harveyc

Richard, the things I stated above are true, but you can create your own imaginary world with whatever "facts" you want to dream up. Google alternative minimum tax and learn something.

Here's an article stating the middle class is the group being adversely impacted by a flat tax.
washingtonpost.com: Flat Wrong: New Tax Schemes Can't Top Old Progressive Truths

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sbl

I was wrong about the yr--it was the 1986 tax reform act--http://law.jrank.org/pages/10684/Tax-Reform-Act-1986.html

The bill was tax neutral--it did not increase or decrease the total income tax collected, but the rate went down for the rich and up for the dual income working families --note that the highest rate was reserved for upper middle class--33 % while the rate for the very rich was only 28%. It also eliminated a lot of deductions, no sales tax deduction (FL does not have income tax), no interest except on the house, no deduction for gasoline tax, it raised the amount required before you got a deduction for medical cost--I'm sure there were others I can't remember. The standard deduction did increase, but not nearly as much as my deductions would have been.

Richard

Harvey,
I understand AMT and also trust you when you say your tax rate is high.

One of my customers has 500+ acres of row crops here in the North County. After reading your post I asked him if he'd support a 14% flat rate tax. He said probably, because the savings he would have from not paying the tax accountant would offset the 1% to 2% more he would pay in taxes.

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harveyc

sbl, while the richest people did get a lower marginal rate on a portion of their income, they also paid the higher rates for that portion of their income as well.

I do have mixed feelings about paying much higher taxes just because I work harder and make more money and at the same time lose a portion of my deductions. I'd rather be able to use those dollars to give to the needy I chose to give to instead of let government decide how to spend my money. Being in California with its high income tax rates makes it all the worse. I've seriously considered moving some of my retail sales to Nevada, but think it's crazy to have to go through hassles like that to keep what I think is a fair share of my earnings.

Before switching to farming full-time, I worked in agricultural lending for almost 30 years and reviewed thousands of tax returns of business earning $50,000 to $10,000,000 or more. I saw folks paying taxes of next to nothing and others paying $1,000,000 per quarter. The people that paid next to nothing either were losing money (real negative cash flow) or expanding businesses and getting the benefit of deferring income, though it eventually catches up to them if they quit expanding. Of course, the rest of society and the economy in general benefited from their business expansion. I can only think of one case out of thousands where a customer made an expenditure solely for the tax benefits. The "funny" thing about it is they were getting into serious financial trouble at the same time. While I'm still expanding and doing new things, I'm doing so mostly to provide my son with more opportunities should he decide to come back to the farm after finishing his schooling. If it wasn't for him, I'd be scaling back instead as the extra work is not worth it for the amount I get to keep. A flat tax would make it more attractive to me, especially if California did the same.

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Richard

Harvey, we have a lot of agreement there. California's taxes are "the worst of both worlds".

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harveyc

Recycled beer might be another option!

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harveyc

I read some news the other day about woes in Oregon and am especially glad I don't have a business in Portland. I thought it couldn't get worse than how things look here.

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Abnshrek

Well the New Orlean's Mayor (Nagan) is going to the supebowl on the tax payer's.. They should serve his sorry a** some recycled beer :^)

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I'm a Nannerhead :^)

sbl

It has never seemed right to me to pay less taxes on the money I get from dividends or capital gains than the money that I worked hard to earn. The fact that the people that own millions of shares of Exxon pay taxes at half the rate that I do just galls me.

Abnshrek

Well when you think about it it doesn't gall me. Most people that have shares are investing money they already paid taxes on, or it's part of someone's 401K, IRA or mutual fund. So the people owning a butt-load of shares is limited and they make me sick :^)

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I'm a Nannerhead :^)

harveyc

If I own a farm and make a profit, I pay taxes on my earnings. Say I combine my farm with that of nine others and we decide to incorporate to save on some overhead expenses, get more efficient equipment, etc., each owning 10%. Now the corporation I own 10% of pays income taxes on the earnings and then I pay taxes on the dividends when my share of the income is distributed to me. a reduced tax rate on dividends is only slightly off-setting the injustice of double taxation. A bigger company like Apple Computer obviously has many owners (shareholders), but the principle is the same. Those earnings are being taxed twice.

Capital gains rates are designed to encourage investment in capital assets that may have a long period of time to earn a return. Such investments are beneficial to society as they lead to more jobs and stimulate the economy.

Are you equally bothered that individuals/couples can sell a home with a large capital gain entirely tax-free (up to $250k or $500k)?

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sbl

People owning IRAs and 401Ks do not get that advantage--you put money in without paying taxes as earnings--the dividends and gains accumulated--then when you take it out you pay taxes as if it were earned income. People owning a butt-load of shares is limited to the very rich--the top 5 or 10% --they got a 50% tax cut under the Bush tax cut--I got a few hundred dollars--how much did you get?


You choose to incorporate to save money--mostly from tax advantages for corporations--then you get lower tax rate on earnings because you call them dividends--that is double dipping.

The break for individuals selling a home tax free is really pretty limited--we could always avoid taxes on those gains if it went into a new home--so it really only applies to those moving into a smaller or lower price home, I would not care if it disappeared--it has never applied to me, but again I don't see why I should pay less tax on money I got for doing nothing than money I worked for.

Abnshrek

401K's and IRA's either its pretax $$ or you get a tax credit ahead of time so thus it can start making money if put where the best value for your $$ is.
Ok I liked Bush alot, but he was responsibile for the derivitives bs w/ housing coming about after enron crashed. They definately loosened the grip. Me I can say I liked him(Bush) personally, Economy wise he sucked.
The point is why your paying less money on Investments is.. You Risked it (not everyone who invests makes a profit doing it), you should reep your rewards (especially after you earned and paid taxes on what you did invest.). Your helping to create jobs. The Govt can't do that to good.. Point #2 Harvey & his 9 buddies are all working hard to make a buck on their coop(Inc.). Why should they put themselves on the payroll when they can make more by paying themselves dividends :^) @ half the tax rate. :^)

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I'm a Nannerhead :^)

sbl

I'm not against IRA or 401Ks, I think it is a good way to encourage savings and investment--I am just pointing out that the working person that puts his money in an IRA is not getting the same tax benefit as the really rich that are paying 14% on income from dividends.

Your second point shows how Harvey was trying to mislead us--he is not getting double taxation--if his corp. paid him a salary equal to what his farm earned--he would pay the same tax rate as us working people--the company would decuct the cost of salaries--not pay taxes on that as profit. The real benefit for incorporation is in the tax deductions for investments and depreciation--I am not against that.

Risking your money does not deserve any special benefit over working for it. I still do not think it is fair that the rich pay taxes at half the rate that I do.

harveyc

You're the one doing the milseading. People do not incorporate to save on taxes as corporations don't receive special tax breaks such as you claim. There you go beating up on the 10th beer drinker again. Take a look at Small Business Taxes & Management for a comparison of tax rates and get that nonsense out of your head. Corporations have some shareholders that are working day to day for the corporation and receiving salaries but most large corporations obviously have inactive shareholders. If I have a sole proprietorship I can chose to work day-to-day in the business or hire someone to manage it for me. I'll make more money if I run it myself (unless hired management is more capable) since I'll save on salaries. Either way, I only pay taxes on earnings once. The earnings for a corporation I'm a owner of have already been taxed and the only reason to tax dividends is for socialistic wealth distribution. The primary reasons businesses incorporate is to make it easier to acquire additional capital for expansion (via selling shares) and to limit personal legal liability (especially doctors, etc.).

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sbl

It is true that the reason many incorporate is to limit liability and even an individual farmer could probably depreciate the cost of his equipment just like any business, but business do get deductions that individuals do not --such as entertainment and travel.

When I hire a plumber I pay him with money that has already been taxed should he get to keep it without paying taxes--no. When a corporation pays the people who invested in it that money should be taxed as well. If I invest in a company, and loose money Uncle Sam jumps in and gives me back 28% --I think it is fair to pay him 28% on the money I make either as capital gains or as dividends.

What you implied is that if you incorporate (as a group of farms) and make the same money you would as an individual farmer, the corporation would get taxed and then you would get taxed on dividends--getting taxed twice, but you are really taking dividends because they are taxed at the lower rate. I have a nephew that has a lawn care business--he takes minimum wage as an employee and then splits the company profits with his partner as dividends because of the lower tax rate--he would not do that if he was paying more in taxes.

Abnshrek

Some folks just don't have your outlook. What can the govt do with it that we can't? I can give it to any Org. ( Like ducks Unlimited, a church even(non-profit)) that I think does the world good to lessen my tax burden to a point.

<- thinkin' its time for beer.. I'm all taxed out.. lol :^)

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I'm a Nannerhead :^)

harveyc

The entertainment and travel expenses are allowed as they are done to generate business income. Travel is allowed at 100% and entertainment is only deducted at 50% because it is realized that sometimes it may be done as simply a perk but other times it is a form of advertising, etc. It is a cost of business and should be deducted. Individuals can do the same if they have a business and carry out these activities for business purposes. As consumers, when we are traveling and entertaining it is not done to generate income and is not a legitimate business expense. There really shouldn't be any controversy here, IMO. I sometimes hire a contractor for business purposes to help me earn income and deduct it and sometimes hire the same guy for personal needs and don't deduct it.

I don't understand your point about capital gains losses. They are both deducted at the same rate. Short term gains and losses are deducted as ordinary income while long term gains and losses are at the lower rate.

Double taxation is still taking place on the income used to pay dividends, though at a lower rate when it gets taxed the second time. Dividends are not deducted as an expense by the corporation. You say your nephew has a business that pays dividends but then mention he has "partners". Is it a corporation or a partnership? Partnerships do not pay taxes and do not pay dividends. Income taxes are paid by the partners whether those earnings are distributed to the partners or not.

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sbl

If I entertain the boss or take him on a fishing trip--I may be doing it to increase my income as well, but I can't deduct it. I know many people in business that make a reason to travel where they want to go hunting or fishing or take their buddies out for entertainment. Sure, sometimes it is a legitamite expense, but it is definitely a benefit.

If I make $100,000 at my job and loose a couple thousand on a stock investment, Uncle Sam pays 28% of my loss (by reducing my tax on my income). Why shouldn't I have to pay 28% when I make a couple thousand in capital gains the next time I gamble on some stock even if I did own it for a yr or 2. I am more proud of the money I earn by working--why should I pay less tax on money I get just for being lucky--especially when Uncle Sam is willing to back me (or anyone) for part of the loss when I lose money gambling on stock.

harveyc

You, might be able to deduct those expenses, though I've never seen it done. It requires to meet criteria which probably is pretty rare, since it's not "necessary": Deducting entertainment expenses. | Legal > Tax Law from AllBusiness.com

Where are you coming up with this 28% figure that Uncle Sam is supposedly paying you for capital losses? As I said before, both short term gains and losses are taxes as ordinary income (whatever marginal rate you're at) but short term losses are taxed at the same reduced rate as gains with one downside caveat: You can only deduct losses equal to the amount of your gains plus $3,000 in the current year (the balance may be written off in future years up to the amount of gains plus $3,000). I know that very well as I helped a relative out with an investment and ended up with a large loss that will take me several more years to write off.

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