# How would you reform the US national income tax system? **URL:** \ **Category:** Great Debates\ **Created:** [February 18, 2003, 6:02pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925 "2003-02-18T18:02:01Z")\ **Posts on this page:** 7\ **Page:** 4
**Author:** ![Debaser](https://avatars.discourse-cdn.com/v4/letter/d/3da27b/32.png) [@Debaser](https://boards.straightdope.com/u/Debaser)\ **Post date:** [February 21, 2003, 9:34pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/61 "2003-02-21T21:34:15Z")
> [@](#): > > \*Originally posted by blowero \* > \*\*But wouldn’t dumping capital gains tax tend to heavily favor the wealthy? And if you tried to exempt only certain people from it, then you’ve opened the whole exemption/deduction/loophole can of worms again. If you sell a house and make a profit, why shouldn’t you have to pay tax on the profit? \*\* Dumping any tax would favor the wealthy. I agree that letting only certain people go exempt from it would only get us back to where we started. You would have to either tax _all_ capital gains at a certain rate, or none at all across the board on incomes. But, my vote would be none at all. Families buy houses with money that’s already been taxed. Under the no deductions rule, they would no longer get a mortgage deduction. They pay tax just on the income, and not on capital gains. How much gov’t revenue is generated by capital gains? Lets say the flat tax rate comes out at 30%. Would dumping capital gains raise that to 31% or 40%? AFAIK, capital gains is mostly real estate and selling stocks. These are both things that would benefit the rich more, but that more and more middle class people are getting involved with also. I still think we could loose the tax altogether and raise the overall tax rate a bit, but depending on how the numbers would work out I would have an open mind about applying it across the board just like the income tax. Either way, though, it would be all or nothing: Everyone pays, or no one pays. Fair, simple, and efficient. ---
**Author:** ![blowero](https://avatars.discourse-cdn.com/v4/letter/b/41988e/32.png) [@blowero](https://boards.straightdope.com/u/blowero)\ **Post date:** [February 21, 2003, 10:11pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/62 "2003-02-21T22:11:42Z")
> [@](#): > > \*Originally posted by DrDeth \* > Blowero- the wealthy would pay less. You’d pay more. Every “flat tax” scheme I have seen seriously pushed (those that had the numbers punched, and were mostly revenue neutral) had the upper middle class hit very hard. Depending on the “exempt amount” those below it either were also hit hard, or got off easy. The top 5% got a huge tax cut. The tax burden, as a % of income, assumes a bell shaped curve, with the bell shoved a bit towards the high end. But the “flat tax” that has been espoused in the past was really just a scheme to eliminate the capital gains tax. The top 5% would have gotten a huge break BECAUSE CAPITAL GAINS TAX WOULD HAVE BEEN ELIMINATED. I am suggesting RETAINING the capital gains tax WITH the flat tax. In other words, ALL income is taxed, whether derived from employment or investment. Is there some intrinsic thing about a flat tax that it necessarily has to favor the wealthy? Even if it _did_ favor the wealthy, why wouldn’t it be possible to make it progressive, and tweak the percentages until it comes out right? It seems to me that this would be much more easily accomplished if all deductions and exemptions were eliminated. Wouldn’t the formula be a lot simpler? > [@](#): > > Debaser: > Dumping any tax would favor the wealthy. Yes, but wouldn’t dumping the capital gains tax favor the wealthy _disproportionately_? A person of modest income is unlikely to have a lot a discretionary cash available to make investments. A wealthy person _does_ have money to invest. The returns from investments allow the wealthy to receive even more income, which wouldn’t be taxed. I’m no expert, so please tell me if I’m wrong here. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [February 21, 2003, 11:07pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/63 "2003-02-21T23:07:01Z")
> [@](#): > > \*Originally posted by blowero \* > \*\*But the “flat tax” that has been espoused in the past was really just a scheme to eliminate the capital gains tax. The top 5% would have gotten a huge break BECAUSE CAPITAL GAINS TAX WOULD HAVE BEEN ELIMINATED. I am suggesting RETAINING the capital gains tax WITH the flat tax. In other words, ALL income is taxed, whether derived from employment or investment. Is there some intrinsic thing about a flat tax that it necessarily has to favor the wealthy? Even if it _did_ favor the wealthy, why wouldn’t it be possible to make it progressive, and tweak the percentages until it comes out right? It seems to me that this would be much more easily accomplished if all deductions and exemptions were eliminated. Wouldn’t the formula be a lot simpler? > > \*\* Well, a “progressive graduated tax” isn’t a “flat tax” any more. Nor does a “flat tax” nessesarily get rid of all deductions. So, what you want is a progresive tax, with no deductions or exemptions. Sure, we could do that- but it has never been seriously suggested. The poor & the rich would pay more, we’d pay less. (so far, I like it 😃 ) And, then we could have a tax rate something like maybe 10% to start. The problem here is “Granny”- who earns $10K a year thru Social Security and would have to pay $1000. No politico will even get close to any plan that suggests this. Not to mention the “Smiths”, your next door neighbors, who have 4 kids, while you & your wife have none. You earn the same- and thus pay the same taxes. I can see this… but no “pro-family” person will even consider it. Note that there would still have to be Business deductions. After COGS and other overhead, some retail businesses have a pre-tax profit margin under 10%. Most grocery stores, for instance. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [February 21, 2003, 11:10pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/64 "2003-02-21T23:10:36Z")
But, if you look at MY plan, back on page 1- it come close to this. It elimeinates the more complicated & rare deductions, greatly simplifying the Tax code. We’d all pay ABOUT the same, a little bit less- but then a few dudes in special interest groups would pay more. The main problem with this is the lack of playing with the economy & social engineering that the Government could do. Of course, that is not nessesarily a BAD thing… 😉 ---
**Author:** ![flex727](https://avatars.discourse-cdn.com/v4/letter/f/258eb7/32.png) [@flex727](https://boards.straightdope.com/u/flex727)\ **Post date:** [February 22, 2003, 5:04pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/65 "2003-02-22T17:04:13Z")
> [@](#): > > \*Originally posted by jshore \* > **As for the justification…We’ve been down that road before and I don’t want to repeat myself in too much detail here. I think one justification is on the basis of benefits received from government. I think these benefits are at least proportional to your income if not more so. For example, the police protection for your property is worth more if your property is worth more. More to the point, I don’t think it is realistic to believe that anyone can acquire the sort of wealth that the wealthy acquire without government being there to enforce contracts, etc., etc.** While I’ve generally been in agreement with this argument, it just hit me why I’m uncomfortable with it. If the function of government was essentially limited to these things I would have no problem. It is not. Once government was expanded to become the monstrosity that it is today, the argument you present became far less valid. The cost to provide the type of protection and infrastructure that allows the acqusition of wealth is a small fraction of the budget. Please limit the excess contributions by higher income people to that portion of the budget and re-make your argument. ---
**Author:** ![blowero](https://avatars.discourse-cdn.com/v4/letter/b/41988e/32.png) [@blowero](https://boards.straightdope.com/u/blowero)\ **Post date:** [February 22, 2003, 10:33pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/66 "2003-02-22T22:33:58Z")
> [@](#): > > \*Originally posted by DrDeth \* > \*\*Well, a “progressive graduated tax” isn’t a “flat tax” any more. Nor does a “flat tax” nessesarily get rid of all deductions. Yeah, I guess I’m using the wrong name. Whatever you would call it, I’m talking about a system where everyone pays a straight percentage of their income, but getting rid of all the adjustments and exemptions. > [@](#): > > So, what you want is a progresive tax, with no deductions or exemptions. Sure, we could do that- but it has never been seriously suggested. The poor & the rich would pay more, we’d pay less. (so far, I like it 😃 ) And, then we could have a tax rate something like maybe 10% to start. The problem here is “Granny”- who earns $10K a year thru Social Security and would have to pay $1000. No politico will even get close to any plan that suggests this. Hmmm…wouldn’t a person who only makes 10K a year currently be exempt from paying taxes? (I dont’ know what the cutoff is). Why would that have to change? It would still be possible to draw a line and say nobody who makes less than 10K pays any taxes. I don’t know that a tax without exemptions or deductions would _have_ to be progressive, but I don’t see any reason it couldn’t. It would depend on how the numbers came out. I agree that it’s never going to happen because of special interest groups, but the OP’s question was “how would YOU reform the tax system”. Why would the poor necessarily pay more under such a system? We could still give them a break by having a cutoff point under which either a smaller percentage or no tax at all is paid. The difference would be that it is calculated on total income, rather than a complicated system of exemptions and deductions. > [@](#): > > Not to mention the “Smiths”, your next door neighbors, who have 4 kids, while you & your wife have none. You earn the same- and thus pay the same taxes. I can see this… but no “pro-family” person will even consider it. But just because it’s not politically viable doesn’t necessarily mean it wouldn’t be the most efficient way to do it. First of all, on an overpopulated planet, should we really be subsidizing large families? Second, while the idea of social engineering through tax breaks sounds good in theory, in practice it has resulted in the mess of a tax code we currently have. > [@](#): > > Note that there would still have to be Business deductions. After COGS and other overhead, some retail businesses have a pre-tax profit margin under 10%. Most grocery stores, for instance. Oh yeah, that’s a good point. Back to the drawing board.🙂 ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [February 22, 2003, 11:07pm UTC](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925/67 "2003-02-22T23:07:44Z")
> [@](#): > > \*Originally posted by flex727 \* > While I’ve generally been in agreement with this argument, it just hit me why I’m uncomfortable with it. If the function of government was essentially limited to these things I would have no problem. It is not. Once government was expanded to become the monstrosity that it is today, the argument you present became far less valid. The cost to provide the type of protection and infrastructure that allows the acqusition of wealth is a small fraction of the budget. Please limit the excess contributions by higher income people to that portion of the budget and re-make your argument. Well, I’d respond to that in this way: (1) I’m not convinced that the costs going toward the protection and infrastructure for acquisition of wealth are really that small a fraction of the budget. [Note that the high tech industry benefits a lot, for example, from government spending on education.] But, I won’t quibble and will admit for the sake of argument that they probably aren’t the largest fraction. (2) Well, now you get into social contract theory. If someone presented me with an idea for government that included the present corporate and patent law that allow for the acquisition of oodles of wealth, I’d frankly balk. I would say, “Well, I understand that this might allow a lot of wealth to get produced but that wealth is going to be very unequally distributed and is going to make for a nasty society.” So, in other words, I am not willing to buy into all the stuff the government does to distribute wealth upward (even if it is cheap in terms of actually government expenditure) unless there is some attempt made to allow the society at large to benefit from the wealth. So, what I am sort of saying is that a progressive income tax and an estate tax and the like are, in my view, still a cheap price for Bill Gates to pay in order to get all the nifty laws and protections which allow him to amass large quantities of wealth. (Not to pick on Bill, whose father is actually a major player in the campaign against abolition of the estate tax.) You might claim that Bill could get off cheaper by only paying the part of the money that actually goes toward the enforcement of these laws and the provision of the infrastructure, but I say, even if that is true that doesn’t mean we have to or should set the “price” lower, especially since the benefits to him are so great. I say he is still getting quite the bargain! (3) This relates closely to another point I have made _ad nauseum_ which is that all government decisions have impacts on wealth distribution. Those who say they are against “wealth redistribution” are, in my mind, really saying they are against all those things that try to restore some assemblance of equality after all the other laws that favor the upward distribution (or, in other words, vast inequalities) of wealth. [Previous page](https://boards.straightdope.com/t/how-would-you-reform-the-us-national-income-tax-system/155925.md?page=3)