In this column:
http://www.straightdope.com/classics/a5_139.html
Cecil says, “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.”
Would these numbers be the same now? And how are these numbers reached?
This might quickly end up in GD, but the flat tax is more than just fixing the tax rate at one level.
There is a large personal exemption (usually around $30k). No one pays any tax on that first amount of income. Some people will come off the tax roles altogether who pay taxes now, so in that sense Cecil is wrong.
Most flat tax proposals also envision eliminating all (or the vast majority) of deductions-- like mortgage, etc. Depending on how many of these deductions a “rich” person was using, his or her taxes might go up under a flat tax. It’s hard to say.
Moral: You can’t just do a “20%” calcualation on someone’s income to get the answer.
This site will explain the most poplular flat tax plan. So you can judge for yourself.
That site is quite a piece of work. First it says all deductions are eliminated, then it says there is a family exemption. It says that there are no breaks for special interests, but when you look at it you see that people with children get bigger deductions than they do currently.
The relatively low tax rate is based on the assumption that the economy will grow by 5.7% as a resilt of the tax restructuring.
Note that businesses can deduct cost of wages, but not fringe benefits. That sounds good til you realize it includes medical insurance.
No details on how depreciation is handled for businesses.
Also, why confuse simplified tax codes with flat tax. You could simplify the tax code and keep progressive tax brackets.
This PDF document from the IRS has the 2000 figures (latest available) in Figure B.
The factoid is still true. The average tax rates for AGI below $200,000 are all under 20% (17% at the highest) and those over $200,000 are all above it (24% at the lowest).
See, here’s the bottom line, from the website John Mace offered: << No matter how much money you make, what kind of business you’re in, whether or not you have a lobbyist in Washington, you will be taxed at the same rate as every other taxpayer.>>
Right, so regardless of whether you’re rich or poor, you’ll pay the same thing. You may say that you’re poor, and you can’t afford to pay 19% of your income. No matter. Even the Rockerfellers and Bill Gates will have to pay the same rate that you do.
Smack: The “factoid” says “everybody”, not “the average of all people in the tax bracket”. BIG difference.
“Also, why confuse simplified tax codes with flat tax. You could simplify the tax code and keep progressive tax brackets.”
Dan: True. But both have a political agenda. One is to redistribute income, the other is to not do so (as much).
What does it mean when it says “adjusted gross income”? How is income being adjusted?
Why do people say they pay 30-40% taxes, when this chart shows even people who make over 1mil only pay 27.7%??
I would love that rate. Why? Becuase here are the figures for Australia.
$0-6000 taxfree
$6000-21600 17.5%
$21601-52000 30%
$52001-62500 42%
$62501+ 48%
Plus…a goods and services tax of 10% on pretty much everything, and the usual sin taxes
Incidentally, these are the fugures immediately after a ‘tax cut’
20% flat? That sounds like bliss
The adjustment is subtracting various items that apply, before the standard deduction: educator expenses, IRA deductions, student loan interest deduction, moving expenses, and some other things. Lines 23-33 of the 1040 to be precise.
The adjustment is subtracting various items that apply, before the standard deduction: educator expenses, IRA deductions, student loan interest deduction, moving expenses, and some other things. Lines 23-33 of the 1040 to be precise.
“Why do people say they pay 30-40% taxes, when this chart shows even people who make over 1mil only pay 27.7%??”
Kong:
They are mistaking the marginal tax rate for the total tax rate. You may pay 30% on income you make about $60k, but still your total tax rate might be 20%. (I’m making those numbers up to illistrate a point. Not real tax rates, but the idea is the same.)
Check this site out for a fuller explanation.
BTW I have a new Kiwi roomie. He reports that there are no income tax forms in NZ, they take it out of your paycheck and thats it.
Just the simplicity appeals to me.
(Of course I live and work overseas to dodge US taxes.)
Paul in Saudi, I moved to Aust from NZ. it is true they no longer have to fill in tax forms. The catch? If you do not, and are entitled to a refund, you will never see it. If, however, you owe them money, you can be assured they will get in touch.
When I lived in Rhode Island, the state tax form was a post card with about 5 lines on it. You wrote your total income, fed adjusted, fed tax, then took a % of your fed tax and that was your RI tax (I think it was 25%, but I could be wrong). Almost (and I emphasize almost) made you not mind paying state taxes.