The Flat Tax Returns

[Pangloss]

Okay, not much of a pun, but I have a headache this morning.

 

Interesting op-ed piece in the Wall Street Journal this morning about the surging popularity of the flat tax idea in Europe and Asia. Apparently several countries have adopted it or are near to doing so, including Russia, Greece, Poland, Ukraine, Hong Kong, Georgia, Italy, and more. Germany is having a frank (so to speak) and serious debate about it, and Britain (according to this article anyway) is in the midst of a bit of a scandal surrounding it.

 

http://www.opinionjournal.com/diary/?id=110007174&mod=RSS_Opinion_Journal&ojrss=frontpage

 

One of the things they mention in there is a new book by Rep. John Linder and libertarian talk show host Neil Boortz (the man who first made me think about politics). I haven't read it yet, but it looks interesting. Here's a link to the book's Amazon page:

 

http://www.amazon.com/gp/product/0060875410/103-4951205-6402255?%5Fencoding=UTF8&n=507846&s=books&v=glance

 

 

What do you all think about a flat tax?

[Douglas]

What do you all think about a flat tax?

I voted for Steve Forbes in the Y2K primaries. So, yes, I'm in favor of a flat tax. I see it as a simplification of the tax code and a fairer distribution of tax responsibilities. I view the progressive tax system as a redistribution of wealth, which I'm against.

 

As I recall, Forbes was pushing a 16% flat tax back in the '96 prez race, in which he made allowances for the working poor by allowing the first 25 or 35 thousand dollars to be tax exempt.

[bascule]

What do you all think about a flat tax?

 

The most obvious problem with a flat tax is what percentage of your money goes to cost-of-living. If the percentage of your income going towards the cost of living plus the percentage of the flat tax exceeds 100%, you have a huge problem. When people don't have enough money to make ends meet and start missing bills and accumulating late fees or overdraft fees from their bank, the problem further compounds upon itself.

 

The bottom line is a progressive tax penalizes those who live a life of conspicuous consumption, whereas a flat tax penalizes those who are scraping to survive. If I have to pick who to screw out of that, I'm going to have to go with the rich.

 

I agree tax brackets are stupid, and I'd rather see a simplified progressive tax code formulated as a continuous function of income rather than stupid, imprecise blocks.

[Pangloss]

I'm confused... when has the cost of living dynamic ever exceeded a few percentage points per year? How could it possibly exceed 100%? Maybe I'm just not following you there, so please forgive me, but if you could explain that more fully I'd appreciate it.

 

One thing that it seems to me is that very few people, and nobody in the middle class, actually "scrapes by". What they fail to do is "keep up with the Jonses", and then complain about it. I have no idea if that's the case elsewhere, but we see it all the time in the US. I've seen network news broadcasts show middle class families complaining about "just getting by", with two cars in the driveway less than three years old, a 4-year-old house in a nice neighborhood, etc etc etc. Sure they both have to work, but that's because they like to do all the fun stuff too. Since when is it an entitlement that you have expensive cars?

 

Obviously I'm generalizing here, but when you make a statement like "When people don't have enough money to make ends meet and start missing bills and accumulating late fees or overdraft fees from their bank, the problem further compounds upon itself.", I think that merits a response.

 

Put another way, it's ridiculous the way we accumulate debt in this society and then complain about not making enough money! There's a reason why they call that "living beyond your means". Debt is not a ticket to the middle class!

[Skye]

In Australia, these ideas have been floated around lately, which I generally agree with:

 

-a flatter income tax.

 

-less 'middle-class welfare', money that essentially is taken as income tax and returned as poltically motivated welfare payments to families.

 

-fewer loopholes.

 

The first two are related, there's little point taxing the poor and middle class then return this in the form of payments, and it costs money to do it. I think redistributing the wealth is fine, but it has to be done sensibly. Pay for things like infrastructure, health, police, education, etc. The third is a way to simplify the system, make people pay tax who avoid it, and prevent the tax system impacting on markets, like capital gains driving real estate up.

[Douglas]

I agree tax brackets are stupid, and I'd rather see a simplified progressive tax code formulated as a continuous function of income rather than stupid, imprecise blocks.

Uhmm, that's exactly what the tax brackets are.

[Douglas]

whereas a flat tax penalizes those who are scraping to survive. .

Which is why the 1st 25K or more would be tax exempt.

[ku]

Tax brackets are discrete. Bascule wants a countinous function. This prevents people deliberately working marginally less to be in a lower tax bracket. If tax were a continous function of income, this wouldn't happen

[john5746]

I don't favor a flat tax generally, because the income side isn't flat. When people get a raise, it is a raise based on the percentage of their income. Investments and assets increase by percentages. Costs on the other hand are applied equally. It is very easy to see that rising insurance, college tuition and gas prices will have a much larger effect on the lower income brackets. Since this results in a natural increase in wealth discrepancy, the wealthy should pay more in taxes.

 

I am all in favor of a simplified tax code. The point of it should be to save money, not to be more fair to rich people. A tax doesn't have to be flat to be simple. I think you will find that income taxes get more complicated as income increases - because of loop holes. Sales taxes will end up being the same. How will you exempt based on income? People will want to exempt for children, for education, for yachts, etc.

 

So, if the flat tax does indeed result in the middle class paying less tax, that is great. I don't see how it is possible given all the stats saying the rich pay a large share of the taxes currently. A combined sales/income tax might prove better, with income > 1,000,000 say, be taxed for example.

 

As far as effect on the economy, taxes will always have an effect. People try to avoid taxes period. If we have a large sales tax, consumption will drop, illegal sales activity will increase.

[Douglas]

It's *is* a progressively continous function.

For example.........single person....taxable income.... in 2001

 

$0 to $27,050................................15%

$27,050 to $65,550.........................$4,057.50 + 27.5% of the amount over $27,050

$65,550 to $136,750.......................$ 14,645.0 + 30.5% of the amount over $65,550

$136,750 to $297,350......................$ 36,361.0 + 35.5% of the amount over $136,750

$136,750..........................................

[In My Memory]

Pangloss,

 

What do you all think about a flat tax?

The government needs a certain amount of income to build roads, schools, buildings, etc. At least in the US, a flat tax isnt practical, we just wouldnt be able to meet the needs of government income unless without making the flat tax rate absurdly high - for instance, my 15% of taxes that I pay ever year might incrase to 20%, and the 33% that billionaires pay decreases to 20%. That would make far more people very unhappy (and poor) than it would help.

 

A flat tax is much too drastic for the US to cope with. It would probably be much easier to eliminate tax deductions, so that there would be an overall increase in tax income flowing into the government (presumably this means the government can reduce the tax rate by several points, reducing the tax burden on everyone).

 

 

 

Douglas,

 

For example.........single person....taxable income.... in 2001

 

$0 to $27' date='050................................15%

$27,050 to $65,550.........................$4,057.50 + 27.5% of the amount over $27,050

$65,550 to $136,750.......................$ 14,645.0 + 30.5% of the amount over $65,550

$136,750 to $297,350......................$ 36,361.0 + 35.5% of the amount over $136,750

$136,750.......................................... [/quote']

That is income tax, right? If you consider the rest of the tax burden, the spread isnt so great (it's actually rather flat). See Scott Burns - the Secret Both Parties Share:

The 4th Quintile. Those in the bottom 20 to 40 percent of all households had an average income of $25,955 and paid income taxes of $1,273 compared to combined (employer/employee) employment taxes of $3,972. That brought their total taxes to $5,245 or 18.8 percent of income.

 

· The Middle Quintile. Those in the middle 40 to 60 percent of all households had an average income of $40,637 and paid income taxes of $3,611. Their combined employment tax payments, $6,218, were still nearly twice as much as their income tax. Their total tax payment, $9,829, absorbed 22.6 percent of their income.

 

· The Near-Affluent Quintile. In the 60th to 80th percentile, the average income was $59,457. In that bracket the average income tax payment was $5,636 and the combined employment tax was $9,096. The total tax burden was 23.0 percent. In other words, the tax burden hardly changes even though income rises by about 50 percent.

 

· The Affluent Quintile. Those in the top 20 percent of all earners have an average income of $119,453. They paid income taxes of $18,927 and combined employment taxes of $11,052. Their total tax burden, $29,979, takes 24.0 percent of their income.

 

Note that there is virtually no difference between the total tax burden on the middle quintile’s $40,637 income and the total tax burden on the affluent quintile’s $119,453 income, 22.6 percent and 24.0 percent, respectively. Note also that income has tripled.

[Pangloss]

It's *is* a progressively continous function.

 

Right, but it "bumps" along the way. Being the science/math/computer geeks that we all are, I'm sure we all understand that the percentage could be constructed to ratchet up with each consecutive dollar amount, based on a very simple algorithm. In fact, you could even construct it to change with each penny, if you really wanted to be precise. The only wierdness about it, from a mathematical rather than socio-political viewpoint, is that you'd be dealing with percentages measured to many significant decimal places (e.g. "your tax rate is 22.5673521%").

[Pangloss]

At least in the US' date=' a flat tax isnt practical, we just wouldnt be able to meet the needs of government income unless without making the flat tax rate absurdly high - for instance, my 15% of taxes that I pay ever year might incrase to 20%, and the 33% that billionaires pay decreases to 20%. That would make far more people very unhappy (and poor) than it would help.

[/quote']

 

Alas, this seems to be a point that nobody can objectively prove or disprove to an agreed-upon degree.

[Douglas]

That is income tax' date=' right? If you consider the rest of the tax burden, the spread isnt so great (it's actually rather flat). See Scott Burns - the Secret Both Parties Share:

Yes, it's income tax based on taxable income.

I can't remember all the details of Forbes flat tax plan, but as I recall, the rich would be paying much more in terms of dollars. Keep in mind that under the flat tax plan, Nixon wouldn't have been able to write off $6000 for a donation of his personal underwear to a historical society. Theresa Heinz Kerry wouldn't be able to write off $1,000,000 for depreciation on her 10 million dollar mansion. And the best part being that people making under $25000 would pay no taxes at all.

 

I think this guy is cooking the books

The 4th Quintile. Those in the bottom 20 to 40 percent of all households had an average income of $25,955 and paid income taxes of $1,273 compared to combined (employer/employee) employment taxes of $3,972. That brought their total taxes to $5,245 or 18.8 percent of income.

Please notice that this guy combined the payroll tax (FICA) of both the employee and the employer to arrive at his figure of 18%.

Now if that isn't cheating, I don't know what cheating is....

[john5746]

Yes' date=' it's income tax based on taxable income.

I can't remember all the details of Forbes flat tax plan, but as I recall, the rich would be paying much more in terms of dollars. Keep in mind that under the flat tax plan, Nixon wouldn't have been able to write off $6000 for a donation of his personal underwear to a historical society. Theresa Heinz Kerry wouldn't be able to write off $1,000,000 for depreciation on her 10 million dollar mansion. And the best part being that people making under $25000 would pay no taxes at all.

 

I think this guy is cooking the books

Please notice that this guy combined the payroll tax (FICA) of both the employee and the employer to arrive at his figure of 18%.

Now if that isn't cheating, I don't know what cheating is.... [/quote']

 

That maybe true, but one could argue that the employee would be paid more if the company portion wasn't taken out, unless it's minimum wage.

[Douglas]

That maybe true, but one could argue that the employee would be paid more if the company portion wasn't taken out, unless it's minimum wage.

Oh, c'mon John, you have a point, but don't you think this guy was manipulating the stats to fit his agenda ??

[bascule]

Uhmm, that's exactly what the tax brackets are.

 

I guess other people tried to cover this for me, but you got into the semantics of a "continuous function"

 

Arguing semantics is a boring waste of time. I think I made it fairly clear that I feel brackets are stupid. And I'm sure you know what I meant...

[bascule]

Right, but it "bumps" along the way. Being the science/math/computer geeks that we all are, I'm sure we all understand that the percentage could be constructed to ratchet up with each consecutive dollar amount, based on a very simple algorithm. In fact, you could even construct it to change with each penny[/i'], if you really wanted to be precise. The only wierdness about it, from a mathematical rather than socio-political viewpoint, is that you'd be dealing with percentages measured to many significant decimal places (e.g. "your tax rate is 22.5673521%").

 

I think it'd be better than seeing your net income decrease with an increase in gross pay because you just got bumped into a higher tax bracket. That simply does not make sense.

[john5746]

I think it'd be better than seeing your net income decrease with an increase in gross pay because you just got bumped into a higher tax bracket. That simply does not make sense.

 

I don't think you understand the tax calculation correctly. A millionaire pays the same tax on the first $27,000 as does a middle class person. You only pay the higher rate on the income WITHIN a bracket, not on the whole amount.

 

This is another reason why it is idiotic to say income taxes discourage higher incomes. People want to find loopholes for sure, but they don't want to earn less money!

[john5746]

Oh, c'mon John, you have a point, but don't you think this guy was manipulating the stats to fit his agenda ??

 

Yes, and I wished I had noticed it first!

[Douglas]

I guess other people tried to cover this for me' date=' but you got into the semantics of a "continuous function"

 

Arguing semantics is a boring waste of time. I think I made it fairly clear that I feel brackets are stupid. And I'm sure you know what I meant...[/quote']Bascule, I'm not playing semantics, it's not my game. Please explain what you meant, perhaps I misunderstood.

[Douglas]

Yes, and I wished I had noticed it first!

I'm chucklin'.. ....

[mike90]

There are far many just scarping by then you think. next time you go into almost any consumer based business take a look around. the people working at your grocery store, retial stores etc are the ones scraping by. I've been there before working 40 hours a week, then trying to figure vout how your going to afford groceries. The problem is that big business and government have kind of united to ensure a persistent poor working force. There are quite a lot of low income folks out there that could benefit from a tax break

[CPL.Luke]

There is no great conspiracy to maintain a working class, while therre are alot of peopl who just go to work in factories, there are also a large number of people who work their way through college. Any attempt to say that there is some great conspiracy to keep people poor is just an attempt to shift the blame from yourself to others.

[mike90]

Here your making a lot of rather large assumptions. First off not everyone has the aptitude or the opportunity to go to college. your point assums everyone has the same chance at success, which is untrue. Second a college degree is no guarantee of finding and keeping a good job, the job market is very competitive in today's world. Third a lot of the large corporations fight to keep wages as low as possible , and to keep employees from unionizing. They employ both lobbyists and " campaign contributions" ( bribes) to see that wages stay low. there is also quite a lot of outsourcing of jobs so american businesses can pay someone in Mexico or India 3 dollars an hour instead of paying an american 12 or 15 dollars an hour to do it. They are also working hard to make as much of the job done by machines as possible so they dont have to deal with training people, or paying more for experienced workers. They're basically trying to turn people into numbers that are easily disposable. saying everyone in America should have to have a degree to get a job that pays basic living expenses seems rather absurd, and counter to how things were done until fairly recently. Before anyone assumes that all the working poor are morons or lazy, maybe they should do some research into the subject