Assuming we kept “consumer taxes” and left them alone. Aka, people who have money spend more.
Maybe I can’t get past my nose to look at the actual issues but I see a flat tax as being by far the most “fair” tax there could be.
What could possibly be wrong with everyone pulling their fair share?
Yes, you will always have a gap between the haves and have-nots but a flat tax will eliminate the need for caste warfare.
What would the rate need to be in order to get the taxation to the point where government can “shrink”
Would there be a need for the IRS (in its current overbloated capacity)?
Yes, there would still be a need for an IRS. Some number of people have to actually collect the funds and insure compliance, even under a simplified system.
The issue is that every detailed proposal of a flat tax system involves making the wealthy pay less and the poor pay more in taxes, even as a percentage of income. I think progressive taxation, in which the wealthy pay more and the poor pay less, is preferable. Currently, at the lowest ends of the income scale, the poor enjoy a reverse income tax in which what they pay out in payroll taxes, they get more back in income taxes because of the earned income tax credit. Why we would want the government to either take money away from poor people, or make them pay more in taxes, is beyond me.
I don’t know what you mean by “consumer taxes.” Do you mean consumption taxes, such as sales taxes? You realize that except for certain excise taxes on cigarettes and tires and a few other things, the Federal government is not involved in consumption taxes?
ETA: You know, I always hear people who want to cut taxes on rich people talk about “ending class warfare.” The same people never seem to reconcile this view with their opposition to universal health care, opposition to labor unions, opposition to welfare, opposition to reducing taxes on poor people, etc. It is funny that class warfare is always about the poor and middle classes wanting rich people to contribute back some of their considerable benefits, but it is never about rich people devising new ways to keep poor people poor.
Are you looking for a debate between flat tax and progressive taxation?
It is true that a flat tax would seem fair, and ideally everyone would pull their own weight.
My opinion on the matter is that in reality it creates a system where the rich are able to get richer and the poor get driven into the ground. As an example, if we decided that $10,000 a year was what we all owe equally, it would crush people making less than $30,000 a year. Think about how much you hate paying taxes at your current rate, and then think about what it would be like to pay federal taxes of over 33%, in addition to having to pay out of pocket for health care. But on the higher spectrum of things, people making more money see that percentage go down every year. Over $100k earners are only paying 10%, people over $200k are only paying 5%. This is significant because it creates a system in which people under $40k continue to get poorer each year, but if you are “lucky” enough to get over the $80k threshold you start to get a lot richer a lot faster.
After as little as a generation you have no one in the $40-80k a year range, people are either exceedingly rich, or ridiculously poor. And it all comes down to personal preference, I think that a society with a strong and healthy middle class is better than one in which 1% of the population is super rich and 99% are dirt poor; I have been to countries like that, it’s not pretty.
But that is only on the “poor” side of the equation. There are also the groups of people that are productive in society but not necessarily wage earners. When a student is already paying $30k a year, do you also want them to pay $10k a year in taxes? Is it fair that people under 18 don’t get taxed? At what age do you start? Then their are the retired, which i think could be fine because it would be part of retirement planning and I admit it would be nice to know what your taxes would be each year. And then the last group of those unable to work (disabled, mentally challenged, sick, or caring for someone that is sick, pregnant, caring for young children).
Hall and Rabushka have put their flat tax proposal on the net. They last updated the numbers in '06:
The rich, thanks to deductions, do not necessarily pay the same PERCENT of income as the poor. Tax shelters, deductions that require expert counsel to use and understand, etc. help the rich reduce their effective tax rate.
Some variation on the Flat Tax (and I am, admittedly, a fan of Hall & Rabushka’s work) would simplify the system, make it easier to be in compliance, reduce the need for tax accountants, and could potentially change how we budget at the Federal Level.
I would love a Flat Tax, where proposals for spending at the Federal Level are put into terms of EVERYONE’s rate goes up X%.
I’m not sure I understand you question. A flat tax is percent-base tax. It’s just the same percent for everyone. And yes, the IRS would still be needed for any sort of income tax because we need someone to collect taxes and enforce the tax law. And no, things would not be any simpler with a flat rate. It’s not the sliding rate that makes things complex, it’s determining what is income; e.g., how do you divide capital expenses over several years, what are allowable expenses to deduct from income, what was the basis for the house you sold, if you rent a room in your house how much of the cost of mortgage payments and upkeep can you deduct, and so on.
Maybe you mean a sales tax (still percent based). It would need to be about 30% or so. Or maybe you mean a poll tax: in that case a large number of families would owe more than they make.
Progressive income taxes were developed under the principle that people with more wealth could afford to pay a greater percent of their income in taxes, thus lowering the burden on the less wealthy. In the good ole’ days that conservatives say they want to return to, taxes were more progressive than they are now. So if you want growth like we had in the 50s and 60s maybe we should *raise * taxes on the wealthy.
Progressive taxation also fits with the model of marginal utility. As you have more money available, each marginal (additional) dollar has less utility. In very rough terms that means a person/corporation (if there is a difference anymore) will “miss” the money they pay in taxes less.
Understand that wealthy people possess the majority of money in the United Sates…by a long shot.
So, the US has “X” amount of money it needs per year. If you spread that evenly you can see you are gobsmacking the majority of the country and the wealthy are barely touched.
I’d also need to check (did in a post around here months ago) but when you consider ALL taxes (sales tax and such) the overall tax burden, as a percentage of income, is actually rather flat and even favors the wealthy a bit (they pay less overall).
As to rich people spending their money it does not really amount to the same thing as the economic activity of the whole population. A rich person may buy 20 expensive cars but far better for the economy to have 10,000 people buying modest cars. A rich person may have three big houses, better to have 10,000 people buy modest houses. And so on.
Funny thing is rich people actually fare better when economic disparity is less. They profit when people buy 10,000 of their widgets. If most people are too poor and they only sell 1,000 widgets the rich people lose out. Again I will look up the cite from Unequal Democracy but it shows this story. Despite higher tax rates (when they existed) the rich still got richer while the middle class and lower class also benefited.
How does having a flat rate make things simpler? Once you figure out your adjusted gross income you just look up in a table to see your total taxes. The rates and complexity are orthogonal. You can simplify taxes and keep progressive tax rates, or you can have flat tax rates and keep the complexity of our current system. People equating flat rates with complexity are simply lieing to make John Q Public think there is something in it for him.
A flat tax is not “fair”, in that the rich consume and rely on much more in terms of government services than the less wealthy. Someone managing many employees, for example relies very heavily on public education, the federal highway system, etc. Someone with lots of money or sophisticated investments relies more on government regulation and protection (for a simple example of this, think of the FDIC. How many people have $250,000 or more in the bank? Yet we all pay for this insurance via taxes). The efforts of the Fed to maintain the security of the dollar benefit those who have more dollars at a much higher level. Additionally, wealthy people consume a greater proportion of the government-provided security that assures property rights. The rich simply consume more government on a per-capita basis than the poor, so a true fair tax is progressive. We could argue over the degree, but a flat tax is not a fair tax.
First, “consumer taxes,” if, by which, you mean sales taxes, tend to be only very slightly progressive (the percentage taken increases as income increases), and that only because of the exemption on food. If you remove that, the become regressive (poor people pay a greater percentage of their income) because lower income people spend a greater percentage of their overall earnings. If you add in the effect of excises taxes (such as tobacco and alcohol) I would guess that sales taxes in the US are substantially regressive, but I don’t have the numbers to hand.
Second, and most importantly, you haven’t said what you think a flat tax is. Your title makes it clear you are talking about % taxation. Income tax currently is percentage taxation, graduated based on income. Are you suggesting moving to a single percentage tax rate paid by all, or moving to “true” flat taxation - everyone, regardless of income, pays a capitation charge. You take the total amount of revenue desired by the government, divide it by the population, and each person owes that, from Bill Gates to George the Hobo under the bridge.
Third, you haven’t explained what you mean by “fair.” Assuming you mean a flat percentage tax, you haven’t explained why everyone paying that is fair. Wouldn’t a single capitation tax be fairer than that? If you think it isn’t, that it is ridiculous to expect a homeless unemployed person to pay the same as Bill Gates, then explain to me why you think it is fairer that they both pay x% of their income? Once you move away from the capitation concept, I don’t see why your structure is necessarily fairer than the current one…
Fourth, caste, or presumably class warfare isn’t caused by the tax system. We have had it for years, the problem is only one side has actually been fighting. It’s actually time to fight back, and I say that as a proud class traitor.
As will be the case forever unless you burden the rich with paying their share and the share of many others who wouldn’t be paying the same percentage of total income.
Some of the people posting in this thread seem to make it a flat amount, that isn’t the case. It’s a flat %. Someone making $30k might pay $3000, whereas someone making 30 million would pay $3 Million.
How is this a case of the rich not paying more than the poor?
In the event that the monies collected did not compensate the massive spending done by the government, something else could be enacted. Whether that is a sliding scale progressive tax or something else (like getting rid of excess) entirely can be debated at a later date.
Which is why I linked to an actual proposal that eliminates deductions and counts all income as equal. Chapter 3: The Postcard Tax Return. http://media.hoover.org/documents/0817993115_79.pdf (everyone see the .pdf, right?)
As I said on another thread on this board, fairness is a meaningless concept when it comes to taxes. They are inherently unfair, in the sense that whatever is done to make them seem more fair to person A will make them seem more unfair to person B. So that shouldn’t be part of the discussion. Taxes should be based on what is best politically and economically.
In other words, whatever can provide the income that the government needs that the voters will go for.
Which you solve by loaning money to the poor so the rich can still sell their 10,000 widgets on credit! What a great way to sustain high levels of wealth for the already wealthy. What could possibly go wrong . . . ?
I think the burden is on you now in this debate. The figures are out there. Come back with a proposal of what the percent of income taxes would need to be to have the same revenue we have now, what things 9if any) you would exempt, what changes to amortization and other complex regulations would need to be made to make things “simpler”.
Right now you are basically saying “if we had a fairer tax system wouldn’t that make things fairer”?
May I point out that any and all flat tax proposals will be filtered through our corporate-owned Congress? No matter what is proposed, the rich will get their tax breaks and loopholes. Guaranteed.
If I’m reading the personal exemption and the tax rate from that article correctly, at my income level (approx the 80th percentile, more or less) my Federal tax would go up by roughly 60%. That’s mostly because I wouldn’t be able to deduct my home mortgage interest.
Now, if such a system is enacted, there would certainly be a massive correction of housing prices, because of the elimination of the home mortgage deduction. Literally millions of Americans who are now making payments on their houses would face a double whammy: a huge increase in their tax bill, and a huge devaluation of their houses.
Which leads me to my question: Do the people who wrote the article actually work as foreclosure agents for the banks?
