Re: Obama's Remarks on Retirement Security

On Sun, 22 Jun 2008 07:34:57 -0700 (PDT), allan.sanger@xxxxxxxxx
wrote:

On Jun 21, 5:21 pm, Rumpelstiltskin
<PleaseDoNotReplyByEm...@xxxxxxxxxxx> wrote:
On Sat, 21 Jun 2008 16:47:30 -0700 (PDT), allan.san...@xxxxxxxxx
wrote:

On Jun 21, 10:33 am, Rumpelstiltskin
<PleaseDoNotReplyByEm...@xxxxxxxxxxx> wrote:
On Sat, 21 Jun 2008 07:47:12 -0700 (PDT), allan.san...@xxxxxxxxx
wrote:

On Jun 20, 4:14 pm, Rumpelstiltskin
<PleaseDoNotReplyByEm...@xxxxxxxxxxx> wrote:
On Fri, 20 Jun 2008 09:42:54 -0700 (PDT), allan.san...@xxxxxxxxx
wrote:

On Jun 20, 9:00 am, Rumpelstiltskin

<snip>

The audit itself for me would be a nightmare, like doing
taxes in the first place, but longer.

The first one was a piece of cake - it was earlier in my career and it
wasn't too onerous to come up with the documentation. The second one
had to do with the rental properties and it was a bit more complicated
in that in the mid 90's the IRS took a slightly different view on what
constitutes a business and what constitutes investment.

After watching my 90-year-old landlady trying for months
to get rent from a renter who didn't pay her for six months
until she finally got him out, and who always hid from her,
there's no way I'd want to get involved in rental property
unless I had people to completely handle the renting for
me.

<snip>

One big problem with initiating a consumption tax of course
is that people who have already saved money have already
paid non-consumption taxes on that money, so with
consumption taxes they'd be paying again, whereas new
money would only be taxed when it was spent, not when it
was earned. I guess that's all peanuts compared to the
collapse of the dollar, though.

Thats a problem that can be solved. I don't think it involves a
tremendous amount of money relatively speaking and asking for a refund
wouldn't be any more difficult than filing a tax return.

That would be fair, but it's quite a lot of money nationwide.
I'm not so sure the government would, or reasonably could,
go for it.

Most of the money I haven't used since I retired is deferred
compensation, on which haven't yet paid taxes, so that would
be no problem for anybody if I cashed it in after income taxes
were eliminated and consumption taxes initiated.

There's still plenty that I have paid taxes on though, and
I definitely would want to file something to get the tax money
on that paid back, even if I had to hire somebody to do it.

I was more inclined to propose a method by which you file for a refund
on the consumption tax paid with after tax income.

That seems to me to introduce complications that would
make it impractical, and a colossal nuisance as well.

The beauty of it is that the burden is on the individual to request
and document the validity of the request for a refund.

You find it beautiful that people have to work at not
being cheated into paying double tax? I don't.

It's all a matter of perspective. From an ease of implementation at
the Fed level, this is the best way to do it.
It doesn't make it right - just easy for the feds.



As you say, it doesn't make it right. Since it's not right,
the government shouldn't do it, or what kind of government
do we have?





It also avoids
the issue of how much to refund - you simply refund the amount of the
current consumption tax - no need to figure out if the dollar came
from a capital gain that paid 15% or income in 2006 at 31% or income
from 2002 at 14%. The demand deposit side is easy to manage. The
investment side a bit more challenging but that's already done every
year with Schedule D.

People can easily find out and report how much money
they have that has been taxed, at the moment the switch
to consumption tax is made. The government has records
of what proportion of their saved income had gone to taxes.
It could apply a formula based on those records to make a
fair shot at how much paid taxes to rebate on the unspent
income. Everything would be done at one stroke.

I'm less inclined to trust the government to do the math. That, and
sending out a refund of billions is a cash flow issue for the
treasury.

Your proposal would require that people keep an account
containing their untaxed money (impractical), or gradually
apply receipts for stuff they bought until the receipts added
up to how much money they had at the time the switch was
made until the receipts add up to how much they had before
the switch was made (more practical). In my case, the
dribbling annual rebates would even extend to my heirs,
because I'm not going to spend all the money I already have
before I die, unless bread starts costing $50 a loaf which is
no longer an inconceivable soon-to-arrive scenario, thanx to
Republican fiscal incompetence. People would have to
submit receipts of their purchases and send them to the
government to get a rebate year after year until all the
"old money" was theoretically (fictionally) gone. The
government would still have to compute by a formula how
much tax had already been paid on the old money. It's
an accounting monster, and yet another damned tax
nuisance, as if taxes weren't enough of a damned
nuisance already.

Maybe you missed my point. Let's say you have $100,000 in taxed
assets that were purchased over time with a net basis value of
$57,000. For most people this is an easy thing to calculate. You now
have 57,000 in consumption tax credits. Do you have to collect
receipts? Why? .The government may want to put on a maximum recovery
amount per annum and a 5 year limit. In this way, you could
effectively double tax the rich.

Taxed assets you already own are not money.

Sure they are - just in various forms of liquidity. For example, a
savings account, a checking account, cash in your wallet....stocks,
bonds, CDs....




They're not traded as cash and subject to
consumption tax in the process, so they don't
figure into an income-tax versus consumption-
tax debate.

As to taxing when a house is sold and the
money used to buy something else, we'd have
a consumption tax on what we buy just as we
already have an income tax on the profits from
what we sell (except for getting a free ride on
appreciation from selling a personal house,
which the mob has decided and voted is what
it wants despite the illogic).




You bought
them with money on which you had paid income tax. You
don't pay consumption tax on them because you only pay
consumption tax on things you buy, not on things you bought
before there was a consumption tax.

I totally agree. In fact, consumption tax should never be paid on
purchases of any investment instrument.



I hadn't dealt with investments, but I agree that
investment is not "consumption". You don't get
taxed for investing under income-tax either. You
do get taxed on the profits, but that would work
out the same under consumption tax too, when
you "consume" with the profits. Under income tax,
of course, you were already taxed on the principle,
and under consumption tax you will get taxed
on the principle when you later "consume" with it.




I'm not rich but you'd be double taxing me because I didn't
spend all my money as soon as I got it, but stashed it away
so I could retire comfortably. You're rewarding the
grasshoppers and punishing the ants. That wouldn't be
anything new, it's what inflation does all the time, and it's
in spades what the collapse of the dollar did.

Your argument was that it is too complicated. My argument is that you
can make it very simple at the risk of double taxing someone at the
top end of the food chain. Most retired folks have two sources of
income - social security and personal retirement accounts. Some have
pensions as well. All three of these are pre-tax investments and
would be subject to taxes when they are converted from holding to
income. The fourth source of wealth is after-tax investments and
those are the ones where a transition plan is necessary to avoid
double taxation.


It's not making it simpler at all. It's simpler for the
citizen just to report one time to the government what
his saved assets, on which he's already been taxed
are, and get a rebate of the tax money paid on them,
end of story, then a consumption tax can proceed
without further complication. It's simpler for the
government too, for the same reason, that the
adjustment is completely done at one shot. It does
deprive the government of an opportunity to cheat
people, but that's certainly no good argument.




I wonder how much of your wealth is invested capital from after-tax
income? I suppose if you did a lot of stock trading over the years
much of the capital gain tax has already been paid. But to determine
how much is quite simple.


Yes, as noted above.



None of this could have happened of course if paper
money still was backed up by and could be exchanged
by the government for something of corresponding real
value. In the Hamilton bio I'm reading, I ran into another
gem yesterday:

For political and legal reasons, Hamilton had to
address the loaded question of paper money by
states; everybody remembered the worthless
Continentals printed by Congress during the
Revolution. Should the federal government now
issue paper money? Fearing an inflationary
peril, Hamilton scotched the idea: "The stamping
of paper is an operation so much easier than the
laying of taxes that a government in the practice
of paper emissions would rarely fail in any such
emergency to indulge itself too far." As an
alternative, Hamilton touted a central bank that
could issue paper currency in the form of
banknotes redeemable for coins. [my note - of
course coins are also not worth the value
stamped on them anymore.] This would set in
motion a self-correcting system. If the bank
issued too much paper, holders would question
the value and exchange it for gold and silver;
this would then force the bank to curtail the
supply of paper, restoring its value.
-- from Chernow, Alexander Hamilton, ch. 18

Silver certificates?

I have one of those. It's in my safe deposit box,
I think. It's only a dollar, just a curiosity.

Maybe along with Robespierre, we should also
dig up Hamilton and clone him. He'd be able to
come up with some way of gradually getting us
out of the horrible debacle created by vastly
inferior minds lately. America, and the world,
have completely forgotten the danger noted by
Hamilton, which echoes Voltaire's "Louis XIV
was a magician who could make people believe
that paper was money."

My per-capita liability for the National Debt is $30,000, and
I'd be asking more than that back in taxes I've paid on
money that I haven't spent yet. I don't think that's a terribly
unusual a situation to be in. If hypothetically everyone were
in the same position, we'd more than double the National
Debt if we refunded taxes paid on unspent money to
everybody.

Not if you did it through the consumption tax rebate. The after tax
money you have today has already done its fair share in supporting the
government so there's no net loss to the tax base.

But the government does have to pay me back the taxes
I already paid.

No, actually, the way I see it, they just can't tax you on it again.

I wrote something here, but then I saw that further down
you were recommending rebating any paid consumption
tax on the basis of money already income-taxed. That's
fair except for the unnecessary expense to government
and to the consumer, and the rotten aggravation to the
consumer, but for those reasons I don't like it.

So you agree with the philosophy but disagree with how to implement
it. That's fair.


Well, I wouldn't go so far as to say that I agree with the
"philosophy". It is less of a nuisance for the individual,
which is its only real virtue in my book. though a big
enough virtue to make it worth considering despite the
"problems" of fairness that come up. I'm not at all sure
I'd agree with eliminating income-tax on businesses.
For one thing, business, like fire, can be very useful or
very destructive to people. People are all that matter
in the end. Business is nothing but a means of serving
people, to provide them with goods and a way to make
a living in exchange for their contributing to the
commonwealth. Making sure that business serves
rather than parasitizes is why we have laws against
cartels and monopolies, and why there's always talk of
"excess profits" taxes when a business or cartel is seen
by the people as having become more of a drain on the
assets of the population at large than is necessary and
justified for its helpfulness toward general quality of life.




They can do it as you suggested, by rebating
me bit by bit every year, which of course is a nuisance to
me and a big expense to the government who will have to
employ accountants to monitor the bits. Or they can do it all
at once, which would cut down on expenses to them and the
annoyance to me, but would hit them with rebating all the
money all at once. Either way, or any intermediate way, the
government pays back the money, whether slowly or at once.

They refund money collected as consumption tax on money already taxed
as income.
Like a tax credit only the two transactions are separate.

But then the consumer has to work at getting his money
back, even though it's computable at one shot what the
government should rebate. If the consumer doesn't do it
right, he gets unjustly double taxed. You may think that's
OK, but I don't think it's OK one bit.

It doesn't affect a whole lot of people and yes, it is up to the
consumer to manage it.



It affects everybody who has saved money, which is
almost everybody.




If you look at the wealth of the typical US consumer (household), it's
mostly the value of their primary residence, the value of their 401K
and the future value of their pensions and social security. In fact,
half of the wealth in the bottom 90% of consumers is primary
residence. The bottom 50% have less than $25K in net financial assets
other than pensions and social security. The conversion is not a big
issue for the overwhelming majority of people.



Even the taxes already paid on $25K in savings is significant,
especially to people who have only $25K in savings.

It's worse for retirees, since retirees who have only $25K in
savings are in trouble if they only have SS income and not
a pension. They need any money they can rightfully get.



<snip>
.

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