for a number of years.

As I noted in an article in a Philadelphia magazine at the time, the 1986 act was anti-yuppie; spenders lost the most, but spenders were not simply yuppies but those who through necessity consume most of their income, sometimes paying off credit.

We had two rates, 50% went to 28%, but that was not enough for some....but those 'some' were not those gored by the 81 and 86 acts, but the 'haves' who had to have their preferential rates on capital back. The only thing that has surprised me about the years since 1990 is that the real estate lobby has not eliminated passive provisions on rental income.

My boss then used to say Fanny Foxe did more to change taxes that any congressman because she destroyed the career of Wilbur Mills, a man who whatever you thought of him, had a deep understanding of taxes.

I think that is when the casualty loss become 10% of income.....that was another reason preparers cheered. No more 'my car was stolen, it was a 71 Ford Pinto, beautiful, like new.' You would explain that the value of the car was practically zilch and then you would hear, "it was stolen from the lot at Best Buy and had two color TVs, a stereo I'd just bought, and a washing machine in the trunk." All this to apply against the $100 limitation.

Those in the Senate who pushed TRA86 through were a bi-partisan lot: Bill Bradley, Mark Hatfield and others were prime spear carriers. Their idea was to balance out the oxen that were gored, making the bill objectionable in some way to everyone, but lowering rates radically.

It was thought that state & local income tax would also go, but they stayed, only now to be eliminated for many by AMT.

I have a big problem with that 'prebate' idea. I think it's just as bad as the EIC. Why is it proposed that the poorer people pay no taxes? I have a reallllllly big problem with that. You want tax reform, then take away the EIC! That 'prebate' would be free money for those who hardly spend anything.

And don't forget that retail services are taxed, too. These small self-employed operators are now going to have to report sales? Like the slush fund mentioned above, if these people aren't that honest in reporting their income under the current scheme, why would they report their sales under the fairtax, especially when there's an extra 23% that they can collect for customers. This is so rife for abuse.

Also, I believe capital expenditures of certain types would be exempt under the Fair Tax. So that system starts out with an "exclusion". Next year another, then another and another. Before you know it we're back to a complicated mess again.

Having said all this the original poster of this thread, Ztom, echoes my fear too. Am I going to wake up one day and be out of a job and out of a career?