Give me some good arguments against a flat tax.

[KitchenWitch]

I know that a flat tax would never fly, but why is it such a bad idea?

What I mean by flat tax, is that everyone, no matter what income bracket, gets taxed at the same percentage rate...no loopholes, no tax writeoffs, no tax credits etc. This includes both individuals and corporations...

[imenja]

1. it favors the wealthy and overtaxes the poor

which is its intent. A progressive tax system is far fairer.

[Hugin]

18. How? How can it possibly be more unfair to the poor than...

the consumption tax system we're being exposed to
now?

3% is 3%.

[imenja]

41. we don't have a purely consumption tax system

a sales tax is regressive. The income tax is more progressive, but far less than it was before Regan. 28% of a poor person's income takes food from the table. It's far more onerous than 28% of a wealthy person's income. The rich benefit more from society. The government does their bidding. They should pay more.

[magellan]

2. Flat tax is a regressive tax

The poorer a person is the more it hurts them. Someone who makes six figures isn't going to be nearly as hard-pressed to pay, say, 24% tax on their food, fuel and clothes as someone who makes <$20,000. And I've heard that for the flat tax to work it would have to be in the region of 40%.

Edited to take out 'sales' to describe the tax

[recidivist]

15. Most proposed "flat" taxes are progressive.

A progressive flat tax would be achieved with a high zero bracket amount. The flat tax rate would be applied only to amounts above the threshold. I've not looked at the current flat tax models for some time, but let me make up a round numbers illustration.

Suppose the zero bracket amount is $25,000 and the flat rate is 20%. Now compare four taxpayers making $25,000, $30,000, $50,000, and $100,000 respectively.

The first guy, at $25,000, pays nothing.

The second guy has the first $25,000 of his income exempted and pays 20% on the remaining $5,000, for a total tax of $1,000 which works out to an effective tax rate of 4%.

Contestant number three, the $50,000 per year guy, has the first $25,000 exempted and pays 20% on the remainder. Total tax is $5,000. Effective tax rate is 10%.

Daddy Warbucks, the $100,000 guy, also has the first $25,000 exempted. He pays 20% on the remaining $75,000 for a total tax of $15,000 and an effective tax rate of 15%.

And so on.

As we move up the income scale into the high six figures, the initial $25,000 dwindles in relative importance and the effective rate approaches 20%. The shape of the curve can be modified by raising or lowering both the amount exempted and the tax rate applied to the remainder. The point, however, is that for the great bulk of the population, a flat tax system can be made highly progressive without the vast complexity of the current system.

What is lost in such a system is the ability to impose extremely high, soak-the-rich rates on the top one or two percent, i.e., the people in the $300,000-plus range. This objection is undermined by the fact that people in the upper tax brackets usually have ways to shelter their income and don't actually pay the very high nominal rates to which they are theoretically exposed.

As a practical matter, we might very well get more money out of upper income folks with lower nominal rates. This in fact has been our consistent experience with the several reductions in capital gains rates over the last 15 years or so, and it is arguably the case with lower income tax rates as well. (That gets into a more complex modelling argument, and the time horizon is important.)

But however you want to slice the numbers, you should not start with the assumption that flat tax proponents want minimum wage people to pay the same rate as millionaires. I have never seen a flat tax proposal that would do that. Every serious flat tax proposal incorporates a high zero bracket amount to protect lower income individuals.

[Lydia Leftcoast]

23. But...

"What is lost in such a system is the ability to impose extremely high, soak-the-rich rates on the top one or two percent, i.e., the people in the $300,000-plus range. This objection is undermined by the fact that people in the upper tax brackets usually have ways to shelter their income and don't actually pay the very high nominal rates to which they are theoretically exposed. "

Then the answer is to get rid of the tax shelters, yes? Tax capital gains at the same rate as earned income. And if corporations are persons under the law, tax them at the same rate as persons--25% on all net income above $25,000 under your proposal. :evilgrin:

And don't give me that crap about "taxing the same money twice. If a person buys stocks with his extra money, the dividends are NEW to him and no longer "belong" to the company that issued them. Taxes are levied on PEOPLE, not on dollar bills.

I'm seeing a huge hole in your argument, recidivist. You want a flat tax for the middle-class people who are struggling to survive on two incomes, but you want a smaller rate for capital gains, which are usually interest on or appreciation of investments bought with surplus income.

I'd be for a flat tax ONLY if it applied equally to earned income, income from investments, and the corporate tax.

[recidivist]

40. Partial agreement.

In an ideal system, I agree that capital gains should be taxed as ordinary income. However, if we do that we also need to index them for inflation. The only justification for a lower capital gains tax rate that I've ever credited is that it partially compensates for the lack of indexation.

I do disagree with you about corporate taxation. To tax an earnings flow at the corporate level and then again when dividends are distributed is double taxation. The simple (though politically off limits) solution is to abolish the corporate income tax and tax all corporate earnings as individual income when they are realized by stockholders as dividends or capital gains. Nothing would escape taxation, and the economy would be rid of the corporate income tax with all its vast complexity and distorting effects. I would be willing to place a small wager that the Treasury would come out ahead.

As to tax shelters, I'm generally in favor of doing away with them. If I were King For a Day, I'd do a clean sweep, including the big ones: the home mortgage interest deduction, the non-taxable status of employer contributions to health plans, the tax exemption for state and municipal bonds (the biggest loophole on the corporate side, IIRC), etc. I would also treat all transfer payments as taxable income. We should treat all income the same. Then we could have a clean free-for-all about the rate structure.

The basic formula for reform, IMO, is to broaden the base and lower the rates.

[WCGreen]

78. Capital Gains are indexed for inflation even before they

get special treatment....

In the tax reform act of 1986, the tax brackets were released from being static and floated upward along the lines of inflation..

Plus the exemption and the standard deduction also were index to inflation...

[PurityOfEssence]

113. "Double taxation" is a bullshit concept under current laws

Investing in a business is a gamble, and taxation is a COST of the venture.

Taxation isn't ugly thievery, it may be improperly assessed, but it's NOTHING MORE THAN A COST OF THE ENTERPRISE.

Sick, and deeply ingrained within our national consciousness is the fundamental agreement that NOBODY SHOULD EVER TAX US FOR ANYTHING, especially those of us who have some spare money to invest.

This is a truly sick assumption. The regulation and governmental expenses that are NECESSARY to keep our speculative economy free from disruption COST MONEY. Those monies should come from those who gain from this wealth welfare: those who invest.

There is no such thing as double taxation. It's the bellyaching of would-be aristocrats who just can't hack it. Those who complain of this are LOSERS and assholes. I invest and feel that entities in which I invest should pay taxes to defray the services they get from taxpayers. It's not punishment, it's simply paying one's bills.

If there was a TRUE flat tax, I might be persuaded, but it would have to be one with NO LOOPHOLES. I'll give up my mortgage interest write-off. I'll even give up the child-rearing credit.

Let's talk about a "net worth" tax; that'll end the debate.

People who want to make life simple are simpletons. Life is complex, and the needs and abilities of individuals are wildly varied. Trying to make things easy when they aren't is contrary to the heart and soul of civilization. For all the libertarian bellyaching about the wasted time of such complexity, we're far better off with the specialization that society brings us.

Besides all that, vast sweeps of the economy are dependent on the business of our current convoluted tax laws, and although dispensing with many of these laws wouldn't bring too many tears to my eye, I don't think they could be implemented all that well over such chorusing objections, and in interest of us all, it would need to be done gradually to avoid too much shock to the system.

[RUMMYisFROSTED]

28. I proposed a progressive flat tax like this here a few years ago.

After much discussion the zero bracket would have to be in the $25-30,000 range. And, as LL said in the above post, all tax shelters would have to be removed.

You can "soak the rich" by increasing the percentage of the flat tax while raising the point at which the zero bracket begins.

I'm much less interested in soaking the rich than relieving tax pressure on those in the lower earnings brackets. I think the benefit of such a progressive flat tax would be monumental. First, it is extremely simple and facilitates revenue collection. Second, all person's income at, or near, the zero bracket is disposable (minus housing, food and clothing). The effect on the economy would be beneficial to all. A person making $25,000 would have a disposable income in the $10,000+ range (I can hear the Capitalist's salivation hitting the floor!)

Basically, the formula needs to be tweaked so that revenues match the revenues of the current tax system. I'm not exactly sure what the numbers are but it would be a pretty simple calculation for a competent economist.

Does anyone believe that someone making a billion dollars a year is paying $200M in taxes currently? I sure as hell don't.

One final caveat: This system would also have to apply to corporate profits, thereby furthering the level at which the zero bracket begins.

[recidivist]

42. I agree.

I don't know the magic numbers regarding the zero bracket amount and rates, but I accept the necessity of raising as much revenue from the new system as the old. In principle, if we enacted reform on a revenue neutral basis, the average Joe should not have much to fear. Some people would gain, some would lose, but the pluses and minuses would balance out. That's in a static model. Since there would be substantial efficiency gains, most of us would probably be better off, even in the short run.

[RUMMYisFROSTED]

43. I suspect that 80% of the population would either break even

or benefit.

The problem is that the other 20% will fight tooth-and-nail to prevent it from happening. And, unfortunately, that 20% holds all the reins of power.

[1932]

88. Why don't you want millionaires to be taxed fairly?

A person making 1 million and a person making 900 million are in very different economic circumstances.

By not allocating the tax burden fairly within the range of incomes you want to tax you're creating all the inequities that a progressive tax is meant to address, but you're just creating it for a different class of people.

A flat tax on millionaires would also shift the burden off the wealthiest and on to the people at the bottom end of the scale which would just mean that you're making it easier to be super rich -- rewarding super-wealth, and making it harder for people who were starting up businesses or working to earn their millions.

So Rockefellers and Bushes can always run the world, and can make their sons president. But you wouldn't get the Steve Jobs people or Harvey Weinsteins or Bill Gates to crack into the ruling structure. Actually, that's sort of what we have anyway.

Society has to allocate tax burdens equitably even for millionaires or you'll have a society which rewards wealth with wealth and not work with wealth. That's why progressivty shouldn't stop at 50,000.

[RUMMYisFROSTED]

105. As I said in my previous post,

I'm less worried about taxing the wealthy as I am alleviating the tax burden on the poor. By creating a zero bracket at $25-30,000 you've helped the 50% of the people who need it most.

If you want to add a codicil that hammers wealth over a couple hundred grand....count me in.

[1932]

112. You don't have to hammer anyone. The economic advantage of allocating...

...the tax burden fairly makes sense betweeen any two points on the income scale, whether they're 10k and 30k, or 40k and 200k, or 1 mil and 100 mil.

Read my post below.

Think of it this way: say your proposal taxes 1 mil at 30% and it takes 100 mil at 30%.

Depending on what the economy is like, you've either (1) hammered 1 mil and lightly touched 100 mil, (2) you've really hammered 1 mil and taxed 100 mil fairly, (3) you've lightly touched 1 mil and really lightly touched 100 mil, or (3) you've taxed 1 mil fairly and you've lightly touched 100 mil.

See how that works? There's such a broad range between those two points that there's no way you've taxed them both at a rate that captures their marginal value of an additional dollar in income, so not only are you not spreading the burden failry between those two earners, (1) you're not maximizing tax revenues, (because you could be taxing the higher earner more, if it were fair), and/or (2) you're destroying the economy by not allocating taxes fairly within that range, thus creating in that range a static group of already wealthy and a group below that you could never get wealthier no matter how much harder they worked because the tax code unfairly gave them a greater tax burden relative to the super-wealthy. So long as there were a super wealth person who wanted to steal their business, they'd have the tax code giving them a large competitive advantage.

Bottom line: the tax code shouldn't hammer anyone. It should allocate the tax burden equally so that the tax code doesn't get in the way of a proper reward mechanism for working hard. And that applies throughout the entire range of income.

[RUMMYisFROSTED]

115. In order for me to respond thoughtfully, please give me

a thumbnail sketch of the system that equally allocates the tax burden, in your opinion.

Just as an aside, the flat tax that I proposed was just that: a flat tax. I was envisioning the best possible way that a flat tax would be fair to the most people. However, if I were to envision the system that I could put into place if I were King, it would look something like this:

0-200 No tax
201-15,000 $1 (nominal tax that invests the individual in the system)
15,001-15,999 1%
16,000-16,999 1.1%
17,000-17,999 1.2%

skip for time purposes

30,000-30,999 5%
31,000-31,999 5.5%

skip

50,000-50,999 10%

skip

200,000-200,999 38%

skip

500,000-500,999 70%

skip

1,000,000-1,000,999 75%

skip

1,000,000,000-1,000,000,999 80%

skip

10,000,000,000-10,000,000,999 87%

etcetera


Figures don't exactly reflect the system I would put in place but give the general idea of what I would try to do. Basically it would create a disincentive for gathering more and more wealth just for the purpose of gathering wealth. Kind of a de facto law against greed. Also, no tax shelters. Anyway, I think you get my point.

Now, about your system?

[1932]

116. An economist with a team of mathematicians and a couple days to spare

can do a more precise analysis, but maybe it would be something like this:

First, you have to tax income from work lower than you tax income from dividends and income from capital gains.

Then you have to come up with some kind of method for analyzing the relative marginal valuation of an additional dollar for people at all points on the income scale, and then you have to tax accordingly.

You might find that it makes sense to tax like this on earned income:

0-25k: 0%
25-150k: 5%-15%, in equally divided 1% increments in each 12,500 band.
150k-500k: 15%-20%, in equally divided 1% increments...
500k-10m: 20%-25%, in .5% increments in sub bands.
10m-100m: 25%-32.5% in .1% increments...
100m-top income earned: 32.5%-38% in .05% increments in equally divided bands.

Then do a similar analysis with cap gains and dividends.

Maybe the top dividend rate will be 50%. Maybe the top cap gain rate will be 45%.

But I have to emphasize, this is based on no data and not mathematical analysis, and something fair might be very different, like a long low slope that jumps at some point and becomes steep, or a relatively steady increase that flattens at the top (which I doubt would be the case). Get the picture?

And I wasn't so much interested in the precise numbers as the theory behind it.

You do admit that the point of progressive tax is to allocate tax burdens fairly, don't you? You acknowledge that people who have less money value another dollar in income much more (because they have to work harder to get it and it can change their circumstances much more) than a person who has a lot of dollars, right? And taxing them the same on that dollar is actually burdening the poor person more, right? And that logic applies the same between people making 5k and 15k as it does between a person making 1 mil and 100 mil, right?

You acknowledge that, right? So a person making 1 mil, shouldn't pay the same tax as a person making 100 mil.

The tax code should do two interrelated things: it should spread the burden fairly, and it should make sure that it is not in itself creating competitive discrepancies between people at different points of the income scale.

[RUMMYisFROSTED]

117. 25% in the $100M bracket?!? Outrageous.

For all practical purposes, that's not even a tax. What's the real world difference in having a $100M or just $75M? Zippo.

Nobody, and I mean nobody, deserves to horde wealth that is unspendable. It's a leech on society. That number is debatably in the single digit millions.

You acknowledge that, right? So a person making 1 mil, shouldn't pay the same tax as a person making 100 mil.

Yet your chart effectively does that. :shrug:

[1932]

118. Nobody makes earned income that high. High capital gains/dividend taxes

will turn the effective rate of taxation on that that kind of income into a higher rate than 25%.

I believe the effective rate of taxation on income (earned and unearned) of 100 mil is below 16% today. Remember how Kerry's wife (a woman with almost 1 billion in assets) pays an effective rate of 14%? That's because she has almost no earned income, and the rest is dividend income or long term capital gain taxed at 15%, plus municipal bond income which isn't taxed at all.

I have no doubt that a 25% rate on EARNED income of 100 mil plus a capital gains rate of 40% and dividend rate of 50% on high levels of unearned income would be much more progressive than the tax code we have today.

However, as I said, I'm not so interested in the actual numbers -- I'll leave that to the economists -- as I am in the philosphy, which is that a flat rate across any broad range of income is inherently unfair.

[RUMMYisFROSTED]

123. I think we're in basic agreement, philosophically speaking.

:toast:

[cascadiance]

126. Well, any one that argues that having high rates on the very rich damages

... the economy can be given the following response.

Back when Kennedy was president, and the economy was doing rather well then, thank you, he actually "lowered" the top income tax levels from 91% to 70% in 1963. That helped the economy a bit then, but one could argue that the wealth gap between the wealthy and the poor then was not near as great as it is now, and then perhaps giving the wealthy a bit of a break from that bracket helped some. But today's folks with their top marginal rates less than half of that aren't hurting at all in my opinion.

I would also argue if giving the rich more money than the poor is supposed to help the economy, then why HASN'T it already over the last 5-20 years! Arguably, the wealthy people during that time have gotten wealthier, while those underneath them have gotten poorer or at least not increased their net worth near as much. So if them having more money helps "fuel" the economy, then the empirical evidence over the last few years says that it hasn't!

[RUMMYisFROSTED]

127. Yes, it is clearly bullshit.

What else can I say? :shrug:

[1932]

130. The high rates before '63 were justified by the fact that it was

easier to make money if you had a lot of money in the '50s because the economy was on fire.

By the late 50s, the economy had slowed down, but Eisenhower was afraid to adjust the tax brackets to account for economic reality because he thought he'd be accused of helping the rich.

That wasn't a risk for Kennedy because he was a Democrat, so he did what everyone knew had to be done.

See, the progressive thing to do is to match the tax code to economic reality. It's NOT progressive to say hammer some people and don't hammer others. The key is spreading the burden equally. Get it?

[hfojvt]

53. I believe those numbers are out there

Two things happened in the 1980s with ERTA - the top rate was reduced from 70% to 40% AND income tax revenues went down. So I do not buy the argument that top income people were not paying the top rate because of their loopholes.

A third thing is well known from the 1980s as well - CEO salaries that took off like a rocket. I have said it before, and yet to see it refuted - a 70% rate is a major disincentive to higher CEO salaries. Why would anyone want another $10 million in pay if the government is going to get $7 million of it?

As far as wanting to "soak the rich" I believe that the rich are stealing from the rest of us. Ted Rall did a great summary in "Revenge of the Latch Key Kids"

"As Juliet Schor, author of "The Overworked American", says, society could choose to exploit the postwar productivity gain in any of several ways:
We all could have double salaries.
We could be working 20 hour weeks.
We could work six months a year.
Instead, some of us are working multiple jobs with insanely long hours for low wages, while others cannot find work at all.
The money generated by that hidden boom in productivity didn't disappear. The vast majority of it went to create an unprecedented upper strata of wealthy Americans."

Of course, the story is that those CEOs are super-productive, they work smarter, not harder. Sure, one year Michael Eisner made over $12 per second for every second of the year. He made over $300,000 for a good night's sleep. Now that is some productivity. And Bob Dole, how much did he make from those Pepsi and Viagra ads? Yeah, those poor, poor, over-worked and over-taxed rich people. Bush's heart bleeds for them - he's a compassionate conservative after all.

[RUMMYisFROSTED]

106. "I believe that the rich are stealing from the rest of us."

No shit.


(said in a sadly acknowledging manner, not a confrontational one)







ETA: a "g." So I forgot a "g." Big damn deal.

[1932]

119. So how does a flat rate on all income over $X solve that problem?

[RUMMYisFROSTED]

128. See post #115. Specifically:

Just as an aside, the flat tax that I proposed was just that: a flat tax. I was envisioning the best possible way that a flat tax would be fair to the most people.

Talking about the best flat tax. Not the best tax.

[Mairead]

99. They're regressive by definition!

A perfectly progressive tax would leave everyone with exactly the same amount of disposable income.

Any system that burdens people with more money less than it burdens people with less money is regressive.

It might be actively regressive, such as systems that provide loopholes that allow the wealthy to avoid all tax, or passively regressive as in the case of flat-tax schemes, where no matter where you put the tax-free point, the top 0.5% of wealthholders will be less burdened than the people who are at the bottom of the taxable bracket.People might say 'who cares if the merely-wealthy get soaked more than the ultra-wealthy--they can all afford it', but we should be concerned with fairness for all...shouldn't we?

[Egalitariat]

31. This post references a sales/consumption tax. Not a flat tax.

A flat tax, by its very definition, is neither progressive nor regressive.

[Frederik]

3. Good for the rich, bad for the poor

In other words, fundamentally regressive and anti-social.

[Floogeldy]

4. Hey. What are you doing over here?

Get back to the lounge. Right now.

B-)

[Trajan]

5. From The Pen of Adam Smith ....

"The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ....<As Henry Home (Lord Kames) has written, a goal of taxation should be to> 'remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'"
-- Adam Smith, Wealth Of Nations

[pnorman]

11. I have a Noam Chomsky CD that went into Adam Smith in some detail.

He pointed out that Adam Smith and Karl Marx drew from the same intellectual roots, and made idiots of those who pretend to be followers of Adam Smith. But that's the first time I've ever seen that quote. THANKS, I'll save it and put it to good use. (DAMN!! this DU is the most valuable resource I have, besides Google).

I have Adam Smith's "Wealth of Nations" stashed away in my computer and also on my PDA. Here are a few download sources:
http://etext.library.adelaide.edu.au/aut/smith_adam.html
and
http://memoware.com/ (This give it in formats suitable for Palm OS PDAs. Search out "Adam Smith").

pnorman
On edit: I sorta question that estimate of 40% for a workable Flat Tax, but this much can be assured: The usual suspects (Pioneers Club etc) will make DAMN sure that they get a "fair return on their investment". In short order, any such Flat Tax will be riddled with "special exceptions", and almost invariably squirreled away in obscure riders to routine bills.

[Mairead]

25. Just for reference, that comes from Book 5, Chap. 2, Part 2

Here's another nice one, from a few pages further on (Article 3):

In all cases a direct tax upon the wages of labour must, in the long-run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed from the proper assessment of a sum equal to the produce of the tax, partly upon the rent of land, and partly upon consumable commodities.

In other words, a sensible government will tax only non-labor income.

[K-W]

84. Right, becuase labor is already exploited by the capitalist system.

It is redudent to tax it.

The tax should come from societies fat, which accumulates at the top.

[Tommymac]

66. Great Quote...thanks!

Never knew Adam Smith was a proponent of Social taxation...I am saving this one! :)

[TomClash]

6. You get less revenue

in the short run. It's politically impossible because everyone in America wants deductions, especially home mortgage interest. Better off people have more at stake so why shouldn't they pay a higher percentage to be protected.

That said, we already have a de facto flat tax at the federal level. Look at sources of revenue streams and the taxes they pay. Not too progressive.

[KitchenWitch]

7. My thoughts exactly

There seem to be far more write-offs and tax credits for the rich and the corporations than there are for the poor and middle classes.

[Snotcicles]

14. Poor people can't buy anything to write off because all there income

is spent just trying to survive.

[TomClash]

44. Supply siders

will tell you the flat tax generates more capital investment and that in turn generates more economic growth. Two problems with this argument - there's currently a glut of private capital and there is no statistical analysis to support this contention.

[Anarcho-Socialist]

8. There wouldn't be enough revenue from a flat tax

which would force the state to either:

a) cut-back on social programs which usually benefit the most vulnerable and worst-off (since I don't think even a Democratic government would cut-back on the military significantly).

OR

b) make-up the revenue shortfall by indirect taxation (i.e. sales taxes). Since the poorest spend almost of their money just to obtain life's essentials, it means a lot of their purchases will be taxed. This means that they will pay a higher proportion of sales tax (relative to income) than the wealthy (who don't need to spend all of their income). Increases in prices will affect the poorest the most.

[Lydia Leftcoast]

26. Option three

3) Put even more governmental functions on the backs of the states, which will then raise their own sales and income taxes sky high to cover their needs.

In effect, the Republican/Libertarian dream will have been fulfilled. The Federal government will pay only for repressive functions (the military). The states will struggle even more than they are now and cut even more social programs, making the poor even more desperate, so that they will take sub-minimum wage jobs and live in even worse conditions than they do now, so that the rich can despise them even more.

[Tommymac]

67. This seems more like the reality

we have now, not a theoretical option.

Joe and Jane Sixpack want everything to be free... yet Joe Sixpack never thinks about what day to day necessities taxes actually pay for...common property such as roads, water treatment plants, sewer lines, etc. Someone has to pay for that stuff...and by decreasing Federal support, the State and Localities must make up the difference. And those lesser entities don't have as much oversight, and are more prone to waste and corruption.

I personally have no issue with taxes...it's the inefficiency of the bureaucracy that spends the money that is the problem IMHO. The overhead is killing us...of coarse, the 'overhead' is one of the best places for con men to skim off their take....

[wli]

9. regressiveness

The regressiveness of flat taxes depresses consumer spending, which depresses the economy. A scientific taxation strategy would be vastly superior to what we have now.

[KitchenWitch]

10. Explain what type of scientific taxation system

A tax algorithm?

[Egalitariat]

34. My guess is that a "scientific taxation system" would have us

spending $2,500 for lawyers and accountants to figure out we owe $1,000 in taxes.

[wli]

75. even more vague

Just one based on actually studying the effects of the taxation using real economics impartially and so on. You can calculate taxation curves with meaningful properties via dynamic programming and the like if you want something like an algorithm, though in most cases I've found no optima exist.

The big issue I had was non-monotonocity of income. An example of being scientific about it would be to use splines or similar constructs to devise a tax curve resulting in monotonically-increasing income. This is clearly oversimplified, but you get the idea.

[Egalitariat]

32. Flat taxes are neither regressive nor progressive

As a matter of fact, that's what makes it a flat tax.

[wli]

76. depends

It's definitely socially regressive.

[Mairead]

101. Not so. The definition of 'regressive' is that the burden becomes

less as wealth increases. It's a right-wing sleight-of-tongue to focus on the tax itself. It's the burden that matters when talking about progressive/regressive, not the absolute numbers.

[Egalitariat]

102. If that were true, there'd be no such thing as a progressive tax

Only "less regressive" ones.

[Mairead]

108. Not so. A perfectly progressive tax is one that leaves everyone

with the same amount of disposable income, just as a perfectly handicapped horse race is one that has all horses crossing the finish line together.

To get a perfectly progressive tax, total up all possible tax sources, subtract the amount needed to run the state, and divide the remainder among all participants.

A perfectly-progressive tax scheme wouldn't be a good one to use in practice as long as we teach dog-eat-dog competition in the schools, but we could move to it after three generations of mindset conversion.

[Egalitariat]

111. So, in a perfectly progressive system, everybody gets the same

benefit regardless of their contribution?

That would sure make Mondays a lot more palatable.

[Mairead]

125. "regardless of their contribution" is a right-wing way to look at it

because it focusses on the amount of money being taxed. Rightwingers like to pretend everything happens in a vacuum and results are entirely the result of individual merit or lack thereof.

But as people as different as Teddy Roosevelt, W.E. Deming, and Warren Buffet have pointed out, the socioeconomic environment within which wealth is accumulated by some but not others is a system, and whether some individual becomes wealthy or stays poor is more a function of the system itself than of the individual's absolute skill level. As Buffet put it, he could never have become wealthy in, say, Rwanda. His ability to become wealthy depended almost entirely on living in the USA during the 20th-early 21st c., an environment that strongly favors the particular kind of skill he has.

And, of course, as another example we have G.W.Bush, who is vastly wealthy despite having no useful skills at all. His wealth is due 100% to the system because it allows wealth to be accumulated without limit across generations. If our system instead only rewarded skill and effort, G.W.Bush would be a skid-row bum somewhere, or dead. He certainly wouldn't be wealthy or sitting in the WH.

So yes, a perfectly progressive tax system would result in everyone having the same amount of disposable income.

[KnaveRupe]

12. Here's how to explain it so even a freeper can understand.

Imagine two people, one who makes $10,000/year, and one who makes $1,000,000/year. Suppose the flat tax rate is 25%. (Remeber, the goal is nice round numbers for the Freeper.)

After paying taxes, the person earning $10,000 only has $7,500 left. If the poor bastard's rent + utilities = $500/month, that's another $6,000 for housing. If he can get by on $100/ month for food, that's another $1,200. He'll have to get by on $300 worth of clothing for the year just to meet the basic necessities of life. (Food, shelter, clothing.) And at the end of the year, he's still just barely treading water.

Now, let's head out to the 'burbs. After taxes, Joe Millionaire has $750,000 left over. To keep it all nice and round numbers, let's assume his mortgage + utilities = $10,000/month. Let's suppose his food bill is $2,000 a month (he buys caviar and champagne, rather than ramen noodles and malt liquor) And let's suppose he's a raving metrosexual who drops $20,000 a year on clothes.

Joe Millionaire still has $586,000 left over at the end of the year to buy Porsches, vacation in Arruba, and invest in his kids' trust funds.

THAT'S why the flat tax hurts the poor more than the rich - food, shelter, clothing. Those basic necessities don't scale equally.

[postulater]

17. Then Joe Millionaire takes some of the leftover that he couldn't spend

and buys Poor Bastard's house. He rents it to Poor Bastard at $500 per month, probably raising the rent next year when the fuel cost increase will allow him to justify passing it on.

Joe Millionaire also gets his friend in Congress to pass a law making nearly all his investment income tax-free so he doesn't have to pay any taxes beyond his payroll taxes. And he makes sure that instead of a paycheck, he gets most of his money in things like stock options or other ways that he can avoid making them taxable. Then he can really make the big bucks by pocketing his investment profits.

Next year Joe Millionaire has even more extra money so he buys the company that Poor Bastard works for. He makes sure that he can fire Poor Bastard if PB squeals or anything, cuz he can always replace PB with another from the 30-40% of unemployed guys like PB in the city.

In four years he makes sure every county in the country has electronic voting machines so he can control who gets elected president. And he makes sure to keep the two party system intact by not allowing a none-of-the-above option and by preventing instant runoff elections that would encourage ideas other than centrist ones.

Meanwhile PB's roof is leaking.

[Hugin]

21. Nice rebuttal.

All too real I'm afraid.

[Kathy in Cambridge]

38. Great post

:toast:

[Hugin]

20. 25% is way too high of a number.

Studies have shown with a flat tax 3% is even too high.

The poor guy makes only $1 per year and pays $0.03.

The rich guy makes $100,000,000,000.00 and pays $3,000,000,000.00

Seems fair to me.

[KnaveRupe]

29. Could you provide some links please?

"Studies have shown" doesn't do me any good when I'm trying to form my opinions. I haven't done extensive research on it, but that seems very counterintuitive.

Thanks in advance!

[Hugin]

30. Ah, the link request... Last refuge.

I'll show you mine if you show me yours.

[Kathy in Cambridge]

39. You've been here long enough to know that you have to back up

your assertions. 'Studies have shown' is the equivalent of the Fox News mantra 'Some people say'.

[Hugin]

46. You've been around long enough to know plugging the words....

"Flat tax estimated tax rate" into google will
return all of the support I need.

I work with two assumptions on the 3% rate being all it would take.

1. WHEN EVERY DOLLAR IS SPENT 0.03 IS SENT TO THE TAX COLLECTOR.
2. EVERYONE (Including corporations) IS TO PAY ALL OF THEIR TAX.

No deductions... No corporate welfare... No exceptions.

[Kathy in Cambridge]

50. And that support is from right-wing sources that aren't condoned on DU

[Hugin]

54. Not all of them...

There are quite a variety of sources.

Take the Russian experience... (Not sure why Russia is
considered a RW source.)

or this one...

http://66.102.7.104/search?q=cache:WyIKW0m7e3QJ:https://econwpa.wustl.edu/~bob/e104/econ104sp96/COBB/flattax.html+Flat+tax+estimated+tax+rate&hl=en&lr=&client=firefox-a&strip=1

[KnaveRupe]

83. You're joking, right?

The link you gave is neither a study, nor does it cite the 3% rate you gave.

I wasn't asking for a link as a means to bust your nads; I was genuinely curious as to what sources you had. I assumed you had some ACTUAL links bookmarked or something you could steer me towards to so I could avoid the pages and pages of RW dross.

Now, however, it appears that you were talking out of your ass. If I want THIS kind of discourse, I'll head over to Free Republic.

[Hugin]

86. Try this one...

http://en.wikipedia.org/wiki/Flat_tax

If you read down you'll see an example of a 3% Flat Tax.

[Mairead]

97. Wikipedia has been taken over by the ideologues and is thus not a valid

citation. The economic definitions are NOT the product of consensus, but of religious fervor and the willingness to practice a scorched-earth policy. Just look at the definition of small-ell 'libertarian', for example.

[Mairead]

98. Your cite is to a right-wing source

The author cites 'studies' by the Kemp Commission, the Heritage Foundation, and the National Association of Realtors, as well as the opinions of people like Dick Armey. Those don't even begin to be scientific.

[Gormy Cuss]

45. No reputable economic analysis has pegged the flat tax number that low.

If you could cite some study specifics (authors, sponsorship,year published) I'd be happy to analyze the methodological report if I can't find an existing critique.

[Hugin]

47. Ditto back at ya on the 25%.

All I'm asking for is identical treatment of the 25% argument.

It's only fair.

[Gormy Cuss]

49. Pardon me, I never quoted 25%

There are a wide variety of so-called flat tax proposals, usually varying in what qualifies as 'income' and whether there are exemptions before the flat tax is imposed. I could spend all day trying to find the studies you cite, or you could reveal something that would make it possible for me to find these studies in short time. I read on this issue regularly and have never encountered a reputable economic analysis that pegs the number that low. Blowhard columnists and politicians who hide behind general statements come up with numbers like this. If these studies are out there, I'd love to review them because I could learn something.

[Hugin]

55. You could do the math yourself.

Find out the GNP of the US.

http://www.nationmaster.com/encyclopedia/Gross-National-Product

Define what the word "Earned" or "Income" means.

http://en.wikipedia.org/wiki/Income

Find out what the current expenditure of the U.S. Government is.
(That is what taxes are used for)

http://66.102.7.104/search?q=cache:8DHgBVdd_TEJ:cox.house.gov/annreport/ann_rep2004.pdf+United+States+Government+Tax+Income+2004&hl=en&client=firefox-a

Divide the GNP by the expenditures.

Multiply by 100.

There's the tax rate to maintain the status quo.

I really think the reason Flat Taxes are scorned is because there
are many people out there who can afford to pay people to keep them
from paying any taxes.

[Gormy Cuss]

63. Snarkiness is not constructive discussion.

Have I tried to insult you? If you think so, I apologize. I am trying to get beyond the "studies show" generality with you, and you're just throwing back snark as if that would deflect from the fact that you don't have citations,probably it's something you recall reading or hearing somewhere. That doesn't make your statement inaccurate, just unsubstantiated. If that's good enough for you, fine, but I thought you were trying to contribute to a reasoned discussion.

Taxation is a rather complex topic, and there are a number of economists who specialize in this area. I'd prefer to read their expert opinions rather than pretend my back of the envelope calcuations have any meaning.

[Hugin]

68. Complicated? How so when the whole point of a Flat Tax is to remove it?

I'm still waiting for any explanation of any tax rate. Where
are the studies showing what we have now is progressive and
fair. Haven't seen any of those bandied about.

Why of everyone here are my numbers being pounced upon?

My assertions are simple and straight forward.

Time for everyone to pay their fair share.

[Gormy Cuss]

73. You asserted 3% without attaching an economic defense. That's why.

Let me try one last time. When I said complicated, I refer to the current system of taxation which is complex and changing one component without looking at the whole picture can cause unintended outcomes, sometime better than expected, but more likely worse. Eliminating every form of Federal taxation and substituting a flat tax would be simple. The setting of the tax rate and the definition of 'income' is what would be complex.

I doubt you'll find anyone here who would assert that the current system is fair. What we have is a progressive income tax in that rates are higher at higher income levels. What we don't have is fair.

[Hugin]

80. Not that it matters... But, Illinois has a 3% flat tax.

"Illinois, Indiana, Massachusetts, Michigan and Pennsylvania — have a flat state tax on personal income, with rates ranging from 3% in Illinois to 5.3% in Massachusetts (Pennsylvania's is a pure flat tax, with no zero-bracket amount)."

Guess you'd need to ask them if it is working.

http://en.wikipedia.org/wiki/Flat_tax

[Gormy Cuss]

89. I've lived in one of those states you listed so I don't need to ask.

It's not a strictly flat tax. It's a flat tax on certain types of income after exemptions and deductions for a variety of items. Other forms of wealth accumulation were not defined as personal income and were subject to other rates (interest and dividend incomes earned in other states, for example.) In short, it wasn't a flat tax after all.

[hfojvt]

90. Kansas income tax is pretty flat too

and KC has a 1% city tax with no deductions. "Working" has a wide variety of definitions.
1) Is it bringing in "enough" revenue? The state of Kansas has been scrimping and worrying now since I got here. They talk about gambling and raiding my KPERS fund as a "solution". It is too bad we do not have Democrats in the legislature or the Governor to talk about "more progressivity" in the tax code.
2) is it hitting the working class harder than it hits the rich? - betcha by golly wow is tanj sure is.
3) is it creating a business environment and job growth enough to offset #2? - debatable.

[JanMichael]

95. Please refer to my post #27 for State and Local numbers.

That pdf report is pretty damned good and it lays out how, on total, regressive State and Local Taxasion really is.

There's no need to guess what the total burden is by State.

[hfojvt]

58. I just went around with Prof Gac on this a couple months ago

(and ended up finding out he was right, of course) Total income tax revenue is about 1 trillion. Total income is about 8 trillion. That looks like about 12.5% to me. That was from my 2001 Statistical Abstract of the US. Of course, that is just personal income. There is still the sticky question of how you define income. For a self-employed person, gross income is not "income" in the traditional sense, but once you go back to "net" income, you have introduced loopholes.
Plus, concentrating on the income tax ignores the elephant in the room since most working people pay much more in taxes to FICA and Bush is working like hell to steal that money, (and that money has been used for general expenses almost from the beginning). Well, at least they were, before they got derailed by Rovegate.
Finally, we really need to raise the rate if we are going to do something about the deficit and the debt. Currently, interest on the debt is a huge expenditure, that keeps getting bigger.

No, I do not have a link either, but a SAUS is available at most libraries if you wanna look it up yourself.

[Hugin]

71. What about corporate welfare?

How much corporate "Income" is taxed?

The rest of your post is very interesting.

[hfojvt]

82. corporate income tax brought a mere 207.3 billion in 2000.

that is from table 459 using OMB figures (Office of Management and Budget and they probably have a website). From table 718 corporate gross income was 17.3 trillion in 1998. Deductions were 9.4 (all numbers in trillions) for cost of sales and operations, .357 for compensation of officers, .31 for rent paid, .355 for taxes paid (I guess property, sales, state, excise, etc, maybe even FICA?),.967 for interest paid, .542 for depreciation, and .2 for advertising.

Leaving net income of .838 trillion or 838 billion. If you add back the 355 billion in taxes that is 1.19 trillion. Only 663 billion of the 838 is subject to tax for some reason, and net taxes after credits were 182 billion. 182/838 is a tax rate of 21.7%. 537/1193 is a tax rate of 45%. 537 out of 17,324 (gross income) is a tax rate of 3%. This was in 1998. I would guess all of those percentages are lower under Bush. But is that where the 3% number comes from?

Corporate profits of 838 billion are small change compared to 8 trillion in personal income, but the accounting probably needs a closer examination than I have the data for.
Unfortunately table 718 only goes back to 1980
year***gross***taxes***net in***in tax***% gross***% net
1980****6361****163*****239******62*******3.54*****25.9
1990****11410***251*****371******96*******3.04*****25.9
1994****13360***322*****740******136******3.43*****18.4
1998****17324***355*****838******182******3.1******21.7

[Hugin]

87. Oh, yeah... I forgot Corporations don't make any money.

That's their story... and by golly they're sticking to it.

[Mairead]

109. It's noteworthy that income from corporate tax and outgo for

corporate welfare nearly balance out, meaning that the corporate sector contributes essentially NOTHING toward national maintenance.

And since corporations benefit greatly from public expenditure, they're actually parasites! Which means that, since 85% of the profit from corporations goes to the wealthiest 10% of the population....

[Ravy]

122. Here are rosy estimates from www.fairtax.org.

they cite 23%, which most consider way too low since:

a) they don't take into account that rich people can just buy things overseas.

b) they don't take into account that money may not be spent at the current rate if it is considered a tax free investment if you don't spend it.

Use your head. It takes over 6% of the first $90,000 of everyones paycheck JUST TO FUND Social security.

Now. Your link please?

[Hugin]

48. Have fun...

Here's a dandy... There are many more if you'll search Google.

http://www.busn.ucok.edu/ole/Spring%201999/flattax.htm

As you can see... The only people who are hurt are the rich and
corporate entities.

They must begin paying their fair share.

[Gormy Cuss]

52. Thank you for the citation

However, it refers to a state tax system for Oklahoma, not the Federal income tax. Since state income tax rates and liabilities aren't on the same scale, it is not comparable.

[Hugin]

56. By that argument... Since we haven't ever had a flat tax rate in the US

At the Federal Level. It can't work.

You have a circular argument.

[Gormy Cuss]

62. You misinterpret.

By not comparable I am referring to the level of revenue generation expected by Federal taxes vs. state taxes. A 3% Federal flat tax would not be revenue-neutral.

[hfojvt]

93. Oklahoma probably gets away with a low rate

because they could be a member of OPEC. With gazillions of dollars of oil revenue flowing through a sparsely populated state revenue problems become very simple.

[JanMichael]

37. I've heard anywhere from 30% to 13% but never 3%.

I suppose it's just toss a number out and see if it sticks math?

[Hugin]

72. No, it is a number which has been around since Anderson ran third party.

The 13% to 30% numbers don't include taxing corporate income.

[JanMichael]

74. Does it include the plethra of Regressive State and Local Taxes?

Oh and Aderson doesn't mean doggie doddles to me, thanks.

I'm more of a numbers person who errs on the side of the Working Class and not the Plutocracy so unless there's something out there that has some meat, no thanks.

[Hugin]

79. So you're happy with the status quo?

Rich folks sheltered into paying nothing?

If you'd read my earlier posts in this thread you'd
see that I mentioned eliminating the other regressive
taxes. Such as sales taxes.

It's one of my caveats.

Anderson? 1984? Yeah, it's when Reagan was in office. Not
many people were listening to liberals and progressives
then like now. We were drowned out by the same supply
siders who are running things again.

[JanMichael]

81. Heh. Am I interested in the SQ? Not one iota.

I don't even know why I'm on this thread as I've abandoned the gradualist/incrementalist boat many years ago.

I'm more on the ParEcon (ZNET)line now so I should probably drop it.

What drew me in on this angels on the head of a pin argument was the apparent lack of will to defend the very principle of Progressive Income Taxation.

"If you'd read my earlier posts in this thread you'd
see that I mentioned eliminating the other regressive
taxes. Such as sales taxes."

Sorry I don't read every post on threads that I'm only marginally taxed (get it?) by:-)

[Hugin]

85. I say TAX 'EM ALL AND LET GOD SORT 'EM OUT!

No... Really, I agree with your defense of a would-be progressive
system if left alone.

Too much money to be made in churning it, however.

[JanMichael]

103. I'd rather sort them out here on Earth.

Sure it's messier but at least we'd see the "sorting out" first hand:-)

[hfojvt]

94. meat? meat?

I am shocked that you are not a vegetarian!! :hi:

[JanMichael]

96. In time I probably will be.

For now it's rare that we eat beef/pork but fish (and chicken) is a staple.

I suppose I haven't committed to the no animals lifesyle because I'm still more of an Economic Leftist rather than a Lifestyle Leftist:-)

[Ravy]

121. Do a bit more research please. Or point me to that study. (n/t)

[UrbScotty]

100. Hurting the poor more than the rich is also un-Christian.

Remind them of that, too.

[sweetheart]

114. Heres how to explain it so even DU can understand

Presuming a flat tax is implemented as a consumption tax with basic
consumables exempted. (progressively)

The one who makes 10,000 per year spends almost all their money on
necessities. As these are exempted from the tax, this person is not
taxed at all.

The one who makes 1,000,000 per year, buys a fancy car for 100,000 and
is taxed 25,000 dollars when they make that purchase. This person is
as well not taxed on basic necessities, however as they're inclined to
lavish in luxury, the tax does not cover luxury items and the person
ends up paying 200,000 dollars in tax.

The result is a fool-proof tax system, where the IRS does not focus
on individuals at all, nobody has to file a tax return ever or pay for
tax filing services. The entire thing is progressive and works at the
point of "spending". Instead of having 140,000,000 tax filing individuals,
the IRS only focuses on 14,000,000 corporate entities who remit the
sales tax. HUGE tax savings from efficiency and improved collections
cause a huge improvement in economic growth, as is evident in several
nations in europe who are now using a flat tax and observing
high economic growth rates.

But because people are stuck in the mud, and attached to filing huge
tax forms and keeping an industry of waste in business, they'd rather
forego a good idea for something wasteful.

A flat tax can be progressive... it is a fallacy to pretend that it
is only a conservative thing... it is rather a tool, like a hammer
and only the user of the tool determines whether i is progressive
or regressive.

[indepat]

13. Are you going to play like payroll taxes are a tax and eliminate excise

taxes? Don't have the link, but data are out there to demonstrate the bottom 20% of income pay about the same percentage of their income in taxes at all levels of government as the top 20%, this even before the Bush II tax cuts. The extremely regressive tax scheme now in place would be even more regressive and every Repuke knows and loves it.

[recidivist]

16. Good question, but don't leave out the EITC either.

Under the current system, lower income wage earners pay virtually nothing in income taxes and get a big chunk of their other taxes (payroll, state income, sales, etc.) rebated through the EITC. A big chunk of the American public thinks April 15 is payday.

[indepat]

124. Agree EITC is just a form of welfare that should never have been in the

internal revenue code IMHO, EITC must be taken into account to realistically assess the total tax burden of the segment of the population receiving EITC.

[Hugin]

19. It would put a whole lot of accountants and tax attorneys out of business.

Hey, every program has it's proponents.

Seriously, although a "flat tax" is a traditionally
"conservative" idea. I've always thought it was a fair
way to go about business.

The current administration is pushing for a consumer tax
system which is infinitely more unfair to the poor.

If the flat tax on incomes was say 3% and consumption tax
(i.e. sales taxes) were removed. The government would still
have more money than it would know what to do with.

[1932]

92. So would progressive rates with no deductions.

[Egalitariat]

22. You can tell from reading the posts here that most people

have no understanding of the current tax system or any of the proposed systems that are out there.

The flat tax is in income tax, but a lot of the posts here talk about it like it's sales or consumption tax.

[Lydia Leftcoast]

24. We talk like that because we've seen it all before

When the Republicanites and Libertarians (and it's only they who make these proposals, by the way) talk about doing ANYTHING with the tax structure, they always TALK about how it will benefit the poor, but a close analysis shows that it benefits the rich most of all, not to mention "starving government until it's small enough to drown in a bathtub."

[Kathy in Cambridge]

36. Exactly-no grasp of the tax system or basic economic principles

[JanMichael]

27. We currently HAVE a Flatish Tax system on the whole. Read on....

Anytime this conversation occurs one has to acknowledge State and Local Taxes along with Federal. Wait, no, the FIRST thing one must do is try to grasp what Progressive and Regressive Taxation is.

We already have a fairly Regressive system, meaning the burden is on the lower quintiles, on the State level. It's well documented.

From a study of all 50 states (it's a big pdf so careful):

"Our primary finding is that most state and local tax systems take a much greater share of income from middle- and low-income families than from the wealthy. That is, most state tax systems are regressive.
In fact, only four states require their best-off citizens to pay as much of their incomes in taxes as middle-income families have to pay. Only eight states tax their wealthiest residents at effective tax rates as high as the poorest taxpayers are required to pay. And the disparities in effective tax rates between middle- and low-income families and the welloff are not trivial. Most states tax the wealthy at rates that are much lower than the rates on middle- and low-income families."

Oh and just for shits and giggles here's a great site that graphs out for the uninitiated what Inequality is all about in the good old USA.

What the Flat earth taxers wish to do is simplify the argumant over some false concept of "Fairness" and they conveniently ignore the broad concepts and realities of the Tax Economy.

This is a very crude but clever way to make people eat shit and think it's icecream.

[RUMMYisFROSTED]

35. 7 years old and it still says it all:

[msongs]

33. The resulsts are about the SAME flat or current ->

we have figured out our taxes using the current system and using a 10% flat tax, giving up all deductions. The amount of tax paid/owed or refund received were almost the same, plus or minus a few hundred $.

the best thing about the flat tax is that is GETS RID OF ATTORNEYS AND ACCOUNTANTS and other money grubbing predators who prey on taxpayers.

Msongs
www.msongs.com/political-shirts.htm

[Francine Frensky]

57. You really think attorneys and accountants would go away?

Doubt it very much. the rich would find new ways to avoid paying 10%, the government would have to adjust to changes in their cash flow and would be back asking for more money soon enough, which would make everyone go to their attorneys and accountants again.

europe has a flat tax and they have plenty of accountants and lawyers.

[rurallib]

51. to add my 2 cents

there will never be a situation where there will be 'no loopholes, writeoffs etc' Do you think the rich would allow that? It could kill the housing market if there were no tax deduction for instance.

[The Traveler]

59. Like most ideas

a flat tax has its good points and its bad points. When it comes to taxation, we need to accept that there is no perfectly just solution. The question is, can we contain and control the inequity?

Man, we spend a lot of money collecting tax dollars. (IU think the government spends about 25 cents for every dollar collected.) An entire industry has formed around tax preparation. The tax code is so complex and contradictory that almost everyone in the country is either a) getting screwed or b) breaking the law or c) both.

Here's the problem with the idea: A flat tax would apply to "income". How, then, shall we define "income"? The fairness or unfairness of a flat tax boils down completely to how income would be legally defined. I don't think a meaningful discussion on the flat tax idea can be held without specific proposals for income definition on the table.

[Pobeka]

60. It would never fly politically, because the rich would pay more than now.

The catch in all of this is "no loopholes".

I'd take a flat tax with no loopholes any day. The rich would end up paying more than they pay now.

But tax accountants would lose.

The IRS staff would lose.

Corporations would lose.

Many politicians would lose.

The only winners in a flat tax system would be the middle class, and the US budget which could be in the black again.

I believe if you google "citizens for tax fairness" or some such thing you'll see evidence that the rich are paying less of a percentage currently than the middle class.

[Francine Frensky]

61. Mortgage interest deduction, charitable contributions,

tax exempt status for not-for-profit entities, deductions for the handicapped....

I could go on and on and on but here's the bottom line: Our tax code has been written to encourage a certain type of behavior that is considered to benefit American society, or to even out the playing field when things are unfair. It's complicated because life is complicated and society is complicated and saying it has to be simpler is like opening the hood of your car and saying the engine is too complicated looking; it needs to be simpler.

Here's one example: go to a flat tax and you've just lost the mortgage interest deduction. Which means there is no longer any financial incentive to own your own home, which means over time you'd see the majority of americans would be renting and we'd lose all the "societal" benefits of home ownership (responsibility, permanence). Flat taxers will be quick to tell you they will add back the morgage inerest deduction, but there are many more examples: retirement savings, etc. Add em all back, and guess what: we're right back where we are today anyway.

[Gormy Cuss]

69. The deductions for children and other dependents are deal breakers too.

I think that would be the hardest change for people to accept under a truly flat tax system.

In the absence of the mortgage interest deduction not only would home ownership rates drop but also real estate prices because of lower demand. As you said, it's complicated and a simple solution probably would not be that 'simple.'

[Francine Frensky]

104. What is funny is that people say "flat tax!"

but then when you mention a couple of the really smart tax things we have now (like the mortgage interest deduction and the deductions for retirement savings and non-profits and the handicapped and....) people all of a sudden change their tune and say, "oh, well, we'll include those too in our flat tax" and if you think about it...........before long, the whole tax code we have right now (which represents the best thinking we have), would be making it's way into a "new flat tax!" system....and IN THE END .....it would probably look exactly like what we have today!!

[hfojvt]

64. very simple argument

it would mean a tax increase for poor and lower working class people, and it would mean a tax cut for upper income people. If someone has a plan, show me who wins and show me who loses.

[leftofthedial]

65. Utterly regressive

favors the wealthy and penalizes the poor.

The poorer you are, the greater percentage you pay.

[JanMichael]

70. I'd be all for it if incomes and wealth were flatter (Or FLAT).

However this system of massive income and wealth inequality does not lend itself to screwing the poor and working class even more.

[WCGreen]

77. Simple, the way our sytem is structure....

To protect Wealth and Property,
the wealthier you are the more you should pay.....

Most of the government is aimed right at property protection. From Police and Fire, the court system all the way to the military....

So, you get more out of our government, you pay for more for the government....

[1932]

91. Do you know why we have, in theory, a progressive income tax?

It's designed to allocate the tax BURDEN equitably, if not the actual percentage tax you pay on an additional dollar of income equally. In fact equal tax rates, is inequitable in terms of tax burdens.

Why does equitable allocation of the BURDEN require marginally increasing tax rates?

Because as you have more money, the money you have is easier to get. The less you have, the harder it is to get more. Therefore, if you're rich, another 1,000 dollars is worth less to you than 1,000 dollars is to someone with very little money -- and these differences exist between any two income points -- between 1,000 and 50,0000 in annual income, and between 1 million and 100 million, which is why no two points should really be taxed at the same marginal rates.

To allocate tax BURDENS equitably, you need progressive taxation.

And why is tax burden equitability important? Because if the tax burden is shifted off the rich and on to the poor, then it becomes very hard to go from poor to rich, no matter how hard you work, and it becomes very hard to go from rich to poor no matter how little you work.

To have a society with the right incentives to work, you can't create a world where you reward wealth with wealth rather than one which rewards work with wealth.

Every society that has failed over the centuries has been a society where work wasn't encouraged (through the proper wealth-reward mechanism) and where merely having wealth was extremely privileged.

That happened to Rome. It happened to monarchies in Europe, and it happened to the US before the Great Depression.

You can see the signs of our society deteriorating again for those very same reasons.

We need to get back to rewarding work with wealth, and one of the key parts of that reward system is progressive taxation.

[fob]

107. How about this; The fiscal year budget is (at least supposed to be)

presented and approved in September/October. Once that is signed then the IRS sends a bill out to the highest income earner for the year and collects twentyfive percent of that amount. They keep doing that down the line, second highest to third highest until they've collected an amount equal to the approved budget. That's flat, everyone who gets a bill gets one for twentyfive percent and it's progressive because the budget should be funded before it gets to the bottom what 20 to 40 percent.

A threshold could be added whereby if the budget isn't fully funded by time it hits the bottom 30 percent then the IRS would go back to Highest Income Earner #1 and start over, another 10 percent please!

Corporations would be included since they have fought so hard to get all the rights of people, they should also get the responsibilities of people.

EDIT: I forgot to add that it is socially conscious as well in that there will be a hue and cry from the TOP (ie wealthiest) not to prepare a budget full of pork.

NOTE: NO LINK AVAILABLE, this is from my head. The numbers are for discussion purposes and may or may not have any relevance to the actual numbers/percentages necessary for the plan to work.

[Mairead]

110. That's basically how it worked originally

Nobody but the people with the highest incomes paid anything.

[Ravy]

120. Here is something that cools well-off conservatives to the idea.

Simply remind them that when the flat tax goes in, and they start paying taxes on whatever they spend, they will be paying double income taxes on all their current wealth (since they have already accumulated a lot of after-tax assets, IRAs, money in investments, etc.).

[jzodda]

129. I hate flat tax

The wealthy would love it but it would hurt everybody else or at least not help them. The rich do not need any more help and the gap between wealthiest 10% and the rest does not any need more help to grow then it already gets.

Since many of the highest tax brackets pay into the 30s as a % and even higher for some capital gains if they were lowered to like 10% or something where would all that revenue thats gone be replaced from? It has to come from someplace right? Also many poor people pay little to no taxes and now you want them to pay? If their is a huge shortfall of revenue coming into the treasury what happens? Social programs for the poor, the sick, the old, the disabled all take a hit. Sales taxes would also most likely rise to compensate as well. The poor and low middle class get hurt the most, the true middle also gets hurt. The high end middle probably does not get hurt of helped and the rich get helped more then anything