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The US would move to a consumption tax based system. This means, that there would be a VAT and national sales tax to replace corporate and individual income taxes. The tax system would be much simpler. That is the proposal set forth by the economists.
For those people wondering about how will it be progressive, there would be a prebate, just like the fair tax model. You could call it a guaranteed income if you will. They didn't mention it specifically but it has been thrown around a lot.
So if taxes were 10% and the poverty level was 10,000. Then people would be given 1,000 dollars a year at least to make sure that didn't effectively tax poor people.
A few problems I see with this - first, this undertaxes the extremely high incomes, second, it is unclear how this system would handle sales of capital goods such as stocks, houses, land, durable equipment, etc. Third, it seems to me that the tax would have large loopholes itself - things could be produced overseas and even with a tax on imports the effective rate could be reduced by taking advantage of differences in purchasing power parity vs. exchange rates of foreign currencies. So you'd only be replacing one set of loopholes with another - possibly worse - set of loopholes.
You're 100% off on ESOP. I'm not talking about options. I'm talking about ESOPs. They're governed by ERISA.
So back in the 1990's I spent two frenetic weeks coming up with software that allowed an Ohio telecom to claim a large, ongoing annual tax deduction from its Employee Stock Option Program and as a result gained a new client for the company that employed me, but I'm 100% off on ESOP?
ERISA - The Employee Retirement Income Security Act of 1974, a law that covers corporate pension and employee benefit programs.
A77, where are you getting your information? Its inaccuracy taints your postings.
ESOP is deferred income to employees just as non-Roth IRAs, 401k's, 403b's, etc. They'll eventually pay taxes on it whether it's in the form of income taxes or sales tax.
Corporations have already been able to deduct expenses other than taxes on the 2 trillion plus in offshore 'unrepatriated' profits. The two cases of tax deferral would be completely comparable if it was gross income. If the income tax is repealed, that net income is essentially untaxed and available to be distributed, assuming the company pays the new tax regime from revenues on ongoing operations.
There is economic theory - which Pigouvian taxes are - and then there is reality of politics. In theory, pigouvian taxes look to be a win-win. However, the definitions and parameters of those taxes would be heavily influenced by politics.
What is an "externality?"
What is "negative?"
What is a "negative externality?"
What does it mean "to pollute?"'
Etc...
I mean, wow. I would not want to be on the front lines of that argument. If you thought the 2700 pages of Obamacare was bad....
Starting a corporation is incredibly easy and inexpensive. If there was no corporate income tax then every middle and upper class person in the country would form a company. Then they'd have it pay for virtually all of their daily expenses as well as plenty of perks, regardless of extravagance. The corporation won't make any profit so in a couple years, they'd just start another one.
This is why there will always be a corporate tax. Forever. Hoping it'll go away is one colossal waste of time.
Plainly, a lot of people already do form their own corporations. LLC's for instance are popular corporate form because they provide limited legal liability to members while offering pass-through taxation of income at the individual's lower rates.
As long as we are considering eliminating the mortgage deduction, let us consider eliminating some other deductions as well. First charitable deductions could go. If you want to give money to a church or charity that is your business. Other taxpayers should not subsidize those choices. Next, why not remove deductions based on the number of children. Again that is a personal choice that should not be subsidized by other taxpayers. Instead maybe property taxes should be increased a relation to the number of school aged children in the household.
Cripe...an ESOP, or Employee Stock Ownership Plan (Note Stock, not Option, you can issue SARs or Options if you want but that's separate) is where you sell the company to a trust. The trust will own shares in a holding company with only the payroll running through it. The holding company will also own operating entities flowing through with an S-Corp. The trust fund retains the first right to buy back any shares at a value set by an outside party each time. As it is a retirement vehicle, workers cannot cash out until they retire, but are allowed to diversify at ages 50 and 55.
The income in the operating entities flows into holding company. The stock of the holding company is held by retirement accounts of the individuals. The income is in a holding of a vehicle like a 401K. When do you pay tax on your 401K? When you withdraw the money at retirement. If you have successfully connected a pass-through entity to a bunch of individual's retirement accounts....who is paying tax on the income? There's nobody to pay the tax.
Only when the individual sells and cashes out will they have income for the amout of proceeds they get. If the IRS was sophisticated enough to chase down debt and tie it together, there may be a case for UBIT. but they aren't, for now. When they're getting close, it's a sale and past transgressions are wrapped up in an insurance contract...now you've got the IRS agent against a bunch of unknowns and the insurance companies. Guess who wins that one 99% of the time. They have to break through banking laws, non-disclosure agreements....
They might win...once in awhile. They'll trumpet themselves on the back as winning some sort of war. Most of the time it's because they pissed off the wrong person and someone threw the IRS a bone to go chew on.
But the root problem is the income tax. Income is imaginary. Make some rules, follow the rules and you have "income". Don't like the rules? Shift them, bend them, reinterpret what you're doing. Outsource key functions to another entities. Even Apple, whose giantness makes their planning like hiding a Boeing Jet behind a thong and pasties is still able to get their effective rate to 25%. How much cash is Apple holding overseas? Why do they need to borrow in order to pay dividends if they're so profitable?
In real life you'll never hear me talk this way, but since we're solving the world's problems on a chatboard, just know the bottom line. The income tax rates, as written and cumulatively, have the power to half the ending cash given to the company's owners. All of the projects, work, research, selling, execution....can be worth half what it is if businesses don't play the game. Raising the income tax doesn't help the government, it helps the accountants who can justify still more planning costs.
Individuals have little choice. They live in an area. They work in an area. Their inflows are reported to the government for them. Their withholdings are taken before they are even seen. What's your income? Look at your gross wages. Is that number real? Did you get that amount? Or is that an imaginary number because you actually only receive the net.
I'll pay you $5,000,000 a year to clean my house, but we're in the country of artillery town, and I'm afraid our tax rate is very high....so you'll be receiving...only a little cash. The businesses that get killed on an income tax are the little guys that can't afford the accounting legion. It's the #1 way for a poor person to get rich, but it's getting regulated more and more as people try and catch bad guys. If you want to catch a bad guy, let good guys rise to the top. Drop the corporate income tax and let competition do the dirty work. Tax the debt. Tax the risk.
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