Notes

accelerated depreciation: Schedule that spreads depreciation over fewer years than normal to generate larger tax reductions.
ex-
Businesses use accelerated depreciation to decrease their amount of income when determining their federal taxes.




investment tax credit: An investment tax credit is part of the Tax reform Act of 1981, it resulted in a reduction in business taxes that are tied to investment in new plants and equipment.

ex- The intent of the investment tax credit was to grow the economy through increased private expenditures.



surcharge: A surcharge is an additional tax or charge added to other charges already in place.


ex- Some states, such as New Jersey, will access a surcharge to drivers who exceed a set number of points or who have a DUI conviction.



alternative minimum tax: Personal income tax rate that applied to cases where taxes would otherwise fall below a certain level

ex- the alternative minimum tax is a tax rate that is used when a person's income taxes fall below their expected level due to many deductions that reduce that income





capital gains: Profits from the sale of an assets held for 12 months.

ex- the whole point of investing is to make capital gains: purchases at a lower price that are sold at a higher price.




value-added tax (VAT): The value-added tax is a tax on the value added at every state of the production process.


ex- a value-added tax (VAT) is generally passed along to the consumer through higher prices for a product



flat tax: Proportional tax on individual income after a specified threshold has been reached

ex- the flat tax is uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits


TEACHER: Today we will be discussing current tax issues. In order to do this, we will look at the following objectives throughout today's lesson. Our first objective is to be able to describe the major tax reform since 1980. Our next objective is to be able to examine the advantages and disadvantages of the value-added tax. We will then explain the features of flat tax, and
00:00:22 finally, discuss why future tax reforms will occur. The first thing we're going to look at is tax reform and the different tax reforms that we've had since 1980. We saw the tax reform in 1981. In 1981, President Ronald Reagan was the President of the United States. And President Reagan believed that high taxes were the main problem, or the main stumbling block, to economic growth.
00:00:49 And so we see tax reform start to occur. The argument that is out there is that most of the tax reforms that we see, that have been passed in the past 20 to 30 years favor the wealthy or the well-to-do or the rich, rather than favoring the middle class, the working class, or the poor. The first thing we're going to look at when we're talking about the tax reform in 1981, is we're going to see that it
00:01:14 was called the Economic Recovery Tax Act of 1981. And what it did was it substantially reduced the taxes for not only individuals, but for businesses as well. We also saw that businesses enjoyed tax relief through what is known as accelerated depreciation. Accelerated depreciation is larger than normal depreciation charges which allowed firms to reduce
00:01:39 federal income tax payments. We also saw through the Tax Act of 1981 what was known as investment tax credit. Investment tax credit is a reduction in business taxes that are tied to investment in new plants and equipment. The next thing we're going to look at are tax reform in 1986 and 1993. In 1986, we saw that Congress passed sweeping tax reform.
00:02:08 And again, the argument out there is that it's helping the well-to-do or the wealthy, rather than helping the poor. And we see that it reduces what is known as surcharge. And surcharge-- this is your vocabulary word, so you're familiar with it-- is an additional tax above and beyond the base rate. What we also see is we see what is known as an alternative minimum tax.
00:02:29 An alternative minimum tax is personal income rate that applies whenever the amount of taxes paid falls below some designated level. With the 1993 tax reform, what we see is it's known as the Omnibus Budget Reconciliation Act of 1993. Most of the tax acts will end in the year in which they were passed. So just keep that in mind--
00:02:53 a lot of names, a lot of dates. But just keep it in mind as you're studying, as you're reading, and as you're trying to remember this for tests and quizzes. Now the Omnibus Budget Reconciliation Act-- man, that's a mouthful. That act in 1993, what it did was it was really created more by the need for the government to be able to balance its
00:03:16 budget, than to overhaul taxes or tax reform. The next thing we're going to look at is tax reform in 1997. Before we can address what that does, I want to go over a vocabulary term, just make sure we're both on the same page. You understand what it means. And that's the term of capital gains. Capital gains is the profits from the sale of an asset that
00:03:40 was held for 12 months or more. And capital gains, again it's argued that with this tax reform in 1997 and with changing the taxes on capital gains, what you're actually doing, what the reform is doing, what Congress is doing, is it's benefiting well-to-do or the wealthy, and not benefiting the working class or the poor. And so what we see happen is in 1997, the tax on capital
00:04:04 gains was reduced from 28% down to 20%. We also see another tax relief in the text reform of 1997. And that was on death taxes. Again, think about it. You're taxed all the time. So even when a person dies, there's still taxes. The government is still there to collect their money. And so somebody has to pay for those taxes.
00:04:26 So it's the people who are in that person's or individual's family that are then left with death taxes. or what is known as inheritance tax. And so we see that the reform helps change that so that the tax rate is a little bit lower. But again, the argument is out there that that's more beneficial to the wealthy, rather than to the working class or to the poor.
00:04:49 And then what we see is we see a tax reform in 2001. 2001 we see that President Bush-- and this is President Bush Jr, or President George W Bush, not the President Bush that we had in the 1990s. But in the 2000s, we have his son. And that President Bush goes ahead and he backs a tax reduction in 2001. And what it did was it was a $1.35 billion tax cut over a
00:05:21 10 year period. And then, tax reform in 2003, faced with slow economic recovery from the 2001 recession, we see that President Bush-- again, President George W Bush-- and Congress decide to accelerate many of the 2001 tax reforms. Now we have the concept--
00:05:42 or we get to our objective of knowing and being able to understand the value-added tax. Value-added tax, or VAT-- again, it's some more letters you have to learn and remember-- is tax placed on the value that manufacturers add at each stage of production. So when you're creating something, you create
00:06:05 something in different stages. So if you're building a table, you don't just, poof, you have a table. No. You have lumber that goes into the table. You have nails that go into the table. When you're producing it, you have to first cut the lumber. You have to cut them into a certain size.
00:06:21 You have to cut out the flat top for the table. You have to cut out the table legs. You then need equipment, or you need products that are going to put that table together. So you need someone who's going to go ahead and hammer the legs into the table. You're going to need nails. And so what the value-added tax says is that at each
00:06:43 stage, you're going to tax. The concept of value-added tax-- and just to keep this in mind, currently the United States doesn't have value-added taxes. It's widespread through Europe. It's something that's being debated. Oh, should the United States turn to this? Should we not turn to this?
00:07:02 And so the overall concept again is it just that you're going to tax each stage of production. So you will tax cutting the lumber. You will tax sanding down the table top. You would tax putting the legs on the table. You would tax-- I don't know. What else do you do with a table?
00:07:25 You put some type of protective coat over it. You would tax that. So you'd tax each stage of the production rather than waiting and just taxing the final product. That's the concept of value-added tax. The advantages of value-added tax, what the Europeans will cite, what economists will cite that support value-added tax, is that it's hard to avoid this tax.
00:07:48 You can't get around not paying it. It's spread out. So it's spread out through the different stages. And it's easy to collect. So there's advantages. There's benefits to it. But like anything in society, there's disadvantages. So anytime you can cite advantages for something, you
00:08:06 can cite disadvantages for it as well. And the disadvantages we see-- and the biggest disadvantage that you hear argued-- is that it's a tax that's invisible to consumers. Now you're thinking, OK, it's invisible to consumers. I don't know I'm paying for that. Is that that bad? Well, yes it is.
00:08:23 Because the problem is, it's hard for consumers to be vigilant about higher taxes, or having to pay more to the government, when they can't see it, when they're unaware of it. So that's a huge disadvantage that is cited when the discussion of value-added taxes is on the table. The next thing we're going to look at is the flat tax or a flat tax rate.
00:08:45 Flat tax is a proportional tax on individual income after a specified threshold has been reached. So it's just a flat tax. You're not going to have different percentages. You're going to pay something flat out. Advantages of the flat tax is that it's relatively simple. It offers simplicity. You don't have to write down a bunch of
00:09:03 things on your tax return. You know if you meet this certain amount, you pay a flat tax. Another advantage that's cited is that it closes, or it minimizes, most of the tax loopholes. So people can't get out as easily of paying taxes, or as much as they should. Disadvantages that are cited for the flat tax is it removes
00:09:24 incentives that are currently in the tax code. So that means you have certain incentives as taxpayers. So if you are a homeowner, or you own a house, you can go ahead and deduct the interest of your house payments from your taxes. If you give charitable donations, you can deduct that from your taxes. If you acquire certain education or training, you can
00:09:47 detect that. So basically, it's taking out the advantages of having deductions. The last thing we're going to look at is the inevitability of future tax reform, or future reforms. And we see that the tax code is more complex now than ever. It's increasingly more complex. We also see the flat tax has moved beyond being a campaign
00:10:09 strategy, and is now being considered by some in Congress. So each time you have an election-- and for Congress, if you're in the House of Representatives, you're up for election every two years. And what we seen is the flat tax has been something that they use on the campaign trails. Oh, you want lower taxes?
00:10:27 Let's have a flat tax. And they'll go out. And they'll talk about it. They'll debate about it. They'll argue it. But it hasn't really been something that's seriously considered when it comes into compromise or actually creating a bill that would then become law.
00:10:40 Well now, it's actually being considered. And as we progress in the future, you're going to see that it's going to be considered more and more. Also, the 2001 recession serves as a reminder that economic growth is uneven. And finally, unexpected political events may require additional, and unplanned, expenditures. So, if there were a terrorist attack, if there are wars--
00:11:05 different things that could occur are going to require more expenditures. Today we looked at the inevitability of future reforms. We looked at the flat tax rate. We explained, and took a look, at the concept of value-added tax rate. And we began our discussion, our lesson, by talking about
00:11:24 tax reform since the 1980s.










accelerated depreciation: Schedule that spreads depreciation over fewer years than normal to generate larger tax reductions.
ex-
Businesses use accelerated depreciation to decrease their amount of income when determining their federal taxes.




investment tax credit: An investment tax credit is part of the Tax reform Act of 1981, it resulted in a reduction in business taxes that are tied to investment in new plants and equipment.

ex- The intent of the investment tax credit was to grow the economy through increased private expenditures.



surcharge: A surcharge is an additional tax or charge added to other charges already in place.


ex- Some states, such as New Jersey, will access a surcharge to drivers who exceed a set number of points or who have a DUI conviction.



alternative minimum tax: Personal income tax rate that applied to cases where taxes would otherwise fall below a certain level

ex- the alternative minimum tax is a tax rate that is used when a person's income taxes fall below their expected level due to many deductions that reduce that income





capital gains: Profits from the sale of an assets held for 12 months.

ex- the whole point of investing is to make capital gains: purchases at a lower price that are sold at a higher price.




value-added tax (VAT): The value-added tax is a tax on the value added at every state of the production process.


ex- a value-added tax (VAT) is generally passed along to the consumer through higher prices for a product



flat tax: Proportional tax on individual income after a specified threshold has been reached

ex- the flat tax is uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits


TEACHER: Today we will be discussing current tax issues. In order to do this, we will look at the following objectives throughout today's lesson. Our first objective is to be able to describe the major tax reform since 1980. Our next objective is to be able to examine the advantages and disadvantages of the value-added tax. We will then explain the features of flat tax, and
00:00:22 finally, discuss why future tax reforms will occur. The first thing we're going to look at is tax reform and the different tax reforms that we've had since 1980. We saw the tax reform in 1981. In 1981, President Ronald Reagan was the President of the United States. And President Reagan believed that high taxes were the main problem, or the main stumbling block, to economic growth.
00:00:49 And so we see tax reform start to occur. The argument that is out there is that most of the tax reforms that we see, that have been passed in the past 20 to 30 years favor the wealthy or the well-to-do or the rich, rather than favoring the middle class, the working class, or the poor. The first thing we're going to look at when we're talking about the tax reform in 1981, is we're going to see that it
00:01:14 was called the Economic Recovery Tax Act of 1981. And what it did was it substantially reduced the taxes for not only individuals, but for businesses as well. We also saw that businesses enjoyed tax relief through what is known as accelerated depreciation. Accelerated depreciation is larger than normal depreciation charges which allowed firms to reduce
00:01:39 federal income tax payments. We also saw through the Tax Act of 1981 what was known as investment tax credit. Investment tax credit is a reduction in business taxes that are tied to investment in new plants and equipment. The next thing we're going to look at are tax reform in 1986 and 1993. In 1986, we saw that Congress passed sweeping tax reform.
00:02:08 And again, the argument out there is that it's helping the well-to-do or the wealthy, rather than helping the poor. And we see that it reduces what is known as surcharge. And surcharge-- this is your vocabulary word, so you're familiar with it-- is an additional tax above and beyond the base rate. What we also see is we see what is known as an alternative minimum tax.
00:02:29 An alternative minimum tax is personal income rate that applies whenever the amount of taxes paid falls below some designated level. With the 1993 tax reform, what we see is it's known as the Omnibus Budget Reconciliation Act of 1993. Most of the tax acts will end in the year in which they were passed. So just keep that in mind--
00:02:53 a lot of names, a lot of dates. But just keep it in mind as you're studying, as you're reading, and as you're trying to remember this for tests and quizzes. Now the Omnibus Budget Reconciliation Act-- man, that's a mouthful. That act in 1993, what it did was it was really created more by the need for the government to be able to balance its
00:03:16 budget, than to overhaul taxes or tax reform. The next thing we're going to look at is tax reform in 1997. Before we can address what that does, I want to go over a vocabulary term, just make sure we're both on the same page. You understand what it means. And that's the term of capital gains. Capital gains is the profits from the sale of an asset that
00:03:40 was held for 12 months or more. And capital gains, again it's argued that with this tax reform in 1997 and with changing the taxes on capital gains, what you're actually doing, what the reform is doing, what Congress is doing, is it's benefiting well-to-do or the wealthy, and not benefiting the working class or the poor. And so what we see happen is in 1997, the tax on capital
00:04:04 gains was reduced from 28% down to 20%. We also see another tax relief in the text reform of 1997. And that was on death taxes. Again, think about it. You're taxed all the time. So even when a person dies, there's still taxes. The government is still there to collect their money. And so somebody has to pay for those taxes.
00:04:26 So it's the people who are in that person's or individual's family that are then left with death taxes. or what is known as inheritance tax. And so we see that the reform helps change that so that the tax rate is a little bit lower. But again, the argument is out there that that's more beneficial to the wealthy, rather than to the working class or to the poor.
00:04:49 And then what we see is we see a tax reform in 2001. 2001 we see that President Bush-- and this is President Bush Jr, or President George W Bush, not the President Bush that we had in the 1990s. But in the 2000s, we have his son. And that President Bush goes ahead and he backs a tax reduction in 2001. And what it did was it was a $1.35 billion tax cut over a
00:05:21 10 year period. And then, tax reform in 2003, faced with slow economic recovery from the 2001 recession, we see that President Bush-- again, President George W Bush-- and Congress decide to accelerate many of the 2001 tax reforms. Now we have the concept--
00:05:42 or we get to our objective of knowing and being able to understand the value-added tax. Value-added tax, or VAT-- again, it's some more letters you have to learn and remember-- is tax placed on the value that manufacturers add at each stage of production. So when you're creating something, you create
00:06:05 something in different stages. So if you're building a table, you don't just, poof, you have a table. No. You have lumber that goes into the table. You have nails that go into the table. When you're producing it, you have to first cut the lumber. You have to cut them into a certain size.
00:06:21 You have to cut out the flat top for the table. You have to cut out the table legs. You then need equipment, or you need products that are going to put that table together. So you need someone who's going to go ahead and hammer the legs into the table. You're going to need nails. And so what the value-added tax says is that at each
00:06:43 stage, you're going to tax. The concept of value-added tax-- and just to keep this in mind, currently the United States doesn't have value-added taxes. It's widespread through Europe. It's something that's being debated. Oh, should the United States turn to this? Should we not turn to this?
00:07:02 And so the overall concept again is it just that you're going to tax each stage of production. So you will tax cutting the lumber. You will tax sanding down the table top. You would tax putting the legs on the table. You would tax-- I don't know. What else do you do with a table?
00:07:25 You put some type of protective coat over it. You would tax that. So you'd tax each stage of the production rather than waiting and just taxing the final product. That's the concept of value-added tax. The advantages of value-added tax, what the Europeans will cite, what economists will cite that support value-added tax, is that it's hard to avoid this tax.
00:07:48 You can't get around not paying it. It's spread out. So it's spread out through the different stages. And it's easy to collect. So there's advantages. There's benefits to it. But like anything in society, there's disadvantages. So anytime you can cite advantages for something, you
00:08:06 can cite disadvantages for it as well. And the disadvantages we see-- and the biggest disadvantage that you hear argued-- is that it's a tax that's invisible to consumers. Now you're thinking, OK, it's invisible to consumers. I don't know I'm paying for that. Is that that bad? Well, yes it is.
00:08:23 Because the problem is, it's hard for consumers to be vigilant about higher taxes, or having to pay more to the government, when they can't see it, when they're unaware of it. So that's a huge disadvantage that is cited when the discussion of value-added taxes is on the table. The next thing we're going to look at is the flat tax or a flat tax rate.
00:08:45 Flat tax is a proportional tax on individual income after a specified threshold has been reached. So it's just a flat tax. You're not going to have different percentages. You're going to pay something flat out. Advantages of the flat tax is that it's relatively simple. It offers simplicity. You don't have to write down a bunch of
00:09:03 things on your tax return. You know if you meet this certain amount, you pay a flat tax. Another advantage that's cited is that it closes, or it minimizes, most of the tax loopholes. So people can't get out as easily of paying taxes, or as much as they should. Disadvantages that are cited for the flat tax is it removes
00:09:24 incentives that are currently in the tax code. So that means you have certain incentives as taxpayers. So if you are a homeowner, or you own a house, you can go ahead and deduct the interest of your house payments from your taxes. If you give charitable donations, you can deduct that from your taxes. If you acquire certain education or training, you can
00:09:47 detect that. So basically, it's taking out the advantages of having deductions. The last thing we're going to look at is the inevitability of future tax reform, or future reforms. And we see that the tax code is more complex now than ever. It's increasingly more complex. We also see the flat tax has moved beyond being a campaign
00:10:09 strategy, and is now being considered by some in Congress. So each time you have an election-- and for Congress, if you're in the House of Representatives, you're up for election every two years. And what we seen is the flat tax has been something that they use on the campaign trails. Oh, you want lower taxes?
00:10:27 Let's have a flat tax. And they'll go out. And they'll talk about it. They'll debate about it. They'll argue it. But it hasn't really been something that's seriously considered when it comes into compromise or actually creating a bill that would then become law.
00:10:40 Well now, it's actually being considered. And as we progress in the future, you're going to see that it's going to be considered more and more. Also, the 2001 recession serves as a reminder that economic growth is uneven. And finally, unexpected political events may require additional, and unplanned, expenditures. So, if there were a terrorist attack, if there are wars--
00:11:05 different things that could occur are going to require more expenditures. Today we looked at the inevitability of future reforms. We looked at the flat tax rate. We explained, and took a look, at the concept of value-added tax rate. And we began our discussion, our lesson, by talking about
00:11:24 tax reform since the 1980s.





accelerated depreciation: Schedule that spreads depreciation over fewer years than normal to generate larger tax reductions.
ex-
Businesses use accelerated depreciation to decrease their amount of income when determining their federal taxes.




investment tax credit: An investment tax credit is part of the Tax reform Act of 1981, it resulted in a reduction in business taxes that are tied to investment in new plants and equipment.

ex- The intent of the investment tax credit was to grow the economy through increased private expenditures.



surcharge: A surcharge is an additional tax or charge added to other charges already in place.


ex- Some states, such as New Jersey, will access a surcharge to drivers who exceed a set number of points or who have a DUI conviction.



alternative minimum tax: Personal income tax rate that applied to cases where taxes would otherwise fall below a certain level

ex- the alternative minimum tax is a tax rate that is used when a person's income taxes fall below their expected level due to many deductions that reduce that income





capital gains: Profits from the sale of an assets held for 12 months.

ex- the whole point of investing is to make capital gains: purchases at a lower price that are sold at a higher price.




value-added tax (VAT): The value-added tax is a tax on the value added at every state of the production process.


ex- a value-added tax (VAT) is generally passed along to the consumer through higher prices for a product



flat tax: Proportional tax on individual income after a specified threshold has been reached

ex- the flat tax is uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits


TEACHER: Today we will be discussing current tax issues. In order to do this, we will look at the following objectives throughout today's lesson. Our first objective is to be able to describe the major tax reform since 1980. Our next objective is to be able to examine the advantages and disadvantages of the value-added tax. We will then explain the features of flat tax, and
00:00:22 finally, discuss why future tax reforms will occur. The first thing we're going to look at is tax reform and the different tax reforms that we've had since 1980. We saw the tax reform in 1981. In 1981, President Ronald Reagan was the President of the United States. And President Reagan believed that high taxes were the main problem, or the main stumbling block, to economic growth.
00:00:49 And so we see tax reform start to occur. The argument that is out there is that most of the tax reforms that we see, that have been passed in the past 20 to 30 years favor the wealthy or the well-to-do or the rich, rather than favoring the middle class, the working class, or the poor. The first thing we're going to look at when we're talking about the tax reform in 1981, is we're going to see that it
00:01:14 was called the Economic Recovery Tax Act of 1981. And what it did was it substantially reduced the taxes for not only individuals, but for businesses as well. We also saw that businesses enjoyed tax relief through what is known as accelerated depreciation. Accelerated depreciation is larger than normal depreciation charges which allowed firms to reduce
00:01:39 federal income tax payments. We also saw through the Tax Act of 1981 what was known as investment tax credit. Investment tax credit is a reduction in business taxes that are tied to investment in new plants and equipment. The next thing we're going to look at are tax reform in 1986 and 1993. In 1986, we saw that Congress passed sweeping tax reform.
00:02:08 And again, the argument out there is that it's helping the well-to-do or the wealthy, rather than helping the poor. And we see that it reduces what is known as surcharge. And surcharge-- this is your vocabulary word, so you're familiar with it-- is an additional tax above and beyond the base rate. What we also see is we see what is known as an alternative minimum tax.
00:02:29 An alternative minimum tax is personal income rate that applies whenever the amount of taxes paid falls below some designated level. With the 1993 tax reform, what we see is it's known as the Omnibus Budget Reconciliation Act of 1993. Most of the tax acts will end in the year in which they were passed. So just keep that in mind--
00:02:53 a lot of names, a lot of dates. But just keep it in mind as you're studying, as you're reading, and as you're trying to remember this for tests and quizzes. Now the Omnibus Budget Reconciliation Act-- man, that's a mouthful. That act in 1993, what it did was it was really created more by the need for the government to be able to balance its
00:03:16 budget, than to overhaul taxes or tax reform. The next thing we're going to look at is tax reform in 1997. Before we can address what that does, I want to go over a vocabulary term, just make sure we're both on the same page. You understand what it means. And that's the term of capital gains. Capital gains is the profits from the sale of an asset that
00:03:40 was held for 12 months or more. And capital gains, again it's argued that with this tax reform in 1997 and with changing the taxes on capital gains, what you're actually doing, what the reform is doing, what Congress is doing, is it's benefiting well-to-do or the wealthy, and not benefiting the working class or the poor. And so what we see happen is in 1997, the tax on capital
00:04:04 gains was reduced from 28% down to 20%. We also see another tax relief in the text reform of 1997. And that was on death taxes. Again, think about it. You're taxed all the time. So even when a person dies, there's still taxes. The government is still there to collect their money. And so somebody has to pay for those taxes.
00:04:26 So it's the people who are in that person's or individual's family that are then left with death taxes. or what is known as inheritance tax. And so we see that the reform helps change that so that the tax rate is a little bit lower. But again, the argument is out there that that's more beneficial to the wealthy, rather than to the working class or to the poor.
00:04:49 And then what we see is we see a tax reform in 2001. 2001 we see that President Bush-- and this is President Bush Jr, or President George W Bush, not the President Bush that we had in the 1990s. But in the 2000s, we have his son. And that President Bush goes ahead and he backs a tax reduction in 2001. And what it did was it was a $1.35 billion tax cut over a
00:05:21 10 year period. And then, tax reform in 2003, faced with slow economic recovery from the 2001 recession, we see that President Bush-- again, President George W Bush-- and Congress decide to accelerate many of the 2001 tax reforms. Now we have the concept--
00:05:42 or we get to our objective of knowing and being able to understand the value-added tax. Value-added tax, or VAT-- again, it's some more letters you have to learn and remember-- is tax placed on the value that manufacturers add at each stage of production. So when you're creating something, you create
00:06:05 something in different stages. So if you're building a table, you don't just, poof, you have a table. No. You have lumber that goes into the table. You have nails that go into the table. When you're producing it, you have to first cut the lumber. You have to cut them into a certain size.
00:06:21 You have to cut out the flat top for the table. You have to cut out the table legs. You then need equipment, or you need products that are going to put that table together. So you need someone who's going to go ahead and hammer the legs into the table. You're going to need nails. And so what the value-added tax says is that at each
00:06:43 stage, you're going to tax. The concept of value-added tax-- and just to keep this in mind, currently the United States doesn't have value-added taxes. It's widespread through Europe. It's something that's being debated. Oh, should the United States turn to this? Should we not turn to this?
00:07:02 And so the overall concept again is it just that you're going to tax each stage of production. So you will tax cutting the lumber. You will tax sanding down the table top. You would tax putting the legs on the table. You would tax-- I don't know. What else do you do with a table?
00:07:25 You put some type of protective coat over it. You would tax that. So you'd tax each stage of the production rather than waiting and just taxing the final product. That's the concept of value-added tax. The advantages of value-added tax, what the Europeans will cite, what economists will cite that support value-added tax, is that it's hard to avoid this tax.
00:07:48 You can't get around not paying it. It's spread out. So it's spread out through the different stages. And it's easy to collect. So there's advantages. There's benefits to it. But like anything in society, there's disadvantages. So anytime you can cite advantages for something, you
00:08:06 can cite disadvantages for it as well. And the disadvantages we see-- and the biggest disadvantage that you hear argued-- is that it's a tax that's invisible to consumers. Now you're thinking, OK, it's invisible to consumers. I don't know I'm paying for that. Is that that bad? Well, yes it is.
00:08:23 Because the problem is, it's hard for consumers to be vigilant about higher taxes, or having to pay more to the government, when they can't see it, when they're unaware of it. So that's a huge disadvantage that is cited when the discussion of value-added taxes is on the table. The next thing we're going to look at is the flat tax or a flat tax rate.
00:08:45 Flat tax is a proportional tax on individual income after a specified threshold has been reached. So it's just a flat tax. You're not going to have different percentages. You're going to pay something flat out. Advantages of the flat tax is that it's relatively simple. It offers simplicity. You don't have to write down a bunch of
00:09:03 things on your tax return. You know if you meet this certain amount, you pay a flat tax. Another advantage that's cited is that it closes, or it minimizes, most of the tax loopholes. So people can't get out as easily of paying taxes, or as much as they should. Disadvantages that are cited for the flat tax is it removes
00:09:24 incentives that are currently in the tax code. So that means you have certain incentives as taxpayers. So if you are a homeowner, or you own a house, you can go ahead and deduct the interest of your house payments from your taxes. If you give charitable donations, you can deduct that from your taxes. If you acquire certain education or training, you can
00:09:47 detect that. So basically, it's taking out the advantages of having deductions. The last thing we're going to look at is the inevitability of future tax reform, or future reforms. And we see that the tax code is more complex now than ever. It's increasingly more complex. We also see the flat tax has moved beyond being a campaign
00:10:09 strategy, and is now being considered by some in Congress. So each time you have an election-- and for Congress, if you're in the House of Representatives, you're up for election every two years. And what we seen is the flat tax has been something that they use on the campaign trails. Oh, you want lower taxes?
00:10:27 Let's have a flat tax. And they'll go out. And they'll talk about it. They'll debate about it. They'll argue it. But it hasn't really been something that's seriously considered when it comes into compromise or actually creating a bill that would then become law.
00:10:40 Well now, it's actually being considered. And as we progress in the future, you're going to see that it's going to be considered more and more. Also, the 2001 recession serves as a reminder that economic growth is uneven. And finally, unexpected political events may require additional, and unplanned, expenditures. So, if there were a terrorist attack, if there are wars--
00:11:05 different things that could occur are going to require more expenditures. Today we looked at the inevitability of future reforms. We looked at the flat tax rate. We explained, and took a look, at the concept of value-added tax rate. And we began our discussion, our lesson, by talking about
00:11:24 tax reform since the 1980s.