According to my professor, tax laws are written by the rich, for the rich. Poor and middle class pay to much taxes, while rich and big corps don't pay enough.
This is an incrediably simplistic statement for a serious student of tax theory, I mean your prof.
On a very superficial level, yes tax law is written by the rich. Tax law is written & passed by Congress, most of whom are rich, so umm yeah.
To say that they are written for the rich? Does this imply that Congress writes tax law to benefit the rich? If so, can't agree. Tax laws are writen for the benefit of the government and polititions. Much of what is in tax law is insert by Congress in an overt attempt to influence behavior, some intended for benefit of the country, others for political benefit to members of Congress.
It would be politically stupid to write & pass tax law "for the rich" as your prof puts it (or you). There simply aren't enough rich people "votes" to make this plausible. Pursuing a tax policy that alienates poor voters in order to garner rich peoples' votes would be political suicide and therefore is not done, period.
As regards corporations: Most students of tax theory do not believe corporations should be subject to tax for at least two reasons:
1. It has a regressive tax effect. Prior to the reduction in dividend rates, a regresive effect resulted from the double taxation of traditional ("C" corps) corporations. To first tax a corps profits at 35%, then pass along the remaining profit to shareholders averages the combined (corp + shareholder) effective tax rate resulting in a detriment to poorer taxpayer/shareholder. If the corp is taxed at 35%, then the remianing dividend goes to a taxpayer/shareholder in the 10% bracket (s)he is really paying a rate of 22.5%. The result is reversed for a higher bracket (rich) taxpayer/shareholder. But again, for the time being the effect has been all but eliminated by the new lower tax rates on dividends.
2. Encourages waste. If there were tax benefit (via deduction) would the shareholders tolerate outragiously high compensation for officiers? Or frivolous expenditures for lavish "parties" and things like corporate jets? Most think not.
3. A good third reason would be cost of tax compliance. Corps spend a ton of money to comply with tax laws and the various filings. The government (IRS) also spends a lot of $ on this too. All of which is unecessary and therefore wastefull.
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Originally posted by: Bowfinger
It also ignores the effect of the Social Security contribution which is flat for everyone, even poor people ... until ~$93K, at which point it stops entirely. The guy who "earns" $100 million pays, at best, exactly as many dollars as the guy making $100K. In other words, the rich guy pays at one-thousandth the rate of the upper-middle class guy.
Not quite. The Medicare portion of SS has had no ceiling for some time now. I.e., The guy earning $100M would continue to pay the (approx) 3% of the medicare part on his entire earnings. (Note: the total employer & employee rate is about 3%., so he may just pay about 1.5% on the entire $100M if he was an employee, the employer would also pay 1.5% on his earnings).
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Originally posted by: blackangst1
The point is, investments in general are taxed twice. Once as income earned, and again the profit resulting from investment. And lets not even get into estate taxes. That, my friend, is where the rich get ass raped.
No taxation twice. Once the income earned is taxed you receive what we in the tax profession call "basis". The concept of "basis" is considered the most important in all of tax theory.
After you invest that "aready taxed" income you can liquidate your investment and the "already taxed" income is received by you free of tax. The only possible arguement against this is when inflation is injected into the equation.
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Originally posted by: blackangst1
Let me expand what I said. Depending on the tax shelter invested in, the money is taxed twice. I'll break it down for middle class to understand: If you withdraw money form your 401k or IRA for example, you are charged a "penalty", which is, in fact, a tax. Thats just one example.
No. The money you put into a 401(k) has never been taxed, it is only taxed once upon withdrawl.
Same for IRA. While it is possible to put money into an IRA that was already taxed (i.e., you couldn't take a deduction for your IRA contribution), and if that happens you are allowed to withdrawl that money tax-free. No double taxation here.
The penalty for early withdrawl (if that is what you are referring to) is for two reasons:
1. The government has a strong desire to encourage poeple to invest suffieciently for their retirement. It does not want people drawing down their retirement accounts prematurely (i.e., before retirement).
2. While the money is in a 401(k) or IRA type account the investment earnings remain untaxed, thereby generating even greater investment return. The 10% penalty is intended to remove that benefit when funds are withdrawn and used for non-retirement purposes (other than those authorized by statute)
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Finally, I believe it worthwhile in pointing out that fed & state income taxes account for merely half of the tax we pay according to our (CPA) national professional organizations. The other half is hidden in the cost of products and is in the form of excise and other taxes we pay without knowing it. The government prefers it that way - voters don't complain about things they don't see or are unaware of.
Fern