Explain how this course has helped your understanding of taxation.
Funny you should ask. My wife and I were having dinner with friends,
one of which had just entered a new business arrangement. He was bringing
his expertise, having opened several popular restaurants he did not own a
stake in, the other two stake owners would provide land and capital. His basis
in the new business would be different from the other two owners and
therefore his taxes would be different and potentially expensive, depending on
the form of the business. He wasn’t 100% sure the form and was going to
doublecheck. I strongly suggested that he find out, because if the business was
set up as an S-Corp, his tax obligation could be significant. I then got on my
soapbox and harassed our other friend to stop operating as a sole
proprietorship, now that her tattoo shop was getting more and more
successful. Everyone needs to protect their assets once they have assets to
protect. The class has helped me terrify my friends.
Do you think Congress should consider an alternative approach to
taxation?
b b b b b b b b b b Before I answer that question, let’s address the elephant in the room, we
as a country have a massive problem. Every American believes they are
overtaxed, they pay the highest taxes in the world, and taxes have never been
higher. This is hardly the truth. There are countries that pay much higher taxes
than the US and not that long ago our highest tax bracket was like 90% in the
1940s. I think part of the issue is that politicians keep telling people they are
overtaxed and, arguably, folks don’t see their income taxes benefiting them. If
we are going to successfully implement a new tax system, we need to do a
great deal of work to educate the public. And if the last few years are any
indication, that data will be met with widespread disinformation. But let’s say
we caught everyone on a good day and could implement an alternative
approach to taxation in the US.
b b b b b b b b b b There are currently two alternatives that keep being proposed, the Value
Added Tax and Consumption Tax. In both situations we get away from
income-based taxes and move towards higher taxes on goods and services.
VAT could work, but it shifts so much of the burden to lower- and middle-
income families. Consumption taxes have the same issue, forcing the system
to give rebates to low-income families. In both cases, in my opinion, we are
just moving deck chairs on the Titanic. Congress does need to consider all
approaches to taxation. We need to tax wealth and simplify the income tax
system. Make sure everyone (including corporations) pays their fair share. I
am also intrigued by the idea of wealth losing its value if removed from the
economy (horded) and a maximum wage. Maybe I’m just being an instigator,
but I am fascinated at how much more upset people get about a maximum
wage (which will never impact them) verses a minimum wage (that impacts so
many).
Would enacting a value-added tax or the Fair Tax Act provide economic
benefits, in your opinion?
b b b b b b b b b b Value Added Taxes can raise a great deal of money, is simpler than our
current system, and avoids making the wealthy pay their share. It would
benefit the economy but could hurt young and poor households. Both VAT
and the Fair Tax Act of 2015, consumption tax, would tie government
revenues to a more stable variable; but it does so on the backs of the low- and
middle-income households.
References:
Kurtzleben, Danielle. “Commentary: Why the U.S. Should Adopt a Value-
Added Tax.” U.S.NEWS, 13 Jan. 2013,
https://www.usnews.com/news/articles/2013/01/25/commentary-why-
the-us-should-adopt-a-value-added-tax.
Woodall, Rob. “H.R.25 - 114th Congress (2015-2016): FairTax Act of 2015.”
CONGRESS.GOV, 6 Jan. 2015, https://www.congress.gov/bill/114th-
congress/house-bill/25.
