Cecil talked about individual taxpayers, or households, but no mention of corporations and their burden. What was that old saw about many corporations who pay nary a cent of income tax that you used to hear about?
I still don’t see what’s so bad about a flat tax. It’s equally fair to everyone. 20% of $1,000,000 is a whole lot more than 20% of my measely income. I really don’t care if that means the rich pay less.
What’s worse, over time, as inflation has taken its toll, the tax lookup tables don’t necessarily change to keep up.
In a few years you may earn $200,000 working at McDonald’s and not be able to afford to eat there, but you’ll be ‘rich’ as far as the government’s concerned. Congratulations! You’re in a higher tax bracket! Hand over 60% of your income!
The problem is that if the rich pay less, the poor pay more. I don’t care if the rich pay any taxes at all, but when I’m struggling to pay the rent to keep a roof over my head, and keep food on the table I cant afford to pay more taxes.
A flat tax would mean just that…I would have to find money that I don’t have to pay the increase.
The flat tax scheme was a classic example of political misdirection (i.e. deceptively cloaking a benefit to the wealthiest of Americans as a benefit to ordinary taxpayers). Part of the claim of its proponents was that a flat tax would simplify the tax filing process by eliminating pages and pages of complex calculations to determine your tax. They even claimed it would eliminate the need for a vast IRS bureaucracy.
However, calculating your tax under a progressive tax system is just as easy as calculating your tax under a flat tax system – it’s a simple percentage of income. What makes the tax filing process complex is defining taxable income. The pages and pages of complex calculations and paperwork that are used to determine taxable income – business expenses, medical expenses and the myriad other deductible expenses or credits – would not magically vanish under a flat tax system. (And don’t think these same wealthy individuals would voluntary give up the complex but favorable deductions that lower their total taxable income – deductions their special interest dollars have purchased all these years!)
Nevertheless, wealthy proponents of the flat tax convinced many naive and wishful thinking Americans that the system would eliminate all of these complications and reduce the filing process to one simple indisputable calculation. When, in fact, the only change would be a substantial financial windfall to the wealthiest taxpayers and a hefty increase to the rest of us.
Since they’re both on the same subject, I’ve merged the two threads about the flat tax.
bibliophage
moderator CCC
Consider an extreme example to make the point clear (I realize 90% tax probably doesn’t occur anywhere on earth, but the concept still applies with more sensible tax rates).
If someone makes $1,000,000 a year gross and gets dinged 90%, he still nets $100,000 a year; certainly possible to live on. If someone squeaks by with a $20,000 a year gross income and gets dinged 90%, she only nets $2,000 a year, certainly not enough to live on.
That’s why a flat tax has a disproportionate impact on the poor.
The reason that example makes the difference seem so obscene is because the cut is huge, and what a person can consider livable.
Take the example figures you have and multiply by numbers thrown out earlier in this thread, 20% and 17%.
From $1mil, you get $800k or $830k left over, depending on which tax.
From $20k, you get $16k and $16.6k left over. ($20k is a little under $10.00 per hour at 40 hours a week, and federal minimum wage of $5.85 comes out to $12,168 for a year, FYI).
This still makes your point - the person who worked for a million dollars is going to live a lot more comfortably than the person who worked for 20 grand. However, both numbers are livable depending on where you choose to live.
Then you do the math and think, wow, one person is paying $200,000 in taxes while the other person is only making $20,000! They’re paying fifty times as much towards the interest rate on our national debt as this other person. Or … (I just love Excel) you can say that they are paying 12.5 times as much in taxes as the other person has left over to live on after they’re done paying taxes.
What do all these numbers prove about who should be paying how much for taxes, though?
As has been pointed out elsewhere in the thread, though, it’s all about what’s considered income.
Cecil left out one important issue with flat taxes, which is that a flat tax can be progressive by having a large exemption, say $20,000. So, somebody who makes $30k, at a 35% flat tax with $20k exemption pays $3500 in tax. Somebody who makes $120k would pay $35k in taxes, &c.
I don’t know what Charles Forbes was advocating in 1996, but it is possible to have a flat tax that isn’t regressive.
Something that irritates me about the statistics given by people like John Stossel and Marilyn vos Savant and, in this case, Cecil, is that they show only a part of the story. Comments from the column in italics:
*Here are the numbers for 1992 from the Statistical Abstract of the United States: * *
The top four-fifths of 1 percent of filers, who make $200,000 or more, paid 26 percent of the taxes. *
Dated, but supposing it’s still true: the top 1% of filers also make between21% and 23% of the nation’s income own more more than a third of the nation’s private property, so that’s not as inequitable as it sounds. In addition to this, earning $2 million per year can afford to pay 40%/$800,000 in taxes (leaving him/her with $1,200,000 per year) a HELLUVA LOT MORE than a person earning $20,000 per year can afford to pay 15%/$3,000 in taxes. My heart doesn’t bleed for them.
*The top one-twentieth of 1 percent of filers…paid 10 percent of the taxes. *
And probably control at least as much of the nation’s wealth as the bottom half of the nation’s income earners. I don’t have a cite for this, but based on the stats above, as well as the fact that the wealthiest 1% own more than the bottom 90% (cite) and that the 400 richest Americans alone were not only worth more than $1 trillion but earned cumulatively $45 billion in ten months in 2004 [cite].
I’m not a Bolshevik, I don’t want to see Bill Gates and the Trump family locked in a basement and shot and their wealth tossed from Mardi Gras floats- I don’t even want to see a return to the 80% income tax days we once had (I think 49.9% should be the absolute cap- at least on earned income and I don’t consider a person who makes $100,000 per year to be particularly rich (that’s really not as much money as it sounds like). I’m always irked by the “2% of Americans pay 30% of the taxes” quotes without the fact that “AND THEY FRIGGING SHOULD BECAUSE THEY HAD THAT MUCH INCOME!” added into the mix. The very rich pay an absurdly disproportionate amount of tax because they make an absurdly disproportionate amount of income, and the reason that liberals circle them to pay more is the same reason that Willie Sutton robbed banks- “because that’s where the money is”.
And you wouldn’t believe what I’d do to Paris Hilton’s trust fund… it’s called inheritance tax baby, might wanna start looking for a roommate
PS- I also hate the implication- never stated outright- that the very rich are better Americans because they pay so bloody much in taxes. Stossel (total tool he anyway) pretty much said in one of his books that in a fair world they really should get more say in government considering they pay for most of it, which I thought was one of the most ridiculous and un-American comments I’d ever read.
What’s particularly disgusting is that of those richest 1% few of them truly earned it. Most of the major wealth in the nation is inherited. Many, like Bill Gates, took an inheritance or family hand out and exponentially increased it, but that’s different from starting at ground zero.
Could Bill Gates have still founded Microsoft and become the world’s richest man if his dad been a Master Sergeant in the Air Force rather than a particularly cash-rich multimillionaire (and one of the nation’s richest devout believers in heavy inheritance tax)? I have no idea, but certainly it would have taken longer. I’m not arguing that Gates isn’t a hard worker- he is, no question about it- but otoh I somehow doubt that George W. Bush would ever have gone much further than middle management without a family fortune and connections behind him. The notions that the very rich are so much more capable and industrious and brilliant in business is just demonstrably BS considering how many of them got to where they are by stepping on mounds of inherited cash.
(I always found it particularly ironic that the heirs of the robber barons contained so many Social Darwinists when they were about as far away from Natural Selection as you could get- wolves don’t inherit a cave full of meat and most of these people didn’t inherit fangs and hunting skills that were any sharper than other members of their pack.)
In short, I think we should confiscate a few private fortunes just to make a show of power, starting with those of Limbaugh and Coulter. The money will be spent by me to create jobs and financial opportunities for others by starting my own record label to produce my daily spoken word CDs and podcasts and the enormous statues of myself that will grace the Mississippi and Chattahoochee rivers.
Going off on a slight highjack, one thing that has enter into the equation is corporate taxes. Whereas individuals pay tax on revenue, corporations pay tax on profit. Your rent comes out of your pocket but a company can expense it out. The millions that companies spend on naming rights of stadiums gets to reduce their taxes.
According to an article today in the NY Times
I think your irritation is unfair and misdirected, at least in Cecil’s case. I haven’t seen Marilyn vos Savant’s column so I can’t say about her.
Cecil is simply answering the question of whether it is true that the rich pay little or no tax, as popular wisdom suggests. The answer is “fuck no, they pay vast amounts of tax”. This is simply factually the right answer.
I don’t think on any fair reading of his column as a whole you can get the impression that this simple answer necessarily implies any belief that the rich shouldn’t pay as much as they do. Quite the contrary, when you consider that Cecil says:
**Saint Cad ** and John DiFool, without a much greater consideration of the taxation system as a whole, non-payment of taxes by corporations is not of itself a problem. Corporations are just legal structures through which people own and profit from property. As long as the people behind the corporations pay tax, there is no inherent reason why the corporation itself must.
If I own a foon making business by holding shares in Foon Manufacturing Ltd, and you own a foon making business in your own right, and each business makes $100,000 a year, then (in the simplest case) you will pay tax on the $100,000 you earn from your business and I will pay tax on the $100,000 dividend I receive from Foon Manufacturing Ltd. There is no reason why it is inherently fair that I should pay tax both when the company I own is taxed and again when I get profits out of the company.
Of course, if a company is being used as a structure which pays no tax itself and which I can somehow get profits out of without paying income tax, that is clearly unfair. But there is nothing inherently inappropriate in my view in a business structure not paying tax itself.
I don’t know US tax law so the following is in the most general terms, but overall I don’t think you understand the position.
What I think you are doing is confusing business and personal expenses. The former are deductible and the latter are not.
Companies have only business expenses because they are (in their entirety) business structures. Individuals can have both business expenses and personal expenses. However, your average wage earner has few if any business expenses, so there is not much difference between their revenue and their profit.
It would be insane for businesses to be taxed on gross, which is what you are implying should happen. No low margin business could survive because they’d have to pay tax on their income regardless of how much they have to spend to earn it.
Furthermore, individuals are no different. If an individual spends money on advertising their business they get to deduct that expense.
I find it inherently unfair that I pay taxes.
Being a self-employed freelance programmer, I can’t predict at all what I will make in a year, whether I’ll make ANYTHING. Yet the tax rules demand I pay a certain amount quarterly. I generally pay the fine and wind up paying the IRS all at once on April 15th. The pain is tangible.
Not like most of you lot who get a certain amount of your paychecks confiscated like you’re a criminal.
I’d much rather chuck the personal income tax and go straight VAT (sales tax) with an added tax for imported goods.
It would promote savings, reuse, buying US made goods, and basically all things good, and not SCREW everyone, every year.
and that would totally screw the poorest in our society who would then pay the highest percentage of their income in taxes…The wealthy would get a huge break however.
But not taxing corporate profits will increase incentives to stop handing out dividends at all, as piles of money can accumulate tax-free as long as it’s in the name of a corporation.
I’m not sure about what to do about the issue of double taxation, but not taxing corporations at all distorts the economy by creating opportunities to waste that money (as corporations aren’t all that great at entrepreneurship,) opportunities for fraud as huge sums of money are sat on by small amounts of people, and distortion of our tax system under an increasing subsumation of profits under “capital gains”: as the corporations cease to give out dividends, their share prices will increase, so when shareholders sell they will either get under-taxed (at the Capital Gains tax rate) or OVER taxed if they hold on for a long time (since the Capital Gains tax is not adjusted for inflation.)
You make some valid points but it sounds to me like your capital gains tax rules are broken, which is not a problem with non-taxation of corporate profits as such.
You are referring to the Fair Tax
I support it, too.
Just because they call the “Fair Tax” fair doesn’t make it so.
It is still regressive and shifts more of the tax burden on the middle class.
Why? Because the super wealthy are not spending all of their money on Ferraris and Godiva. They’re purchasing real estate (untaxed) and investing in the stock market (untaxed), among other things. In other words, the higher a person’s income, the less a percentage of that income goes towards taxable goods.
The one thing that all these tax revision suggestions fail to point out is that they do nothing to reduce the amount of money required to run the government, they just shift the burden from one class of people (most frequently that class of people suggesting the revision) to another class.
One interesting point the Fair tax folks make is their (unsupported) claim of a $1.5 trillion underground economy (mostly of illegal and undocumented workers) that would then be paying into the system. What is not pointed out is that since those workers, who are almost all low income, are not in the system, they would not be receiving the rebates that the legal low-income families would receive, which almost sounds as if it’s a proposed solution to the “illegal immigrant problem”, since these undocumented workers could no longer afford to live here at their current wages.
The wealthy benefit most from this great system we have therefore they should pay the most. A graduated tax bracket is positively fair.