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  #101  
Old 06-06-2011, 01:33 PM
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As has already been covered by the thread, all of the complications of the tax code come from determining what counts as income and what can be deducted. Once you come up with an income amount, applying marginal tax rates to it is trivial - someone with a hand calculator could do it in 5 seconds.

If you say "well the flat tax could come with a simplification of the types of income and deductions", well, so can a progressive tax. Use all those simplification reforms and then apply progressive marginal rates to it.

Last edited by SenorBeef; 06-06-2011 at 01:34 PM.
  #102  
Old 06-06-2011, 02:04 PM
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I have, in the past, been a proponent of the flat tax, or similar concepts, but there's some issues with over-simplifying the tax code. The first, and most obvious, example is that the utility function for money is not linear, whereas a flat tax assumes it is. To illustrate this point, a simple analogy should do. Let's say I make an offer to you that if you pay me $10, I'll flip a coin and if it's heads you get $20 and if it's tails, I keep your $10. Maybe you'll play if you feel lucky, maybe you won't. Now let's say I make the same offer, except the cost is $10,000 to play and the pay-off is $20,000. For an average middle-class person, I think almost all of us would say it'd be stupid to play, even though the odds and winnings are exactly the same.

Simply put, for a given individual, the value of the currency decreases as one has more of it. This would seem to imply that some degree of progressive taxation is, in fact, more fair than a flat percentage, but it also implies that there is a point beyond which it is too progressive and does become unfair.

Another problem is that there is necessarily a minimum on what one can reasonably survive on, and this could easily be handled with a deduction such that the zero point for the utility function progressive tax is at the poverty line, but even that is a little too simplistic. The thing is, cost of living is very different in different areas. If anything, that would imply that, at least the standard deduction should maybe even be more complex.


That all said, I think the idea of the flat tax is simply that the tax system is just too complex. We can simplify the tax system significantly and still use a progressive or a flat tax. When I was a proponent of that system, I was much more interested in simplifying the rules about what types of income count in what situations and what deductions count and which ones don't. I'm particularly bothered at the how taxation is used as a form of social engineering by implicitly (if not explicitly) encouraging people to, for instance, buy houses or have kids as it will result in tax breaks, even if those situations aren't actually in the best interest of those people.

Another issue with complex tax codes is that it creates all those loop holes that there always seems to be people complaining about the wealthy individuals and companies being able to exploit. A simpler system should, not only limit the number of possible loopholes, but also make it easier to fix them when they're uncovered.


Anyway, back on topic, I think it just won't work because I think it makes an invalid assumption about how money is or should be valued.
  #103  
Old 06-06-2011, 03:40 PM
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Sorry to divert back to the fair tax again, but there's one thing that just keeps bothering me about why conservatives are so smitten by the idea.

Over and over and over again, we hear how income taxes are "disincentives to work," or "punishing success," or various other glib criticisms that state that taxation is a strong and effective barrier to economic activity.

If it is true that taxation is a strong disincentive to economic activity -- which I do not really believe, except in extreme circumstances -- why would we want to discourage people from consumption? Don't we want people to go out and buy news cars, TVs, and plane tickets? Why would we want to discourage people from consumption?
  #104  
Old 06-06-2011, 04:53 PM
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Originally Posted by Fear Itself View Post
I can't wait to hear the howling when you try to raise the capital gains tax from 15% to 27%.

That is what you had in mind, right?
Flat tax proposals frequently exclude investment income from the definition of income.
  #105  
Old 06-06-2011, 04:59 PM
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Originally Posted by Mr Smashy View Post
I'm not sure what planet you live on, Lemur, but there's one set of *everything* for the rich and another set for everyone else. Rich people don't travel like us, live in homes like us, vacation like us, etc.

If you don't like it, feel free to become rich.
Yes but the rule of law is not supposed to distinguish between the wealthy man and the poor man.
  #106  
Old 06-06-2011, 05:00 PM
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As you point out, the rich already have plenty of advantages. So why do they need preferential tax rates?
Well, preferential tax regimes you mention in the second sentence are one of those advantages you mention in the first sentence.
  #107  
Old 06-06-2011, 05:02 PM
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No it's not "something", it's one of the dumbest sites I have ever seen. A flat tax is one with a single tax rate. Once you figure out what your income is, looking up your tax in a table is easy even if it there are graduated rates.

What's hard is determining your income. If you own a rental property to you just add count all the rent as Income? of course not, you deduct the cost of improvements, and depreciation of the building, and a bunch of other stuff. For companies with employees, and capital equipment, and accounts receivable, and other actual real world things there is a lot of work that needs to be done to get at that figure you plug into that inane calculator.
The site defines income as salary wages and pension. Thats it. Nothing else gets taxed.
  #108  
Old 06-06-2011, 07:45 PM
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Flat tax proposals frequently exclude investment income from the definition of income.
I am shocked.
  #109  
Old 06-06-2011, 11:32 PM
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I am shocked.
Nope, they are often written by the very rich to fool the middle class. Let me quote the Master again "The flat-tax scam is more of the same. Nobody's sure what the actual flat-tax rate would be, but let's suppose it was 20 percent. Based on the 1992 returns, if this inane proposal were implemented, taxes on everybody making $200,000-plus will go down and those on everybody else will go up. Malcolm Forbes Jr., one of the richest men in America, was the leading backer of the flat tax during the 1996 presidential campaign. Now do you see why?""

Bolding mine.
  #110  
Old 06-07-2011, 06:44 AM
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Nope, they are often written by the very rich to fool the middle class. Let me quote the Master again "The flat-tax scam is more of the same. Nobody's sure what the actual flat-tax rate would be, but let's suppose it was 20 percent. Based on the 1992 returns, if this inane proposal were implemented, taxes on everybody making $200,000-plus will go down and those on everybody else will go up. Malcolm Forbes Jr., one of the richest men in America, was the leading backer of the flat tax during the 1996 presidential campaign. Now do you see why?""

Bolding mine.
Fair tax (i.e. national sales tax) proposals have the same issue. We are fairly well off and able to save 40% of our income. Currently, some of that is tax deferred through vehicles like our 401k or our medical savings plan. A fair tax would defer taxes on spending on even more of our income - allowing it to grow from its pre-tax state. Cool for us. Moreover, we have done a fair amount of our spending overseas, where its hard for the IRS to capture. We don't bring enough back that we have to declare at customs - but we spend on consumables while traveling (accomodations, food).

Now, how much spending can someone with half or a quarter of our income defer?
  #111  
Old 06-07-2011, 09:13 AM
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Nope, they are often written by the very rich to fool the middle class.
Whoosh....
  #112  
Old 06-07-2011, 11:07 AM
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Originally Posted by Damuri Ajashi View Post
The site defines income as salary wages and pension. Thats it. Nothing else gets taxed.
So the earnings of the owner of a small business doesn't get taxed at all?
  #113  
Old 02-02-2020, 07:03 PM
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$ or %?
  #114  
Old 02-02-2020, 09:01 PM
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Do zombies pay tax?
  #115  
Old 02-03-2020, 12:15 AM
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Wouldn't work any better today than 9 years ago.
  #116  
Old 02-03-2020, 06:01 AM
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Or you could make it [u]completely[/i] flat: Tax everyone in such a way that everyone ends up with the same take-home income. Everyone gets the same; isn't that fair?

But seriously, what I would actually like to see would be a very high flat tax, coupled with a substantial UBI (somewhere in the neighborhood of $15,000-$20,000, with whatever tax rate is needed to pay for that). This would end up, on net, like a progressive tax rate, because for the poor, the untaxed UBI would be a greater proportion of their total income. But it would remove a lot of the discontinuities from the current system (for instance, the bottom line for a household would be the same no matter how they filed).
  #117  
Old 02-11-2020, 05:35 PM
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But seriously, what I would actually like to see would be a very high flat tax, coupled with a substantial UBI (somewhere in the neighborhood of $15,000-$20,000, with whatever tax rate is needed to pay for that). This would end up, on net, like a progressive tax rate, because for the poor, the untaxed UBI would be a greater proportion of their total income. But it would remove a lot of the discontinuities from the current system (for instance, the bottom line for a household would be the same no matter how they filed).
Adj gross income for US individual taxpayers is about $10.2 trillion, for about 141,000,000 taxpayers that filed. If you raise that amount to 200,000,000 that would be eligible for UBI at $20,000 each, then you would have to have a flat tax of about 39% to generate around the $4 trillion you would need to pay the UBI. The tax rate would need to be higher to afford the rest of the government programs excluding the safety nets, assuming that the UBI would replace them. So, say you needed another $750 billion, the flat tax rate would need to be around 46-47%.

Considering that about 35% of Federal tax revenue comes from payroll taxes, that would need to be considered in this equation as well. Only about 8-10% of Federal tax revenue comes from Corporate income tax.

Last edited by Omar Little; 02-11-2020 at 05:40 PM.
  #118  
Old 02-11-2020, 06:12 PM
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Interesting, my wild guess for what the rate would need to be was around 50%. I guess I wasn't far off the mark.
  #119  
Old 02-12-2020, 02:44 PM
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It's been stated several times in this thread that sales taxes are flat. They are not. They are very regressive. Poor people spend all of their money, the rich spend a portion of it, and a smaller portion the richer they are. Furthermore, the poor often spend more than their income, so these people are going into debt to pay the tax man. So imagine a poor person makes $20k/year, spends all of it, and additionally spends another five grand using payday loans or credit cards or high interest loans, while a rich guy makes a million dollars a year and spends $100k, not counting investments. With a 10% sales tax, the poor guy is paying 12.5% of his income in taxes, while the rich guy is paying 1%. The numbers are for illustration purposes. They aren't realistic necessarily, but they get the point across. Sales taxes are not at all flat, they are quite regressive.
  #120  
Old 02-12-2020, 04:22 PM
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Sales taxes are not at all flat, they are quite regressive.
I think the answer is that they're both- the percentages are flat- EVERYONE pays X% of the price of the goods they bought.

But that's also regressive, in that if someone making 100k a year buys $50 worth of taxable groceries here in Dallas, and some person making minimum wage also does, that $4.13 makes a LOT bigger deal to them than it does to me.

One way of looking at it in terms of why it's regressive is that the $4.13 is worth something like 40 minutes of work for a minimum wage person, while for that 100k salaried person, it's around 5 minutes and 15 seconds.

In my experience, most people advocating a flat tax are usually butthurt for some reason that the poor "aren't pulling their load", because they disproportionately consume government services and pay lower tax rates than everyone else. ("Why do THEY get X service for free from the government? And they pay less taxes to boot!"). In their lizard brains, they imagine that a flat tax is more equitable in a fourth grade mathematical sense ("everyone pays 17%! It's fair!"), without really putting any thought into why it's NOT actually fair or equitable in any sense but the elementary school math sense.

Last edited by bump; 02-12-2020 at 04:24 PM.
  #121  
Old 02-12-2020, 05:30 PM
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I think the answer is that they're both- the percentages are flat- EVERYONE pays X% of the price of the goods they bought.

But that's also regressive, in that if someone making 100k a year buys $50 worth of taxable groceries here in Dallas, and some person making minimum wage also does, that $4.13 makes a LOT bigger deal to them than it does to me.
That's not the only reason it's regressive. It's also because certain income brackets spend a higher proportion of their income in a way that exposes it to sales taxes. Let's just say for example, I make $120K a year. I put $19K in my 401K ( no sales tax), pay$14K for my half of the rent or mortgage ( no sales tax) and put another $10K in savings. Let's say I also contribute $6K a year toward my health insurance premium - that's $49K I'm not paying sales taxes on right there. I'm only paying sales taxes on at most 71K worth of income. Even some of that is going to be on non-taxable groceries and other items, but lets say I'm paying 5% sales tax on that $71K so I pay $3550. But that's only 2.95% of my actual income. Someone who actually earns $71K and has the same rent and health insurance payments as me but no savings or investments will pay $2550 on that $51K - which is less than I paid in dollars, but it's 3.5% of the total income of $71K

Last edited by doreen; 02-12-2020 at 05:31 PM.
  #122  
Old 02-12-2020, 06:30 PM
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Originally Posted by bump View Post
I think the answer is that they're both- the percentages are flat- EVERYONE pays X% of the price of the goods they bought.

But that's also regressive, in that if someone making 100k a year buys $50 worth of taxable groceries here in Dallas, and some person making minimum wage also does, that $4.13 makes a LOT bigger deal to them than it does to me.

One way of looking at it in terms of why it's regressive is that the $4.13 is worth something like 40 minutes of work for a minimum wage person, while for that 100k salaried person, it's around 5 minutes and 15 seconds.
A truly flat tax would be flat in terms of utility, but I think hours worked might be easier and just as fair.
If sales tax were charged this way (kind of tough to do, but still) I think it would address doreen's objection.
  #123  
Old 02-13-2020, 09:53 AM
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That's not the only reason it's regressive. It's also because certain income brackets spend a higher proportion of their income in a way that exposes it to sales taxes. Let's just say for example, I make $120K a year. I put $19K in my 401K ( no sales tax), pay$14K for my half of the rent or mortgage ( no sales tax) and put another $10K in savings. Let's say I also contribute $6K a year toward my health insurance premium - that's $49K I'm not paying sales taxes on right there. I'm only paying sales taxes on at most 71K worth of income. Even some of that is going to be on non-taxable groceries and other items, but lets say I'm paying 5% sales tax on that $71K so I pay $3550. But that's only 2.95% of my actual income. Someone who actually earns $71K and has the same rent and health insurance payments as me but no savings or investments will pay $2550 on that $51K - which is less than I paid in dollars, but it's 3.5% of the total income of $71K
Sales tax is another one of those ostensibly equal, but regressive in reality sorts of taxes, in that in theory, everyone's paying sales taxes at the same rate on what is purchased.

So the 100k guy pays 8.25% (around here) per dollar for his box of saltines, and so does that minimum wage guy.

But it falls down for the same reasons as a flat tax, which is that same marginal utility reason mentioned upthread, which is that $1 to the minimum wage guy is a much larger proportion of his income than $1 is to someone making 100k.

Part of the problem here is that because we have multiple independent taxing authorities, it's rare that total tax burden is considered, and sales tax is definitely part of that, although one that's rarely thought about.

Personally, I'd be for expanding the list of items in each state that are sales tax exempt, and raising the sales tax (maybe even going for a VAT) on the rest. I mean, anything necessary ought to be sales tax free, not just absolute necessities like food. It's absurd to me that feminine hygiene products are taxable, for example.

But at the same time, I'm not entirely sure why sales taxes should NOT be equal on luxury items like soda. Why should I pay more for a soda than a minimum wage person?
  #124  
Old 02-13-2020, 11:29 AM
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Why should sales taxes exist at all?
  #125  
Old 02-13-2020, 04:28 PM
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Based on the logic stated in this thread, grocery prices are regressive. Your cell phone bill is regressive. Just because it’s regressive doesn’t mean it should be changed.
  #126  
Old 02-13-2020, 06:10 PM
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Based on the logic stated in this thread, grocery prices are regressive. Your cell phone bill is regressive. Just because itís regressive doesnít mean it should be changed.
"Regressive" and "progressive" refer to taxes, not cell phone bills and grocery prices. A regressive tax is one where the rate decreases as the income increases , a progressive tax is where the rate increases as the income increases and a flat ( or "proportional") tax is one where everyone pays the same rate regardless of income. You could in theory have a flat sales tax, just as long as you don't mind A) imposing that sales tax on literally every purchase, including food ,clothing, medicine and real estate and B) deferring taxes on the income of some very wealthy people for many generations - if someone has 50 billion dollars that wasn't taxed when it was earned, how many generations will it take until it's all spent?
  #127  
Old 02-21-2020, 09:34 AM
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I believe that a flat consumer tax would be the more "fair" option.

If you make 24k per year, you bring home 2k per month and YOU can have some agency in how you are taxed.

While the student and lower income families are purchasing basic necessities (taxed at say 27%), the NBA player would pay far more tax (at the same 27%) on his fleet of super cars, crates of Cristal, fancy home(s) and water pleasure vehicles
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