Alright, Taxes discussion, what is actually FAIR?, page 3

As a tax lawyer, I can say that the answer most tax lawyers would give to your answer is that the tax system is sometimes fair, but there is a heck of a lot of room for improvement.

When tax policy scholars talk about taxes being fair, the talk about taxes having vertical equity and horizontal equity. Vertical equity refers to taxes being progressive, or in simple terms, taxes get paid by those most capable of paying them. Horizontal equity refers to similarly situated tax payers getting similar treatment.

There are many horizontal equity problems with the IRC. Much of the IRC consists of loopholes and carve outs created by special interest groups. You would not be hard pressed to find a code section where a particular industry gets special tax treatment.

There are also many vertical equity problems. Under the current law, hedge fund managers only have a 15% tax rate even though they make millions dollars of year. Tax laws also hit the poor disproportionately hard because they do not have access to CPA's or tax planners who can help them reduce their tax liabilities. Poor people also have more difficulty complying with the laws because they cannot afford professional help like CPA's.

reply to post by Jean Paul Zodeaux

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I have to disagree with one of your points. You say income does not involve a taxable event.

One only earns income if a taxable event occurs. Having your employer cut a check or deposit money in your account is a taxable event. Selling something for a profit is a taxable event.

Merely earning money on paper does not subject you to income tax. Let us assume you get a hot stock tip and by some stock for $1,000. The stock price skyrockets to $101,000, but you do not sell your stock. Even though you earned $100,000 on paper you do not have "income" for income tax purposes because there was no realization event like a sale. You will only recognize income or loss when you sell the stock.

The one area where this gets tricky is some people are on an accrual accounting method as opposed to a cash method. Under the cash method, you recognize gains when you get cash and you recognize losses when you pay cash. Under the accrual method, you recognize gains once you have the right to the gain, and you recognize losses once you acquire an obligation. Under the accrual method, realization events may not appear "real" (pardon the pun) because they involve contractual obligations rather than the transfer or receipt of property.

To illustrate, let us suppose you are middleman who buys and sells widgets. You enter into a contract with a factory to buy $1000 worth of widgets. A week later, you enter into a contract to sell the widgets for $2000 to a retailer. A month later, you get a check for $2000 from the retailer. Two months later, you cut a check for $1000 to the factory.

Under the cash method, you recognized a $2000 gain when you got the check from the retailer. You recognized a $1000 loss when you cut a check to the factory. Under the accrual method, you posted a $1000 loss when you made a contract with the factory. You then posted a $2000 gain when you entered into the contract with the dealer.

reply to post by hotpinkurinalmint

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Thanks for that brother, but what you are describing is how the tax code is now. What I was suggesting to Wuk, seizing on what I believe is his most excellent idea of doing away with the current system and creating a system where tax attorneys and accountants aren't necessary. Sorry brother, but you are a wise and competent soul, and don't have to rely upon income taxation in order to practice law.

Your most excellent explanation only illustrates just a smidgen of what is wrong with the current system. It is interesting to note, that you say:

One only earns income if a taxable event occurs. Having your employer cut a check or deposit money in your account is a taxable event. Selling something for a profit is a taxable event.

I am not sure I agree with the first statement, but when you read it with the second statement, I think I understand what you are saying, but can't be sure. What I noticed is that while you begin by making a sweeping and general remark, when you get more specific, you fail to mention cash or even payments of gold or silver, or some other form of valuable commodity as payment. Income is money. Checks and electronic transfers are not money. Question: Are you saying that earning money is a taxable event?

You begin to clear things up a bit with this statement:

Merely earning money on paper does not subject you to income tax. Let us assume you get a hot stock tip and by some stock for $1,000. The stock price skyrockets to $101,000, but you do not sell your stock. Even though you earned $100,000 on paper you do not have "income" for income tax purposes because there was no realization event like a sale. You will only recognize income or loss when you sell the stock.

Where what I believe you have just said is that the subject of the tax is a sales tax on stock, and if I sell my stock for a profit, that profit will be used to measure how much tax I owe for selling it, but, that is for stock, and stock seems to governed by statute. But, what of the carpenter, cook, janitor, construction worker, waitress, clerk and so on? What are they selling that is governed by statute?

The one area where this gets tricky is some people are on an accrual accounting method as opposed to a cash method.

Maybe this is a good argument for a stronger reliance on cash. If banking and checking and accrual methods means a business must now hire a tax account, and maybe even at some point a tax attorney, then how is this good for business? When I pay a tax on cigarettes, a liability not even imposed upon me but I accept the liability anyway, as it has been passed onto me, I do not need to file any valid tax return in order to pay it, and I don't need to keep an accountant on hand in order to make sure I pay the correct amount. Conversely, the merchant who is collecting the tax, does not need any accountant to pay the tax to the proper agency, because it is a simple method, where a set amount is fixed, and at the end of the day, the merchant takes what is his, and separates that from the taxes he collected on sales, and it is that simple.

The need for attorneys and accountants stems from the nonsensical nature of the Code itself. While admittedly, thousands of jobs and careers would be eliminated by simplifying the code so people don't need experts to tell them what it all means, it is what is best for the public and what is best for the public is best for the government.

reply to post by mnemeth1

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The government should never take from the people by force that which they rightfully own.

In that case, quit driving on government roads, using government schools, and relying on government personnel for law enforcement and fire control. Why do you think you get to keep all your income and not help the rest of us pay for the services we enjoy and rely on?

The last time you went to the movies did they "force" you to pay for a ticket? Nope. You chose to pay so you could watch a movie. If you are going to chose to live in a society that provides services to the ENTIRE population you have to chip in. Don't wanna? Get out!

Here is another problem with our tax system....

GE, Exxon Paid No U.S. Income Taxes in '09
abcnews.go.com...

and

Super-rich hide trillions offshore
www.guardian.co.uk...

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