Cecil's flat tax responses

Cecil's arguments against a flat income tax make sense, but by God I am tired of watching a fourth of my income get chopped off on payday!!! I've also heard people touting the benefits of a "commerce tax" - I suppose a fancy term for a national sales tax - and I must admit that it sounds too good to be true (which probably means that it is). The idea of getting my hands on my ENTIRE salary and only paying tax on the money I spend has me foaming at the mouth.

My question is: Has anyone heard any arguments against this idea?

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"More hay Trigger?"
"No thanks Roy, I'm stuffed!"

stpete_macrtst

Most of Europe has what they call a "value added tax", essentially a sales tax of roughly around 15%. Of course, that's in addition to national income taxes that range from 40% (in the UK) to 60% or so (in Belgium.)

The clear argument against a flat tax is that the poor can't afford it, and the rich find it trivial.

So the judge says, "You say you want a divorce. I tell you a divorce will cost you $20,000. You say you don't have $20,000, but let me tell you that even if you were Bill Gates you couldn't get it for any less. This is not a land with one law for the rich and one law for the poor."

The other argument against the VAT is that it's a hidden tax, since much of it is paid by manufacturers, wholesalers, etc. The cost of goods is jacked up to cover the tax, so make no mistake, it comes out of the consumer's pocket, as you know if you've ever marveled at the exorbitant prices for many types of goods in Europe. Since people don't realize they're paying the VAT, though, there is less political pressure to keep the rates down.

As for not wanting to pay a quarter of your salary in taxes ... well, who does? The fact remains that it costs a lot of money to operate a government, and no amount of monkeying with the tax code is going to change that.

Not only would it discriminate severely against the poor, the only way it COULD make as much money for the government would be to discriminate against the poor.

Consider: There's no way in hell legislation could get passed that would do away with income tax and place a flat tax on absolutely anything sold. Anti-poverty groups and most everyone would insist that basic needs, like food and shelter, should be exempt. That would cut down considerably on the tax base. I spend approximately 35% of my monthly income on just food and housing. If I get to keep all that I earn, and nothing goes to tax, I could end up spending approximately another 50% of my monthly income on "consumer goods", including gas etc. If the government was going to suck as much out of me through a sales tax as they do now through income tax, there would have to be approximately a 100% tax on everything, on top of the 7% GST and PST that I pay already. (OK, I'm in Canada, so tax rates are higher, but just to illustrate..) Not only that, but if 80% of my "consumer spending" each month goes to tax, I'm going to end up with less stuff than I do now. This will not make the manufacturers of the goods that I buy very happy at all, and they will quickly go out of business.

Sample numbers:
Let's say I make $3000 per month.
35% to food & housing -> $1050
50% to consumer goods -> $1500

This leaves me 15% to save or invest, which is only $450. Currently I would be paying approximately $750 per month in income tax, give or take a bit.

Now, if that $750 had to come out of the $1500 I was prepared to spend on consumer goods, that would leave me with only $750 worth of goods (let's ignore current sales tax, for simplicity). That's a whopping 100% tax there.

Bear in mind that 50% of one's income is a hell of a lot to spend on consumer goods. I probably wouldn't actually do it - most people probably spend more like 30%. But that would mean there would have to be an even higher tax rate to make up for it. Besides, there would be no guarantee that people would continue to buy things if they were taxed that heavily. People hate to pay taxes. When the only way to avoid income tax is to not work (legally, I mean), everyone's pretty much stuck. But if you can avoid taxes by not buying stuff, you're going to turn into a minimalist and figure that you really don't need several hundred CDs, a faster computer, a new car, every new toy that appears for your children, a new stereo, 10 similar but slightly different pairs of shoes, and so on. It would be the death of the consumer culture. Which I think would be a very good thing, incidentally, but it wouldn't do much for government revenues.

End of rant, have a good Easter Weekend.

The thing that most people do not consider when they discuss income tax is that no matter how much you pay in taxes or how you pay it, you will get the same spending power.

The government needs X dollars to operate, we need X dollars to live.

If we paid no direct income taxes, and prices remained the same, then we would be paid less by our employers. Our demand as employees is driven by our expected standard of living. With no direct income tax, we would need less salary to keep the same standard of living. Competition between employees for jobs would quickly drive down the salary demands.

Of course, if the government needs X dollars and they do not get it from us, they will have to get it from corporations (import, VAT, sales tax, etc.) and the cost of goods would increase. We should expect that the cost of goods would increase proportionately and that the cost of our standard of living would increase. Therefore we would demand the same money we do now to maintain the same standard of living.

The problem with Government taxes on corporations and products is that they can vary the taxation to drive consumer demand (cigarette, liquor, gasoline, etc.) Lobbyists could affect the government's decisions. We would have less of a free market and our economy would suffer. I don't know if this is done in Europe, but they will think of it soon.

I pay a lot of taxes, but I also live better than most of the people in the world.

Longhorn's points are well taken, but he misses one vital arena within this concept: inflation.

Income tax is, in my mind, largely illusory. Why? Well, let's say that a new tax code is passed that one way or another increases substantially everyone's take-home-pay by 20%... The operation of supply and demand in the marketplace (i.e. more dollars chasing the same amount of goods) would quickly result in inflation of... oh... I'd say about 20%. On the other hand, a major across-the-board tax increase would tend to drastically cut disposable income and buying power, and businesses would almost certainly have to drop prices (deflation) to maintain their market share, or competitors would use it as an opportunity to steal market share by offering lower prices... probably by, hmmm... say... 20%?

Think of it this way. If there's a $1 million dollar house for sale and nobody in the market can afford it, there's not much competition and the price is likely to drop. If 1 or 2 people want it and can afford it, it will likely sell for about $1 million. But if suddenly 25 people want and can afford it, it's bidding war time and the house will likely sell for more than $1 million. That's inflation in operation.

Bottom line, IMHO (though I must confess to being degreed in economics), any broad-based gains made through tax cuts will quickly even out to the same buying power you had before. The only way for a tax cut to actually improve your standard of living is if it's limited to a smallish segment of the population, and that's not the point now is it?

DE

Income tax is, in my mind, largely illusory. Why? Well, let's say that a new tax code is passed that one way or another increases substantially everyone's take-home-pay by 20%... The operation of supply and demand in the marketplace (i.e. more dollars chasing the same amount of goods) would quickly result in inflation of... oh... I'd say about 20%.

Doc, you're oversimplifying. Your inflationary argument holds true if the economy is at full capacity, but not if the economy is stagnant and substantial productive capacity is idle. Do you guys really want to get into economics seminar here?

You know the old saying about how if you layed all the economists in the world end-to-end they still wouldn't reach agreement (or "a conclusion" in some versions).... So, probably not the best place for an economics discussion.

Actually, to be honest, Unca Cece is right AND I'm right -- it really just depends on the time frame you wish to consider.

Nanny Nanny Boo Boo (or is that nana nana poo poo? I better go see how that thread is going...)

But, in general, is it a true statement that as disposable income increases, so do prices? If this is true, then I can see how the system would favor the rich, who could afford to pay more for goods and services. However, if it's not true, I don't understand the argument that a "commerce" tax system favors rich people. Higher standard of living = more dollars spent = more dollars contributed to tax base. I realize it's an oversimplification, but it makes sense.

Cecil, I don't understand your statement that a national sales tax would be hidden and paid for by industry (and therefore by consumers in the form of higher prices). My local sales tax is right out there for everyone to see, and the proprietor doesn't pay it - I do! Are you referring to the cost of collecting it? Businesses already do that at the state level, don't they?

In general, if the economy is at full capacity, prices would increase as disposable income increases, i.e. more money chasing the same amount of goods and services. The reason why prices HAVE NOT increased in the 1990's as disposable income has increased is that output/efficiencies have also increased; there's more money chasing EVEN MORE goods & services.

Great discussion; if only Congress would monitor the Straight Dope, would could really straighten out this country.

Cecil, I don't understand your statement that a national sales tax would be hidden and paid for by industry (and therefore by consumers in the form of higher prices). My local sales tax is right out there for everyone to see, and the proprietor doesn't pay it - I do! Are you referring to the cost of collecting it? Businesses already do that at the state level, don't they?

The assumption at the outset was that we were talking about a "value added tax," which is paid when the mfr sells to the wholesaler, wholesaler to the distributor, etc. For the most part the consumer does not see this tax; it's just built in to the price of the goods

Quote:
<<<However, if it's not true, I don't understand the argument that a "commerce" tax system favors rich people. Higher standard of living = more dollars spent = more dollars contributed to tax base. I realize it's an oversimplification, but it makes sense.>>>

The reason is because, in general, the richer you are, even though you are obviously spending more dollars, you are saving or investing a larger **percentage** of your income. Money saved is money not spent and thus not taxed under a sales tax. The ultimate example of this are poor people, who of necessity must spend all their income and therefore would pay sales tax on all their income.

To illustrate:

Poor family: earns $20,000 and spends $20,000. 10% sales tax takes 10% of their income.

Middle class family: earns $50,000 and spends 45,000, saving $5000 each year in a CD or money-market account. 10% sales tax takes only 9% of their income.

Upper middle class family: earns $120,000 and spends $100,000, saving $20,000 a year in a mutual fund. 10 % sales tax is only 8.34% of their income.

Rich family: earns $1,000,000 and spends $ 750,000, putting $250,000 in stocks and other investments. 10% sales tax is only 7.5% of their income.

Even though each family spent more money than the previous one, it also saved more, and thus ended up with an even lower tax bill. I certainly don't believe that the tax system should "soak the rich" but a sales tax would end up soaking the poor, which isn't any fairer.

Sorry. My message above is a reply to "stpete_macrtst"s question about why a sales tax would be considered to favor the rich. I cut and pasted a quote from his/her posting, but for some reason, it didn't come out.

John, I think it's the "<" and ">" brackets that cause pasted text between them to disappear. I would guess it's HTML, but it might also be bad hoodoo for all I know.

So how about instituting a national sales tax (or VAT) and "refunding" a set amount to each person (by adding $ to their paychecks)? This would retain progressivity, and allow us to scrap the complex system of income tax which undermines our privacy and necessitates an Orwellian organization like the IRS.


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Alan

One thing nobody has mentioned. Income Taxes (in the US) are not a revenue source to fund needed government services and functions. The US Income Tax is used for social engineering. Redistribution of wealth. Class envy. Whatever you wish to call it, everyone wants to tax people richer than themselves, and tax themselves as little as possible. Who are these rich people? Anyone who makes more than you do.
The Middle Class, however you define them, will always pay the vast percentage of taxes in this country, because that's where the money is. The poor don't have it(DOH) and there aren't enough rich folk.
So the real question is......How do we spend the money the government takes away from us? If Congress spent only to keep the government running and for the ocassional war or two, there would be no National Debt or Annual Deficit.
As it is now, the government is the ultimate combination of Robin Hood, Mary Poppins, and a giant teat. I'm not saying this is a Good Thing or a Bad Thing. What I am saying is, it IS a fact, and it never gets mentioned in any debate over tax reform.
The only way the government can cut real tax rates is to stop spending money. Your money, my money. So the way in which they confiscate that money is just for show. It dosen't matter how they go about getting it. The people who have the money, middle class working people, will continue to pay the money. Progressive income tax, national sales tax, value added tax, you look like a weasle tax, It makes no difference at all.
If They spend it, You will pay.
Just my $.00002 (1955 inflation adjusted opinion)

mmahoney, rich people want to tax people who make less money than themselves.

As a matter of fact, they make the laws on just how much money those in poverty pay for taxes.

Mr. Gates is interesting in that He always wears casual looking clothes :-)

Income Taxes (in the US) are not a revenue source to fund needed government services and functions. The US Income Tax is used for social engineering. Redistribution of wealth. Class envy.

Really, mmahoney, such feckless hyperbole! It looks like fun, so let me try...

Yep, national defense is clearly a pointless exercise in social engineering all right. The $267 billion we coughed up last year for the good 'ol DoD all went directly to those left-wing "bleeding heart" pansies in uniform, who used it to host Sunday teas for the enlisted men.

Just look at Kosovo! All that guff about "ethnic cleansing" is just a front for our real goal of redistributing our national wealth to the Kosovars in the form of only-used-once military hardware.

What about the money wasted by regulatory agencies like USDA and the FDA? I say let everybody take their chances. There's too many people competing for my job as it is.

And don't get me started about old people and Social Security. Who needs 'em? I'm tired of having to visit gramps at the V.A. hospital.

I'm sick of The Great Beast of the Federal Government wasting all that money on social engineering. It sure ain't helping me!

mmahoney has a point. Government keeps getting bigger, taking on more tasks, spending more money. To reduce the tax burden, downsize government. Examples: Do we really need a federal Department of Education? What does it do? What has it accomplished? Do we really need an FBI and a DEA and a Drug Czar? How much duplication of effort is there among these agencies?

[[One thing nobody has mentioned. Income Taxes (in the US) are not a revenue source to fund needed government services and functions. The US Income Tax is used for social engineering. Redistribution of wealth. Class envy.]]mmahoney


Probably nobody mentions it because it isn't true, even remotely. Unless, of course, you consider Medicare, Social Security, Defense, and interest on the national debt to be "social engineering."

[[ Whatever you wish to call it, everyone wants to tax people richer than themselves, and tax themselves as little as possible. ]]


Historically, the people with more money have been more successful at skewing the tax code.


[[The Middle Class, however you define them, will always pay the vast percentage of taxes in this country, because that's where the money is. The poor don't have it(DOH) and there aren't enough rich folk.]]

That's INCOME tax -- not the only tax, of course.

[[If Congress spent only to keep the government running and for the ocassional war or two, there would be no National Debt or Annual Deficit.
As it is now, the government is the ultimate combination of Robin Hood, Mary Poppins, and a giant teat. I'm not saying this is a Good Thing or a Bad Thing. ]]


After using that over-the-top language, you expect me to believe that you aren't saying it's a "bad thing"?

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[[To reduce the tax burden, downsize government. Examples: Do we really need a federal Department of Education? What does it do? What has it accomplished? Do we really need an FBI and a DEA and a Drug Czar? How much duplication of effort is there among these agencies? ]] Hazel


Do you realize how little you can trim from the fedral budget even paring away items like this dramatically?

The assumption at the outset was that we were talking about a "value added tax," which is paid when the mfr sells to the wholesaler, wholesaler to the distributor, etc. For the most part the consumer does not see this tax; it's just built in to the price of the goods.

I remember one of my political science professors characterising the VAT as the perfect Marxist tax -it effectively (and invisibly) taxes labor. (Note to the uninitiated, a Value Added Tax taxes the difference in value between a the cost of supplies or raw materials bought and the price of products sold, it is collected at every step of the market from producer through middlemen and final retailer.)

The 'value added' is the the result of the labor which transformed the supplies bought into the product sold - even if that 'labor' process was as intangible as product branding or appreciation.

The VAT is essentially a hidden sales tax, and like sales taxes is regressive across income ranges.

Most taxes are regressive, especially payroll taxes. They take a bigger percentage from low income wage earners than from the wealthy. Social Security (FICA)is the largest tax bite most low income wage earners pay, it is a flat tax at lower incomes -about 7.5% visibly taken from pay plus another 7.5% taken from the employer's side of the ledger, but it is only taken out of the first $65,000 (or so) earned. It regressively decreases as a percentage of income after $65K.

The progressive income tax and(perhaps)a few minor luxury taxes are the only taxes that counter the regressive effect of the many other taxes people pay. You could make an argument that a Forbes style flat tax (combined with hefty personal and dependent deductions) might be equitable if it replaced not only the progressive income tax, but *all* the other taxes as well. Until that day, a progressive income tax looks like a good deal.

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Today's subliminal message is " "

Permit me to quote.

"Let's just take all this money we spend on national defense and just *buy* Bosnia!"

"Well, I could balance a fucking budget, that would be easy! But no, they don't want to balance it the easy way, like by not spending $4000 on a screw that won't fit in the wing of a plane that won't fly to a country we're not at war with anyway! No, they want to do it by - cutting the school lunch program! Oooooooooooooooh! What a good idea! For years we've been saying we have to balance the budget, we have to do something about the debt, and now we know - we have to stop feeding the children! Because if they eat they'll live, and if they live we have to educate them, and then they'll know that ketchup is not a vegetable!" - Lea deLaria

Incidentally, as Cece has mentioned you Americans already pay the least taxes of the majority of nations; this in return for a shockingly small amount of social service. If I were you I'd worry about the latter, not the former.

Why a VAT? Why not a National Sales Tax with certain basic items exempt from tax? It works for Texas. Here in Texas, there is no Income tax but there is a higher State Sales Tax with certain things excluded. Such as food products that aren't purchased from a resturant.
[Sec. 151.314. Food and Food Products.
(a) Food products for human consumption are exempted from the
taxes imposed by this chapter.
(b) "Food products" shall include, except as otherwise provided
herein, but shall not be limited to cereals and cereal products;
milk and milk products, including ice cream; oleomargarine; meat
and meat products; poultry and poultry products; fish and fish
products; eggs and egg products; vegetables and vegetable
products; fruit and fruit products; spices, condiments, and salt;
sugar and sugar products; coffee and coffee substitutes; tea;
cocoa products; or any combination of the above. (Texas State Tax Code)]

Sec. 151.3141. Food Stamp Purchases.
(a) Items purchased in whole or in part with food coupons
issued under the food stamp program from a business approved for
participation in the food stamp program are exempted from the
taxes imposed by this chapter. The exemption applies only to
items permitted by law to be purchased with food coupons under
the food stamp program. If two or more items are purchased
together and paid for with a combination of food stamps and other
means of payment, for purposes of this section the food stamps
are applied first to the purchase of items that would be taxable
under this chapter in the absence of the exemption provided bythis section.

and a number of health care supplies including medicine prescribed by a doctor.
(the list is very long and I think this post is going to be long enough)

If you want to wade thru it all, go check out http://capitol.tlc.state.tx.us/statutes/codes/TX000023.html

The idea is that the items that poor people have to spend a larger percentage of their income on are tax exempt so therefore it isn't unfair to poor people. It is possible to be fair to the poor without sticking it to the rich. I for one would like for the tax laws to be better for the rich so that when I do get to be rich, my income won't suffer. ;]

After all, what better way to take care of the poor and middle class than to encourage them to get rich? If all the tax breaks are for the poor and middle classes, what incentive is there to become rich, if you are just going to have to watch more of your money go to the government?

The point is that the majority of government spending is not maintenance of federal buildings, maintenance of a Dept. of Agriculture, etc. The majority of government spending goes to 3 places: Defense, payment on the debt, and payment to individual citizens in the form of Welfare, Medicare, Social Security, etc. You can't cut your interest payments on the debt, and most people on both sides of the political aisle agree that defense spending is about as low as you want to go (even those who think it can be cut don't think it can be cut enough to make a real dent in overall government spending).

That leaves payments to individuals. If you really want to cut the size of government, you have to honest and admit this.

The Republicans are usually dishonest about this, as are the Perot supporters. They talk about waste, fraud, and abuse. They trot out the Rural Electrification Administration and the Helium Reserve, and say that government is way too big. The waste involved in these pork-barrel elephants is embarassing, but trivial. The Democrats are not much different, and the Technocrats think that the problems can be fixed just by being smarter and doing things better.

Yo, Matt:



School lunch program? I realize that I'm increasingly an old codger, but I still have vague memories of a long-ago childhood. As near as I recall (brace yourself!) my parents fed me!



Of course, those reactionaries also sent me to private school where I learned things like math, science and grammar rather than sensitivity and self-esteem.



To get back to the tax question, though, how about doing away with the income tax altogether? It only provides about half the government's income, and Our President has repeatedly told us that this is the smallest government since Kennedy was in office. Surely such a tiny entity could scrape by on a budget that's only 8 times as large as it was during JFK's administration!

A sideline on the VAT issue, it is my understanding that VAT in the UK is levied on what the state classifies as luxury goods, so basics like bread and toliet-paper are exempt, but Rolex watches and booze are not. Interestingly books are exempt but female sanitary underthings are not.

[Polycarp]

I disagree with flat tax proposals for the reasons Cecil has already given.

Ian...there's a difference between HTML and bad hoodoo?? :)

Now, for the reason I went to post:

My idea for lowering the tax burden:
A) Make all charitable contributions a 50% tax credit and a 50% deduction. This frees the government from having to fund that particular program at half the cost to the government's income that the program would be, and allows the citizenry to select what its money goes for. If you're opposed to the NEA and for the Institute for Creation Science, fine, give your money there. If you hold the reverse position, also fine.
Caveats: things the government is prohibited from funding would have to be straight deduction. But if, for example, you go to a church that is on the National Register of Historic Places and which has a food pantry program for the needy, you designate the half of your pledge that is a tax credit to building maintenance and food pantry (both legitimate government expenses) and the half that is deduction to the "religious" purposes the government cannot fund.

B) Economic development. The Feds, the states, and many local governments invest a lot of money in economic development. Okay, state that the Feds can designate as many programs, industries, etc., as Congress wants as "eligible," the States have a specific quota, and every local government may designate one or two locally needed programs as "eligible." Then make money invested in these "eligible" programs (i.e., companies, new divisions, industries, whatever) tax exempt income. If the thing is at all profitable and is tax exempt, it'll have more venture capital available than it knows what to do with. And we won't be paying salaries to "economic development professionals" (some of whom have no idea what they're doing), grants and interest-free loans of government money to businesses that may or may not produce the desired results (but which likely have the local Congressman's nephew in middle management), and so on.

[Geenius]

What is this obsession with abolishing the income tax? The graduated income tax and its half-brother, the capital gains tax, are the only common taxes in this country that increase as one's ability to pay increases, since they tax liquid (i.e., easily convertible) assets. Practically all of our other current or proposed revenue sources either tax nonliquid assets (e.g., property tax -- the value of your home has little relation to how big a check you can write to the government), hit the wrong people (e.g., sales taxes and lotteries, on which the poor spend a far greater proportion of their income than the rich, who can afford to save) or are simply half-measures created to soften the impact on the privileged (e.g., the flat tax -- 13 percent of my income is a serious blow, but Bill Gates could lose 13 percent of his and not even stop chewing).

The only sensible "alternative" I've heard of -- and I believe it ought to supplement a graduated income tax rather than replace it -- is the idea of taxing things that you want to discourage, such as pollution and mining of nonrenewable resources. In addition, I've always thought that a nice, simple tort reform would be to award compensatory damages to defendants but award punitive damages to the state, which would still serve to punish the guilty party but would also reduce the incentive to litigate with the hope of cashing in. Those punitive damages could go into rainy-day funds, so that emergency spending wouldn't eat into general-fund revenues.

The Vermont Supreme Court, incidentally, declared the property tax unconstitutional for the purpose of educational funding in that state. Said (correctly) that it violated the constitutional demand for equal educational opportunity. I'm not sure what they've instituted in its place.

[Big Iron]

[[What is this obsession with abolishing the income tax? The graduated income tax and its half-brother, the capital gains tax, are the only common taxes in this country that increase as one's ability to pay increases, since they tax liquid (i.e., easily convertible) assets. ]] Greenius


Just FTR, there is no separate "capital gains" tax -- capital gains are "income" for purposes of the federal income tax, although (against all logic and justice) they are taxed at a lower rate. The idea that income from capital gains should go untaxed (while income from working is taxed) is truly one of the most hair-raisingly idiotic political notions to ever be treated seriously.

[Brant Goose]

If you are poor or near it, chances are you are already paying a flat tax on income.
In Canada, income up to $30,000 is taxed at 17 percent. Thus, if you make less than $30,000, you pay 17 percent on ALL your income: flat tax. Actually, you can also claim about $7,000 in personal exemption, another $7,000 for you spouse, and deductions for dependants. Thus the "flat tax" covers incomes well over $30,000 in some cases.

Average income, per capita is about $20,000 and average family income is $50,000 or so. Two thirds of the 15,000,000 income tax filers pay no income tax, and are filing for a refund or tax credits (for example, the GST rebate). The 5,000,000 tax PAYERS are mostly working or lower middleclass, elderly, teenagers, second income earners, etc.

Is it really such a heinous injustice to have to pay taxes (even in Canada where the tax burden is much higher than in the U.S.)?

When people want a flat tax, they want a flat tax either (1) because it would reduce their taxes or (2) because it would make the paperwork easier. It would reduce taxes only for the richest taxpayers. It would make the paperwork easier only for the people with really complicated incomes (the self-employed, for instance) or those who claim the many deductions available.

Want to simplify your tax forms? Don't claim any deductions!

Want to reduce your tax burden? Be very rich or very poor.

Them's the breaks.

[Big Iron]

[[When people want a flat tax, they want a flat tax either (1) because it would reduce their taxes or (2) because it would make the paperwork easier. It would reduce taxes only for the richest taxpayers. It would make the paperwork easier only for the people with really complicated incomes (the self-employed, for instance) or those who claim the many deductions available.]] BrantGoose


Actually, a "flat tax" would do nothing to help simplify taxes, since it's figuring out how much you made that can be complicated, not figuring out what you owe on what you made (the little charts make it very easy). Proponenents of these schemes like to dishonestly conflate the two issues, though, to hide the fact that (almost always) these schemes result in a massive transfer of the tax burden from the wealthier to the less-wealthy.

[thumbelina]

Big Iron, and anyone else with strong feelings about the capital gains tax, please visit my new topic in Great Debates. Thanks! :)

[kanicbird]

I haver found several links while searching for the origional flat tax proposal. the fact is that the flat tax is not flat - it is a simplified progressive tax (tax $ AND % increase with income)take the following FAQ from "http://flattax.house.gov/quest.htm"

Question:Is the flat tax fair?

>>>Answer: Sure it is. The flat tax is true to the uniquely American definition of fairness: it treats everyone the same. Under a flat tax, everyone plays under the same rules. And because of the high family allowance, the flat tax is also progressive. With the first $33,800 in income for a family of four exempt from tax, the poor pay nothing. Because of the exemption, a middle-class family earning $50,000 would pay the 17 percent tax rate on less than half of its income ($16,200) while a wealthy family would pay the 17 percent rate on most of its income. <<<
I think much of the resistance to the flat tax is based on not knowing the facts. The numbers might have to be ajusted up OR down to allow the gov to obtain its revenue but the 'fairness' (if you can call tax fair at all) is there.
The problem I see w/ this is that the irs and alot of accountants will be SOL and the gov will lose some of its social engineering ability which probally means it won't happen as no one wants to give up power.
At first I was against the national sales tax, but thinking about it, we are told that as americans we spend too much and don't save enough, well duh', the tax code makes us spend, as a small bus. owner, i know that if i spend some of my bus. income I don't pay taxes on it (oversimplification but makes the point) so I am taught by GOV. to spend. but they want me to save, they give me 401k, ira, sep ect. to allow me to aviod tax in one way or antoher, but if I am (personnally) taxed on only what I spend and can save tax free, it would change my spending habits and IMHO would relieve the burden on our destined to clapse social security system because retired folks would have saved enough not to require this leaving more $ for folks who really need it.

[Big Iron]

You are conflating a "flat" tax with tax simplification, two very different things. Most "flat tax" proposals come loaded with things like complete exemption of income from investments, a proposition of dubious (to say the least) equity and logic.

Heck, the current income tax is barely progressive at all, anyway.

[kanicbird]

>>>You are conflating a "flat" tax with tax simplification, two very different things<<<
No I am not, This the so called flat tax proposal I am aware of is the ?-Army Flat Tax proposal (forgot the first name) bill that was before congress about 2 yrs ago. They (the drafters ? and Army) called it a flat tax, not tax simplification, The proposed form was a postcard size paper something along the lines of
A income ______
B deduction for (single=$x, married=$y,)____
C deduction for children______
D Add B and C ______
e Subtract D from A ______
f Take 17% of E and send us a check for it
if I rember the full name I will post it

[Big Iron]

[[>>>You are conflating a "flat" tax with tax simplification, two very different things<<<

No I am not, This the so called flat tax proposal I am aware of is the ?-Army Flat Tax proposal (forgot the first name) ]]

His name is "Dick," appropriately enough.

Anyway, the proposal may have involved tax simplification, but simplification has nothing to do with making the rate flat (and vice versa). That is a separate issue.

[Big Iron]

I should also add that, while dubbed a "flat tax" (despite flatness having little to do with the proposal even as advertised), Armey's egregious proposal was not even really flat -- on the contrary, the proposal was blatantly regressive, since it completely exempted all investment income from taxation.

Alas for Armey, his "flat tax" failed because the facts about it indeed became known.

[kanicbird]

I know his 1st name is Dick, but I believe the bill was co-sponsered and forgot the other person.

[curwin]

bump -- cecil post

[Ned]

The other argument against the VAT is that it's a hidden tax, since much of it is paid by manufacturers, wholesalers, etc. The cost of goods is jacked up to cover the tax, so make no mistake, it comes out of the consumer's pocket, as you know if you've ever marveled at the exorbitant prices for many types of goods in Europe. Since people don't realize they're paying the VAT, though, there is less political pressure to keep the rates down.

You have obviously never dealt with a VAT tax as this is backwards. VAT taxes are highly visible and the entire amount of the tax is collected from the end consumer. In Canada they replaced taxes, like the manufacturers sales tax, which were hidden. They are still regressive however.

[GRobLewis]

The most compelling argument for tax simplification is that it could potentially eliminate the shameless "hogs at the trough" lobbying by special interests for special tax breaks (and there are some lulus out there!) This is also why it will never pass.

Secondly, it would force the hundreds of thousands of accountants and tax attorneys to find something actually productive to do rather than figure out new ways to manipulate the tax code.

If we want more savings and productivity, then we should stop taxing these things and tax the things we want less of. Although President Clinton got creamed for proposing it, the best idea is a whopping Carbon Tax that would make cars and other energy gluttons pay some of their true costs of operation. BTW, did you know that present subsidies for automobiles are equivalent to a gasoline tax of between $5 and $9 PER GALLON?!

[John Bredin]

"The most compelling argument for tax simplification is that it could potentially eliminate the shameless "hogs at the trough" lobbying by special interests for special tax breaks (and there are some lulus out there!) This is also why it will never pass."

I agree it will never pass, because the "special interests" include such large, NON-"fat cat", groups as homeowners, who get the mortgage interest deduction. Up to a point, a house or condo owner can even deduct the interest on a home equity loan, so that their new projection television or vacation to Hawaii can become a tax deduction too. Ugh!

People love the idea of stripping "the rich" of their deductions, but when they are reminded that they're getting deductions too, the tune suddenly changes. Remember that no person considers themselves to be in a "special interest" group; it's always someone else!

I definitely have to agree with you that cars -- and trucks even more so -- should have to pay their fair share of the costs they generate. Americans scream like banshees at the prospect of $2/gallon gasoline, but even $3/gallon wouldn't come close to covering the full cost of motor vehicle usage. But there are too many Americans who think driving everywhere with dirt-cheap fuel (and, measured in inflated dollars, gas is still pretty damn cheap) is a God-given or Constitutional right, and any sort of measure to tailor the taxes on driving to the costs of driving would be political suicide for whoever proposed it. Like I was saying above, not every "special interest" is a handful of rich guys in three-piece suits!

[CurtC]

John Bredin wrote:
I agree it will never pass, because the "special interests" include such large, NON-"fat cat", groups as homeowners, who get the mortgage interest deduction.

Whether or not the mortgage interest deduction goes away isn't related to a flat tax per se. The mortgage interest deduction is related to what is defined as "income" for the purposes of whatever rate scheme we have in effect. In the one that we have now, interest income is taxable, and interest paid out is deductible*. Some tax schemes have been proposed where interest paid out is not deductible, but in those, interest earned is not taxed as income. I don't believe that anyone has been foolish enough to propose a system where they don't balance, because that would create a market where tax liability completely skews investment decisions, which you generally try to avoid.

Over the years, Congress has been whittling away at the relevance of the deduction by increasing the "standard deduction," which everyone gets. Once the standard deduction is greater than someone's mortgage interest deduction (plus the others), then the mortgage deduction doesn't matter to him anymore.

* Exception: interest paid on personal, consumer-type debt is not deductible. This is the government trying to discourage that kind of debt, not that it's trying to encourage home ownership.