This is meaningless. Things are not and will never be hunky dory to motivate less taxes. Even if you tax the population at 99%, things will still not be hunky dory. The list wonderful things the government is INFINITE. Taxpayer resources are NOT INFINITE, therefore, even a 99% confiscation of wealth by definition won’t cover it.
That, dear sir, is exactly what we do today. We just don’t admit it.
For example, we don’t have metal detectors and monthly psychological evaluations of trouble students at every school nationwide to prevent school shootings. We as, society have made an implicit decision not to pay for this benefit. We didn’t set aside money to prevent school shootings? Too bad! But that’s exactly what we’ve done! It just doesn’t come to the forefront of your mind because we didn’t take a formal YES/NO vote on it.
We could make sure every person has fully paid college tuition.
We could put security patrols at every neighborhood corner to prevent kidnappings.
We could make sure there’s a Toy For Every Child at Christmas.
The list of the things the government could do is infinite…
We could easily justify consuming all of 99% of every citizens wealth, AND STILL have an infinite list of social benefits that remain UNFUNDED. This means that rolling back taxes from 99% to 98% (just 1% !!!) would be political suicide.
That is so wrong it leaves me almost breathless. A progressive tax rate does not make taxes more complicated. You just take your income subject to taxation and look it up in a tax table. What could be easier? You don’t even have to know how to divide.
The complicated thing about taxes is knowing what is income. If I buy a rental house for $200K and rent it out for $500 a month, what is my income? Do I have $6,000 in income per-year and ignore the cost of the house? Do I deduct the entire cost of the house the first year and then pay taxes on $6,000 per-year after that? Or do I depreciate it over 20 years like we do now? If I make improvements to the house how do I handle them? Do I treat long-lasting improvements differently than I do things like painting? When I sell, do I get to deduct the the cost of the house from the selling price or do I have to take into account the fact that I have depreciated part of the value?
If I get stock option as part of my compensation is that subject to tax right away or do I wait until I exercise the options?
If I have a small business what expenses can I deduct? Cost of goods, lease, heat and electricity? If I make big purchases of capital equipment such as computers, printers, and machinery do they get expensed the year I bought them or do they get depreciated over a number of years? What if I sell them after they have been partly depreciated?
Do I get to deduct extraordinary medical expenses? How about education, or continuing education related to my job, or the cost of looking for a job? If my company pays for me relocation is that taxable? If my company pays for part or all of my medical insurance is that taxable, or do I get it tax free and the poor slob who pays for it himself have to pay for it with after tax dollars?
Do we scrap 401K and IRAs? Do we have to pay taxes on the interest in retirement accounts?
These are just off the top of my head. There are hundreds and hundreds of special cases having to do with the takeover of companies, corporations with overseas operations, and other things too complicated for me to even understand.
Someone who advocates a flat tax as being “simpler” is playing you for a dupe and simply lying.
Tell that to Japan’s Ministry of “fill in the blank”
Tell that to China’s various bureaucrats.
Those countries seem to have done pretty well with government directed investment. I’m not advocating government directed economies but the market does not always produce better results for a country than government direction.
There are entire categories of goods that governments are uniquely qualified to deliver much more efficiently than private individuals. A profit motive can get in the way of the most socially beneficial outcomes in some cases.
The complexity of the tax system is due to all the deductions and special cases, not to it being progressive. Once you’ve figured out what your taxable income is, how hard is it to look up your tax? And how much you’d pay under a simple transparent progressive tax is just as easy to figure out as it would be under a flat tax.
So simplicity is orthogonal to progressivity. Getting rid of the deductions is simple in principle, but just try it when every lobbyist in the world will be against it.
As for the flatness, that just makes the tax rate smaller for the rich and higher for everyone else.
The poor already play plenty of tax in the form of sales tax. Give them a livable wage or something similar so they won’t have to decide between eating and clothing and I’m sure they’d love to pay income tax.
As for fairness, think when you first started to work. Was an inflation-adjusted $100 worth more or the same to you then than it is now? When you consider the utility of a dollar which varies depending on income level, a progressive tax is the only fair one.
That’s SORT OF the way we do it today. That is, after fiscal conservatives got rid of the Pay-as-you-go law in order to allow reckless tax cuts to move forward.
Notice how fiscal conservatives cut taxes and not only didn’t have the sense to propose spending cuts to balance the budget, but they axed a law that would have required them to do so.
So before you go on and on about how it’s those damn liberals who want to spend, spend, spend us into red ink, pause for a moment and reflect how fiscal conservatives irresponsibly cut taxes, and buried a law which would have required them to figure out what programs to cut in order to do so.
The tax code is long and complicated. It got that way a step at a time. Those who can profit from a change push their politicians to offer bills that will save them money. Those are the wealthy and corporations. The poor have no access. They do not employ lobbyists to pound on their doors. The poor are not at expensive fund raisers for the pols. They don’t play golf , play at the same country clubs or have their kids go to the same schools.
So the system is eroded into something that favors the wealthy and corporations. No surprise there. The only chance we have is to have public funding of elections. Without that change the rich will have the pols working for them, not us. Tax breaks will go to them who don’t need it. We have no power. We can not win. The rich own the system and it works well for them.
For me, looking at it this way is at the root of unfairness. If the government needs money and needs to raise $X, the bean counters pick up their heads and look for the guy with the Bentley. That’s wrong. He has no obligation to carry someone else’s burden. Yours or mine. Right now there is too ,much focus on one’s ability to pay. (Other than the truly destitute.) And if that’s the case, start taxing everyone on the Forbes 100 a 99% on everything over a billion dollars.
A flat tax is fair. It is not based on someone needing or not needing money. It’s based on the idea that we should all pay our fair share. The government needs $X, well just divide the burden up so everyone pays what they can—a flat 20% or so. Simple. Fair for all. And it would make government think about spending, because everyone will be feeling the pain a little.
A flat tax isn’t fair because it shifts the burden from the upper class (who can better afford it) to the middle class. Pretty much everyone knows this except the folks in denial who actually believe that the upper class doesn’t pay taxes. To me, the irony is that a lot of folks who, on the one hand will tell you that the upper classes don’t pay anything in taxes, oppose a flat tax because the hidden rational part of them actually understands that if on sets, say a flat 20% tax (which, from the numbers I’ve seen, would cause the government to basically go broke without massive cuts in spending to accompany it) on everyone that the rich will come out ahead, since they actually DO pay more than that in taxes currently.
Personally, I’m more in favor of a graduated flat tax with no deductions and a VAT tax with some method of providing graduated rebates (or whatever) for the poor to make the tax less regressive. That and mandating a balanced budget that the government has to work within, so that they can only do deficit spending under certain, special circumstances (like if we are in a declared war or national emergency). If people want all these magical programs then taxes would need to be increased BEFORE the programs are implemented, otherwise, no new magic program. That way, if people REALLY want UHC, they know what it’s actually going to cost them to get it, and they know that the government will have to stay within the budget to implement it. Take a bit of the uncertainty and waste out of the system, IMHO.
My rough calc shows that to match our current spending, a flat rate tax would be about 50%. That does not take into account any exemption for the first *n *dollars as many proponents suggest. To match our current revenue, the tax rate would be a little more than 30%. I think that would mean more than 90% of Americans would see their taxes rise. Please, Republicans, run on that plank.
I guess I’ll start answering the flood of questions…
You’re trying to make some sort of complicated scenario here which allows you to evade the main point, which is:
Investment is all about managing risk vs return. I’ll only make a high risk investment if my return is proportionally higher than a lower risk investment. What you seem to ignore in your analysis is the potential downside of me losing all my money - since the government isn’t going to cover 99% of my losses, but will take 99% of my winnings, they are going to push me into being as conservative as I possibly can be. Small business investment is among the highest-risk investments around.
Let’s take a specific example. Let’s say I earn $500,000 per year. Now I’m offered an investment opportunity - if I’ll put 5 million of my money into seed capital for a small business, I’m promised a million dollars a year payback for ten years, for a net gain of 5 million dollars. I do the research, and discover that businesses of this type tend to fail at a rate of 30%.
So… My potential upside is a million dollars a year for ten years. My downside is that I lose 5 million. My potential return is 5 million dollars, weighed against a 30% chance of losing 5 million. Ignoring the time-value of money and all that, this is an acceptable deal to me.
My expectation in this case is that 30% of the time I lose 5 million, and 70% of the time I earn 5 million. The expectation of this ‘bet’ is a positive 2 million dollars. Unless I can find a better bet, I’ll go for it.
Now let’s change the equation - that million dollars a year is going to be taxed at 90%. In that case, my expectation is that 30% of the time I’ll lose 5 million, and 70% of the time I’ll earn 500,000. This has now become a terrible bet for me to make. My expectation is actually -1.125 million dollars. It’s a money-losing investment.
Notice that it’s the progressivity of the taxes that hurts me. If you assume I could deduct my losses against current income, and the tax rate applied to my losses was the same as the rate applied to my winnings, then the tax system is neutral in terms of its influence on my decision-making. But when you have a steeply graduated tax, winnings are taxed more heavily than the tax clawback I get from losses, and this drives me into risk-averse behavior.
Sure, I’ll always invest my money. I’m not putting it in a mattress. But at a 90% taxe rate, I’m no longer interested in taking any risks with my money. The only way I can guarantee any kind of positive return on my investment when government takes 90% of the profit is to invest it in something nearly risk-free. So… It’s all going into AAA bonds. Small businesses are going to have to do without my seed capital.
Of course, in the real world what winds up happening is that the government starts peppering the tax code with loopholes, credits, exemptions, and other mechanisms to encourage behavior that they like. So the effective tax rate winds up being not that high in the end anyhow, but now government gets to decide how private capital will be invested.
well calm down and take a deep breath before you pass out. I over simplified to keep the post short. I realize a progressive tax rate is far from the only thing that makes our tax system so complicated. It’s all the hundreds and hundreds of special cases and tax incentives for this and that making the tax code so ridiculous.
Your point about what is income is very valid but we can still simplify things a whole lot. If you want to go to school with hopes of increasing your income ,go. It has nothing to do with your income. Once we open the door to using the tax code as financial incentives for this and that we make it unnecessarily complicated. I think the point is to keep it as simple as possible with {as I said in my post} very few deductions.
It may be, but you didn’t hear it from me. I said our tax system was complicated. I didn’t claim that it being progressive was what made it complicated.
Because different countries have different economic needs. What if your country is in recession, and another is booming? The recession country wants to lower taxes to stimulate the economy, and the boom country wants to raise taxes to pay down debt incurred from the last stimulus when it was in recession.
The tax rate for a country with a huge social welfare system and a debt equal to 80% of GDP is not the right rate for a country with no debt and a small government.
Unless you want to make the claim for a one-world government, a worldwide tax rate makes no sense. Taxes are raised to pay for government you need. You don’t raise taxes first and then decide what to spend it on. Since every country has a different form of government, it should have a different taxation structure.
Similarly, different countries have needs for different kinds of taxes. A country that is primarily a heavy exporter of goods may do better with a VAT and low business taxes. One that is primarily a service economy that imports all its goods might do better with a higher income tax.
The same arguments apply to universal currencies, countries pegging their dollars to each other, and other regulatory mechanisms to drive unanimity. You’re better off with floating exchange rates and individual currencies, because it allows countries to be more flexible in their monetary policy. The Euro is becoming quite a problem for Europe, in case you hadn’t noticed.
That’s your opinion. In my opinion, nothing could be healthier for the world than a ‘race to the bottom’ in taxation. But I reject your premise anyway. The world now has individual tax rates, and I’m not seeing a race to the bottom. The U.S. is increasing its taxes, isn’t it?
Rather, I see a sort of consensus emerging that government is best when it consumes no more than 20-40% of a nation’s GDP, and tax rates to support that in a western economy seem to be modestly progressive but not insanely so. Countries that have flirted with tax brackets in the 70% and up range have suffered for it.
I’d be happy to. Means-test social security and medicare. Start offering private retirement investment alternatives to young people, and scale back their SS entitlements accordingly.
Raise the retirement age for social security benefits.
Stop giving government benefits to people making over $25,000 per year.
End the mortgage deduction tax break.
Eliminate farm subsidies and other subsidies of industry.
Eliminate the federal Department of Education, and give the money back to parents in the form of school vouchers.
Kill the health care bill.
Stop spending the bailout money - the recession is over according to the government, so why are they still stimulating the economy?
Sell off the government’s holdings in GM and Chrysler, and pass a ‘no bailout’ law that makes it clear that companies that fail will no longer get free money from the government.
Take back the 25 billion extra Obama gave to the State Department this year.
Take back the 8 billion dollar Florida high-speed train handout, and the 8 billion dollar loan guarantee for nuclear.
Eliminate the 2 billion dollar handout for ‘community reinvestment’.
Peg the size of growth of government to the rate of GDP increase - 1%, so government shrinks by 1% of GDP per year, even though it’s increasing in size.
We managed this in Canada. We’ve shrunk the size of government by 10% of GDP by simply holding the rate of growth below the rate of GDP growth. As a result, we have one of the healthiest economies in the world right now, relatively low taxes, and yet we seem to have enough government services.
It just takes discipline and a commitment to spend every dollar of taxpayer money wisely, and to only take what is absolutely necessary. No 50 billion dollar ‘slush funds’ like the one the feds are currently enjoying.
But first, you are making an assumption that higher taxes means lower deficits. if you believe that, I suggest you go make a list - in one column, put the countries with the highest tax rates. In the other list the countries that have the largest public debts. I think you’ll find the exercise interesting.
I can give you reasons all day long. Suffice it to say for now that governments function poorly when they are not accountable. Global governments are so disconnected from accountability that they run amok. The U.N. has been rife with corruption for decades.
Another reason is because I don’t like most governments in the world, and I do not want them to have any say over me or my family. I expect my Canadian government to protect me from other governments - not hand me over to them. I don’t want to live in a common framework where the leaders of Beijing and Russia have a say in how I live my life.
Then there are the arguments I already gave you - having different countries with different laws is a good thing. It provides for comparative advantage. Labor laws in Malaysia should be different than labor laws in Canada - we can afford labor protections that the Malaysians can’t. Emerging countries might be better off to allow more risk in exchange for less regulation of business, in the interests of growth. The environmental laws that make sense for a crowded country with common water supplies might not be reasonable for Australia. And so it goes.
It’s interesting - Liberals are always talking about how important diversity is, but they seem to be constantly pushing for world government and common regulatory frameworks. Doesn’t diversity extend to the right to choose how much worker safety you want to legislate?
You need to read up on Asian economic history. The rise of the Asian Tigers began when government retreated from economic life. Free trade and lowering regulatory barriers were what kicked off the Asian economies - not government intervention. China’s big move up started when it began to embrace free markets and abandon central planning.
They absolutely do worse. There is a clear relationship between economic growth and smaller government. The strongest economies in Asia are the ones that have the freest markets.
The top 5% in the U.S. has maintained a remarkably consistent percentage of wealth in the U.S. since 1929. The only time it really went down a lot was during the 70’s, because it was eroded by inflation. Once inflation ended, the wealth held by the top went right back to where it had been historically.
I wouldn’t complain as much if all the government was trying to do was to lift up the desperately poor. But modern liberalism is about so much more than that - more and more it’s not about helping the poor, but about redistributing wealth through all strata of society. So you have a health care plan that gives government benefits to families making $80,000 per year, and Medicare and Social Security programs paying benefits to retired millionaires.
Social programs to help the poor are affordable. Social programs aimed at making life easier for the middle class will bankrupt the country, there isn’t enough of other people’s money to maintain giving large payments to the middle class.
It does when you start talking about 90% tax brackets. See Britain’s experience in the 1970’s.
And while it may not reduce their desire to produce, it will certainly reduce their desire to produce in America. Canada’s a lovely place right next door. If we have tax rates half of yours, the result is predictable.
This is not theoretical. We Canadians have watched the flow of money and human capital to the South our entire lives. Now that trend is going to reverse.
At the very least, you can expect the flood of immigrants seeking opportunity to stop. Instead, you’ll get a flood of immigrants seeking your social programs. Have fun with that.
And most of them do so with the promise of making it big. Take that away from them by capping income, and fewer will take the risk.
You’re right except in those cases where the tax rates change for certain income groups every time the controlling party changes. I did not mean that the progressive tax was what made our tax system so ridiculous.
Not exactly IMO but close.
Oh I know. But regardless, isn’t a more simplified system much more preferable?
That’s why I can support a high individual and per child {with limits} deduction. That way those on the low end are covered.
when I talked with US citizens working in the Chech republic as teachers they said the tax rate was very high. around 40%, but they had UHC and other benefits. They said you simply adjust to the money you have and make decisions accordingly. I think living wage, minimum wage and those issues are at least somewhat separate from the tax code.
You’ll have to explain this to me. A flat tax can be adjusted from year to year depending on the state of the nation as it dropped in Estonia as business and the economy flourished. As a whole how is it unfair and a progressive tax more fair. How is gaining tax percentage points as your income goes up, more fair than paying more simply because you earn more.