Flat Tax

[Charles Livingston]

I am starting this thread as much for debate as for my own personal knowledge. I am pretty ignorant of most economics, but as I understand it a flat tax would not only "give the rich a break" but would raise the minimum salary necessary to invoke income tax, ie it would help both ends, probably at the expense of the middle.

With the little knowledge that I have, it seems like a good thing. I get tired of the argument that tax breaks are just helping the rich, when the rich already pay a much higher tax burden (ie a higher percentage, not just more money). Sometimes I wonder if people do not consider the 'percentage' aspect. In addition, it seems as though the 'right's' tax plan would actually do more to help the poor, and this point never seems to be raised at election time. Democrats (I am neither D or R) always seem to paint tax breaks as screwing the poor and helping the rich, when it seems to me they are really talking about the middle (with regard to screwing the poor).

Some or all of the above may be incorrect, as I said I am not very knowledgable about general economics nor either side's specific tax provision.

Any thoughts on a flat tax?

[arcticpenguin]

Quote:

Originally posted by Charles Livingston
I get tired of the argument that tax breaks are just helping the rich, when the rich already pay a much higher tax burden (ie a higher percentage, not just more money). Sometimes I wonder if people do not consider the 'percentage' aspect.

OK, consider the percentage. If a billionare(per year) paying the max 33% tax rate (feel free to correct my numbers anyone) saves 1%, that means he takes home $668 million instead of 667 million (rounded).

If a lower middle class person making $25,000 per year saves 1% in taxes, that means he saves $250. The amount he pays will depend heavily on what the standard deduction is.

Now for the billionaire, that extra 1% might mean he can buy a new house or several new luxury cars. But for the LMC person it might mean better nutrition for his/her family, or help paying in-state college tuition.

Keep in mind that the billionaire is not necessarily a billionaire simply due to his own merits, but may have inherited the wealth, or even if he "earned" it he was able to do so because of the business environment in this country allowed him to do so.

[shanek]

I'm all for a flat tax, as long as the flat rate is 0%. Don't think that's some kind of extremist position; we could completely eliminate the income tax and with no other taxes added or increased still maintain a government the size it was at the end of the Cold War.

[Michael Redman]

Setting a minimum income for tax liability is independant of the flat tax issue. The same can be done no matter the method of calculating tax. A flat tax does not, by its nature, help the poor.

[jayrev]

Quote:

Originally posted by arcticpenguin

Keep in mind that the billionaire is not necessarily a billionaire simply due to his own merits, but may have inherited the wealth, or even if he "earned" it he was able to do so because of the business environment in this country allowed him to do so.

Also keep in mind that the person earning $25,000 is not necessarily only earning $25,000 because of circumstances outside of his control. The business environment in this country would have allowed him to be a billionaire if he had made the right choices.

[arcticpenguin]

Many of Bush's tax cuts are geared towards those who use money to make money, rather than those who actually perform labor for their money. The elimination of taxes on stock dividends would be an example. You don't find too many minimum wage workers making stock dividends.

[Samus]

My jury is still out on a Flat Tax. To be honest, I have not invested the time into researching flat tax plans to see how they would affect overall tax income for the government, as well as the tax burden on any given income level.

Having admitted my lack of knowledge, I think one of the argument against a flat tax is that it will increase the tax burden on middle class or lower-middle class incomes, which is not a popular move. Let's say, for example, that I now pay 15% of my income to the income tax. Then, the goverment sets the flat tax rate at 20%, well, that just increased my burden. At the same time, someone who is was taxed 33% is now getting a big break. The more you make, the more you'll be able to keep when a tax percentage decrease is passed.

But there's more to it than that. My 5% increase in tax paid, in terms of an actual dollar amount, is far less than the dollar amount saved by the 13% decrease in the rich guy's tax. Under that plan, the government of my two-person country will receive less money from the income tax.

I think the majority of people believe that a progressive income tax is "fair", or at least, not overly unfair. I would point to the lack of support for any other model (viz. flat tax) as my evidence. Weak argument indeed, but it's a start.

The rhetoric surrounding tax breaks is frustrating, because some wish to convince you that a tax plan that helps the wealthiest will automatically hurt the poorest, and this is not true. The poorest among us don't even pay income taxes, so what do they care? Those who make the most, by far, pay the most. Why not lessen the burden on the people that carry it?

I think the fear of a flat tax, or any tax cut, is that it decreases the income the government receives. That leaves less money for the government to spend. If your individual political philosophy is conservative, as mine is, then you see that as a good thing, because it forces the federal government to de-scope and spend money on less things.

How's that for rambling? Like I said, I don't have a strong opinion either way, I'm just trying to look at both sides of the coin.

[Tmy]

Heres my concearns:

Flat Tax just deal with fed income tax. What about all the other taxes?? Will they be eliminated?

Say I make $40K, sure I pay a less percentage of income tax but what happens when you throw in all the other taxes (for gas, fees, ect..) In then end am I actually paying a higher percentage of my income to taxes??

Say Im a business owner. Will I be able to use clever accounting to hide/move income so I can avoid the taxes???

[arcticpenguin]

Quote:

Originally posted by Tmy
Heres my concearns:

Flat Tax just deal with fed income tax. What about all the other taxes?? Will they be eliminated?

Say I make $40K, sure I pay a less percentage of income tax but what happens when you throw in all the other taxes (for gas, fees, ect..) In then end am I actually paying a higher percentage of my income to taxes??

Say Im a business owner. Will I be able to use clever accounting to hide/move income so I can avoid the taxes???

A good point. The government needs a certain amount of income to do what it does (roads, schools, etc). If it comes from any form of sales tax rather than income tax, then there is no progressive tax rate and no deduction.

[Diezel]

Quote:

Originally posted by arcticpenguin
Many of Bush's tax cuts are geared towards those who use money to make money, rather than those who actually perform labor for their money. The elimination of taxes on stock dividends would be an example. You don't find too many minimum wage workers making stock dividends.

So, you actually have to do "labor" to "earn" money in your eyes? Sorry, but I have heard this sad, tired, old argument too many times.

First, there are very few that inherited all their wealth and do no work at all. Just ask William Ford III. Not only is the guy running Ford, he is also running the Detroit Lions NFL team (badly, but he still has duties.)

Second, why is running a business not considered "labor"? Sure, a ditch digger works hard his 8-10 hours a day. But he goes home and forgets about his work. Executives can never forget about work. Their lives are about work. They might put 8-10 hours in at the office (or 12-14), then they get to go out to dinner with clients, work parties, late night meetings, business trips, etc....

So, the executive isn't digging ditches, but he also trades that off for a life of stress and work. But you can't dismiss what a business man does and not call it work.

[corplinx]

A flat tax is too much change at once for our government. Here is a good step to getting there.

A. Take away _all_ tax deductions.
B. Reduce the tax rates by 8 percent.

I am all for this. It would be ideal if each paid his own share blindly of how much he made, but I don't see that happening with all the demagoguery and class envy scams the pols run with.

[jayrev]

Quote:

Originally posted by arcticpenguin
Many of Bush's tax cuts are geared towards those who use money to make money, rather than those who actually perform labor for their money. The elimination of taxes on stock dividends would be an example. You don't find too many minimum wage workers making stock dividends.

Yes, because they pay the taxes. You don't find too many minimum wage workers paying income tax. They usually make money in the deal with the earned income credits.

[arcticpenguin]

Quote:

Originally posted by Diezel


So, you actually have to do "labor" to "earn" money in your eyes? Sorry, but I have heard this sad, tired, old argument too many times.

First, there are very few that inherited all their wealth and do no work at all. Just ask William Ford III. Not only is the guy running Ford, he is also running the Detroit Lions NFL team (badly, but he still has duties.)

Second, why is running a business not considered "labor"? Sure, a ditch digger works hard his 8-10 hours a day. But he goes home and forgets about his work. Executives can never forget about work. Their lives are about work. They might put 8-10 hours in at the office (or 12-14), then they get to go out to dinner with clients, work parties, late night meetings, business trips, etc....

So, the executive isn't digging ditches, but he also trades that off for a life of stress and work. But you can't dismiss what a business man does and not call it work.

I'm sure those business men and executives actually get a salary and possibly various perks for performing their duties.

Nothing you said would address those who make money off money, like stock dividends, rahter than performing some kind of work. And nothing you said would justify their getting a special tax break I don't get on my salary.

[Charles Livingston]

I was under the impression that Bush's tax plan actually helped the poor more than Gore's (ie raised the minimum) Is this correct?

I realize this has nothing to do with a flat tax.

[Diezel]

Quote:

Originally posted by arcticpenguin

I'm sure those business men and executives actually get a salary and possibly various perks for performing their duties.

Nothing you said would address those who make money off money, like stock dividends, rahter than performing some kind of work. And nothing you said would justify their getting a special tax break I don't get on my salary.

Actually, many executives salaries are heavily weighed in stock options, thus stock dividends make a good part of their wealth. Show me all the people living primarily on stock dividends. For each rich one you show me, I will show you a retired person living the same way. Buying income stocks, or stocks that pay dividends was (and is) a common way of investing for retirement. In fact, without looking, I will venture to say the vast majority of the people living off of stock dividends are retirees. Do you think it is unfair they are getting a break?

Also, think about how many people are in 401(k)s. Stocks are not just for the rich - this isn't 1975.

[Charles Livingston]

Articpenguin: "Nothing you said would address those who make money off money, like stock dividends, rahter than performing some kind of work. And nothing you said would justify their getting a special tax break I don't get on my salary."

Anyone can use their own money to try and make more by investing it, some people just have more than others to play around with, and certainly the more you have the easier it is to make more. Are you suggesting that people who already have a certain amount of money should not be allowed to use it to make more, or that they should be taxed heavier because of it? At what level do you invoke this? What do you define as rich?

[Victor Danilchenko]

Charles Livingston

Quote:

I am starting this thread as much for debate as for my own personal knowledge. I am pretty ignorant of most economics, but as I understand it a flat tax would not only "give the rich a break" but would raise the minimum salary necessary to invoke income tax, ie it would help both ends, probably at the expense of the middle.

Well, "flat tax" with minimum income criterion is not really flat -- it's a progressive tax of a very coarse kind. An ideal progressive tax would look like a smooth function (where X axis is income, and Y axis is taxation percentage); extant tax system in USA looks like a rough approximation of that curve, consisting of multiple disjoint horizontal lines, kinda like a staircase, where each horizontal segment would represent an income bracket; and a flat tax with minimum income would be even worse -- just a simple step function (called so because it looks like a step -- horizontal line, vertical line, then again horizontal line higher up). The step-progressive tax is thus just as the current progressive tax, but with fewer tax brackets, and thus coarser in granularity.

And yes, the price of the coarser granularity of this sort of taxation would be borne by the middle class, especially the people right above the point where the function "steps".

if anything was ever unfair, this sort of "flat tax" is it. it's the worst of both worlds; it still taxes different people at different rates as the current progressive tax does, thus arguably being "unfair"; and at the same time it doesn't actually spread this unfairness to those who can most afford to bear it, which was the argument for progressive tax in the first place.

The only people this sort of setup benefits, are the very rich, the tiny fraction of the people who are right below the step (adjacent to the 0% dividing line from the low side) who were paying higher tax under progressive system, and the politicians who get to banter around about flat tax. Fortunately, it seems like most people aren't buying the flat tax rhetoric, and so the political capital to be gained by promoting flat tax is negligible and even negative.

Quote:

With the little knowledge that I have, it seems like a good thing. I get tired of the argument that tax breaks are just helping the rich, when the rich already pay a much higher tax burden (ie a higher percentage, not just more money).

Nothing wrong with that. Our society is de-facto grounded in a mixture of utilitarian and deontological ethics, not pure deontological one. I personally see no reason to proclaim that utilitarian arguments for progressive taxation are unsound, because deontological ethics is inherently superior to utilitarian ethics -- it's not.

Quote:

Sometimes I wonder if people do not consider the 'percentage' aspect. In addition, it seems as though the 'right's' tax plan would actually do more to help the poor,

Step-progressive (it's not really flat) tax that you spoke about would help some poor -- a very small number of them that aren't paying [nearly-]zero tax already, but would be paying 0% under step-progressive tax. It would hurt a great number of people who are right above the break line, because -- guess what? in order for the step-progressive tax to actually generate significant revenue, it would have to tax middle and lower-middle classes, since they comprise majority of the population and a critical piece of the tax base. However, due to the very nature of the step-progressive tax, those people -- the population majority -- would be exactly the people who get hit the hardest.

[Victor Danilchenko]

Tmy

Quote:

Heres my concearns:

Flat Tax just deal with fed income tax. What about all the other taxes?? Will they be eliminated?

Good point. Other forms of tax -- excise, real estate, sales, VAT -- are actually regressive, in fact making the lower-income citizens pay higher tax rates.

[Tmy]

I often hear "it isnt fair for people to pay more than their share just because they make more", BUT since when is taxation based on fairness??

I'm not married and have no children. Is it fair that my taxes go to pay for public education? Is it fair for married people to get special tax breaks?

Sure someday I may be married, and have kids in public school. Then again someday I might be a millionaire.

[Victor Danilchenko]

Tmy

Quote:

I often hear "it isnt fair for people to pay more than their share just because they make more", BUT since when is taxation based on fairness??

Very true -- because there is no such thing as "objective fairness" with regard to taxation. Flat tax would not be inherently more fair that making all people pay a flat dollar amount per year (which is how it used to be in in some places in medieval Europe). We, as a society, define what "fairness" in regard to taxation means, because there is no other standard that can be held to objectively.

Quote:

I'm not married and have no children. Is it fair that my taxes go to pay for public education? Is it fair for married people to get special tax breaks?

Very much so. Who do you think will make it possible for you, a childless retiree, actually buy stuff with the money in your 401k? Today's children will be tomorrow's value makers, benefitting everyone by maintaining the very infrastructure within which money has value. In a way, people are a social meta-resource, making all other resources have value, and it's perfectly fair IMO to tax you to help raise the children which will enable you to actually use your retirement funds.

Quote:

Sure someday I may be married, and have kids in public school.

What matters is that someday you will be retired, and enjoy the social infrastructure maintained by the children for whose education your taxes pay now.

[Tmy]

Someone mentioned perks.

If you have a company car thats a perk, not income right? So could compaines avoid flat taxes by supplementing employee incomes with various perks?

[Roadtoad]

It occurs to me that any income tax goes back to the old Marxist saw, "From each according to his means, to each according to his needs." Income taxation is wrong, period. The last thing we need is further abuse of the American citizen. Enough already!

Further, consider this: Look at the amount of waste and fraud already perpetuated on us, and the continuing invasion of our lives by the government, and you tell me you want to fund that sort of crap.

[shanek]

Quote:

Originally posted by arcticpenguin
Many of Bush's tax cuts are geared towards those who use money to make money, rather than those who actually perform labor for their money. The elimination of taxes on stock dividends would be an example. You don't find too many minimum wage workers making stock dividends.

Uh, I agree that the tax "cut" is unfair (in fact, I dispute that it's even a "cut"), but don't discount the role of those who "use money to make money." That's what investment is, and without it, the economy couldn't grow. Investment creates jobs and increases productivity.

[shanek]

Quote:

Originally posted by Tmy
Flat Tax just deal with fed income tax. What about all the other taxes?? Will they be eliminated?

According to the US Census Bureau, government at all levels takes in 48% of the National Income in taxes. No one really gets a break; regardless of income, overall you're paying between 30% and 70% of your income in taxes.

[shanek]

Quote:

Originally posted by jayrev
Yes, because they pay the taxes. You don't find too many minimum wage workers paying income tax.

They still pay 15+% in Social Security Tax.

[shanek]

Quote:

Originally posted by arcticpenguin
I'm sure those business men and executives actually get a salary

Steve Jobs's salary is $1/year.

[patnray]

One trick both democrats and republicans use in tax debates is to concentrate on individuals rather than groups collectively. Republicans often claim that the rich "pay most of the taxes" because a rich person pays a large number of dollars in tax. It's true that a millionaire pays more in taxes than most of us make. But there are not that many millionaires compared to the non-millionaires. Actually, the middle class, by virtue of collective size, pays most of the taxes. The disparity between the wealthy and the rest of us has been growing since at least the Reagan tax "reforms", but the middle class still has a large share of the collective burden.

Another trick is to divide income groups up in a way that includes much of the middle class with the wealthiest tax payers, so that changes that benefit the wealthiest tax payers seem to benefit a larger group.

Democrats, on the other hand, will concentrate on the small dollar value returned to the poorest tax payers, and steere away from percentages.

Look very carefully at any figures thrown at you by politicians of any ilk. Their goal is to persuade you, not to inform you...

[shanek]

Quote:

Originally posted by Victor Danilchenko
Tmy

Good point. Other forms of tax -- excise, real estate, sales, VAT -- are actually regressive, in fact making the lower-income citizens pay higher tax rates.

Not always true. Excise taxes on luxury items, for example, don't really affect the poor, although excise tax on gas does.

[corplinx]

Quote:

Originally posted by patnray
The disparity between the wealthy and the rest of us has been growing since at least the Reagan tax "reforms"

data?

[corplinx]

Let me just say this, a true flat tax would be a step up for our government. Right now he have people running around like idiots complaining that someone might get more dollars in taxes back than them. Firstly I say "duh", secondly I say "its none of your business".

Imagine a flat 20 percent tax rate. No deductions, no returns, no exemptions. It can easily be implemented at the payroll level for the majority of people.

In other words, it gets government out of the business of knowing how much money you make. It is no business of the government how much total money you or anybody makes.

The income tax is a high overhead tax, both on payers and on the receiver. most people wind up spending money to prepare their taxes and the government winds up spending money checking for fraud.

I would rather have a national consumption (aka sales) tax but we seem to be bent on taxing income instead, so lets go with a nice anonymous flat tax.

No more tax breaks, no more Hillary deducting old underwear, and no more invasion of your privacy through taxation.

[Samus]

Quote:

Originally posted by corplinx
The income tax is a high overhead tax, both on payers and on the receiver. most people wind up spending money to prepare their taxes and the government winds up spending money checking for fraud.

I would rather have a national consumption (aka sales) tax but we seem to be bent on taxing income instead, so lets go with a nice anonymous flat tax.

Actually, it is quite the opposite. The income tax is the most efficient way for the government to collect taxes. Sales tax, on the other hand, has a high overhead associated with it. Don't have any Internet sources on hand, I'd have to sift through the ol' Public Adminstration books from the college days to provide some citations.

Let me rifle through some stuff and see what I can find...

[shecky]

I see no problem with the idea of progressive taxation on income. The biggest intrusion I think is the complexity of the current system. While elimination of loopholes, deductions, etc would be something I'd like to see (even if it would probably mean higher taxes for middle and upper incomes, myself included), momentum is probably squarely against it.

A truly flat tax, however, would clearly be unfair to the lowest paid workers while being a remarkable cut for the higher income workers.

A consumption tax is a interesting idea, a system in which I'm curious in seeing the viability. However, it's silly to be married to any particular taxation philosophy, especially those which have never been (or are never likely) to be truly tested.

[Mahatma Kane Jeeves]

This just in:

Fed reports widening inequality: Worth of top 10% rose 69% from 1998 to 2001

See also: http://directory.google.com/Top/Scie...th/Inequality/

[Mahatma Kane Jeeves]

Quote:

Originally posted by corplinx
In other words, it gets government out of the business of knowing how much money you make. It is no business of the government how much total money you or anybody makes.

If the government knows that they are getting 20% of my income, can't they just multiply to figure out my total income?

[jayrev]

Quote:

Originally posted by Mahatma Kane Jeeves
This just in:

Fed reports widening inequality: Worth of top 10% rose 69% from 1998 to 2001

See also: http://directory.google.com/Top/Scie...th/Inequality/

The link you posted refers to wealth, not income. It is likely (I know this is my opinion, not backed up by hard data) that the top 10% in wealth saw their wealth grow more because they had more money invested in the stock market during the internet boom. I'm not sure how this relates to an income tax discussion?

[Mahatma Kane Jeeves]

You're right, the article concentrates on wealth, but it also discusses income. It was in response to the posts by patnray and corplinx regarding income disparity. The links in the Google Directory are more on point.

From the article :

Quote:

While income in the top 10 percent of households rose 19.3 percent from 1998 to 2001, income for the bottom fifth of all households climbed by 14.4 percent.

[Roadtoad]

Excuse me, here, but dammit, an income tax in and of itself is unfair. What you earn is yours, and yours alone. If you choose to share it with anyone else, that ought to be a voluntary act. Otherwise, it's just the Federal Government stealing from you.

And let me add this: Just got my tax forms for this year. Ever take a look at just how much information the government demands from you? This is STUPID! It is NONE of the business of the Federal Government what I spend on health care, what my mortgage costs, or anything else! This is intrusive, wasteful, and insulting. AND I'M SICK OF IT!

[corplinx]

How do you measure disparity, by the amount of wealth the rich have or the number of rich people? According to data, we have more rich people than ever before.

Look at some of the notions we have.

A. someone having more money than you is a disparity
B. if you make tax rates equal that is unfair because there are people who would get more benefit since they get taxed at a higher rate
C. income is public and not a private matter
D. taxing someone at a higher rate because they have more money is ethical
E. "Fairness" which is subjective, should be considered in taxation

I have a notion that all of this is bunk.

Support anonymous taxation. Support equal taxation.
Support Privacy and Equal treatment.

Quote:

I'm all for a flat tax, as long as the flat rate is 0%. Don't think that's some kind of extremist position; we could completely eliminate the income tax and with no other taxes added or increased still maintain a government the size it was at the end of the Cold War.

Agreed that was one of the great things I learned in political science income tax is truly unecessary.

I always like to ask people is "income tax necessary?" their answer "OF COURSE" without income taxe no schools hospitals roads nothing!.

Sadly common americans are in need of a history lesson. (of course most americans are ignorant of history!)

The income tax did not begin until 1910 I believe and amercia was fine up until that point. If income tax is necessary how did america survive nearly 120 years without income tax????

The answer I always get back is "times have changed" BULL!!

Truth is the propganda is so strong that the idea of income tax as being necessary is ingrained in the american counsciousness.

Income tax gives the federal government power.

Olden days it used to be only state taxes and , city taxes, the government collected funds through traiffs.

I never heard a decent answer of why the old system would not work today.

As it stands now though State governments are becoming more and more irrelevant One day The federal government will be the only government. By accepting money from the federal government states and cities have sold their souls to the devil.

Wpefully no going back though income tax is here to stay. It would take another civil war to get rid of it!!!!!!

[Victor Danilchenko]

FalsePerception

Quote:

The income tax did not begin until 1910 I believe and amercia was fine up until that point. If income tax is necessary how did america survive nearly 120 years without income tax????

By having the government do a lot less. Government wasn't maintaining highways, wasn't keeping Social Security system, wasn't maintaining a military powerful enough to carry out and win decisively two wars simultaneously, wasn't paying for public education system, wasn't imposing environmental regulations, etc. etc.

Now you may say that these should not be a function of teh federal government, and I would agree with you at least on some issue; but this means that the statement "we don't need income tax" is flat-out wrong -- at best, we should start by asking just which services provided by the government do we truly need, and then seeing if what we want to keep can be supported without income tax.

Quote:

The answer I always get back is "times have changed" BULL!!

But times have changed. Are you willing to do without highways? if so, then you will end up paying lots of money in tolls, and still won't save much. Are you willing to do without public education system (I include both schools and colleges here)? If so, then you will have to pay higher tuition costs, and there will be lots of promising people who will simply never have a chance to get a real education; etc. etc. It all comes to to the fact that times have changed, and if you want to roll the changes back, there will be a price.