Cecil's flat tax responses

Cecil's Columns/Staff Reports
21

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.

Today’s subliminal message is " "

22

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.

23

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?

24

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.

25

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!

26

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.

27

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

Ian…there’s a difference between HTML and bad hoodoo?? :slight_smile:

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.

28

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.

29

[[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.

30

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.

31

[[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.

32

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

33

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.

34

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.

35

>>>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

36

[[>>>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.

37

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.

38

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

39

bump – cecil post

40

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.