7 ms·

> Is the IRS just supposed to ignore that? Yes. Or, better yet, just give it to everyone and pay for it by: 1. Eliminating the carried interest tax credit, w

by jmyeet 4y ago

> Is the IRS just supposed to ignore that? Yes. Or, better yet, just give it to everyone and pay for it by: 1. Eliminating the carried interest tax credit, which has somehow survived 15+ years. It is quite literally a giveaway to hedge fund managers who get to pay lower taxes on managements because reasons. It most recently survived by being removed from the Inflation Reduction Act at the behest of Senator Kirsten Senema (D-AZ); 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt; 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; 4. Tax stocks on market value every year just like we do with property. Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous. Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources. In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

NovemberWhiskey 4y ago
>Or, better yet, just give it to everyone and pay for it by The IRS doesn't author tax policy. Congress is over there --->
- cortesoft 4y ago
  Sure, but as the article states, the IRS is already ignoring entire categories of tax fraud that is illegal under the law. This means the clearly have discretion over what to pursue. They could choose not to pursue EITC fraud at all.
  - NovemberWhiskey 4y ago
    Would it be rational to audit (say) one additional millionaire rather than correcting objectively massive fraud/error rates in the EITC? I would say not. Then the question remains is what the break-even point is. Neither you nor I know the internal numbers here so it's impossible to discuss whether the current policy is reasonable or not.
josephcsible 4y ago
> In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. Why would anyone who made under $50,000 or $100,000 ever bother to pay one cent of taxes if you did that?
- jmyeet 4y ago
  For one, the vast majority of those people are W2 employees. Their taxes are withheld at source. Let that be whatever taxes someone pays. Take it further: the IRS just gives you a form at the end of the year saying your income was $X and your taxes withheld were $Y. Sign here to get a refund or pay the shortfall (which, if withheld correctly, there should never be a shortfall). That's actually how it works in most developed countries. As for small businesses (the vast majroity of non-W2 employees), sure, audit them if they have been running a restaurant for years and weirdly have never drawn an income.
  - LorenPechtel 4y ago
    No. The withholding system isn't accurate enough to do this and can be gamed anyway. (I'm thinking back probably 20 years ago, one of our employees absolutely furious with the accountant for messing up their taxes and leaving them with a huge bill they couldn't afford. Reality: They bought a house, everyone knows your taxes go down when you buy a house so they increased their exemptions. Oops, the tax effects of buying a house weren't anything like what they thought.) Furthermore, the system doesn't work too well with variable incomes (it's based per-check) and should two married people both have variable incomes it can't work, period. (We are both self-employed--and some years ago I threw in the towel on even trying to get it right. I simply stay at the safe harbor limit. Come Apr 15 I expect to be off by 4-digit amounts, but it could be in either direction.) And your threshold won't catch most cheating. Not drawing an income will of course be suspect, but the guy who reports $50k but took $30k in cash out of the till over the year won't show up on your radar. I actually get a 1099 but my wife does not--no computer can know if she's reporting accurately. They would have to do a bit to even realize she's working (she's past retirement age.)
  - NovemberWhiskey 4y ago
Test0129 4y ago
This is certainly the hottest possible hot take. > Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; This works for billionaires but harms regular people. If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing. In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house. There are already enough ways to rob the middle class. No thank you. > Tax stocks on market value every year just like we do with property. This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad. Again, this inadvertently damages the middle class who by-and-large are passive investors. I already pay enough tax, thank you. > Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous. If you look at the problem from the perspective of a relatively understaffed organization it is far easier to automate the common errors less well off people make. Having been on the receiving end of this majority of the audits are a simple letter saying "you screwed up, you actually owe this much" and nothing more. Auditing the ultra-wealthy takes an actual dedicated team to do because the ways that these people illegally hide money are complex and ever-changing. This is why nothing we have done to repatriate USD, or "tax the billionaires" has worked since the dawn of the country. It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class. Moreover, the title of OP is deliberately inflammatory. The audit rate below 100k is extremely low. The delta can be explained by the difficulty involved. > Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources. It is possible to commit extremely complex fraud with the EITC. I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS too regardless of how much more or less than me they make. > In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. lol.
- selimthegrim 4y ago
  > I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS This sounds like a Chuck Tingle commission waiting to happen
s1artibartfast 4y ago
>In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. So everyone files below 100k and everyone is immune to audit. I might go for that, but I am also receptive to the abolition of taxes.
- landemva 4y ago
  Abolition of INCOME taxes. Consumption/use taxes locally and tariff/import taxes federally seem reasonable today and 250 years ago. Income tax takes my work effort like slavery.
toast0 4y ago
> 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt; I think you need to update your screed for the Trump era tax changes. There's no longer a tax on repatriated earnings (they're exempted from corporate income), and the previous funds held offshore were taxed as a one-time charge (optionally payable over 8 years). There's no longer a US tax reason to keep your offshore profits offshore. > 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; Inheritance isn't a taxable event, but death is. The step-up in basis corresponds to being subject to the estate tax. When the estate tax expired, estates weren't subject to tax, but there was no step-up in basis; it was made retroactively optional to subject the estate to the estate tax and get a step-up in basis. Certainly, the federal estate tax has a pretty large deduction, but just because the effective tax rate for a lot of estates is zero, doesn't make it not a taxable event. Of course, raising the estate tax comes with a lot of bad PR about people's family farms and what not; any honest attempt to increase estate taxes needs to address that, perhaps with an installment plan/lien for illiquid property -- if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable > 4. Tax stocks on market value every year just like we do with property. The US government doesn't run a property tax. Maybe you want mark to market income taxation on stocks? That's possible, but you'd need to make capital losses refundable or at least add carry-back, or people who were invested into a crash are going to be pretty grumpy. Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.
- jmyeet 4y ago
  > There's no longer a tax on repatriated earnings (they're exempted from corporate income) Yes and no. What you're saying is partially correct. For pre-TCJA deferred foreign income there was tax holiday (ie a one-time low rate), just as there was in 2004. This tax could be paid over 8 years as well (eg Apple is doing this). For future income, repatriation is technically exempted from income but there is a minimum tax on income in tax havens that probably incentivizes companies in future to shift profits overseas. The more money you do this with the lower the effective tax rate you pay, as I understand it. So, you will still have an incentive against repatriation because it reduces the effectiveness of your overall profit shifting. So borrowing in the US to avoid repatriation is still relevant but less so thanks to both the lower corporate tax rate of 21%, the tax-hoiday rate still being higher than the cost of borrowing and repatriation still increasing overall tax rate. This is less relevant currently with higher interest rates, of course. > ... if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable I'm all for carving out palatable exceptions such as deferring tax liabiilities for seniors, not hitting heirs with an immediate tax bill and effectively amortizing tax liabilities over many years in the case of farms. Fine. What I am against is giving massive tax breaks to the likes of Disney and truly wealthy California landholders because of seniors or family farms. You can separate these issues. > ... capital losses refundable or at least add carry-back Capital losses (both long and short term) can already be carried forward. What you're suggesting by a carry-back I assume means to apply a loss against a paper profit in a previous year. Fine with me. > ... people who were invested into a crash are going to be pretty grumpy We've already had this kind of problem with the AMT. I honestly don't know the current state of the AMT but in previous years (eg during the dot-com bust) we had paper who through exercising options and paying a lot of tax because of AMT then having no way to resolve that when the stock crashed. I'm fine with making sure this doesn't happen either. > Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either. I get this. We have numerous examples of deferring tax liabilities (eg until death, due to hardship) so this seems like an eminently solvable problem.

by jmyeet 4y ago

NovemberWhiskey 4y ago

>Or, better yet, just give it to everyone and pay for it by The IRS doesn't author tax policy. Congress is over there --->

cortesoft 4y ago
Sure, but as the article states, the IRS is already ignoring entire categories of tax fraud that is illegal under the law. This means the clearly have discretion over what to pursue. They could choose not to pursue EITC fraud at all.
- NovemberWhiskey 4y ago
  Would it be rational to audit (say) one additional millionaire rather than correcting objectively massive fraud/error rates in the EITC? I would say not. Then the question remains is what the break-even point is. Neither you nor I know the internal numbers here so it's impossible to discuss whether the current policy is reasonable or not.

josephcsible 4y ago

> In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. Why would anyone who made under $50,000 or $100,000 ever bother to pay one cent of taxes if you did that?

jmyeet 4y ago
For one, the vast majority of those people are W2 employees. Their taxes are withheld at source. Let that be whatever taxes someone pays. Take it further: the IRS just gives you a form at the end of the year saying your income was $X and your taxes withheld were $Y. Sign here to get a refund or pay the shortfall (which, if withheld correctly, there should never be a shortfall). That's actually how it works in most developed countries. As for small businesses (the vast majroity of non-W2 employees), sure, audit them if they have been running a restaurant for years and weirdly have never drawn an income.
- LorenPechtel 4y ago
  No. The withholding system isn't accurate enough to do this and can be gamed anyway. (I'm thinking back probably 20 years ago, one of our employees absolutely furious with the accountant for messing up their taxes and leaving them with a huge bill they couldn't afford. Reality: They bought a house, everyone knows your taxes go down when you buy a house so they increased their exemptions. Oops, the tax effects of buying a house weren't anything like what they thought.) Furthermore, the system doesn't work too well with variable incomes (it's based per-check) and should two married people both have variable incomes it can't work, period. (We are both self-employed--and some years ago I threw in the towel on even trying to get it right. I simply stay at the safe harbor limit. Come Apr 15 I expect to be off by 4-digit amounts, but it could be in either direction.) And your threshold won't catch most cheating. Not drawing an income will of course be suspect, but the guy who reports $50k but took $30k in cash out of the till over the year won't show up on your radar. I actually get a 1099 but my wife does not--no computer can know if she's reporting accurately. They would have to do a bit to even realize she's working (she's past retirement age.)
- NovemberWhiskey 4y ago

Test0129 4y ago

This is certainly the hottest possible hot take. > Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; This works for billionaires but harms regular people. If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing. In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house. There are already enough ways to rob the middle class. No thank you. > Tax stocks on market value every year just like we do with property. This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad. Again, this inadvertently damages the middle class who by-and-large are passive investors. I already pay enough tax, thank you. > Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous. If you look at the problem from the perspective of a relatively understaffed organization it is far easier to automate the common errors less well off people make. Having been on the receiving end of this majority of the audits are a simple letter saying "you screwed up, you actually owe this much" and nothing more. Auditing the ultra-wealthy takes an actual dedicated team to do because the ways that these people illegally hide money are complex and ever-changing. This is why nothing we have done to repatriate USD, or "tax the billionaires" has worked since the dawn of the country. It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class. Moreover, the title of OP is deliberately inflammatory. The audit rate below 100k is extremely low. The delta can be explained by the difficulty involved. > Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources. It is possible to commit extremely complex fraud with the EITC. I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS too regardless of how much more or less than me they make. > In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. lol.

selimthegrim 4y ago
> I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS This sounds like a Chuck Tingle commission waiting to happen

s1artibartfast 4y ago

>In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000. So everyone files below 100k and everyone is immune to audit. I might go for that, but I am also receptive to the abolition of taxes.

landemva 4y ago
Abolition of INCOME taxes. Consumption/use taxes locally and tariff/import taxes federally seem reasonable today and 250 years ago. Income tax takes my work effort like slavery.

toast0 4y ago

> 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt; I think you need to update your screed for the Trump era tax changes. There's no longer a tax on repatriated earnings (they're exempted from corporate income), and the previous funds held offshore were taxed as a one-time charge (optionally payable over 8 years). There's no longer a US tax reason to keep your offshore profits offshore. > 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; Inheritance isn't a taxable event, but death is. The step-up in basis corresponds to being subject to the estate tax. When the estate tax expired, estates weren't subject to tax, but there was no step-up in basis; it was made retroactively optional to subject the estate to the estate tax and get a step-up in basis. Certainly, the federal estate tax has a pretty large deduction, but just because the effective tax rate for a lot of estates is zero, doesn't make it not a taxable event. Of course, raising the estate tax comes with a lot of bad PR about people's family farms and what not; any honest attempt to increase estate taxes needs to address that, perhaps with an installment plan/lien for illiquid property -- if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable > 4. Tax stocks on market value every year just like we do with property. The US government doesn't run a property tax. Maybe you want mark to market income taxation on stocks? That's possible, but you'd need to make capital losses refundable or at least add carry-back, or people who were invested into a crash are going to be pretty grumpy. Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.

jmyeet 4y ago
> There's no longer a tax on repatriated earnings (they're exempted from corporate income) Yes and no. What you're saying is partially correct. For pre-TCJA deferred foreign income there was tax holiday (ie a one-time low rate), just as there was in 2004. This tax could be paid over 8 years as well (eg Apple is doing this). For future income, repatriation is technically exempted from income but there is a minimum tax on income in tax havens that probably incentivizes companies in future to shift profits overseas. The more money you do this with the lower the effective tax rate you pay, as I understand it. So, you will still have an incentive against repatriation because it reduces the effectiveness of your overall profit shifting. So borrowing in the US to avoid repatriation is still relevant but less so thanks to both the lower corporate tax rate of 21%, the tax-hoiday rate still being higher than the cost of borrowing and repatriation still increasing overall tax rate. This is less relevant currently with higher interest rates, of course. > ... if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable I'm all for carving out palatable exceptions such as deferring tax liabiilities for seniors, not hitting heirs with an immediate tax bill and effectively amortizing tax liabilities over many years in the case of farms. Fine. What I am against is giving massive tax breaks to the likes of Disney and truly wealthy California landholders because of seniors or family farms. You can separate these issues. > ... capital losses refundable or at least add carry-back Capital losses (both long and short term) can already be carried forward. What you're suggesting by a carry-back I assume means to apply a loss against a paper profit in a previous year. Fine with me. > ... people who were invested into a crash are going to be pretty grumpy We've already had this kind of problem with the AMT. I honestly don't know the current state of the AMT but in previous years (eg during the dot-com bust) we had paper who through exercising options and paying a lot of tax because of AMT then having no way to resolve that when the stock crashed. I'm fine with making sure this doesn't happen either. > Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either. I get this. We have numerous examples of deferring tax liabilities (eg until death, due to hardship) so this seems like an eminently solvable problem.