Proposed income tax break for Texans gets new life

[CShine]

Texas taxes may be worth a federal income tax break after all. Republican leaders in the U.S. House on Friday resurrected a plan that would benefit Texans, and residents of six other states, by allowing taxpayers to deduct state and local sales tax on their federal income tax returns.

Majority Leader Tom DeLay,R-Sugar Land, and Rep. Kevin Brady, R-The Woodlands, helped get the bill slated for a vote on the House floor in about two weeks. The proposal, once considered dead partly because of disinterest by lawmakers from the 43 other states, is revived because it has been attached to a weighty bill on the separate issue of corporate tax breaks.

An average Texas family of four that claims itemized deductions on federal tax returns would save about $300 a year under the plan, according to estimates by the Texas Comptroller's Office based on 2002 statistics. One billion fewer dollars would flow to the federal government from Texas taxpayers every year.

State GOP leaders are behind the plan, saying it would keep money in the state and lead to the creation of jobs. The bill has support from federal lawmakers in both major parties; opposition to the larger bill may come from those who say that other tax breaks pushed by the Bush administration have led to budget deficits and program cuts. The plan would allow taxpayers in every state to deduct whichever amount is higher -- state and local income taxes or state and local sales taxes.

http://www.chron.com/cs/CDA/ssistory.mpl/front/2610515

[markdd]

1. I suspect that Texas and the 6 other states..

are ones that do not currently have a state income tax. In many Texas cities, the sales tax is running up to 8%.

[Fenris]

3. State sales tax is 8%. We have no state income tax.

[markdd]

4. is the 8% all state..

Or is that the total of state, county, city, transit district, special school levies etc., etc., etc. Centuries ago when I lived in Texas, there was a federal exemption for state sales tax that was like 3-4 cents when the combined rate was approaching 6 cents.

[Fenris]

5. Eee, I don't know. I'm pretty sure it's statewide now, though.

[JayS]

9. The state tax rate is 6.25%...

...if I remember correctly. Different city and county governments then pile on their own tax. Austin, in Travis County, ends up with an overall tax rate of 8.25%. Generally, things that qualify as food are exempt.

The are about six billion or so different little things that are also exempted or taxed extra. If you want to learn more see:

http://www.window.state.tx.us/m23taxes.html

[Beatrix]

12. 8.25%

nt

[alarimer]

6. 8.5% here

In Corpus- they fund their pet projects in the city and county (like a show barn in Robstown- about $2 million) by raising sales taxes a fraction of a cent. BUt it all adds up.

[schultzee]

8. I live in a southern state that has 9% sales tax and income tax and

I doubt Bushit will give us anything.

[lpricanprynces]

14. 8.25% in Dallas

Tax is 8.25% in Dallas.

[indepat]

30. 9 1/4% in my berg located in one of those other states

[TexasBushwhacker]

50. Try 8.25%

in Houston and most other cities. That's 6.25% for state sales tax, plus 1% Houston city sales tax and 1% for Houston MTA. Even areas around cities that are outside the city limits have raised their taxes through Special Purpose Districts (SPD's) for everything from crime control to community development. It's not unusual for people to drive out to areas outside of the City of Houston and Houston MTA area to buy cars. They save 2% in sales tax, which on a $25K new car is $500!

Prescription drugs and groceries are about the only things that are exempt for your average citizen.

Texas also happens to be a "donor" state, receiving only 92 cents in federal spending for every dollar the feds collected from us. Things could be worse though. Check out the federal winners and losers here:

http://www.taxfoundation.org/taxingspending.html

[pop goes the weasel]

2. it would be nice

Of course, Texas could fix this by replacing the sales taxes with an income tax. I think our business would benefit greatly from that, and the income tax could be scaled so that at last there would be some progressivity in the state tax structure. That would really be the best solution.

What I don't understand is why states with an income tax persist in having sales taxes.

[TexasMexican]

7. "What I don't understand is why states with an income tax persist..."

cause they want all the tax money they can get.

[pop goes the weasel]

19. not exactly

"They"--the big bidness people who control this state--want all the tax money they can get from the folks they are paying minimum wage to and the least amount of tax money to be extracted from their own wallets. That part I understand. I guess I should have said that what I don't understand is how average people, with the power of the vote, don't demand better. I don't understand why we don't have Democrats running for office on a tax-replacement platform. I don't understand why a state that demands that all school districts use the same curriculum and text books doesn't provide for the funding of all school districts from the wealth of the entire state, instead of making local tax payers shoulder differently weighted burdens.

[AP]

10. Retailers would sell more stuff. However, businesses don't make money from

selling stuff anymore. They make money by lying about their finances, jacking up share prices fraudulently, then issuing stock to grant stock options given to executives.

[pop goes the weasel]

18. but small businesses do

and they already have to deal with tax withholding from paychecks, so this would not greatly add to their burdens while at the same time it would greatly simplify life at the sales counter. Replace the property tax with an income tax at the same time--make it a twofer--and you would have conservative Texans singing the praises of the the income tax. That is what the Populists had in mind when they first proposed an income tax, after all. It was to be a more-just substitute tax, not an additional tax.

[AP]

23. I know. I'm just telling you why Republicans wouldn't do it.

Aside: I don't know if we have to get rid of the property tax. It's a good way to capture accumulated wealth that isn't transferred in a given year, but can be used to tap into wealth which isn't taxed (like, when you take a loan againt your property). But there are two big things that need to change about property tax: it shouldn't be unbelievably burdensome, and it shouldn't be that middle class people bear the brunt of it. In Wealth and Democracy, Kevin Phillips argues that must local governments give so many breaks to corporations that increases in property taxes are no felt almost exclusively by individuals and not corporations -- and corporations often own the most valuable property.

[pop goes the weasel]

25. good points

But I have known too many people who have lost their homes or small businesses because of property taxes after the value of their property was falsely assessed by the wealthy sort of crooks who tend to be on county boards. The property then has to be sold for a song, and is snapped up by friends of the politicians involved. And I rather doubt that we will be able to get local governments to stop giving tax breaks to their friends and to big corporations. The best alternative seems to me to be to level the playing field by ending the property tax altogether.

Another problem with the property tax is that it provides a disincentive for home and business property upkeep and improvement, since people can, over time, add enough value to their properties that they create a property they could not ever afford to buy, let alone pay taxes on. This is similar to how renters keep their rent from rising by not doing anything that adds to the value of the property, even if they intend to be long-term tenants.

[AP]

27. If corporations paid a reasonable property tax, individuals' property tax

would probably gone down by 2/3rd.

There should be an alternative minimum property tax (and income tax) for corporations.

If your property values are increasing becuase of upkeep, and that allows you to borrow more against it, which gives you economic power, I'm not sure it's unreasonable to tap into that wealth just a tiny little bit with a tax.

When you don't tax a way to get money, you find that everyone who has control over their economic power is able to take advantage of that loophole.

If there were NO property tax, and you could make improvements galore to property and then borrow against that value and never have any of that wealth subject to a progressive tax, you're going to find an imense amount of wealth changing hands that way, and it will be the super wealthy who benefit from it, and not working class people.

Obviously, if at the bottom of the scale, working class people can't afford to fix up their property for fear of increased property tax valuations, the problem isn't with the fact that there is a property tax. The problem is where it's set at. No tax should create a disincentive to work and improvement and investment.

Here's a parallel. Often a small business will not take on additional business because it just isn't worth the added effort after taxes. A larger company which pays tax at the same or lower rate, but can afford to take on the extra business will do so. The problem is not that we have income tax on corporate income. The problem is that it isn't sufficiently progressive. Getting rid of corporate income tax isn't the answer. Setting it properly so that nobody turns down work BECAUSE of the the tax code is the answer.

If there were no tax on property. Rich people would accumulate a ton of property. Furthermore, there'd be no reason to use it. Property tax encourages people to generate income from their land. Getting rid of property tax would encourage hoarding, which would just make the remaining land (which regular people need just to live, if not work) even more expensive. (Incidentally, this is another reason it's important to tax business property even more than residential-only property, which is not happening today at all).

[AP]

29. I was hoping to hear comments from you, anyone, about this:

If there were no tax on property. Rich people would accumulate a ton of property. Furthermore, there'd be no reason to use it. Property tax encourages people to generate income from their land. Getting rid of property tax would encourage hoarding, which would just make the remaining land (which regular people need just to live, if not work) even more expensive. (Incidentally, this is another reason it's important to tax business property even more than residential-only property, which is not happening today at all).

Property tax encourages people to use land, and it discourages hoarding land, which is very important.

[pop goes the weasel]

32. I'll bite

I see your point, but I'm not sure that the effect of property taxes are indeed to prevent hording. It seems to me that, as with most taxes, the general effect is to impose a cost that is too much or nearly too much for lower income people to bear, while glancingly light for large property holders. Historically, the tax on property was a large part of what forced yeomen farmers ever westward, prompting them to continue a war with Native Americans for land that had not yet been incorporated into the capitalist model, or to stay put and come under the dominion of land lords whose record with tenant farmers has been decidedly checkered. The real problem with hording of wealth, whether real estate or investment capital, is not what can be accumulated by one person in one life time, but what can be passed on generation to generation and what can be accumulated by corporations. The estate tax was supposed to address the problem of hording in a particular family, but no good way has been found to keep corporations from indefinitely removing wealth from the creative pool.

[AP]

33. Having to pay property tax encourages people to put it to economic use.

If you don't, then you lose money year over year.

American has entire body of law -- adverse possession -- which tries to do the same thing because he learned from the UK, where they don't have adverse possession, that if you allow people to hold a great deal of land without forcing them to do anything with it you hurt the economy by, for example, not creating jobs, not growing crops, not building homes, and not allowing people who do want to work the land to be able to hold it and use it.

If you didn't have property tax you reduce a big compulsion to make sure that you use your property to generate income.

Also, it's a good way to tax accumulated wealth that isn't transferred -- and there's a lot of wealth accumulate in land that doesn't turn over very often. And it's usually the rich who hold the most land.

It's always good to encourage money changing hands, because that ensures that people who are working the hardest at any given moment have a good chance of accumulating wealth. Again, property taxes create a disincentive for NOT circulating wealth and not making it change hands.

(I don't think people moved west because of property tax. They moved west because they wanted to work the land and make a living.)

[pop goes the weasel]

42. I think that has a limited success

I suspect that W is taking the agricultural exemption on the Crawford stage ranch. I bet he's taking the homestead exemption, too. It used to be a pig farm. Disgusting, yes, but that was definitely economically useful.

The frontier settlers were already working the land. Why didn't they just work the land where they were? Because, in part, of the difficulty of earning the money to first buy the land they worked and then pay annual taxes on it. The lower your income, the more marginal your livlihood, the more onerous property tax becomes. Yes, there are provisions for keeping land economically useful, and those were largely put into practice at the demand of those marginal farmers and ranchers. But the current implementation of property taxes, in Texas at least, is so out of skew that it is breaking down altogether.

I'm curious to read your suggestions as to how to the property tax system can be fixed.

[AP]

43. They didn't work the land where they were, because they didn't own it.

The west was where you could get cheap land.

They weren't escaping property tax. They were finding property.

If you have a lot of land, and you can't pay property tax, the problems is one or both fo the following: you suck as an entrepreneur (and you should sell the land to someone who can do better with it), and/or property tax is disproportionately burdening you and there needs to be a more fair allocation.

The solution isn't to get rid of all property tax, which will simply benefit people who hold lots of land, don't sell it, and don't do much with it.

Incidentally, if you produce goods on your land which you sell to a retailer, rather than the general public, you wouldn't collect any sales tax on those sales, and if you operate as a corporation, you might end up paying super low income taxes on your income from the land -- eg, you're passing your income off as dividend income taxed at 15% and you're paying effective tax rates of about 2-4%.

So you really have to ask yourself if you want to totally eliminate property taxes for people who make money off the land (granted they don't pay much now -- but that's the problem!).

Kevin Phillips argues that the problem with property tax is that corporations generally pay none. When a community raises property tax it disproportionately falls on individuals' residential property.

To fix it, you have to make sure the business property owners pay their fair share. Communties should pass laws that restrict the sort of tax breaks their communities can grant. And I'm not talking about BS like propostion 13 which allows corporations to pay property tax at 1970s valuations, while middle class property owners have to pay at 2000 valuations. I'm talking about SMART restrictions on property tax reductions for corporations.

[pop goes the weasel]

45. SMART restrictions

I want to know what you have in mind. Everything I have seen come up for debate in Texas in the past year has been pre-skewed for bidness convenience. How are you going to get around that? I simply don't believe that there is even a possibility of restructuring the tax system so that large corporations pay their share. And even if there was a magic pill we could slip into the legislature's coffee so that they would forsake business lobbyists, there are still plenty of taxing districts that don't have big corporations, and have high taxes on small holders because of the general poverty.

I didn't say anything about people with a lot of land not being able to pay their taxes on it, though that sometimes happens with agricultural lands. It's the small holders who get screwed. I don't think you and I basically disagree on the problem. I'm waiting to hear your solution. Right now, the system is burdensomely regressive. Democrats have got to start talking about real tax reform at the state level.

[AP]

52. An Alternative Minimum Property Tax for corporations? Or, say,

capping (or a floor for) property tax breaks. Or annual valuations for business property in places that don't do that. Or fixing residential property taxes at a fraction of business property tax. Or progressive taxation for property owners in a state (eg, .1% up to 100K, .8% up to 1 mil, 1% on 1mil to 2mil, 1.25% on 2mil to 4mil -- and then add a .65% multiplier for residential property --anyone in a state who's controlling 4 mil in property better, for the sake of the community, by generating income from its beneficial use that makes that kind of tax not so burdensome).

Maybe there should be a property tax credit that's triggered by your Adjusted Gross Income for non-commercial property.

Use your imagination.

You say that big business always get its way. Well, getting rid of property tax would really benefit big business -- (or, big landholders). It would give rich people someplace to dump all their wealth which wouldn't incur any tax (except cap gains when they sold it, so they wouldn't sell it). It would allow people to hold land without really having to do anything with it for long periods of time. Which would make remaining land more expensive, and housing and business costs more expensive for smaller land owners. It might turn a lot of people into renters of land too. Since land ownership is the root of a huge amount of wealth in America, elimitating property taxes all together might deprive the middle class of a great deal of economic power.

Like I said before, the problem in America is not that we tax people. It's that we allocate the tax burden very unfairly in America.

When people argue to get rid of the income tax, or the estate tax or property tax, they don't understand that that really helps the super-rich the most. They also don't understand that their income or property tax is so high now BECAUSE the property tax and income tax of big corporations and the super wealthy is so little.

[mrbill]

48. farmer chimpy get a great deal at his local property tax office

The improvements including a 15,000 square foot barn, a 777 square foot residence and the 4284.5 square foot main house are assessed at $667,288. The 3 acre homesite is valued at $2440 for a total of $669,728.

The combined rates for McLennen County, Crawford ISD and the McLennen County Community College is $2.115988 per hundred. That's obscenely low to start with. Dallas is $2.83/$100. Some places in the state are over $3 bucks a hundred.

Anyway chimpy and pickles paid somewhere near $14,171.36 on the main house and improvements in 2003.

No homestead exemptions were used because the listed owner is a trust and thus not entitled to such an exemption.

The "ranch" has 1577.22 acres. The market value is $1,282,879. The taxable agriculture/timber value (dryland cropland, improved pasture, native pasture) is $124,389. In 2003 that was $2632.06 in property taxes or $1.67 per acre.

Where are the cows?

Square bales or round bales?

http://65.107.178.35/clientdb/propertydetails.asp?prop=119019

on edit: tried to correct error in header, didn't work.

[DBoon]

11. I hope one of those states is CA

Because our sales taxes do amount to a small heap.

On my first few tax returns (early 1980s), I was able to itemize, and could deduct CA sales tax (inferred - I didn't actually have to keep every receipt).

One of Reagan's "reforms" was to eliminate this break, so as to penalize taxpayers in high-tax states (and make it harder for states to raise taxes to compensate for federal spending cuts). On my middling computer programmer's salary, I ended up paying higher taxes as a result (Reagan also eliminated the interest deduction for consumer credit and killed income averaging).

After these reforms, plus the increase in the SS payroll witholding, my take-home dropped significantly.

[JCMach1]

13. Florida would be one of the others...

[salin]

17. Why is that not a surprise

goodies and bribes to the bushbrother's state's voters.

[Francis]

15. Itemised deductions

as only 20% of tax filers itemise deductions this would be irrelevant to 80%
The keeping of receipts would be a huge headache.

[lostnfound]

16. Eventually, tough on the poor

Likely to serve as an encouragement for states to raise their sales taxes even more.. then the family trying to live on $15,000 or $20,000 per year who doesn't itemize because they don't own a home, might end up paying 15% sales tax on everything they buy..

Those who itemize -- the middle class -- will get a break from it.

Popular but I suspect it will hurt the lower class alot.

[pop goes the weasel]

20. I wonder

what the bill looks like. At this stage of the game, perhaps we could get an amendment in to allow people in the bottom 2/3s of income to automatically deduct their state and local sales tax from 3/4 of their income (the one quarter supposedly untaxed would be what the federal government thinks we spend on housing). It wouldn't be exact, but it would be a good rough estimate for those who couldn't itemize.

[toopers]

21. This is why we need to get rid of the income tax all together

Everyone can muck around with the tax system and take care of their own cronies in an election year.

[AP]

34. How would we pay for gov't without the income tax?

[TexasBushwhacker]

55. With a national sales tax

with exemptions for groceries and prescription drugs and a certain amoutn of rent. That way the biggest consumers would be the biggest taxpayers and you would be collecting "income" taxes from all of the underground economy - drug dealers spending their money on bling bling, "independent contractors" that work for cash and report little or no income, etc. etc.

[AP]

57. The richer you are, the lower your tax burden would be.

Why are rich people rich? Because they spend MUCH less than they make. Why are poor people poor? Because they spend such a large % of their income.

Do you know that the bottom quintile of Americans have a net worth of about NEGATIVE $10,000. That means that many Americans spend MORE than they make?

So, if you raise revenue with a national sales tax, the richer you are the LOWER your effective tax rate would be. And the poorer you are, the higher your effective tax rate would be. In fact, many Americans (more than a fifth) would be paying taxes on wealth they never received.

You'd be financing your tax burden with your credit card. Wouldn't the credit card companies and the banks just LOVE that! That would mean that MBNA gets 17.5% of your tax bill just because you're poor.

[toopers]

58. Most people don't wake up rich!

They started out poor and have always spent less than they made. If you only taxed items that were purchased, then it would be impossible to pay taxes on items or services that you never received.

Why would the banks and credit card companies care about the tax? They would be passing that through to the federal/state governments anyway. It would not be income to them.

A federal sales tax rewards people at all income levels for being frugal and investing in themselves, and taxes consumers. The heavier the consumption, the greater the tax burden.

Most plans that I have read would create tax free items like groceries and clothes (at least with clothes there would be a minimum amount that would not be taxed). So, if you wanted to buy the $500 nike's you could, but you were going to go through the tax free portion quicker than than the individual who bought Hush Puppies.

[AP]

59. The point of progressivity is that the more you have, the more you pay in

taxes. People for whom the system works should be expected to pay a little more for the infrastructure that made them wealthy. Furthermore, your value of an additional dollar is a function of how many dollars you already have. So, if you want people with a lot of dollars to feel the same pain as someone with few dollars, you can't charge people with few dollars and a lot of dollars the same tax rate. That's why the flat tax is so regressive.

Well, a sales tax is even more regressive because the more you don't spend (ie, the definition of being rich: income excedes outflow by a wide margin) the lower your effective tax rate.

A millionaire who spends 100,000 a year on taxable goods would pay an effective tax rate of 1.75% (assumming a sales tax of 17.5%)

A person who spends 10K on taxable items, who only makes 10K a year, would pay a 17.5% effective tax rate.

A person who spends 20K on taxable items, but only makes 15K per year (which is not uncommon) would pay tax on wealth they don't even have.

That's no fair at all.

Do you think a millionaire wouldn't kill for the chance to pay 1.75% tax on wealth versus what they pay now?

Why would credit card companies care? Because they make money when you go into debt. If we raised tax revenue solely on spending and not on wealth, they would see prices go up, which would mean that people have to finance more of their purchases, which means profits go up. In fact, once you start going into debt, they would make money on the sale and the tax part of every purchase you make. They'd be making money off of taxes. If they charge 20% interest, that means that a 17.5% sales tax would be a 3.5% profit for credit card companies for the at least 1/5th (and maybe 1/3rd) of Americans who already don't make more than they spend each year.

[toopers]

60. The system works for everyone.

The rules are the same across the board, except for the taxes levied. And everyone uses the system, whether it is the wealthy person or the poor person. They just use the system and services in different ways. As well, there are convincing arguments on both sides as to who uses the system more.

If you are spending more than you earn on taxable items, then you are obviously spending money on items that you don't need. I personally don't feel I should have to subsidize that spending. Most people decide to go into debt. Rarely is it because they had to go into debt (I assume we are still talking about discretionary spending as oppose to mortgage or autos). Sustenance items (groceries, clothes, primary residence) would not be taxed and there would still be programs in place to make sure that people get what they need.

Also, you are making the assumption that the rich, who are the largest consumers, would all of a sudden become misers and withhold all their wealth from the market place. If this was going to happen, it would already be happening. More than likely, spending by the rich would increase since they would, as you say, be paying less money in taxes in the first place.

I do understand your point on the taxes on taxed debt - which is a good point. I am sure there is a way to exclude tax on certain types of debt. Certainly, new debt could be taxed, but any debt prior to the code being enforced would be excluded. At the very least, the payment of taxes on debt services could be limited to a one time fee.

What this really does is reduces the risk of subsidizing people who really do not need to be subsidized at least on what they spend money on, rewards people for the correct behavior of working to save money and become self sufficient, remove the opportunity for politicians to pander to the constituency, and, for me most important, it punishes the heavy consumers.

[AP]

61. I disagree.

The government passes laws which effect people different ways. Some people win, some people lose. The people who benfit from the rules are the people who make the most money in that system and should be expected to give a little more back.

And I repeat: there's simple math involved too. Wealth is not JUST a f(x) of getting one more dollar. It's a f(x) of how many dollars you already have. The purpose having tax bands is that you get people who have more dollars to pay at a rate which reflects the fact that they already have a lot of dollars. The point is to burden them as roughly as equivalently as someone with few dollars.

I think people who spend 25K and make 20K may be able to cut out some discretionary spending, but it's silly to say they're spending money on things they shouldn't spend money on. OK, so some people don't really understand the math of compound interest, but people generally don't go into debt unless they have really compelling reasons. People spend lots of money educating themselves. They expected a job on the other end of it that would pay off the debt. That's not really happening these days. People spend a lot of money on their cars. Most cities have crappy public transportation, (or crappy schools where there is public transportation) so it's hard to cut that discretionary spending out of your budget. What about health care? That's a real sinkhole for people's earnings. What are you going to do? Die?

Another thing: I didn NOT assume the rich wouldn't spend. (You assumed I said that. But I think it was a knee jerk response, because that's what sales tax propoents alwasy say.) Once again. The rich are rich because they don't spend as much as they earn. Say a person makes 1 million bucks a year. Right now, we generally expect that person to spend about 300,000 in taxes for that income. (In reality, the income tax burden on a person making that kind of money is more like 180,000 because people making that kind of money don't get it from earnings, but from other sources of income that are easy to shelter or taxed at lower rates). Well, to get that person to pay that much in federal sales tax, you have to have them spend 2 million dollars a year -- which they obviously aren't going to do. And the fact is, most rich people don't spend money on discretionary items that have zero asset value, like poor people do.

A rich person buys a watch, they buy a rolex, which then becomes an asset. You could probably sell it in a couple years for a profit which would partially or entirely offset your tax burden. A poor person buys a watch and it's a timex or a casio. That watch is useless in 5 years and you have to buy another one. The poor person doesn't recoup their sales tax. Same with cars. Rich people buy cars that hold their value. Poor people buy cars that lose half their value in the first year.

A person making 25K a year would pay sales tax on items that become worth nothing very quickly. A rich person, even if he or she (borrowed as much as they made) and spent ALL their money in a year might not even spend $15K on items that do not appreciate in value.

You can't exclude taxes on debt. Just the act of buying on credit creats a tax on wealth you never received. You could give people a tax credit for their debt, I guess, but then you would have turned the entire tax code into a subsidy for the profits of credit card companies. You might as well just disolve the government and tell people to deposit half their paychecks into their credit card company bank accounts.

Now, I totally agree that it's important to reward people who save, but that's not what a national sales tax does. It rewards people who are rich. Poor people would never be able to save enough to become rich because the entire tax burden would be shifted down on to them.

[AP]

62. Repeat for emphasis: for a rich person to pay anywhere near enough to

create an equivalent tax burden to what they should be paying today (presuming a 17.5% sales tax) they'd have to SPEND twice as much as they EARN now, and they'd have to spend it on items that not only don't appreciate, but items that depreciated to zero rapidly in order to be in the same boat as a low income earner who doesn't save very much money.

Even if they spend on items that depreciate to 17.5% of purchase price, they could still make earn back their tax bill, effectively ensuring a 0% tax burden, and they could have a negative tax burden if they make sure they sell before the item sinks below 17.5% of its value. How many poor people buy things that are worth even 17.5% of their purchase price within 6 months of buying the item?

Rich people are rich becuause they DON'T spend more than they make, and, becuase rich people are rich, even their discretionary consumption (cars, boats, watches, jewelry, collectibles, housing, etc.) tends to be an investment that holds or increases in value. They'd happily trade a sales tax for a huge break on property and income tax.

[TexasBushwhacker]

64. I don't suggest getting rid of property tax

As the system works now with INCOME tax, the only thing that is taxed are wages and income from investments (either at the personal tax rate or at the capital gains rate). Someone who is very wealthy can afford to invest thier money in tax free municipal bonds which are VERY secure, and I'm not suggesting that go away either. Our cities depend on people buying those bonds.

The poor spend the bulk of their money on basic needs - food and housing. If you don't tax rent, groceries or medicine, that pretty much covers leaving the bare neccesities tax free, doesn't it? In Texas, we even have sales tax holidays for a few days in the summer before the school year begins so that parents can buy school uniforms and back to school clothes tax free.

However, I'm not saying that a national sales tax doesn't have its downside, just that if structured properly, it could generate more taxes paid by the wealthy than the current system. The downside I see is for businesses that sell products or services that are paid for with discretionary income. I wouldn't want a national sales tax if I owned:

A restaurant
A beauty salon
A remodeling business
A car dealership
A boat dealership

A high sales tax isn't going to keep someone who's wealthy from buying a new Mercedes. It may delay someone who is poor from buying a new car when they have a car that's paid for that's running okay. A high sales tax isn't going to keep rich people from eating out at a fancy restaurant, but it may discourage a poor family from taking the kids out for Happy Meals 4 or 5 times a week instead of preparing a home cooked meal that's more nutritious and TAX FREE.

And again, because those who consume the most would pay the most tax, the government would receive tax dollars from the underground economy that they don't receive now.

[AP]

65. Investing money in a muni bond is like paying a tax, which is why it isn't

taxed.

you're giving the government money, which they invest and reap a greater return (in theory) than they pay you back. You're getting your investment back, but the government is getting more.

Reread what I said abour rich people not spending much money on items that depreciate down below 17.5% of their value.

OK, so you don't tax necessities. Rich people will get those same breaks. So what's left that we're going to raise money from?

I really do think there a many things rich people buy that don't appreciate in value (and therefore cover the tax liability on the resale).

And how great will it be for a rich person to make money off of buying appreciating assets. They'll never have a tax burden. They can buy things and then resell them at a profit, cover their tax burden, and since there's no income tax, the profit isn't taxed.

It would be a heaven for rich people. We'd have an economy where rich people buy investment property make money off of it, and use their increasing economic might to buy up more and more of the asset value of the nation, while poor people spend all their money on necessities and don't participate in the economic life of the nation.

And where do we get enough tax revenue to do anything? From the occassional sale fo valuable assets among .05% of the nation?

Also, I don't think a national sales tax hurts sale of luxury items at all. What do you care if your car is 100K or 117.5K if you have 1,000,000 in the bank. All that you care about is that you can sell it for enough to cover (and therfore negate) your tax burden. And if anything is going to hold its value or appreciate, it's a luxury item.

Furthermore, switching from income tax to sales tax is going to dramatically reduce the tax burden for the wealthy. Even a 17.5% national sales tax coudl reduce a defacto effective tax rate of 22% all the way down to 2%. Rich people will have a lot more money to buy luxury items. And, like I said there will be a real drive to buy appreciating assets, because that's the way to reduce your tax burden even more.

It will be people who are forced to buy sales tax items which depreciate in value (or have no value) -- even if services were taxed, many have a value (ie, if you go out to dinner, you can spend a little more time earning money at work).

Do I need to go on???

[TexasBushwhacker]

66. No you needn't go on

We'll just agree to disagree, 'kay?

[trof]

22. Back in the olden days

state income and sales taxes WERE deductible from federal income taxes. Don't remember what administration changed it. Might have been Johnson or Nixon to help pay for the war.

I think this became known as "double taxation". According to some ways of thinking, you were paying taxes on the taxes you paid.

Depending on the sales tax rate in your state, you just took a percentage off of your gross (adjusted gross?) income.

[thedude]

24. why one or the other?

Why does the deduction have to be either state income OR sales tax? This is unfair to those of us who live in states with both types of taxes. If they want to do this, then they should make all state taxes deductable. Then, you won't feel like you are being penalized by living in a state that has both income and sales taxes.

This is being written in the way it is because it is at attempt to benefit just a small number of southern states that make up the Republican base.

[Peregrine]

31. You deduct your state income tax already

and those of you who think those states without income tax are making out like bandits need to relocate to one. In Florida the state taxes on cable, telephone, cell phone, and utilities are twice that of income tax states. I pay more in real estate tax for a house 60% of the value, on 50% of the land than my last house in Maryland (which the repubs have labeled as "tax hell"). Oh when you don't have income tax, the state finds all sorts of ways to get that money from you.

[SoCalDem]

36. oops I duped

:(

[SoCalDem]

37. I hate the fact that your "tax" refund is considered INCOME

on next year's tax forms.. This sucks..because it was already taxed when they withheld it, and the fact that they returned your OWN overpayment, should not make it INCOME..

If they ever wanted a fair tax, they could do it in a heartbeat..

Whatever the "povertyline" is should be the STANDARD exemption for each taxpayer...

If you earn 18,000 , and the "poverty line " is 10K, you should only be liable for taxes on 8K.. and incomes under 10 K should not even PAY income tax..

A family of 4 making 100K, would have exemptions of $72K..

There would be NO need for any other deductions.. it would truly be a fair tax.. everything over 250K would pay at 35% rate...up to say 3 M, and it should be 40% from there on... NO shelters..no phony tax dodges..

[JayS]

38. Say what? A tax refund is not income. Where are you reading...

...this?

[SoCalDem]

40. Every year, we must report our previous year's refund

We live in CA..
and since i use turbo tax, when I enter that amount, our INCOME goes up by the same amount.. :(

[AP]

44. You itemize on your federal return, and you're reporting the state refund

that you got because you deducted more state taxes than you paid.

Right?

[SoCalDem]

46. Nope..

The money refunded was already TAXED..when it appeared on my husband's paycheck.. The fact that too much was withheld, does not make that "extra" ...untaxed.. The amount we owed, was paid....overpaid, and all they did was return to us, money that they taxed, then held for a year..

It's only the REFUND that is required to be reported... not the "tax paid"..

I am talking about state income tax here, not federal..:)

[AP]

54. You might be overpaying your taxes.

I just took a look at this site:

http://www.ftb.ca.gov/forms/03_forms/03_resbktoc.html

Look at "Schedule CA(540) instructions" and read the instructions for line 10:

"California does not tax the state income tax refund you received in 2003."

It looks like CA doesn't tax your refund EVEN IF you itemize your deductions.

I think what has confused you is that you actually have to note your refund in column A, but you put it down again in column B in that schedule and you're able to subtract it from column A.

[AP]

39. I think you're confusing itemized state tax deductions. If you take an ...

...itemized deduction of your state taxes on your federal return and end up getting a refund from the state, you have to declare that refund as income.

If you don't itemize your deductions, this is not an issue.

(And this is fair.)

[napi21]

26. Sounds good in the headline, but you need to think about what

it would actually do for the low to middle income people.

Because the standard deduction is fairly high now, 80% of tax filers don't itemize anymore. Things that have been capped, like only being able to deduct medical expenses in excess of 7% of your adj. gross income, and very low mtg. interest rates, have made it a much better deal for most to just use the standard deduction. Allowing you to deduct the sales tax or state income taxes isn't going to help low to middle income taxpayers at all. They are still going to be better off using the standard deducton.

For upper middle income people, it would give some benefit, but is that really what we're looking for? Yet another break for them!

[NashVegas]

28. "There's Texas, and There's America"

..

[DemoTex]

35. One of the reasons I left Texas was the property tax rate.

I was paying $14,000 a year, $14K!, on my house in the city of Dallas. I now pay less than $2500 on two houses (a mountain house in NC, and a condo in Greenville, SC). Even after state income taxes, I am way ahead of where I was in Texas. Texas wants to shift the entire tax burden to the poor in their GOP-initiated regressive taxes. That is the only way, politically, to lower the property taxes for the wealty.

[pop goes the weasel]

41. That's the experience

of far too many in Texas. AP has stated that property taxes keep propertied wealth in use and changing hands, but I have seen 3 small businesses go under in this town just this past year because of property taxes, thus so much for keeping the property in use. As for changing hands, it changes hands when the property is foreclosed and auctioned off. How often does this happen to the property of the wealthy? I haven't seen it.

[TexasBushwhacker]

53. Well, I hope you aren't near retirement age

because unless the property taxes on your houses is capped when you turn 65, like it is in Texas, your property taxes will go up on those homes until the day you die.

If you were paying $14K in property taxes in Dallas, you must have been slumming it in an $800K home in University Park. Pardon me if I don't break out my violin. The bulk of your property taxes went to the school district you lived in, as is the case in most of Texas. A school district that squeeks by on the funding that they get from the state has crappy schools and teachers living in mobile homes.

I'm so happy for you that you got "ahead" with your TWO homes in the Carolinas.

[HuckleB]

47. Oh brother!

Let's increase the debt even more!

Woo hoo!

[dusty64]

49. More welfare to the "red" states.

This does NOT seem fair at all, why should only rightwing states get these Federal taxbreak.

[thedude]

51. Re: "more welfare to the "red states"

Yes, that was my point. If this change is made, then you will be able to deduct ALL of the state taxes you pay if you live in a state with an income tax OR a state sales tax. However, if your state has both forms of taxes, then you can only deduct whichever one is greater, i.e., you can't deduct all of your taxes.

This is why is is welfare to the red states. People in states that only have a state sales tax can deduct there entire state tax bill, but we "mixed tax" staters cannot.

That is why I think to be most fair, ALL state taxes should be deductable, no matter what form they take.

Putting on my tin foil hat, I can see this as a way to make eliminating income taxes and replacing them with larger, regressive sales taxes appealing to the states, thus shifting the tax burden even more towards the working class and away from the wealthy.

[struggle4progress]

56. An invitation to further fraud on federal tax forms!

[expatriot]

63. this is all part of the corporate agenda to dismantle the public sector

by starving it of tax revenue. this is a war between civil governance and corporate governance. this is a very big issue, an epoch in the great human saga.