Hacker News Reader

Comment by matt_wulfeck | Hacker News Reader

I really believe the best way to combat tax evasion is to make the tax process easier, more efficient, and less burdensome, especially to wealthy earners.

It is insane the amount of work that I put into my taxes each year, only because we have a small business and doing things right versus doing things wrong is a difference in the tens of thousands of dollars. The extraordinary amount of loopholes and special interests means you need experts. And as I've said before here, the current tax system exist in the interest and benefit of large companies, not small companies or individuals.

If we instituted an overnight 9%, 9%, 9% "Simcity Tax" system and eliminated the massive tax loopholes that exist in all levels of the tax code, then I guarantee that money would come pouring back into the United States.

View on HN

No offense to you but that is absolute and utter bullshit. The tax process being exploited has nothing to do with it being inefficient and burdensome. It is in fact that way to obfuscate the external influences that incorporated all the loopholes that very well trained attorneys that only the wealthy can afford are incentivized to take advantage of.

Your 'institute my idea and it will fix everything I promise' idea has basically been why many Presidents have been elected and yet nothing has really improved.

The problem is not simple but the root is; while the wealthy can influence the process of how much they pay in taxes, the system will continue to be in their favor. How do we fix that? Damned if I know.

I'm a write in vote for changing the voting system. One person, one vote, and winner take all got us two parties very fast.

What "loopholes" would you get rid of if you were President and had no donors to contend with?

Avoiding taxes through complicated tax schemes has a cost (actual cost and moral cost). The higher the tax burden, in both absolute terms and complexity, the more appealing the alternative. You can't just pretend that an illegal alternative is not an alternative. It's never going to go away completely, but making taxes less burdensome will certainly bring down the appeal of a tax avoidance scheme.

> moral cost

do you honestly think, not even big corporations but your mom and pop businesses, will put morality over profit if they know they can squeeze more profit?

> moral cost

Trump just shed a tear ...

  How do we fix that? Damned if I know.

Public funding of elections[0].

[0] https://en.wikipedia.org/wiki/Publicly_funded_elections

wait, you are proposing government control of election funding so you can change the government?... hahahahahahahahaha

there are plenty of rich people on all parts of the political spectrum always trying to unseat the current government. That's probably a good thing. The idea that taking away private citizen's influence in order to swing the pendulum in any direction except more deeply entrenching the political incumbents is naive at best.

The only real lasting solution is the decentralization of power. If all it takes to buy the violence of the state is owning a handful of senators, that is a bargain few can resist. If it took thousands of individuals to be under your influence, it gets harder. Make it millions and even the richest oligarchs cannot command absolute loyalty with their measly fortunes.

Of course, they have to be accountable millions, which means you want to try to respect Dunbar's Number in relation to how many individuals any one representative actually represents.

> "There are plenty of rich people on all parts of the political spectrum always trying to unseat the current government."

This is wildly reductive. Your post in general seems to suggest that "rich people" (ill-advised usage, IMO) have equal sway in every corner of politics that could possibly matter to large swaths of voting US citizens. To sit there and defend "private citizen's influence" while shouting down the idea of public funding is _truly_ naive. Even a fool's review of The American Legislative Exchange Council's (ALEC) effect on elections and public policy show that there is disproportionate private influence that needs tending to.

I'd suggest you give http://www.theatlantic.com/politics/archive/2015/02/if-corpo... a read.

Let's just trust the rich people you say, be the grass under which the elephants that fight.

Yes, it's difficult, but the hope is that if we make it so the government we elect is closer to the will of the people, then at least when the government is corrupt, we can vote them out. Sorry, but as far as I can tell, I don't see "plenty of rich people" trying to unseat anyone other than installing their cronies which will do their bidding.

You don't need to explain your goals, I get it, it's obvious. What I'm saying is, you won't achieve them by giving politicians more control over elections, they already have too much control over elections.

"public financing" is snake oil that a particular group of people are selling because it suits them. It will not lead to more democracy.

Pitchforks.

You don't need to be a millionaire to use these tax loopholes. I calculated that it would take $2600 a year to maintain an offshore structure. That includes an offshore LLC and trust in Belize (the best jurisdiction). The Belize trust owns membership position in your Belize LLC, and your Belize LLC has control over the trust. Then you just appoint yourself as manager of the LLC. Once that's done, you can simply open bank accounts or brokerage accounts in the LLC name.

Your ideas are intriguing to me, and I wish to subscribe to your newsletter.

What tax advantage does this provide? I'm curious to learn more. Are we talking about tax avoidance, or tax evasion?

You can set up the structure, but you won't be able to defend it in court without bankrupting yourself when the IRS comes knocking. And that's exactly where the problem lies.

Exactly. It does not matter how clever your structure is if the IRS thinks it is fishy you are going to be in for a world of pain.

Which makes it particularly painful if you're innocent

Of course. I am an Australian living in Australia with no direct US business and the IRS is a pain for me to deal with. I don’t know how US citizens and businesses manage it.

The US IRS? What do they demand of you?

Yes the US IRS with things like W8-BEN-E form when you sell to a US company.

They also make it more of a pain to deal with financial institutions since the institution needs to ensure you are not a US citizen.

This sounds like only the first leg of the scheme. How do you actually get money you earned into these bank accounts? I guess you could have your offshore company charge some bullshit consulting or IP licensing fees and deduct that amount but then that just sounds like plain old tax fraud.

usually its treated as a holding company, it can then buy your current assets at low cost. it could also be a management company that(optionally) manages that holding companies holdings and collects fees. you then use the income to invest in other countries so the income never comes back through your home country. you can work for your company for free, so any services you do for its clients, can pay directly to it.

its not overly complicated as long as you know and understand the rules in each stop along the way and its perfectly legal.

not sure i would call belize the safest place, but any stretch. a common place yes, safest, far from it.

It has actually a lot to do with it. For two main reasons:

1. All tax complications, special exceptions, special deductions, etc. usually meant to benefit some behaviors and/or punish some other behaviors. One can't wonder then that some people use these regulations to reduce their tax load - that's exactly how they are supposed to work! If you put into the law, say, deduction for making a movie, because you want more movies to be made, and then somebody makes a movie with the purpose of lowering the taxes, you got exactly what you wanted. It may be a crappy movie because its sole purpose was to avoid taxes, but that's still how it supposed to work. More you have special regulations, more you have ways to play them to reduce your taxes.

2. Tax scheming is not free. It takes a lot of inconveniences, highly paid specialists and paperwork to achieve. If the cost of compliance is high, it makes sense to scheme, but if compliance is very cheap but scheming is expensive, not a lot of people would bother with scheming. Some, of course, still will, but there is still a reverse proportion between cost of compliance and incentive to scheme.

> The problem is not simple but the root is; while the wealthy can influence the process of how much they pay in taxes, the system will continue to be in their favor.

How is it in their favor exactly? Top quintile has about half of total income in US and pays about 2/3 of overall taxes. That's some unusual definition of favorable treatment.

> How is it in their favor exactly? Top quintile has about half of total income in US and pays about 2/3 of overall taxes. That's some unusual definition of favorable treatment.

Not really. Some, perhaps you, will say 1/2 of overall taxes is more fair, while others will say 3/4 is more fair. It all depends on a combination of one's value system (what's fair) and one's interpretation of how the economic system does or doesn't work.

[EDIT: It's funny getting down-votes for saying something logically valid and consistent. I didn't even take a side.]

The challenge is "loophole" is in the eye of the beholder.

Is the backdoor Roth IRA contribution a loophole? The mortgage deduction? Tax-loss harvesting that carries for 20+ years?

Actually, yes, they are all loopholes. They just are for general consumption and trying to encourage behavior.

You are abusing the meaning of the term "loophole" then. Something explicitly and purposefully added is not a loophole. A loophole is an error or missed corner case that allows someone to legally bypass some portion of the law.

>How do we fix that?

Its really quite simple: Stop taxing income. Start taxing spending.

Income Tax is a heinous enslavement mechanism. Spending-Tax is far, far more fair and just.

Spending tax affects mostly poor as they spend all their income. Rich spend more in absolute terms but still very little compare to overall income.

The point is, if you tax spending and not income, people will do more with less. If you tax income, and not spending, people just do less. Income tax is how poor people are made, and kept poor. Spending tax encourages the poor to become more wealthy by saving - Income tax encourages people to be (and stay poor) by removing the incentive to work.

Income tax is how poor people are made, and kept poor. Spending tax encourages the poor to become more wealthy by saving - Income tax encourages people to be (and stay poor) by removing the incentive to work

People very rarely negotiate down their amount of work in exchange for more leisure. Especially in America, land of 2-weeks-a-year holidays. Very few people have the realistic option of working more for more income but are put off by the tax system.

Saving isn't really the route to wealth in a land of near-zero interest rates, either. It's just deferred consumption. Leveraged property speculation is the great route to wealth.

The one exception is the decision of whether one parent should stay at home or the labour of childcare should be outsourced, which is quite dependent on the tax levels involved.

>People very rarely negotiate down their amount of work in exchange for more leisure.

Yes, they do. Oh, wait:

>Especially in America

Right, this is a strictly American discussion.

This is not the case in Europe! People do quite frequently negotiate for less work hours, so that they don't enter that 'sour spot' where their monthly income is too high, and they end up working more for less reward, so they scale back. 20-30 hr/weeks are quite common - because the value of working longer isn't as high (40-hour work weeks means you're working half the time for the state..)

Depends. There are a lot of people in the EU working part-time because full-time hours aren't available. http://ec.europa.eu/eurostat/documents/2995521/6800423/3-270...

Again, we have to distinguish why people are working part time: is it because full time work isn't available, or full time childcare isn't available, or two partners working parttime to split childcare, or is it genuinely a free choice in no other circumstances? And is it part-time low-wage work in the first place? Salaried employees find it a lot harder to negotiate the short week, although it's not impossible.

How many people are doing <37.5 hour weeks that would actually be in the top tax bracket if they worked the full week? It can't be a large group because there aren't that many people in the top bracket to start with.

I think in the UK a part-time worker on minimum wage might pay no income tax at all.

> And as I've said before here, the current tax system exist in the interest and benefit of large companies, not small companies or individuals

That is contradicted by the huge number of middle-class tax loopholes out there for, e.g. mortgage interest, small business credits, etc. Several middle-class tax expenditures cost $100 billion or more: http://taxfoundation.org/blog/12-largest-individual-tax-expe.... Health insurance deduction: $212 billion; retirement savings deduction $176 billion; mortgage interest deduction: $101 billion.

Tax evasion using overseas havens is estimated to cost $100 billion per year: http://freebeacon.com/issues/report-tax-evasion-avoidance-co.... Legal corporate tax avoidance costs about the same: http://www.theatlantic.com/business/archive/2016/04/corporat....

> If we instituted an overnight 9%, 9%, 9% "Simcity Tax" system

Sophisticated tax evasion has little to do with claiming various deductions and credits. It is a mechanical and straightforward process to run through those. The real complexity is intrinsic: what's an appropriate depreciation schedule for this asset? Does appreciation of this options contract result in ordinary income or capital gains? Is this payment between related companies legitimate, or a way to shift profits? You can't get rid of these basic distinctions, but at the same time those are the bread-and-butter of sophisticated tax planning.

There is a way to limit tax evasion from companies: stop taxing corporations.

Yeah, go further, stop all taxation and be rid of the problem of evasion altogether.

How do you simultaneously stop all taxation and prevent someone from breaking the flourist's kneecaps if she doesn't pay protection money?

In the theoretical anarchist paradise, the person threatening the florist (I think is what you meant) breaks all the non-violence contracts with the rest of society by doing so, and if the florist (or witnesses) can prove the aggression in contract courts agreed upon in all participants contracts, then the aggressor is either fined to rejoin or outright removed from participating in the economy.

Of course, its theoretical, and only works so long as the economy of good actors and voluntary participants is sufficiently larger than the economy of violent aggressors to prevent them from rising to power. If the violent aggressors can accumulate enough capital and power, they influence the rest of the economy and can rapidly usurp it because they aren't working by the same ethics as everyone else.

Honestly, i've heard the anarchist argument plenty of times now, and the society being described never fails to seem like a state with the serial numbers filed off to me.

It seems you've essentially described "laws" being interpreted by "courts" and enforced by "police." You're just calling the laws contracts, the courts contract courts and the police... hired mercenaries? Who is it forcing people to pay fines, or to exile themselves from society?

At scale it seems as if a marketplace of violence and a monopoly on violence look like the same thing to most particpants.

Thats kind of the point, isn't it? All the pros of states without the cons. It should look familiar.

My point is that, to me, you would still wind up the cons, the only difference being they would be governed by different incentives. A man with a gun is still a man with a gun, and a jail is still a jail.

Going further, this is what society currently looks like in the US. There are a variety of organizations offering security and they have all entered agreements to cooperate, effectively forming a monopoly. Occasionally a new one arises (Dead Rabbits, Cosa Nostra, Latin Kings, etc), but it can only operate on the fringes and is ultimately muscled-out by the Federal Conglomerate.

It was sarcasm,

and start taxing land: land value tax.

Let's see them hide that!

Note that you need zoning for this to be fair, as otherwise farmers of large amounts of marginal land will get horribly screwed.

I've never seen anyone propose a flat land value tax, from it's inception through 150 years later. Land value tax is about taxing the value of the land, and land value varies with location. That is the entire point of it.

There is an argument to be made for not having corporate tax. Corporations are just collections of people, owners and employees. As long as the income goes from the corporation to those people, it will be taxed as individual income. Now I grant you that individuals will use techniques to try and avoid having that income attributed to themselves, so you'd need to tighten that up. But a corporation paying tax, then paying employees and owners, who then pay tax, is double taxation. Indeed some countries have taxation credits that flow through to owners when they are paid dividends, eliminating that double taxation.

Flat taxes sure woud put a lot of tax planners out in the street. Hat wouldn't necessarily be a bad thing overall.

>> There is an argument to be made for not having corporate tax. Corporations are just collections of people, owners and employees.

Forming a corporation allows me to gain benefits that would be difficult or impossible to obtain as an ordinary person. (e.g. limited liability, special tax treatment) It's not unreasonable that a corporation's owners pay additional taxes.

Both limited liability and special tax treatment (an ironic benefit in this case) are available to corporate forms that are not subject to the corporate tax at all, so this is a hollow justification.

There is also an argument against shifting tax burden from corporations onto shareholders. In a way, it's easier to hold corporations accountable than individuals. Corporations may go to great lengths to legally avoid taxes, but few corporate officers will put their asses on the line and commit illegal tax evasion just to save their shareholders money.

Also, corporate taxation isn't "double taxation" any more than it's double taxation for me to pay my nanny with post-tax income, which is then taxed again.

I have also heard that this is a reason why childcare is so expensive relative to a primary caregiver staying at home. I'm trying to remember the details - it was something like:

- When you purchase child care, you pay sales tax

- The childcare company pays payroll tax on salary paid to its employees.

- The childcare employees pay income tax on their salary

- The corporation also pays corporate tax

- Company owner pays income tax on any income they take, and/or capital gains tax

Every dollar you spend purchasing childcare from others is taxed multiple times before it reaches actual stakeholders who deliver the service. Since each of the actors involved seeks a certain after-tax benefit (e.g. company owner needs profit for the venture to be worthwhile; childcare worker needs sufficient salary), this means that all of the taxes must be part of the price for childcare that's charged to customers. Thus childcare is expensive relative to staying home and providing it yourself, in large part due to the multiple layers of taxation.

Someone who is familiar with the details better than I could estimate what percentage of each dollar spent on childcare goes to the government as tax - when I was reading about this, I think the number I saw was around 60-75%. When you think of it in these terms, feels extreme how much of the economic value of these transactions is taxed and captured by the government, and therefore driving up the costs for everyone.

This applies to many things, including deciding to mow your own lawn instead of outsourcing it. Most people think that their time is worth x, and the yard-guy costs y, and if x>y, they should outsource the mowing. It's not as simple as that, as most people cannot earn X on demand - their total hours are capped by law or arrangement. Additionally, people mistakenly use their gross over net pay to calculate it, and then discount the time needed to arrange, inspect and pay.

The ideal childcare arrangement is bartered, such as an agreement between two families to cover childcare with each other. This takes into consideration attachment of the child to the caregivers.

However, it is more efficient economically to have as many children under a single caregiver, as that frees other adults to create value for society (work with me and imagine every job adds value).

Taxation on that arrangement is just the government capturing some of the value created by it becoming more efficient. I don't necessarily have a problem with that, but the childcare company paying tax, paying payroll tax and then the individual employees paying income tax and the owners paying income tax is taxing the activity too many times.

While I agree that the tax system should be simpler (which is a totally bipartisan opinion, imo), I don't think making the tax code simpler would ensure that the ultra-rich don't hide their assets in overseas tax havens. The reason they are hiding their assets there is usually due to the ultra-low tax rates that these countries have (or thugs like Putin, Xi Jinping, pretty much any leader from the middle east or africa, ect. who use it to hide their blood money).

I don't really think that having a simpler tax system is a bipartisan opinion at this point. I think we can see that Democrats want to raise taxes but go through various contortions so that these increases do not fall on "the middle class." You saw this in the various tax increases that were part of ObamaCare. You're also seeing it now with various proposals for increasing social security taxes on high earners (the donut hole).

We've also seen lots of simplifying proposals from Republican politicians. In particular there is fairly strong support for eliminating the deductibility of state & local taxes (one of the more complex aspects of the individual income tax code).

Isn't removing the social security tax limit a simplification rather than a complication of that code?

Most proposals don't remove the limit. They would tax income from 0 to X, not tax it from X to Y, and then tax it again for income over Y. Hence you get a "donut hole" of untaxed income in the middle. I can think of no economic justification for such a proposal, though it's clear why it would be politically palatable. But that's exactly where complexity comes from: political compromises.

In what sense is the deductibility of state & local taxes a complex aspect of the individual income tax code? I did that recently, and it was extremely simple for me to fill out. I paid some state/local taxes, and then I entered that number on my federal income tax return as a deduction. Now the treatment of investment income, that's complex. Even with my pretty modest investments it was a whole bunch of pages to fill out (more than 1/2 the total pages of the return), with a ton of special cases I had to read instructions for. Some of the more left-wing Democrats have proposed a simplifying measure that afaik no Republican has signed on to (or even most Democrats, for that matter): just treat all income the same for federal tax purposes, and delete the thousands of pages of the tax code that specify complex special treatment for dividend, qualifying dividend, and capital-gains income.

I only see the complexity when you work across multiple states, or work in one and live in the other, and both try to claim all of your income. The real problem with the deductibility is that it causes the people in lower tax localities to subsidize the higher tax localities in terms of the federal budget. People in California are paying federal income taxes on up to 13% less of their income than people in Washington or Texas.

Remember that the federal tax deductibility isn't only on state income tax, but all state taxes. I live in TX, and many of us deduct our very high state property taxes. So yes, there's there's an implicit subsidy, but it's fairly complex how it works out, depending not only on state, but income levels within the state. Generally, TX works out better for the very wealthy, and not necessarily great for lower-to-mid-income homeowners, because the latter tend to have higher ratios of property value to income, where TX's incredibly high property taxes hit them harder. For example, if you make $50k and live in a $150k house, your overall state taxes are higher in TX than in CA. But if you make $50m, you probably don't live in a $150m house; if you lived in say, a $5m house while making $50m, your TX taxes would be much lower than your CA taxes.

In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.

My point was that people in those states with lower total taxes are paying more in federal tax. Deductibility on property taxes doesn't help renters out so much- and the average payment in TX is less than $4000. In addition, state and local sales taxes are not deductible.

So, despite all of your points, Texans on average are getting 0.86% off of their federal tax basis from state and local tax deductions, while New Yorkers are getting 6.16% and Californians get 5.14% off. While the New Yorkers and Californians may be paying more total tax, Texans are paying more for the Federal Income tax.

There is simplifying the tax code, and there is eliminating progressive taxation/introducing regressive taxation (like your Herman Cain sales tax there). The former is generally agreeable, the latter implies a set of beliefs about how government ought to work which I believe need to be fought tooth and nail.

This rhetoric is disingenuous, because flattening taxation isn't really about simplifying it, it's about shifting the burden further towards the poor.

I am fully with you. I have no interest for business on the administrative side, never had. But affording a book keeper AND paying taxes would be not possible right now.

So i mostly avoid to pay taxes, my next step is to setup a offshore company to legally avoid them. I see why that is bad, but i am lazy and hell no will i create myself additional work when it is avoidable.

> I really believe the best way to combat tax evasion is to make the tax process easier, more efficient, and less burdensome, especially to wealthy earners.

No. Most wealthy people don't evade, they avoid. Loopholes are great for wealthy people, and they want things to be as complex as possible because they can afford lawyers and accountants that cost a fraction of the value they deliver. "Normal" people can't, so they'll pay the higher rate, which often leads to even more tax breaks / loopholes for the wealthy.

No. Most wealthy people don't evade, they avoid.

To be technically correct, it really is evasion when the purpose is to violate the spirit of the law. Which is, very very simple: wealthier people paying more taxes is supposed to have the net effect of benefiting more people. This makes sense and is a good idea because in a business's quest to "maximize shareholder value" it tends to use more than its share of resources at the expense of many who are not shareholders.

Think: more WalMart 18-wheeler delivery trucks driving on roads wears down roads more quickly, and creates more pollution for everybody to breathe, regardless of whether they are a WalMart shareholder.

The original tax code was designed tax business only -- individuals didn't have to pay anything for income under $4K (adjusted for inflation this is about $100K today). source: http://books.google.com/books?id=ogUNAAAAYAAJ&printsec=front...

Instead, the evolving nature of the business loopholes (driven primarily by what boils down to real estate exploitation) means that wealthy people still pay a "tax" (that is, they don't technically "avoid" it), but it gets distributed to fewer people -- the lawyers and accountants that cost a fraction of the value they deliver you cited being the first in line.

Now their incentives are to maximize the theft from the people, because in doing so they get a cut of the wealthy client's wealth. That's probably a crude way of putting it, but it's the basic idea. A few people catch a glimpse of this right out of school (me, ~11 years ago) and make a conscious choice to not sign off or embrace the ethics of those kinds of people or companies (and to be fair, most of them didn't want me either). There were quite a few really rough years.

Anyway. Digression aside, the IRS is pretty much the only entity that has the explicit purpose of discovering, investigating, and recovering that theft from the people. The tax system is not bad and the IRS isn't either.. it's the matter of how to best spend the recovered funds that probably needs re-hauled.

I agree that the tax code needs to be fixed (or a total overhaul more like it.)

But cheaters are going to cheat, thieves are going to thieve. If it was truly a "postcard" taxation system (your entire tax forms could fit on a postcard), people will still feel the need to hide money from Uncle Sam, business partners, spouses, etc. For example, look at every other law on the books. They're broken all of the time. (See: the US Financial Industry)

>make the tax process easier, more efficient, and less burdensome

One factor that makes the tax code so complicated is that incentives are often placed in the tax code instead of passing legislation.

Say you want to promote the cultivation of industrial hemp (yeah right) you could pass a law incentivizing it or put some tax credit into the tax code.

It's as if the tax code has 70 years of technical debt in it from all these little tweaks and fixes that have been added to it.

At some point in the 70s taxation flipped into a political/Ideaology issue. "Simplifying" the tax code is code for lowering taxes for influential people.

Your taxes and burdens are high because leeches on society pay nothing. Why do you defend them?

I don't understand. What leeches are you referring to?

When have taxes ever not been a political issue?

> then I guarantee that money would come pouring back into the United States.

To top it all off, you promise something that you can't possibly promise. Well done.

Buckshit. You know why? Taxes for the rich are much lower than they were 40 years ago. Yet they still take as much , maybe even more, money out of the country.

Reply on news.ycombinator.com