March 15, 2011

The Tax List

Justin Katz

Perusing the list of items that Governor Chafee wishes to move from tax-exempt to taxable, I came across this peculiar item, sure to help grow the economy:

Employment agency services

Sure, employment agencies are arguably unnecessary middlemen in employment chain, but they're a halfway step for businesses looking to ease into hiring. And they're now going to have to add 6% to the cost of the transaction or just absorb it.

I also like this item, on the 1% list:

Transfers or sales made to immediate family members

Don't forget to file the appropriate form Ma and Pa! Uncle Linc is watching.

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How about my daughter's allowance? Please say it is taxed. I keep trying to sway her to the conservative side and my wife, the bleeding-heart liberal is always pulling her that way.

If I could tell her that this looney lefty Gov wants to tax her 50 cent a week allowance, my little five year old will be an instant Alex P Keaton.

Posted by: Patrick at March 15, 2011 10:22 AM

So when I gift my old car to my son, I have to give the state 1% of the book value, even though no money changes hands, AND IT'S A FREAKIN' GIFT?

Let's see, that $7,500 times 1% comes to $75.00 I have to pay the state if I plan to GIVE my son my old car!

Are you effin kidding me!!!!!

Posted by: John at March 15, 2011 10:32 AM

"So when I gift my old car to my son, I have to give the state 1% of the book value, even though no money changes hands, AND IT'S A FREAKIN' GIFT?"

I actually think this is a good idea... Maybe I went to school with too many kids whose parents had 'gifted' them Porsche Cayenne SUVs.

Transfers of wealth and property should be taxed. Maybe it's wise to establish a floor to the amounts where taxes kick-in.

How is giving your sin a car any different than selling it to him? If you sold it, you'd have to pay taxes, no?

Posted by: mangeek at March 15, 2011 11:30 AM

"How is giving your son a car any different than selling it to him? If you sold it, you'd have to pay taxes, no?"

When you sell something, you actually have money in hand to pay the taxes with. When you gift something, you have no money with which to pay the tax.

Posted by: Patrick at March 15, 2011 11:34 AM

Even the IRS exempts the first $13,000 of value from gift taxes.

Posted by: John at March 15, 2011 12:24 PM

"Transfers of wealth and property should be taxed."

Why? The taxes were paid on this money when it was earned. Why should big brother have his hand in it everytime I open my wallet? Why can't I make and save money and give it to whomever I please without big brother taking more of it?

Please do tell you daughter that her allowance is now taxable, as are her birthday and holiday gifts, that you just paid sales tax on at the mall. We need more alex keatons.

Posted by: riborn at March 15, 2011 12:55 PM

Patrick writes:
"How about my daughter's allowance? Please say it is taxed."

Why not file a return showing that?

You might get some national news, like the $.01 real estate tax bill that Attleboro, MA sent out last year.

Posted by: Warrington Faust at March 15, 2011 1:32 PM

Until we get a Wisconsin style governor and assembly, things will only continue to deteriorate here.

Posted by: Bob at March 15, 2011 1:52 PM

OH CRAP! What about Christmas! First you pay 6% on the gift and then you have to pay 1% more when you give the gift to your wife or child!

That's 7%. No savings there.

Posted by: John at March 15, 2011 2:06 PM

Obviously, this type of thing is going to have a floor where it starts being taxed, right? This shouldn't be for allowances, gifted junk cars, or small transfers.

I can totally understand taxing transfers some boomer parents are making to their kids, though. There are folks in their thirties out there not working because Mom and Dad's $1,500 a month 'allowance' keeps rolling in; it's enough to share a dingy room with friends, wear tight pants, and drink PBR.

Posted by: mangeek at March 15, 2011 3:37 PM

"The taxes were paid on this money when it was earned. Why should big brother have his hand in it everytime I open my wallet?"

Thank you!!! Why, indeed??

Posted by: Monique at March 15, 2011 7:09 PM

"OH CRAP! What about Christmas!"

John, for heavens sake. Don't give them ideas!!

Posted by: Monique at March 15, 2011 7:25 PM

"The taxes were paid on this money when it was earned. Why should big brother have his hand in it everytime I open my wallet?"

The double-taxation argument is just a total logical failure. Every 'dollar' transfers many times a year. Do you suppose we tax each dollar once when it leaves the Mint and never tax it again?

When my boss pays me, I get money, and it gets taxed. When I pay that dollar to a guy to paint my house, it also gets taxed. When he pays for a pack of gum, that dollar ends up paying for a retail clerk, who gets taxed.

If you send your kid $15K a year so they can pay their rent while they're unemployed, that's -income- to them, and should be taxed as such. Same for when you die and hand-off the $1M of value in your 401k.

Listen, I'm a fiscal conservative to the point of being yelled-out of various other websites for being too conservative, but this concept that money should be taxed only once is just a total misunderstanding of how economies and taxes actually work.

Posted by: mangeek at March 15, 2011 9:22 PM


You should be more circumspect before breaking out the absolute put-downs like "total logical failure." The argument with which you follow the declaration doesn't support your claim to insight.

When you get paid via the income tax, that's one method of taxation. When you pay the painter, he gets taxed by the same method. When he buys the gum, the clerk gets taxed by the same method again. BUT, now we throw in the sales tax. You're paying on the same dollar twice.

Now consider the service tax idea. Suppose you must pay a service tax to your painter. You've already paid your sales tax, indirectly, on the paint and materials that he uses. But now, the government is going to tax the dollar that you pay him as you pay it, but then again as he receives it. And there's no item involved in offering a service, so in effect, the government is taxing the activity by which he makes his income prior to taxing him for the income that he makes via that activity.

Come to think of it, that store clerk is ultimately offering a service. Perhaps the government should tax the gum and then tax the act of selling the gum... after having taxed the painter on the same dollar once for working and once for earning... and then the clerk could pay taxes again on his portion of that dollar as income.

Sure the "it" of the dollar gets taxed upon changing hands, in most cases, but the real question is "whom?"

And then, what's the rationale for taxing a dollar given to offspring? Arguably, the government sets the conditions that makes commerce possible, so the sales tax is the fee that the government charges for maintaining a monetary system and some infrastructure, but mostly political stability. Maybe you could argue that the same applies to the income tax --- the government facilitates the environment in which you conduct commerce. But it would surely be a stretch to suggest a government role in the relationship that leads a father to subsidize his son's life style beyond whatever it did to allow the earning of the money in the first place.

Posted by: Justin Katz at March 15, 2011 10:16 PM

Hey, how about this:

The government already taxes your company for paying you (payroll tax), then taxes you for earning the money. Maybe they could tax the transfer into your bank account then tax the instance of your writing a check or withdrawing cash or swiping a card then tax the item that you're buying and the service of its being sold then the income of the company that sold it then the payroll of its employees...

Posted by: Justin Katz at March 15, 2011 10:20 PM

"OH CRAP! What about Christmas!"

I'm sure he'll exempt ramadan and "kwanza".

Posted by: Douglas Farnum at March 15, 2011 10:38 PM

Justin, I agree that what you're outlining and what Chafee is proposing are big problems in the idea of broadening the tax.

I can understand taxing both income and sales of goods. Taxing sales of services is basically kneecapping growth in industries we desperately need to replace manufacturing.

Also, the IRS rules on transfers/gifts make sense. I would lower the cap a bit, just because I think it's a bit absurd to give someone 1/3rd of the annual per-capita income and not have it taxed as income.

I'd much rather simplify the tax code. Sure, tax goods crossing over the counter (all of it, just to keep it simple), and tax income (in a way that favors the middle three quintiles the most). Taxing services when the money is basically all going to be taxed again as income right away? That's silly, and it will actually inhibit me from thousands of dollars of economic activity that I do regularly (after-hours freelancing).

This brings us to an interesting place... Rhode Island wouldn't benefit much from dropping the sales tax to zero, and raising the income tax to make up for it would make this a horrible place to live. Eliminating the income tax and relying on sales tax alone would nuke our economy, there wouldn't be single store open in the state after a while. We need to find a healthy balance that brings the books back into the black, while simultaneously working to make 'black' easier to get to.

Posted by: mangeek at March 15, 2011 11:04 PM

You're no fiscal conservative. You may advocate small government but with the reality of today's government tax and spend philosophy, your tax position is contradictory to your alleged conservative position. You are promoting gluttony. You want the taxpayer to fork over whatever the government feels they are entitled.

Posted by: Max Diesel at March 15, 2011 11:07 PM

I think it's fiscally conservative to want to shrink government expenditures to do it, and then get the budget back in the black, even cut some services to do it. I'm young, so I won't accept that it's OK to keep taxes low by borrowing against my future, where we end up paying 40% more in interest. It seems totally reasonable to me that the overall tax levy might have to increase in order to catch-up to years of poor administration and empty promises.

As a fiscal conservative in my own life, I know that sometimes you have to cut your operating costs and go without nice things in order to pay back, say, a credit card or a car payment, after which you see greatly reduced long-term costs.

Posted by: mangeek at March 16, 2011 8:42 AM
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