Flat tax, yay or nay?

[MovieMogul]

Here’s a new article. Excerpts:

I would offer Americans an even lower flat tax rate–14% as opposed to 17%–and at the same time do more to help low-income people…

First we’d get rid of the across-the-board $9,000-per-person exemption in the Forbes plan. Why should billionaires like Bill Gates get an exemption? Forbes is giving too much money away to rich people. We’d save that exemption money and give it instead, in the form of a rebate, to the bottom third of earners, those who bring home roughly less than $25,000 for a family of four.

Second, Forbes ignores the 12.4% Social Security payroll tax (split between employer and employee). Currently, income over $90,000 a year is not subject to the tax. We don’t think it’s fair that a $50,000-a-year autoworker has to pay payroll taxes on all his income while a million-dollar-a-year auto executive does not. Under our proposal all wages would face the same income and payroll tax rates…Under our proposal all wages would face the same income and payroll tax rates. And these rates would be paid only once. After that all savings would accumulate tax free…

The left objects to most consumption tax proposals because they are not progressive. Low- and middle-income people would pay a greater share of what they earn than rich people…Under our flat tax the rich would bear more of the burden than they currently do.

We would also use the rebate of tax dollars to the bottom third of taxpayers to solve other social problems. For example, instead of people automatically getting the 14% rebate, we would require them to show that they have health insurance and a retirement pension as a condition. Specifically, to get one-half the rebate (7%), low-income families would have to produce proof of health insurance. This would encourage millions of people who qualify to enroll in Medicaid or in their employer’s health plan. Barring that, families could apply the tax rebate to health insurance they purchase on their own. We propose making the other half (7%) contingent on proof of a pension, an IRA, a 401(k) or some other savings account.

So instead of national health insurance and more government spending on the elderly, we would use our flat-tax proposal to urge people to solve these problems on their own.

[Steve_MB]

@John C. Goodman

First we’d get rid of the across-the-board $9,000-per-person exemption in the Forbes plan. Why should billionaires like Bill Gates get an exemption?

Because giving it across the board is the only way to 1)keep it simple and 2)avoid creating a perverse disincentive to increasing one’s income when it’s just under the break point.

[Clothahump]

Better a Flat Tax than what we have now.
But better The Fair Tax than either.

[MilTan]

Clothahump: Do we really have to go through this again?

[Wesley_Clark]

In the US the tax rate hovers around 30%, however the government spends more than they take in so we’d need at least a 33-34% flat tax on everything in order for this idea to work. Plus there are problems with consumer goods and taxing them. How do you tax interstate commerce or international commerce? I don’t pay taxes when I but things on Ebay from outside Indiana or outside the US. It is not uncommon for people to buy cigarettes from Sweden instead of the US because they are only $20 a carton in Sweden.

All in all I don’t think it’d work but I’d be open to a short trial run in a state if people voted in favor of it.

[foolsguinea]

I can live with a flat income tax, so long as there’s a progressive, regularly levied, mildly confiscatory wealth tax for those with multi-million-dollar net worths.

[DanBlather]

@foolsguinea

I can live with a flat income tax, so long as there’s a progressive, regularly levied, mildly confiscatory wealth tax for those with multi-million-dollar net worths.

That’s an interesting topic that doesn’t get much attention. If you buy a painting, jewelry, or house and it appreciates in value it doen’t get taxed til the value is realized. When you die and the assets get passed on to your heirs, the basis of the asset is reset to the value at the time of death. This means that without the estate tax the appreciated value doesn’t get taxed at all!!

Contrast this with some poor schlub who has money in a savings account. The interest is not only taxed every year, but it’s taxed at a rate higher than that for capital gains and dividends.

Tax reform discussions are rife with complete misunderstanding of how taxes work. Somehow the wealthy have convinced the middle class to go against their own self-interest. Why in gods name do we tax capital gains and dividends at rates lower than wages?