Bubbling Over


The New Inflation Tax

If the nation's economists were laid end to end, they would point in all directions.

- Arthur H Motley

The inflation of the money supply could be scientifically used to directly fund government.  If, for example, the economy is growing at 4% per year, and the government prints and spends currency equal to that 4%, there should be no long-term inflation result.  In the late 1800s in the US, prices dropped for many years because the US government was not printing money to match the production of the economy.

If one can live with a 2% inflation rate as a permanent feature of life, the system would work like this:

  1. Each year the government calculates the growth in the economy for the previous year (this is to the prevent unrealistic, politically-motivated projections that would be used if the tax were to be calculated on the upcoming year).
  2. The government prints currency based on this growth, plus 2%.  This is all that it can spend for the upcoming year.

No income taxes or other taxes would be necessary.  In fact, one no longer would need to even report to the government what one made in income as it would be irrelevant.  In practice, one could not escape this inflation tax as long as he used the currency, since each dollar's value would be slightly decreased (taxed) by the printing of more money.

As long as basic rules are unviolated, there would be no danger of runaway inflation.  The black market would become irrelevant.  Noboby's business or financial activities would matter to the government and there would no longer be need for the IRS.  Another advantage of this system is that it would automatically be indexed to economic growth, so there would be little danger of high taxes killing a weak economy.  When times are bad, the tax burden automatically lowers.  When times are good, more revenue accrues.

The obvious objection is that the power to print money could be abused.  What if more money is considered needed to run the government than is available?  Could it manage to stick to the rate of growth plus 2%, or to any set amount?  Probably not,

Source: 999ideas.com

The Tax Plan To Kill K Street

by George F Will

The power to tax involves, as Chief Justice John Marshall said, the power to destroy.  So does the power of tax reform, which is one reason why Representative John Linder, a Georgia Republican, has a 133-page bill to replace 55,000 pages of tax rules.  His bill would abolish the Internal Revenue Service and the many billions of tax forms it sends out and receives.  He would erase the federal income tax system - personal and corporate income taxes, the regressive payroll tax and self-employment tax, capital gains, gift and estate taxes, the alternative minimum tax, and the earned-income tax credit - and replace all that with a 23% national sales tax on personal consumption.  That would not only sensitise consumers to the cost of government with every purchase, it would destroy K Street.

"K Street" is shorthand for Washington's lawyer-lobbyist complex.  It exists to continually complicate and defend the tax code, which is a cornucopia from which the political class pours benefits on constituencies.  If the income tax were replaced - Linder had better repeal the 16th Amendment, to make sure the income tax stays gone - everyone and all businesses would pay their taxes through economic choices, and K Street's intellectual capital, which consists of knowing how to game the tax code, would be radically depreciated.

Under his bill, he says, all goods, imported and domestic, would be treated equally at the checkout counter, and all taxpayers - including upward of 50 million foreign visitors annually - would pay "as much as they choose, when they choose, by how they choose to spend."  And his bill untaxes the poor by including an advance monthly rebate for every household equal to the sales tax on consumption of essential goods and services, as calculated by the government, up to the annually adjusted poverty level.

Today the percentage of taxpayers who rely on professional tax preparers is at an all-time high.  The 67% of tax filers who do not itemise may think they avoid compliance costs, which include nagging uncertainty about whether one has properly complied with a tax code about the meaning of which experts differ.  But everyone pays the cost of the tax system's huge drag on the economy.  Linder says Americans spend 7 billion hours a year filling out IRS forms and at least that much calculating the tax implications of business decisions.  Economic growth suffers, because corporate boards waste huge amounts of time on such calculations rather than making economically rational allocations of resources.  Money saved on compliance costs would fund job creation.

Corporations do not pay payroll and income taxes and compliance costs; they collect them from consumers through prices.  So the 23% consumption tax would allow taxpayers to stop paying the huge embedded cost of corporate taxation.  Linder says the director of the Congressional Budget Office told him it costs individuals and businesses about $500 billion to remit $2 trillion to Washington.  And studies show that it costs the average small business $724 to collect and remit $100.

In 1945 corporations paid more than 1/3 of the government's revenue.  Now they pay only 11%, because corporations, especially multinationals, are voluntary taxpayers.  In a world increasingly without borders that block capital movements, corporations pay where the burden is lowest.  Linder says $6 trillion in offshore accounts would have an incentive to come home under his plan.  Furthermore, by ending payroll and corporate taxes, the United States would become the only nation selling goods with no tax component - such as Europe's value-added tax - in their prices.  With no taxes on capital and labour, multinationals would, Linder thinks, stampede to locate here, which would be an incentive for other nations to emulate America.  "This," Linder says, "would unleash freedom around the globe."

Critics argue that ending the income tax, with its deductibility of charitable contributions, would depress giving. Linder says: Piffle.  In 1980, when the top personal income tax rate was 70%, a huge incentive for giving, individual charitable contributions were $40.7 billion.  In 1986 the top rate was reduced to 28%, and by 1988 charitable giving was $86.7 billion.  The lesson, says Linder, is that we give more money when we have more money.

When Speaker Dennis Hastert published a book last year, he was startled to find that interviewers were most interested in talking about Linder's bill, which then had 54 co-sponsors.  This year Hastert added Linder to the Ways and Means Committee.  Linder cheerfully says his bill would reduce Ways and Means to "a B committee" by ending the political fun of making the tax code ever more baroque for the benefit of K Street's clients.  Bliss.


Source: www.washingtonpost.com Thursday 31 March 2005 page A19

-------- Original Message --------
Subject:         Cool Tax Idea
Date:             Thu, 31 Mar 2005 15:48:47 -0500
From:             Cody Hatch <cody.hatch@gmail.com>
Reply-To:       cody@chaos.net.nz
To:                Ruth Hatch <ruth@chaos.net.nz>

Not new, of course, and I've argued for a fairly similar plan with my friends for years.  But fairly well explained.  Pity it has no chance of going anywhere...

Cody Hatch  cody@chaos.net.nz   www.chaos.net.nz
"A society that puts equality...ahead of freedom will end up with neither equality nor freedom." - Milton Friedman

US Dips Out As Wealthy Avoid Taxes

Economics is extremely useful as a form of employment for economists.

- John Kenneth Galbraith

Washington - The United States fails to collect about $US200 billion ($NZ490 billion) annually in income taxes because of Internal Revenue Service enforcement cutbacks and efforts by the wealthiest Americans to avoid taxes, a watchdog group says.

Researchers at the Centre for Public Integrity detailed in a new book the efforts of thousands of US citizens and corporations to evade taxes through strategies including placing income in overseas accounts and renouncing citizenship to become "stateless characters".

"The dirty little secret is that governments don't know how to deal with this," said Charles Lewis, coauthor of The Cheating Of America and director of the Centre for Public Integrity.

Part of the problem is inadequate enforcement by the IRS, which has had its budget cut over the past several years, Lewis said.  The number of IRS property seizures to pay back taxes fell to 161 from 10,000 a decade ago and the number of tax-related criminal prosecutions has fallen by 50% since 1981.

The centre estimates the net holdings of foreign wealth in tax haven countries like the Cayman Islands to be around $US3 trillion, although it had no estimate how much came from the US.

While Congress passed laws in the mid-1990s allowing the IRS and the Immigration and Naturalisation Service to bar US expatriates who renounce US citizenship for tax purposes from re-entering the country the law has never been enforced, Lewis said. - Bloomberg

Source: The Evening Post Thursday 29 March 2001

Heidi Fleiss to Open Laundromat

Heidi Fleiss, one-time leader of a high-priced ring of call girls to Hollywood stars,
is opening a laundromat in Nevada.

She's calling it Dirty Laundry. 

She is also opening Heidi's Stud Farm, a 20-man operation, Nevada's first legal bordello for women.

Source: nzherald.co.nz 3 July 2007 photo credit Reuters

What the Rich Worry About

by Shannon Reilly and Dave Merrill

bulletGlobal terrorism will hurt the economy and the securities markets.
bulletTheir kids will have it tougher financially.
bulletStock market gains will be lower.

Source: USA Today Wednesday 7 August 2002 from US Trust survey of affluent Americans

Examining State Taxes

Nine states (denoted by asterisks below) do not tax personal income or tax income only from dividends and interest...

State Tax Revenue per Capita

Connecticut $2,987 North Dakota $1,826
Hawaii $2,752 Arkansas $1,822
Delaware $2,721 Kansas $1,810
Minnesota $2,711 Virginia $1,787
Massachusetts $2,544 Utah $1,782
California $2,474 Iowa $1,772
Vermont $2,416 Nebraska $1,742
Wisconsin $2,357 Oregon $1,738
Michigan $2,290 Ohio $1,733
Alaska* $2,270 Oklahoma $1,696
New York $2,199 Indiana $1,662
New Jersey $2,157 Mississippi $1,656
Washington* $2,132 Georgia $1,650
Maine $2,087 Colorado $1,645
New Mexico $2,058 South Carolina $1,591
Maryland $1,955 Arizona $1,579
Wyoming* $1,952 Montana $1,564
Rhode Island $1,941 Florida* $1,553
Kentucky $1,904 Missouri $1,532
North Carolina $1,890 Louisiana $1,457
Nevada* $1,860 Alabama $1,448
West Virginia $1,849 New Hampshire* $1,372
Idaho $1,837 Tennessee* $1,360
Illinois $1,835 Texas* $1,315
Pennsylvania $1,829 South Dakota* $1,228

Source: The New York Times 23 August 2001 from the US Census Bureau

10 Worst Ways to Pay Your Tax Bill

by Jennie L Phipps

The bumper sticker is true: The IRS does have what it takes to take what you've got.  But don't be in such a panic to pay the tax collector that you make an unwise payment decision.  Frantic taxpayers too often come up with imprudent ways to raise tax cash, especially when April 15 is looming and the Internal Revenue Service bill is relatively small.  But even a small amount can quickly balloon if exorbitant interest rates - or other strings - are attached.  Before you make a tax-payment mistake, check out these 10 worst ways to pay Uncle Sam.

10.  Get a cash advance against your paycheque.

The Federal Trade Commission warns that the typical annual percentage rate of interest on payday loans is 391%.  That means if you borrow $300 and fail to pay it back in 2 months worth of paydays, you'll owe $495.  Maybe a big spender like you can afford that.  But most of us can't.

9.   Get a cash advance on your credit card.

Fees for cash advances vary, but most issuers charge you a 3 or 4% upfront fee (or a minimum of $20) plus an interest rate of between 20% and 25%.  According to Bankrate's minimum payment calculator, if you pay the least possible each month on a $300 advance at 20% interest, it will take you 42 months to be rid of your credit card debt.  In that time, you will pay just over $119 in interest, plus the $20 that you paid upfront for a total of $439.  And that, of course, presumes you don't charge another cent to that card.  If you have to resort to this and you've been a good credit card customer, you can try asking for a lower interest rate.

8.   Pawn your diamond ring.

You'll probably have trouble getting as much as $300 for anything short of the Hope diamond, but if you're successful, expect to pay for the privilege.  Hocking possessions to raise quick cash is such a time-honoured business that virtually every state has similar and fairly tough regulations holding interest to 3% a month or 36% a year, plus a 20% upfront service charge.  Twelve months is usually the maximum length of the loan.  So if you borrow $300, pay the upfront fee and the carrying charges every month for a year, it'll cost you $468 to get your ring back.  If you don't pay, kiss the ring goodbye.

7.   Take out a personal loan.

The rates on unsecured personal loans can be ugly, but not as ugly as some other fast-cash options.  If you happen to have a credit union available to you, try that first because the rate is usually at least 2 percentage points lower.

6.   Charge your tax bill.

As April 15 approaches, the pay-with-plastic option begins to look like the answer.  But you'll be charged a "convenience fee" of about 2.5% based on the amount charged.  Don't be confused by the word convenience.  It isn't for your convenience.  It's for the convenience of the credit card company because the IRS won't cover the merchant fees.  With an interest rate of 15% and minimum monthly payments, Bankrate's calculator figures it will take you 38 months to discharge a $300 tax debt.  Your total bill will come to a relatively modest total of about $378, as long as you don't use the card again until the tax balance is paid.

5.   Use your home equity.

If you have a home equity line of credit, it will allow you to borrow against it usually by just writing a cheque.  Interest rates on equity accounts are attractive and if you pay what you owe quickly, this debt will cost less than putting the same amount on your credit card.  But if interest rates head up, so will equity line rates.  And by using this payment method, your home is the collateral for even the relatively small amount you used to pay your tax bill.

4.   Gamble on the float.

It takes the government an average of 5 business days to actually cash your cheque, sometimes more this time of year when there are tractor-trailers full of forms in the parking lot of every IRS processing centre.  If you get paid the day after taxes are due, chances are the cheque you mailed April 15 won't bounce.  But be aware that you're still taking a chance.  If your cheque does bounce, the government considers it as nonpayment, meaning you can expect to cough up a .5% per month penalty.  Plus, your bank is likely to charge you an insufficient funds fee.

3.   Dig into your retirement account.

Many 401(k) and 403(b) employer-sponsored plans have provisions that allow you to borrow your own money and pay it back to yourself without penalty.  The interest rate is usually low.  You can't borrow against your IRA, but you can withdraw the money and use it for 60 days without penalty as long as you redeposit it into the same or a new IRA account.  If the money doesn't find its way back into an IRA account within the 60-day period, it will be subject to taxes and penalties.  You can only use this 60-day provision once a year.  The clock starts ticking on the date you receive the distribution.  While it's easy to temporarily withdraw some retirement money, most financial experts advise against it unless it's an absolute last resort.  Your retirement nest egg should be a safe haven rather than an emergency fund.  Bankrate's 401(k) loan calculator can help you figure the cost of raiding your retirement account.

2.   Hit up the folks.

Borrowing from relatives has one big drawback: It can ruin a relationship.  But if you only need the money for a short period and dad (or mom or sis) can afford it, ask.  And make it formal.  A note from you specifying the terms of repayment will make you feel less like a 12-year-old begging for your allowance.  If dad says "no," accept the turndown graciously and assume he has a good reason.

1.   Pay off the government monthly.

For an initial $43 set-up charge, the IRS will let you pay on the installment plan if you file Form 9465, Installment Agreement Request.  The current interest rate is 5% annually, but the IRS adjusts it quarterly so it will go up when the rest of the rates head that direction.  And while the government payment plan will cut your late payment penalties in half (to .25% per month), on a $300 balance that saves you less than 50ยข a month.  Plus, you have to give the IRS permission to attach your bank account if you fail to pay.

Eva Rosenberg, publisher of TaxMama.com, says if you've already e-filed your return but haven't paid, and you're confident you can pay what you owe before the end of 2004, don't file the installment agreement.  That way you save the $43 upfront fee and don't hand over your bank account information to the IRS.  Instead, Rosenberg suggests you simply file your taxes and send the IRS as much as you can afford on April 15.  Then save up and send money every time the agency sends you a notice about your balance due.  Otherwise, put your tax return on an extension (or two) and buy yourself up to 6 months before IRS starts collections actions.  But be very careful.  If you're not disciplined enough to pay off Uncle Sam without the paperwork, if yearend arrives and you find you owe 2004 taxes and you've still not paid off your 2003 bill, you'll be in instant default.  In this case, and the penalties and interest are brutal.

And so that you don't have to worry about coming up with tax cash next year, make sure your payroll withholding amount is correct now.  Through this process, wage earners have a percentage of pay taken out each pay period and sent to the IRS where it is credited toward the taxpayer's final tax bill.  If you have too little taken out, you'll owe money when you file your annual return.  You can adjust your withholding simply by filing a new W-4 with your payroll office.  True, you'll have to deal with a slight cut in take-home pay, but you won't have to write a big cheque to Uncle Sam next April.

Jennie L Phipps is a contributing editor based in Michigan;

Source: bankrate.com updated 15 April 2004

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