Every now and then, some of you say something in the comments that just makes me laugh, and then makes me sad because it is so accurate. This is one of those comments, regarding the debate about the flat tax:
The only revenue-neutral way to implement a flat tax would hose the shit out of the low and middle incomes without affecting the lives of upper incomes perceptibly. If you want a simple tax, super. I could write a workable progressive taxation scheme on one page.
The problem is that congress has line-item control over our tax code and that they’re, well, congress. If I gave them line-item control over what I ate for dinner tonight I’d have seventeen courses, beginning with dessert and ending with motor oil from a powerful Senator’s district.
While I am sure a flat tax scheme, or a flatter tax scheme, if you will, could be devised that would not in and of itself hose the middle and lower classes, the latter portion about Congress is completely accurate.
jg
Theoretically yes but since the current group thought they could implement the SS phase out without concern for transition costs, I think he makes a pretty good point.
JonBuck
I’ve been looking at the Fair Tax, which calls for a consumption tax rather than even a flat income tax. They make some pretty compelling arguments on their web site, fairtax.org. I’m not totally convinced, myself.
But even such a simple proposal as the Fair Tax would end up just the post says. Sure, it would start simple, but inside of a decade it would be back to the morass of tax law we have today.
Jane Finch
The province of Alberta is the only jurisdiction in North America that I know of that has instituted a flat tax. There are no significant complaints that I’ve heard.
ppGaz
Well, yes, tax …
But I just saw THE WORST CALL by an umpire I have ever seen in 50 years of being a baseball fan, basically handing the White Sox an ill-begotten victory in game 2 over the Angels.
Amazing. This umpire is worse than George Bush.
I’m in shock.
demimondian
When someone talks about a fair consumption tax, ask them whether professional services will be taxed. If not, then the tax is regressive — it hits people who buy tangible things (like food) but not people who buy intangible things (like legal services, or vacations.)
That is, it’s a tax on consumers — that is, everyone who isn’t rich.
srv
No tax scheme will ever fix government.
It’s always fascinated me that the best government agency (measured by bang-for-buck and efficiency) is the IRS. Nothing else comes close.
demimondian
Actually, the IRS is second to the Social Security Administration.
Yet more evidence that the American Right is for big cronyism, not good or effective government.
Doug
First $50k is exempt. Everything above that is taxed at 30%. Simple.
danelectro
it really pisses me off that there are so many really great writers in the comments sections, and that i can barely manage a couple of snarky sentences that don’t contain horrible spelling/grammar errors.
Mr Furious
I hear ya danelectro…
Mr Furious
As it nears the midnight hour, I will declare this one of the most enjoyable days around the Balloon Juice parts in a while. Nice job everybody.
JonBuck
demimondian:
It’s not what you think. They have several examples of income levels that show the benefits at low and middle income levels. At least read the arguments at fairtax.org, then decide?
Jon H
“The problem is that congress has line-item control over our tax code and that they’re, well, congress. If I gave them line-item control over what I ate for dinner tonight I’d have seventeen courses, beginning with dessert and ending with motor oil from a powerful Senator’s district.”
I think they used to call it the “Food Pyramid”.
Damn thing always seemed to require eating a whole damn lot of food.
jg
I blame the catcher. The ump was wrong, the ball didn’t bounce or get trapped, but the ump never called the batter out and the catcher just walked away. I’ve never seen a catcher do that before. They always tag you just in case.
stickler
Jane Finch makes what seems a trenchant point:
Ah! So a flat tax works!
But … isn’t Alberta floating on a sea of oil and natural gas? Might that not have a positive effect on provincial revenue?
I’ve heard that Alaskans get a huge honking check from their state every year, too. Maybe every state should implement that.
S.W. Anderson
John Cole wrote, “While I am sure a flat tax scheme, or a flatter tax scheme, if you will, could be devised that would not in and of itself hose the middle and lower classes.”
That might be possible during or beyond February 2009, but there’s not a snowball’s chance in hell for it in the meantime. Robinhood-in-reverse is official U.S. government policy. It has been since February 2001 and will be for at least three years and three months.
Mark-NC
All of this ignores that the tax system is nearly flat now.
The Republican side loves to base their arguments about taxes on the Federal tax, which is progressive. They conveniently/deliberately leave out all other taxes.
When you consider ALL taxes and their combined effect – excise taxes (on gasoline for example), property taxes (which are part of what every renter pays), state taxes, FICA (taxed from the first dollar – but SS stops at about $90k) – it is clear that the poor pay nearly as much in taxes as the wealthy as a percentage.
If you flatten the Federal part, it would crush the lower and middle income groups and amount to a massive transfer of wealth to the top 10-15% of wage earners.
As far as I can tell, the sales tax would work better – and get the IRS out of your house – and could be made “more fair” by taxing food, medicine, and clothing at lower rates.
Gray
“While I am sure a flat tax scheme, or a flatter tax scheme, if you will, could be devised that would not in and of itself hose the middle and lower classes”
Are you defining ‘flat tax’ in a new, unprecidient way? A flat tax commonly describes a tax rate that is the same for every citizen. I seem to remember that the 10% of citizen with the highest income pay for 25% of all tax revenues, or is it even more? How do you think you can implement a flat tax without losing revenue and without hosing the middle and lower classes? Maybe by taxing only income above 100k/year? Liberals would love it, but that’s not a flat tax anymore and repubs would lynch you.
Krista
Alberta’s rich as hell, though. It’s the only province with no sales tax. They do still have to pay GST, though, which pisses them off to no end.
DecidedFenceSitter
Some of the more sane flat taxes I’ve heard is that the taxing begins at a flat rate at a certain amount, such as 30K or 50K. So the first 30K/50K you earn is tax free, and the rest is taxed at a percentage amount. This actually seems achievable; of course the question is whether a corporation continues as a person under this sort of develop, or does not.
The other is an sales tax with exceptions. Either for certain classes of items or items under a certain amount. Classes would be groceries or clothing, or not tax anything under 50 dollars. Or some combination. I am less thrilled with a consumption tax.
I am not “rational” when it comes to making decisions on this subject, I have to go with the irrational choice of choosing which sounds best to my ears, so I may be misrepresenting any and all of the above schemes.
Barry
Mark-NC Says: “As far as I can tell, the sales tax would work better – and get the IRS out of your house – and could be made “more fair” by taxing food, medicine, and clothing at lower rates.”
Of course, if you’re a retiree who’s drawing down any amount of savings, you’re now being hit twice – once with income taxes, and now with higher consumption taxes.
Gray
DFS, it’s fine that a flat tax sounds best to your ears, but it has to make sense and the number have to be right, too. Hey, I may be too grim, but imho that’s even more important than it’s ‘sound’. I did some googling:
” The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
This is from the Reagan aera, couldn’t find newer data so fast. GWB’s tax reform should have take the burden from the upper ten, so I guess 50% should be about right today. The highest taxrate today is 35%, if you exchange this with a flat tax of 30%, the upper ten will get a relief, but the others will have to pay for that. And who is going to pay in your ‘model’? Let’s check with statistical data from the US census Bureau.
Median household income 2004 is at 44,389, this says that 50% of households have this or less income. The median income of the top 20% is 49.8k, this translates to 90% of households have this or less. So much for your idea of 50k untaxed, the rest flat. You want a tax system where only 10% pay taxes???
Even 30k tax exempt won’t work. The median income of the fourth gentile (60-80%) is 23400. Again, the meaning of this statistical statement is that 70& of all households have an income of 23400. If 30k are free, I guess than 75% of american incomes won’t be taxed. If you’re model relieves the upper 10%, so the 15 percent of americans with an income of more than 49800, but not in the upper 10%, have to pay for this. That’s your idea of fair tax?
Sry, I know this statistic business is mindboggling, but the numbers and the math don’t lie. If you want to have a flat tax that sounds good and is economically sound, too, you have to deal with this. At least imho flat tax is a fantasy.
Gray
hmm, make that “quintile”, not “gentile”. Idiotic but funny mistake ggg
Gray
ARGHHHHHH, forget all I ‘ve written. I’ve to redo some statistics 101. Now what is a median? And where is my whisky?
Tony
Doug Says:
First $50k is exempt. Everything above that is taxed at 30%. Simple.
That gets to the progressive potential of the Flat Tax. I love the Flat Tax, and I hate the idea of progressive for the sake of progressivity (i.e. soak the rich), but there is potential to avoid hosing the poor and middle class. As Doug states, there is flexibility in setting the rate and exemption. Whether it’s $12k and 17% or $50k and 30%, it’s workable. Any argument that states the Flat Tax automatically hoses anyone who isn’t rich isn’t correct.
The fundamental flaw with a national sales tax is the 16th Amendment. Until that’s repealed, we’d have the sales tax and the income tax. Who trusts Congress to pick one if they can pick both? But the more practical flaw is the need to insert exemptions on different classes of items. Food vs. iPods. Every interet group will get involved to give its products essential/favored status. We’d be in the same mess we’re in now.
I do think the assessment that Congress is incompetent is correct, though.
Gray
OK, the problem is in the quintile data in this table:
http://www.census.gov/prod/2005pubs/p60-229.pdf
The headline says “median income (dollars)”, but the part on the quintiles is about shares of income in %. Sry for scewing up, but this is vwery misleading.
This table with data from 2002 is better, but it uses average income:
http://www.cbo.gov/showdoc.cfm?index=6133&sequence=0
So about 30% of americans have an income of 33600 or less, about 50% have 51100 or less. It’s difficult to say exactly because the average is used, but it sure looks better for the flat tax. Still, the effective tax rate for the individual income shows where the problems are:
Middle Quintile: 3.5%
Fourth Quintile: 6.8%
Fifth Quintile: 15.6%
Top 10%: 18.0%
Top 5%: 20.1%
Top 1%: 23.8%
OK, since the highest tax rate is 35%, this shows that even the top 1% don’t come near it effectively because of all the deductibles. If you think 23.8 is to high and this should be changed with a flat tax (to, say, 20%), you have to be aware that the average income of the Top 1% is 938000$, while in the middle quintile (group of about 20% of americans with an income ranking between 40 and 60% highest)the average is 51100. I don’t think the numbers will add up to compensate for the loss of revenue, and it will be quite hard for most of the other taxpayers, resulting in a 100% or more raise of their effective tax rate.
OK, it’s possible to raise the taxes for all those unpatriotic spongers earning about 50k and not paying their fair share of the burden. Dunno if this will be very popular during an election campaign, though. But I’ve got the suspicion that most of the flat tax fans here won’t like it, cause they would have to pay more.
Gray
“Any argument that states the Flat Tax automatically hoses anyone who isn’t rich isn’t correct.”
Very interesting. Like I said, average income for the Top1% is at 938000%, average effective income tax is 223244$. If a flat tax reduces their effective tax by only 1%, that’s 9380$ you have to compensate. How would you want to do this with a ‘flat’ tax without shifting the burden towards the middle incomes?
Defense Guy
Gray
You are only taking into account one tax, income. Americans pay other taxes as well, so those need to be taken into consideration. If we move to a consumption based tax, it will replace both the income and the sales tax. The sales tax (gas tax, phone tax, cable tax, etc.) is far harder on the poor and middle class than it is on the rich.
Gray
Hey, social security is another discussion. This matter is complicated enough (dang, all those statistics), we should look at one matter at a time.
“The sales tax (gas tax, phone tax, cable tax, etc.) is far harder on the poor and middle class than it is on the rich.”
100% ack. The poor use all their income for buying things for their daily needs, the rich only part of it. So, sales taxes result in the poor paying a higher percentage of their income for that taxes than the rich. But how would a consumption tax change that? What is it?
p.lukasiak
The problem with the tax code has nothing to do with its progressive nature, and a flat tax won’t solve those problems.
In other words, you could get rid of the IRS by implementing a progressive income tax system that allowed for no deductions, and you can have a Flat Tax system that includes the kind of “deductions” system we have now that would keep the IRS in busiess for years.
Just like the advocates of Social Security privatization tried to use the eventual “insolvency” of the SS Trust Fund to push a policy that did not address (and actually exacerbated) the problems with the system, the “Flat Tax” advocates are lying about all of this. Bottom line is that if you think the tax system is too complicated, you can solve that problem while still maintaining progressive tax rates.
Cyrus
Tony said:
Whaaa? People out there actually believe that the point of a higher tax rate on the rich is to punish them?
Okay, I can’t pretend to be surprised, since I hear that on almost every discussion. But it’s not the case. The point of a higher tax rate on the rich is that the money has to come from somewhere and it hurts them less than it would the poor. They can afford it. Taking 30% out of a $20,000/year income leaves $14,000, and one person, in perfect health, with no dependents and no outstanding debt, in an area with relatively low cost of living, could probably get by on that. If any one of those factors aren’t true, then they’d have to cut into basic necessities or get support from the government. Taking 30% out of $200,000/year leaves $140,000, and in most parts of this country you could support a family of four on that, with both kids in college and a car for every driver.
So tell me why charging them both the same rate is the fairest option?
I realize, of course, that not many people here are suggesting we charge them the same rate; flat taxes that start at $30,000 or $50,000 and/or sales taxes with exemptions seem to be the closest thing this site gets to a consensus. So maybe I’m barking up the wrong tree.
quaker
DG has a strong point, both in theory and practice.
In theory, “The power to tax is the power to destroy”. Seems the best way for the US to attack the savings rate problem is to attack consumption. This would be a greater boon to savings and investment that lowering Doug Forrester and Jon Corzine’s taxes.
In practice, FICA, the SS Tax, and all of the excise and sales taxes currently serve to “level” the federal tax burden and make it more regressive. (I have a feeling that the states are responsible for a plethora of the sales taxes, but some are federal.)
That said, as a neophyte in tax matters, could one of you nice fellers (Please note that for the purposes of all posts, both gyno- and testo-americans are referred to as “fellers”) give me some sites (cites?) that put out consumption tax proposals that show the budget numbers, quintile effects and includes externalities?.
Gray
“In other words, you could get rid of the IRS by implementing a progressive income tax system that allowed for no deductions, and you can have a Flat Tax system that includes the kind of “deductions” system we have now that would keep the IRS in busiess for years.”
Yup! That’s the right idea. There’s nothing wrong with a progressive tax, reaching 35% max. but the deductions are complicating the scheme and inflating the bureaucratic monster IRS. And what’s the result of all this brouhaha? An average effective income tax of 23.8% for the Top 1% of highest incomes. Less than a quarter of taxes for every dollar is too much for the rich? OK, maybe there are a few places in the world where they would have to pay even less – but right now only Kuwait and Monaco come into mind…
I guess that’s the price they’ll have to pay for living in the US instead of in a tiny appartment in Monte Carlo.
Steve S
The only places I know of which have massive consumption taxes are socialist states like in Europe.
It’s amazing to me that the Republicans even offer such a plan. Although I shouldn’t be that amazed, for they are today run by idiots.
Kimmitt
The State of Illinois had roughly a flat tax as well, and it worked fine. Pretty much any vaguely reasonable tax scheme works fine if you only collect 3% of income. The only reason we have to have this conversation is that we’ve decided that we need (like the rest of the industrialized world) a fairly large central government.
Anyways, I’ve read the FairTax stuff, and there is a great deal of lying going on over there, so I’m just not interested.
les
There’s another massively complicating factor in the current tax scheme that will have to be addressed by any change. Since we can’t do anything so socialist as national industrial/economic planning directly, the gov’t has always used the tax code to encourage both consumer activity (e.g. deductibility of home interest) and to direct economic activity (e.g. research credits, energy exploration, etc.) How does this stuff get done under a flat tax–I don’t believe the market will make decisions based on long term societal needs. Almost the only exception to this approach is medical research (Natl. Inst. of Health) and some “pure” research funded through grants to research colleges.
Tony
Cyrus said:
If I understand your point correctly, arguing why charging them both the same rate is the fairest option isn’t really useful. For that question the idea that government should treat everyone equally seems clear to me. “They can afford it” doesn’t hold up as responsible government policy. But what I really think you’re getting at is the idea that we need to raise revenue and the tax code must support that. Is that correct? (If not, the rest of this will be a tangent.)
I stick by the idea that all taxpayers should be treated equally by the government. That’s a basic assumption. I don’t accept the idea that the government should have a set minimum level of revenue. There are government responsibilities that must continue, regardless of how they’re funded. But we’re a republic for a reason. What we now permit the federal government to absorb is what should be accomplished at the state and local level. I don’t want to go as far as “starve the beast”, but any tax reform should include an effort to make certain that what we’re paying for is acceptable. We shouldn’t let people starve, but we shouldn’t build bridge in Alaska with federal money.
Admittedly, that may just shift the tax burden to the state/local level from the federal. But won’t citizens have a better chance for paying for government essentials without pork if they’re closer to the representatives making those decisions? If I don’t like what Virginia spends my money on and believe my tax burden is too high, I’ll move to a state more in line with my thinking. I can’t move to another country as easily, if I wanted.
I think that sort of gets at Gray’s question, as well. I hate progressive taxes because they’re immoral and bad policy, but I can concede that some level of progressivity must exist. That’s the balance of exemption and tax rate, which could be $20k/15%, $50k/30%, or whatever. But “they can afford it” and existing revenue requirements aren’t sufficient.
Shygetz
Why are progressive taxes immoral? They aren’t fair? Life isn’t fair. You want fair? Vote for a 100% estate/gift tax. That’s fair. And if you want fair, why go to a percentage of income? Why not just a flat fee? After all, that’s the most fair.
And why is it bad policy? Do you honestly think that people decide “I’m gonna make less money than I can because I don’t want to pay taxes on it”? C’mon.
I’m all for a simpler tax code. I’m all for less pork in government. And I’m all for people who have benefited more from society paying more to maintain it. Until we eliminate the random benefit of who your parents are, a level playing field meritocracy is a pipe-dream. And I don’t see anyone sticking up for a 100% estate tax any time soon.
quaker
Tony,
On the whole, equal treatment is a laudable but highly illusive goal. In the case of a progressive tax, equal is deemed to be “an equal percent of those funds not needed for continued existence.”
Ah, but who gets to determine the cost of “continued existence” or the relative comfort of that “existence” and how is that right vested in such party? This question serves as great fodder for wonks and econo-geeks.
I think the question is a kone, it has no answer. Instead, the Gov’t must rais money so it embraces the principle, sets up an arbitrary system founded on the muck and mire of the political system and puts it into practice.
Kimmitt
There is also the notion that the wealthy also benefit disproportionately from social services, as they have more assets which are protected by police, more business which is transacted using the highways and the courts, more property which is protected by the military from foreign interest, etc. This is based on the fact that those with higher incomes have, in general, much much higher asset levels.
Gray
“For that question the idea that government should treat everyone equally seems clear to me.”
Nice idea, sure sounds good. Only problem is, it doesn’t work – just like libertarism (that’s correct?) and communism. Tony, there are some people who earn so few bucks that every tax will be a hardship. If a guy works 5/8, he will get about 11000$/year. Now how low will your flat tax be, 15% (don’t think it’s possible, but just for the calculation)? So this poor worker will have to pay 1650$ for the IRS. Don’t you agree that this is to high? But when you make any exceptions, not all are treated equally…
Well, imho sad truth is, not all are equal, and certainly not in the US. It starts with education, if you’re lucky and are born to rich parents, you will have a better education and better chances for jobs. Also some attributes and talents (good looks, singing, acting, maybe intelligence (not sure)) will help you make more money than others. The place where you are born will make a difference, I guess it’s easier to become a millionaire in California than in NewMexiko. If everybody would be treated equal, this would preserve the existing inequality by birth. Wouldn’t it be more fair if the government would support those who otherwise would have a worse chance in life? So where is the gr8 advantage of a flat tax?
Oh, and btw, I’d really like to know if you are willing to pay more taxes, if that’s the way to make the flat tax work (I assume you’re not one of the Top1% riches…). I have the suspicion that most of the supporters of the flat tax think they’ll have to pay less then. No one seems to have a real plan that computes, though.
Gray
“If a guy works 5/8, he will get about 11000$/year.”
Make that 8/5, and that’s only true IF he gets paid the miuumum wage and IF he has a job all year. As the chances for unemployment are higher for unskilled workers in the lowest wage jobs, many will make even less than 11k/year.
Cyrus
Tony Says:
Yes, that’s correct. There’s plenty of room for talk about how much revenue we should raise, but national parks and pledge drives won’t cover all of it – taxes have to figure in there somewhere.
I disagree. All people should have equal rights, obviously. But you can read Locke, Paine, Aquinas, any philosopher you want, and you won’t find too much about the absolute inherent immorality of a tax rate one point higher than 22% or whatever. “All taxpayers should be treated equally by the government” – would you not put a floor on a flat tax and extend it to even the lowest income levels? Forget tax rates, would you charge a flat fee as someone else has asked? Because treatment can’t get much more equal than that.
I agree with you here, I just don’t see how a flat tax addresses this problem.
You’re saying a progressive tax is immoral – fine, whatever. Lots of stuff, in theory, in pure forms, are immoral, but the important question is, “Is it more wrong than not doing it?” You’re saying that a progressive tax is more immoral than charging some people more than they can afford while charging (a much smaller number of) other people a sum that’s inconsequential to them. Am I reading you right? I hope not.
Cutler
…I’m all for a simpler tax code. I’m all for less pork in government. And I’m all for people who have benefited more from society paying more to maintain it. Until we eliminate the random benefit of who your parents are, a level playing field meritocracy is a pipe-dream. And I don’t see anyone sticking up for a 100% estate tax any time soon.
From the guy who brought us the brilliant notion that “life isn’t fair” a paragraph above:
“Why are progressive taxes immoral? They aren’t fair? Life isn’t fair. You want fair? Vote for a 100% estate/gift tax. That’s fair. And if you want fair, why go to a percentage of income? Why not just a flat fee? After all, that’s the most fair.”
Cutler
This also might be a shocker to you, but many people didn’t “benefit from society,” society and they benefitted from their own hard work.
Tony
Shygetz said:
Progressive taxes are immoral because it treats citizens differently before the government. The ideas of “all citizens created equal” and “one man, one vote” still seem relevant to me. But that also gets to why it’s bad policy. Progressive taxes punish success and skew the rational decisions people make. It turns capitalism into central planning.
I don’t think that means someone will try to make less money to avoid taxes. It does mean that compensation will shift from monetary to non-monetary. Take one of the largest ideals right now: universal healthcare. Do you think we got to where we are because the government didn’t interfere enough? Most employers in America are not in the healthcare business. How does it make sense for any company to retain control over such a personal decision, one which requires flexibility according to different individual and family needs?
It doesn’t, so how did we get to such a crazy situation? In the earlier 20th century, when progressive tax rates were even worse than they are now, employers began shifting compensation from dollars to healthcare (and other benefits, but I’ll stay on healthcare) for white collar, higher-salaried people. The why of that decision should be clear. As an employee approached the next rate level, he had to prepare for his tax burden to jump by a larger percentage than his income. By pushing compensation to non-cash benefits, there was nothing for the government to tax. The employee got a tax-free benefit and the employer got the same expense write-off as though it had paid cash. Employer wins, employee wins, government loses. As our tax code shows, the government hasn’t learned and thinks “soak the rich” works. As long as there are semi-intelligent people to get around moronic government policies, progressive taxes fail to achieve the desired affect. Hence, bad policy.
As for the “who your parents are” argument, I reject that. My single, GED-educated mother raised me (and my four brothers). I earned two college degrees, paid my own way, and now own my own business. Where’s the silver spoon that I should be tapped on the head with as punishment? You have to try harder than that.
Tony
Cyrus,
Not exactly. A progressive tax is immoral because it punishes success, implies that successful people owe more because the government does more for them (a point I don’t concede, but am not ready to explore). Essentially, the reasons I’ve tried, successfully or not, to explain to this point. However…
A progressive tax is less immoral than charging some people more than they can afford (by large margin). I agree completely, which is why I’m not saying set the exemption at $0 and then set a tax rate. There has to be a reasonable expectation that people can live to an acceptable standard before the government gets to dip into income. As I’ve said above, it shouldn’t punish success, but it shouldn’t punish failure, either. I’m not advocating a tax policy that says people who aren’t smart enough or lucky enough should starve and live under a bridge. Essentially, I don’t want to replace bad policy with bad policy.
I hope it’s apparent that I’m trying to be practical in applying these theories, which is why I’m not suggesting a flat fee. Sure, that’d be most fair based on a simple explanation of fairness, but I don’t like the underlying assumption. In no way should we assume that every taxpayer starts the year with a set liability and must work his way out of it. That’s tax system as indentured servitude. The flat tax as percentage, with exemption, beats flat fee since it only expects a portion of my labor.
Darrell
I suppose this is what happens when you overdo it with the koolaid. By and large, it takes fewer police resources to patrol the houses in high income low crime areas relative to low income houses in high crime areas. Crime statistics bear this out. In many high income, and even upper middle class neighborhoods, there is private security paid for by the homeowners, thereby subsidizing other taxpayers who don’t have to pay for additional police patrols which might otherwise be required. Did this really need to be spelled out for you?
If someone owns more than one property, they are paying more in property taxes. If such property is generating income, they are also paying more in state and federal taxes. Whatever business is done using highways, trucking companies pay big dollar taxes for their trucks to use the roads. The rich travel disproportiately via air vs. highways where they are again paying more taxes. Using what convoluted ‘logic’ then do you arrive at the conclusion that the rich are using a disproportionate share of social services?
Take a close look at Kimmitt’s post. It’s a classic example of what passes as deep thought on the far left
Gray
Tony
“Do you think we got to where we are because the government didn’t interfere enough?”
All in all, it’s not bad where you are. Progressive tax doesn’t seem to have hindered economic progress.
“By pushing compensation to non-cash benefits, there was nothing for the government to tax. The employee got a tax-free benefit and the employer got the same expense write-off as though it had paid cash.”
Yup, or they may get a cheap apartment, a credit from their employer, a life insurance, leased cars are very popular…
In other countries, all these assets are evaluated and subject to tax. That the US don’t do that is not related to the progressive tax at all. The same thing could and would happen with a flat tax. Untaxed income is always better than taxed income, no matter how high the rate.
“My single, GED-educated mother raised me (and my four brothers). I earned two college degrees, paid my own way, and now own my own business.” Congratulations (honestly). But do you think that everybody could have accomplished that with hard work? No luck involved? And you don’t feel like you owe something to the US because the opportunities it offers made this possible?
“I hope it’s apparent that I’m trying to be practical in applying these theories, which is why I’m not suggesting a flat fee.”
Reasonable, though that’s not the pure idea of flat tax. Still, I believe that economically a progressive tax is better, because people with lower income tend to spend more money than those with higher income, and thus accelerate the circulation of money, boosting business activity. But ok, I’m a Keynes fan, not a supply sider…
Btw, what do you think of the minimum wage and the Paris Hilton bill?
Kimmitt
I had no idea that the military was funded through property taxes. The things you learn on blogs.
Yes, that’s kind of the idea.
Good grief; I knew you were stupid, but egad. I’m a fiscal moderate and social liberal; I am no more “far left” than FDR was.
Darrell
Oh I’m sorry, I didn’t realize that “social services” meant only military protection. My bad
Of course, any police chief will tell you that the bulk of their resources are tied up in the wealthy low crime neighborhoods rather than in lower income high crime areas. How insightful of you
Tony
Gray,
It’s late, so I can’t offer a detailed response to all of your points now, but I want to hit one point.
I do think everyone could accomplish it with hard work. Luck is helpful, but I don’t think it’s been responsible for much. I studied, I worked hard in my first job to build skills, and an opportunity “arrived” that led to my business. I could attribute that to luck, but I worked hard to build skills and contacts that made it possible. I started with none of that. I work with no one I grew up with or went to college with. So I do think it’s possible for anyone. To paraphrase Richard Bach, everybody can’t do any one thing, but anybody can.
Which gets to the second part. I’m not sure how to respond to that. I feel like I should continue to be a productive citizen, but I don’t think success means I should turn over a large chunk of my income as repayment for a debt I don’t remember incurring. I don’t think I should get out of paying taxes, if that’s what you mean. I don’t even expect a small tax bill if I succeed financially, just a fair one. Killing future opportunities because I’ve received some in the past seems counter-productive. It’s possible to give back without the government acting as middle-man.
Specifically, consider this. If I earn a large income from my business, who do you trust to invest it in America, me or the government? (You don’t know me, I’m working on hypothetical here.) I can use a portion of my revenue to invest in my business and maybe hire employees. Or the government can use my revenue to invest in what? The decision is faith in capitalism or faith in government. That choice is easy for me.
ImJohnGalt
Tony Said:
Progressive taxes don’t treat people unequally. If someone who is currently making $11,000 suddenly makes $500,000, he will be taxed on exactly the same scale as everyone else in the country. Similarly, if someone who made $500,000 is laid off and unemployed, the next year they will pay exactly the same as everyone else in the country at that income level. The progressive taxes apply to everyone equally, no?
Mark
People say that the problem with the current tax system – and the reason we need a flat tax – is that the current system is too complicated. But a flat income tax wouldn’t get rid of most of the complexity. The tax code is complex because of the ways in which the IRS defines income, not from deductions and loopholes (although there are probably too many of those, and I wouldn’t mind getting rid of them).
For example: I earn all of my income from my employer, don’t have kids and don’t own a home. I use the EZ form, and it takes me very little time to do my taxes.
But immagine a system in which the only rule was “Pay X percent of your income.” For me, things would still be simple. Unfortunately, for others it wouldn’t make things simple at all. If you own your own business, how do you separate business expenses from personal expenses? If you work from home, what percentage of your mortgage payment can you subtract from your gross income to determine your taxable income? If you use your car for work, is the money you pay for gas deductable? What about maintenance? Are gifts income? What about tips?
The IRS would need answers for all of these questions, and, unfortunately, it would still need to audit people to make sure they were honest with their numbers. The idea of a pamphlet-sized tax code, or of millions of people doing their taxes on the back of a postcard is pure fiction.
Kimmitt
I think the worst thing about really stupid people is that they think everyone else is even more stupid than they are.
goonie bird
A simple flat tax rather then all this complicated 1040 forms make it easier to file taxes and make aptil 15 less scary
Tony
ImJohnGalt,
I’ve been busy, so I’m a little late on this, but here’s my response.
In that semantic view of fairness, yes, it treats everyone equally. But I hope you understant that I’m not suggesting that superficial idea of fairness. Everyone who earns over X dollars gets hit, but progressive taxes are designed to soak the rich. It inherently sets a class structure in the tax code. The poor have one obligation while the rich have another. Why? That serves no purpose, other than to mollify the “middle class”. That’s a political solution to an economic problem, encouraging tax-avoidance (tax shelters, business outsourcing) rather than investment (savings, R&D). That’s bad policy.
Jack Roy
Theoretically speaking, you’re quite mistaken. Flattening the progressive nature of the tax code (i.e., the part that says rich people pay at a higher rate) necessarily means that the rich pay less than they do currently. If you’re going to do it budget neutral, someone else has to pay more. Which means, as a matter of mathematical necessity, flattening the tax system either increases the burden on the poor and middle class or else leads to greater deficits.
Tony
Jack Roy,
I don’t see how I’m mistaken. (I assume you directed that to me.) Perhaps the argument that flattening taxes encourages less evasion will not hold up; I don’t know and will admit as much, though I never said it would. But to your point, flattening the tax code, ignoring evasion and the other theoretical arguments of supply-side growth, would probably mean the rich pay less than they do currently. I know that’s a lot of “yes, but”. However, I’m stating those up front to get to my response to your comment.
I never said anything about being budget neutral. I think budget neutral is an awful assumption for tax reform. I don’t think I said as such here (I scanned and didn’t see anything), but I didn’t say tax reform should be budget/revenue neutral. The most useful benefit of tax reform is overall government reform. As I alluded to at least once, the federal government should push non-essential, illegitimate federal functions back to the states. There, state citizens can decide on a much more immediate, closer scale if individual government functions, and the tax policies needed to support them, are justified and worthwhile.
But, again, the validity of the flat tax as a method out of progressive tax madness is separate from government funding demands. Federal tax policy should fund only what is truly federal. Figure out what should be funded, then determine the tax rate/standard exemption necessary to support that.
Jack Roy
Oops! Sorry, Tony, I meant to address it to John Cole.
Jack Roy
Although in theory, budget-neutral assumptions are either necessary or redundant. Assuming (as I think is reasonable) that the U.S. will pay its obligations, any budget shortfall now leads to greater payment obligations in the future. Assuming (again, as I think is reasonable given what we know of Congress) that the federal government isn’t going to suddenly stop spending, or spend drastically less, those future payments will necessitate a higher level of taxes than otherwise would be necessary. There are two alternatives: (i) increase taxes in the future on the present beneficiaries of the flattened tax, or (ii) increase taxes on some group not exactly comprised of the present beneficiaries of the flattened tax (i.e., partly the middle-class and poor). Option (ii) contradicts Cole’s hypothesis that a flat tax could be constructed that wouldn’t increase the burden on the poor / middle-class. And option (i) obviates the tax cut component of the flat tax entirely; the higher brackets wouldn’t get a tax break, they’d merely take out a mandatory loan on their taxes, which they’d pay off later (with interest).
Tony
Jack Roy,
Keeping budget-neutral as an assumption, I agree with your analysis. I just think that not including governmental reform in the discussion of tax reform (which ignores budget-neutral) makes the whole exercise worthless. If we’re just shifting pieces around in the pie chart, which is what the advisory panel on tax reform essentially concluded, why bother?