General Discussion
In reply to the discussion: Tax Deductions are a HUGE form of welfare, and the richest people are getting the most welfare [View all]dawg
(10,624 posts)Taxing incomes is the fairest way for a government to raise money. Sales taxes favor the wealthy because they don't need to spend most of their income like poorer folks do. Wealth taxes punish savers and reward spendthrifts who buy luxury cars and McMansions.
So taxing income is the way to go. You make money; you pay taxes.
But what is "income"? That's the $64,000 question.
If someone has a steel fabrication business that brings in $100,000 a year, should he have to pay tax on the entire $100,000? What if he's spending $80,000 on raw steel and only clearing $20,000? Shouldn't he be able to deduct the cost of his materials?
The general rule is whether or not the expenses are ordinary and necessary expenses incurred in the generation of the income.
If we did not allow deductions for ordinary and necessary business expenses, most labor or capital-intensive businesses in America would be forced to close their doors. Only businesses with a net margin greater than the tax rate would be able to survive.