Why a Flat-tax isn't "fair".

[MiltonLeBerle]

A lot of Repukes, most conservatives, and even some Democrats like to put forward a flat-tax as the most fair. If everyone pays the same percentage, it's affect them evenly.

The problem is that not everything that people have to spend money on is priced as equal percentage of income for everyone.
Many people have to spend a much higher percentage of their incomes just to survive than a lot of others. Food, Housing, Energy, Government Fees, etc...even a seat on a bus or a ride in a taxi.

In Finland, they have a system whereby speeding fines are based on income, and the president of Nokia ended up with a ticket with a $100,000 fine attached to it.

If everything in life, or even just the necessities, were based on an even percentage of income for everyone, then I could see the logic of a flat-tax.
But not until.

on edit: added "of Nokia"

[meegbear]

1. but is it "balanced"?

[Kamika]

2. well i agree

Its pretty easy to check it. But people throw in percentage and everything gets lost.

But lets take this

person A makes 1.000 a month
person B makes 1.000.000 a month


Would 10% be fair here?

10% from 1000 would be 100

If you make 1000 a month 100 bucks is PRETTY damn much

10% from 1000000 is 100000

Yes 100000 is ALOT more then 100 BUT godammit you can live like a european king on 900000 bucks

Even if the guy that makes a million has a tax of 50% he will still keep 500000 a MONTH.

No a flat tax is NOT fair sorry.

[RobertSeattle]

3. I wise man once told me

Fair is not equal.

People often confuse "fair" (a judgement) and "equal" (something that can me measured).

Also, interestingly, the UCMJ often proscibes monetary punishment for UCMJ crimes based on pay - (A private and a General might get the same punishment of one month's pay - though the private's may be $1000 and the General may be $5000 - that's fair).

[gratuitous]

4. And watch carefully what's being taxed

Are estates subject to taxation? How about salaries (as opposed to wages)? Dividends? Interest on bank accounts?

Suddenly, it's only the people who earn a paycheck who are asked to put money in the federal coffers. Trust fund babies, big corporate honchos and bond coupon clippers keep every dime.

[Muddleoftheroad]

5. Slight adjustment

Most flat-taxers, and I am one, believe in a floor for the tax -- say $30,000. No one would be taxed on the first $30,000 (rough number only.)

Let's take a look usually a hypothetical 20% tax. (Easy math, but still a realistic number.)

Citizen A: Makes $30,000 and pays no tax. Net $30,000.
Citizen B: Makes $50,000 and pays no tax on the first 30k. The rest results in a $4,000 tax burden. Net $46,000.
Citizen C: Makes $100,000 and pays no tax on the first 30k. The rest results in a $14,000 tax burden. Net $86,000.
Citizen D: Makes $1,000,000 and pays no tax on the first 30k. The rest results in a $194,000 tax burden. Net $806,000.

Notice how the burden is pretty steep as you earn more money?

[snooper2]

9. That works for me!

Sounds like a perfect plan.

[papau]

10. I agree - a per person deductible of $7500 makes it work fairly

and then set the percentage so it covers the take from both FIT and Payroll Tax for SS and Medicare - both of our income taxes are replaced by one flat tax.

And that is why it will never pass - the rich would pay more.

[sybylla]

11. I have always supported a flat tax with a floor.

I believe a flat tax is better than what we have today, but I don't think it is ideal.

What I'd like to see is a tax system where someone like Ariana Huffington would have to pay a more appropriate rate, without all the loopholes and deductions than a mere $800 in federal tax. I use Arianna as an example only. I have nothing against her but the release of her tax statements today point out the serious problems with out current tax code. The great thing about a flat tax as Muddle suggests is that it is a good starting point for change which the pukes tend to support.

[Mountainman]

13. The problem is that you don't collect enough tax to fund the government

If they made flat tax of 15%, those who pay 15% now see no change. Those who pay 10% now end up paying 15% a tax increase. Those who pay 25% or higher get a tax cut. Then the government raises the percentage to 20% because there is not enough revenue. Those who paid 15% get a tax increase. Those who got the first increase get another increase. Those who previously paid 25% or higher get an increase from 15% but still enjoy a tax cut from the 25% or more they were paying.

And a flat tax does not allow for deductions. A person paying 15% pays 15% on all his income. But the tax on income from investments is eliminated. So those who survive on the return on their investments pay no tax at all.

The net result of a flat tax is that the wealthy get out of paying taxes and the middle class and below get to carry the entire burden.

Flat sounds fair but in reality it is a give away to the rich.

[Muddleoftheroad]

17. Not so

Let's go back to my example, but I will add in the percentage taxes that the people involved pay.

Let's take a look usually a hypothetical 20% tax. (Easy math, but still a realistic number.)

Citizen A: Makes $30,000 and pays no tax. Net $30,000. Tax 0%.
Citizen B: Makes $50,000 and pays no tax on the first 30k. The rest results in a $4,000 tax burden. Net $46,000. Tax 8%
Citizen C: Makes $100,000 and pays no tax on the first 30k. The rest results in a $14,000 tax burden. Net $86,000. Tax 14%
Citizen D: Makes $1,000,000 and pays no tax on the first 30k. The rest results in a $194,000 tax burden. Net $806,000. Tax 19.6%

Notice how the percentage is pretty steep as you earn more money?

[Liberal Classic]

18. The real problem is there aren't enough evil rich people

This is why the middle class carries the tax burden, not those evil rich people. Even if you took every rich person and taxed them at 100% so that they were no longer rich, the government would not be able to make its ends meet. If Bill Gates' 30 billion dollars was totally taxed, how long would this really run the government?

[MiltonLeBerle]

14. As long as the floor is adequate-

and as long as all the citizens C1/2 - D and above out there don't have ways to hide income, or pay lawyer to reduce their share, I can definitely live with something along those lines.

BUT-
I would be against any type of National Sales or VAT tax being part of the mix.(most flat-taxers also include one of these along with their proposals)

AND-
An Estate Tax(with a $1-5 million floor of it's own) should be a part of the overall picture. It doesn't have to be a 100% tax above the floor amount- It could be graduated, and perhaps go as low as 50%, depending on the floor- but I think that it's an important safeguard against us becoming something of a feudal system.

[rock]

6. Agreed

I've said as much myself. If every time money exchanged hands it was taxed, then it would be somewhat fair. This would inclued:
- when an employer pays an employee
- when Mr Gotrocks buys stocks
- when you give money to charity
- when you die and people inherit
No exceptions (but it would apply to money only). In which case the sales tax would be very small (probably a couple of percent). I also think that since keeping the money real (not counterfeit) is one of the few jobs that the government has to do, it should be payed every time you use its money. (It is their money you know).

[SavageWombat]

7. I'll play devil's advocate here

As from a Libertarian I know...

What about this, to make a flat tax more fair?

Determine a reasonable sum for the cost of survival. We'll assume, say, $25,000 a year. (I live in Kansas.)

Say that the total tax burden, including sales, payroll, etc., is set at 20%.

At the end of each tax year, then - everyone gets a tax credit of $5000. (20% of 25K.)

This way: the person who earned $25,000 a year, barely enough to survive, doesn't owe anything. He effectively gets a refund on all the sales tax he spent over the year, too.

The guy who makes 5 mil a year gets the same $5000 back - but considering he kicked in 1 mil in taxes over the year, it's not a big refund.

Do you think this would work?



P.S. Most republicans favor a flat tax because they think it would lower their net taxes - they're convinced they'd still be entitled to tax shelters of various kinds under the new system. It's not really about fairness.

[Liberal Classic]

21. This is Milton Friedman's negative income tax

As a nigh-libertarian, this system appeals to me. It's meant to do two things, 1. simplify the tax code, and 2. simplify welfare programs.

The first thing you do is calculate the povery line, or cost of living, whatever you want to call it. Then you set the tax rate. The way the negative income tax works is people are taxed at a flat rate, but they are rebated 50 cents on each dollar they earn until they reach the poverty line.

If we assume the povery line to be at $25,000 as in your example, then someone out of work would receive a subsidy of $12,500. This may not seem like a lot of money and this may not sound too different than various subsidy plans, but what happens as a person begins to earn some money is important.

One of the problems with many welfare programs today is they are on or off. As soon a person gets a low paying job doing something, welfare payments stop immediately, and the bad result is often a person ends up with less net income then whan they had receiving welfare. I know this to be true from experience in my family. This difficult to get back on your feet. The interesting thing about the negative income tax is that it slowly scales downward with each dollar earned elsewhere, instead of cutting someone off cold turkey.

What's different? Instead of cutting this person off cold turkey, the negative income tax rebate is reduced for $0.50 for every dollar earned income. For example, if this person gets some side work less than a full time job and gets $6,000, the negative income rebate is reduced by $3,000 to $9,500. Add $9,500 subsidy to the $6,000 earned and this person's income becomes $15,500. Note that this is more than either the subsidy or his income alone. Now for example, let's say this person takes a job that pays $7/hour or works out to $14,500 per year. This is still less than the so-called poverty line, so this person still receives a subsidy. $14,500 divided by two is $7,250 and this amount is subtracted from the maximum rebate amount giving a subsidy of $5,250. Add this to his wages and his income is $19,750 total. Still less than the poverty line but less so.

The advantages to this system are many, but the most important thing is a person receiving subsidy never makes less money than before. Instead of being cut off, subsidy is scaled back gradually. Under the negative income tax people are not penalized for getting a job, or making a little more money, or saving money for a rainy day.

[bloom]

8. fines

"In Finland, they have a system whereby speeding fines are based on income, and the president ended up with a ticket with a $100,000 fine attached to it."

I've thought it would make sense to have such thngs as fines be based on income. I didn't know anyone was doing that. Otherwise - it's not anywhere near an equal penalty.

[cprise]

12. Reasons

Why Flat Tax Isn't Fair:

A) For the rich, subsistence (food, shelter, etc.) are scarcely an issue at all.

B) Their huge discretionary income and social links with the weatlthy constantly ensure they have the better investment opportunities. This implies greater responsibility.

C) The rich, though they are few, have most of the collective bargaining power in determining wages. Corporations can always pick and choose the lowest-bidding applicants (in the interests of their shareholders/execs), while labor usually only has the non-union bargaining power of individuals. You can't maintain an open meritocracy with a flat tax unless all labor is garuanteed a form of independant collective bargaining.

D) Progressive tax is a feedback mechanism that helps keep a small group of insiders from cheating and essentially owning everything before the public figures out what is happening. (e.g. it helps keep the upper class honest and competitive).

[Kamika]

15. How would this work as a flat tax

The goverment would decide the cost for livin, lets say cost for livin would be 700 a month that would include food, rent etc etc

(ofcourse the cost would differ depending how many kids yadda yadda)


Then the lets say 15% flat tax would be applied to your income minus the cost for living

so a guy earning 1500 a month would get taxed 15% on 800 while the guy making 10000 a month would get taed 15% on 9300

[Liberal Classic]

16. It depends on what the definition of "isn't" isn't.

Does exceeding the legally permissable speed cause $100,000 in danages? I don't believe this is equal treatment under law.

The problem is that not everything that people have to spend money on is priced as equal percentage of income for everyone.

Equal percentage isn't an equal amount, it scales based on the person's ability to pay. At a tax rate of 10% at 10,000/yr I would pay $1,000, but if I earned 100,000/yr I would pay 10,000.

How is this patently unfair? It treats people equally under law. If this is too burdensome for the poor, then simply add personal exemptions.

$10,000
X 0.10
------
$1,000
-5,000 personal execption
------
$0 tax owed.

Is this unfair?

I am not a strong supporter of the flat tax, but it has one real advantage: that is simple enough for almost anyone to understand, which is also a significant advantage over the current system. Often, even the IRS cannot agree on what the 50,000 pages of tax law means. If the people in charge of revenue have a difficult time undestanding the tax code then we have a serious problem.

[jiacinto]

19. It isn't fair

Let's say we cap it at 15%. 15% of someone making only 20,000 a year is a much tougher than the $150,000 one making 1,000,000 must pay. The Forbes proposal, as I remember it, eliminated all deductions too. That tax isn't fair. For that $3000 that that the 20K person must pay eats out much more of his income. Then you add how uneven the cost of living in America is and you see the unfairness in that.

[Muddleoftheroad]

20. Deductions

Realistically, you can't eliminate all deducations, but you could simply the code and minimize them leaving:

* The home interest tax deduction because it both encourages home ownership and it is a sacred cow.
* The charity deduction because charitable gifts are a good thing and very popular.

[Liberal Classic]

22. The mortgage interest deduction is corporate welfare

And also a middle class entitlement. Instead of paying taxes you can pay interest on a loan. This is clearly a give-away to the banking industry.

[MiltonLeBerle]

23. Mortgage interest deduction on primary residence only-

how would that be "corporate welfare"?

[Liberal Classic]

24. Middle-class entitlement and corporate welfare

Instead of paying taxes on income, you can deduct interest income paid to your lender from taxable income on form 1040. The banks get money they otherwise wouldn't have because they can sell bigger loans, the real estate and construction industries benefit as well.

How can you not call the mortgage interest deduction corporate welfare? It is a sacred cow, though.