# Why wouldn't a flat income tax work? **URL:** \ **Category:** Great Debates\ **Created:** [May 26, 2011, 7:39pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343 "2011-05-26T19:39:05Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [May 31, 2011, 4:53am UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/81 "2011-05-31T04:53:14Z")
I apologize for not joining this thread earlier. It sure looks like you’re having fun here. 😉 > [@Mr\_Smashy](#): > > … **Lemur’s** foolishness, … Not threadjacking, … in his rant against advantaged-tax policies for dividends > > … Yet the eternally aggrieved among the liberati and class warriors on this board always think the rich are getting away with murder, and not paying their ‘fair share’. Do you have a cite for progressives discussing tax “fairness”? I think it’s the other side that invokes that notion. (“It’s not fair that I help finance public schools; my kids go to private schools.” “It’s not fair that I have to pay a larger share for defense; McDonald’s workers also want bin Laden dead.” “It’s not fair that I pay taxes on dividends; those profits were already taxed.” “It’s not fair that Welfare Mama won the lottery; she bought her ticket with my tax dollar.”) Both sides need to take a deep breath, accept that life isn’t fair, and taxes aren’t supposed to be “fair” either. We should tax the rich for the same reason Willie Sutton robbed banks: that’s where the money is. And contrary to right-wing doctrine (oh, excuse me – libertarian “thought” 🆒 ), sane tax policies yield better outcomes than insane policies. The ultra-high tax Eisenhower Administration was a time of high prosperity. Even the modest tax hike under Clinton ushered in a boom. Hope this helps … but doubtful. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [May 31, 2011, 5:21am UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/82 "2011-05-31T05:21:40Z")
> [@Clothahump](#): > > If we go to a flat tax rate _with no deductions or exemptions_, then the rich folks wind up paying taxes that they now duck through loopholes and avoid. And we could put in a lower limit, such as no tax paid on the first XX thousand dollars earned. > > The Fair Tax handles both ends by design. > > ETA: Of course, discussing either change is nothing more than mental masturbation if the change is not tied to Constitutional Amendments that 1) repeal the 16th Amendment and 2) mandate a balanced budget from Congress. Actualy, many Flat taxes do not, as some of the plan exempt all but Earned income from Taxation. Many millionaires would pay nothing, no matter how flat the tax is. Also the super rich can simply move their money out of the USA. You do know that a repeal of the 16th Ad would mean that the Flat Tax would be unconstitutional? Or actually, it appears you don’t know that, which means you have no idea of what the fuck you are talking about as regards taxes. And actually a Balanced Budget is a bad thing. What you want is a small amount of deficit spending about = to the % growth in GDP. Try Econ 101. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [May 31, 2011, 6:32am UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/83 "2011-05-31T06:32:58Z")
> [@septimus](#): > > Do you have a cite for progressives discussing tax “fairness”? I think it’s the other side that invokes that notion. (“It’s not fair that I help finance public schools; my kids go to private schools.” “It’s not fair that I have to pay a larger share for defense; McDonald’s workers also want bin Laden dead.” “It’s not fair that I pay taxes on dividends; those profits were already taxed.” “It’s not fair that Welfare Mama won the lottery; she bought her ticket with my tax dollar.”) > > Both sides need to take a deep breath, accept that life isn’t fair, and taxes aren’t supposed to be “fair” either. > > We should tax the rich for the same reason Willie Sutton robbed banks: that’s where the money is. > > And contrary to right-wing doctrine (oh, excuse me – libertarian “thought” 🆒 ), sane tax policies yield better outcomes than insane policies. The ultra-high tax Eisenhower Administration was a time of high prosperity. Even the modest tax hike under Clinton ushered in a boom. > > Hope this helps … but doubtful. You can read my off-the-cuff tax plan [here](http://boards.straightdope.com/sdmb/showpost.php?p=13790630&postcount=58). ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [May 31, 2011, 8:21am UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/84 "2011-05-31T08:21:19Z")
> [@Little\_Nemo](#): > > You can read my off-the-cuff tax plan [here](http://boards.straightdope.com/sdmb/showpost.php?p=13790630&postcount=58). I largely approve of your plan. Two comments: (1) We could generate a HUGE amount of additional tax revenue without pushing the top rate to anywhere near 70%. (Yes, “HUGE” isn’t very exact; I calculated an exact number for an earlier thread – it was in the Hundreds of Billions of dollars – and one of our right-wing experts informed us that that was “chump change.” :dubious: That if hundreds of billions were all my tax proposal would yield, it would be better to leave the tax on the rich where it was. 😃 (2) I do have some sympathy for the notion that dividends represent income that would be taxed twice. But multiple taxation is the rule, not the exception. And, unlike businessmen, lawyers, etc., wage-earners do not get to deduct the expenses (clothing, automobile) they need for their job. ---
**Author:** ![Mr\_Smashy](https://avatars.discourse-cdn.com/v4/letter/m/2bfe46/32.png) [@Mr\_Smashy](https://boards.straightdope.com/u/Mr_Smashy)\ **Post date:** [May 31, 2011, 12:22pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/85 "2011-05-31T12:22:17Z")
> [@DrDeth](#): > > Actualy, many Flat taxes do not, as some of the plan exempt all but Earned income from Taxation. Many millionaires would pay nothing, no matter how flat the tax is. Tell us again how a “millionaire” (who clearly only got that way through exploitation of the poor, probably minorities mostly) :rolleyes: would pay nothing? Unless you are referring to net worth instead of income. In which case… um… how is that any different from now? ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [May 31, 2011, 12:31pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/86 "2011-05-31T12:31:59Z")
> [@Mr\_Smashy](#): > > Tell us again how a “millionaire” (who clearly only got that way through exploitation of the poor, probably minorities mostly) :rolleyes: would pay nothing? > > Unless you are referring to net worth instead of income. In which case… um… how is that any different from now? If you define “income” as “earned income” you don’t pay tax on capital gains or dividends. Only on salary. So if I run a business that I make $4million a year on profit, and pay myself a $30,000 salary to be CEO of the business - calling the rest “dividends,” I’m taxed on $30k, not on $4m. If I make my living off stock investments, I pay nothing at all. Now, I’ll pay corporate tax on those dividends (the hue and cry on double taxation), but if I simultaneously manage to lower or get rid of the corporate income tax (which many conservatives argue for - and frankly, isn’t a horrible idea as a stand alone idea), I pocket $4M in profit without the government seeing a dime of it. ---
**Author:** ![Mr\_Smashy](https://avatars.discourse-cdn.com/v4/letter/m/2bfe46/32.png) [@Mr\_Smashy](https://boards.straightdope.com/u/Mr_Smashy)\ **Post date:** [May 31, 2011, 2:11pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/87 "2011-05-31T14:11:38Z")
> [@Dangerosa](#): > > If you define “income” as “earned income” you don’t pay tax on capital gains or dividends. Only on salary. Alas, my mission to educate continues unabated… The current tax on dividends, unless you’re a real lowballer, is [15%, not nothing](http://en.wikipedia.org/wiki/Dividend_tax#United_States). So, yes, you do pay tax on it. Same [with capital gains](http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States). > [@](#): > > So if I run a business that I make $4million a year on profit, and pay myself a $30,000 salary to be CEO of the business - calling the rest “dividends,” I’m taxed on $30k, not on $4m. If I make my living off stock investments, I pay nothing at all. Now, I’ll pay corporate tax on those dividends (the hue and cry on double taxation), but if I simultaneously manage to lower or get rid of the corporate income tax (which many conservatives argue for - and frankly, isn’t a horrible idea as a stand alone idea), I pocket $4M in profit without the government seeing a dime of it. Without seeing a dime, eh? Don’t thank me, pay it forward. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [May 31, 2011, 2:43pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/88 "2011-05-31T14:43:59Z")
> [@DrDeth](#): > > Actualy, many Flat taxes do not, as some of the plan exempt all but Earned income from Taxation. Many millionaires would pay nothing, no matter how flat the tax is. > [@Mr\_Smashy](#): > > Alas, my mission to educate continues unabated… > > The current tax on dividends, unless you’re a real lowballer, is [15%, not nothing](http://en.wikipedia.org/wiki/Dividend_tax#United_States). So, yes, you do pay tax on it. You were under the impression that **DrDeth** was talking about current tax on dividends? ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [May 31, 2011, 2:51pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/89 "2011-05-31T14:51:56Z")
> [@Mr\_Smashy](#): > > Alas, my mission to educate continues unabated… > > The current tax on dividends, unless you’re a real lowballer, is [15%, not nothing](http://en.wikipedia.org/wiki/Dividend_tax#United_States). So, yes, you do pay tax on it. Same [with capital gains](http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States). > > Without seeing a dime, eh? Don’t thank me, pay it forward. I’m sorry Mr. Smashy, we misunderstood each other. If you do a flat tax where you only tax earned income, you wouldn’t tax interest, capital gains or dividends which are considered unearned income. (I do have an accounting degree and worked in tax for five years. I do know that capital gains and dividends are taxed. But thanks for the patronization. I’ll make sure to pay it forward). ---
**Author:** ![Mr\_Smashy](https://avatars.discourse-cdn.com/v4/letter/m/2bfe46/32.png) [@Mr\_Smashy](https://boards.straightdope.com/u/Mr_Smashy)\ **Post date:** [May 31, 2011, 4:23pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/90 "2011-05-31T16:23:45Z")
OK, I guess I must point out for the 10th time in this thread: I am not in favor of allowing dividend income to be taxed at anything lower than whatever the marginal tax rate would be. Nor are many very smart people, even on the right, like Samuelson. As I’ve posted before IN THIS SAME THREAD. So in my example: yes, a millionaire (defined by income, however he gets it) would pay at the flat tax/marginal rate. Got it? Is it really that hard to understand? ---
**Author:** ![Clothahump](https://avatars.discourse-cdn.com/v4/letter/c/51bf81/32.png) [@Clothahump](https://boards.straightdope.com/u/Clothahump)\ **Post date:** [May 31, 2011, 5:16pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/91 "2011-05-31T17:16:28Z")
[quote=“Little\_Nemo, post:80, topic:583343”] So where would you fix the rate? At ten percent? Thirty-five percent? Somewhere in between? And what would be the untaxed minimum? [quote] This is why I advocate the [Fair Tax](http://www.fairtax.org/site/PageServer?pagename=about_main) as being preferable to the flat tax. > [@](#): > > Why abolish income tax? What would you substitute in its place? Individual income tax is the largest revenue source of federal income - about 42%. The next two biggest sources are various employment taxes like social security taxes (about 40%) and corporate income tax (9%). What are we going to substitue for that - a fifty dollar a gallon excise tax on gas? Sorry, I should have said that the income tax would have to be abolished if the Fair Tax came into play. We damn sure don’t want to have Congress taxing income AND final sales at the same time. ---
**Author:** ![Clothahump](https://avatars.discourse-cdn.com/v4/letter/c/51bf81/32.png) [@Clothahump](https://boards.straightdope.com/u/Clothahump)\ **Post date:** [May 31, 2011, 5:17pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/92 "2011-05-31T17:17:49Z")
> [@DrDeth](#): > > You do know that a repeal of the 16th Ad would mean that the Flat Tax would be unconstitutional? Or actually, it appears you don’t know that, which means you have no idea of what the fuck you are talking about as regards taxes. As I mentioned earlier, I should have said that the 16th would have to go only if the Fair Tax were implemented. My bad. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [May 31, 2011, 6:03pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/93 "2011-05-31T18:03:56Z")
In general, a flat tax creates greater economic drag and even deadweight loss across more sectors than a progressive tax. Taxpayers who have to give up necessities due to lower after-tax income not only hurt themselves, but the suppliers of those necessities. For maximum macroeconomic utility, taxes should be moderately redistributive, with progressive rates & a negative income tax. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [May 31, 2011, 6:05pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/94 "2011-05-31T18:05:06Z")
> [@Clothahump](#): > > This is why I advocate the [Fair Tax](http://www.fairtax.org/site/PageServer?pagename=about_main) as being preferable to the flat tax. Okay, I misunderstood you. I thought the Fair Tax was just another name for the flat tax. A national sales tax has its points. Taxing sales makes it difficult to evade. The system is in place to collect it. It would encourage savings and investment. But I think 23% is an unrealistically low rate. I know most tax reformers also want spending cuts but I think that has to be treated as a separate issue to fairly compare the merits of various tax proposals - you have to compare them on a level revenue field. ---
**Author:** ![fumster](https://avatars.discourse-cdn.com/v4/letter/f/e9c0ed/32.png) [@fumster](https://boards.straightdope.com/u/fumster)\ **Post date:** [May 31, 2011, 6:15pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/95 "2011-05-31T18:15:06Z")
> [@Little\_Nemo](#): > > A national sales tax has its points. Taxing sales makes it difficult to evade. The system is in place to collect it. It would encourage savings and investment. Yeah, nothing promotes investment like a drop in demand. “Hey, let’s build a new plant to sell widgets. It’s a good time because 75% of the people pay more taxes and the widgets will cost the consumer more even though we won’t see any of that revenue”. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [May 31, 2011, 6:18pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/96 "2011-05-31T18:18:32Z")
> [@Mr\_Smashy](#): > > OK, I guess I must point out for the 10th time in this thread: > > I am not in favor of allowing dividend income to be taxed at anything lower than whatever the marginal tax rate would be. Nor are many very smart people, even on the right, like Samuelson. As I’ve posted before IN THIS SAME THREAD. > > So in my example: yes, a millionaire (defined by income, however he gets it) would pay at the flat tax/marginal rate. > > Got it? Is it really that hard to understand? Sure- under **YOUR** idea of what a Flat Tax is/would be, which differs radically from some of the proposed plans. Some of the proposed plans only tax “Earned Income”. My post was quite clear "Actualy, \*\*many Flat taxes \*\*do not, \*\*as some of the plans \*\*exempt all but Earned income from Taxation. Many millionaires would pay nothing, no matter how flat the tax is. " So, we are not restricting ourselves to whatever Flat Tax scheme _you_ are debating, esp as _you are not the OP_. If you have a Flat Tax scheme you think might work, feel free to link to it. Otherwise lines like _“Alas, my mission to educate continues unabated…”_ come off as pretty silly, as you are not the OP, you have not posted a link to your Flat Tax scheme, and there is no reason for **the rest of us** to limit our posts to debating whatever Flat tax scheme you are thinking about.:dubious: Especially as I wasn’t even replying to your post, I was replying to **Clothahump** ’s post. :rolleyes: ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [May 31, 2011, 6:20pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/97 "2011-05-31T18:20:58Z")
> [@Little\_Nemo](#): > > But I think 23% is an unrealistically low rate. The Fair Tax folks rebut all these points. Their arguments aren’t persuasive to my mind, but they do attempt to address them. For example, the 23% figure, while technically valid, is a tax-inclusive figure. In other words, if I wanted to buy a $1 candy bar, I would pay $1.30 at the counter. The $0.30 is 23% of the total $1.30 figure, even if it’s 30% of the retail price of the candy bar. So, it becomes less unrealistically low (although a figure of 35%-40% tax-exclusive is probably more realistic). And they don’t really deny the 23%/30% thing (though, they don’t exactly advertise it heavily, either). Since any such proposal will probably keep the lower tax rates for investments to get passed, we again need a higher figure for non-investment purchases to bring revenue back up to snuff. They do have a rebuttal for this, but, again, it’s not a very persuasive argument to my mind. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [May 31, 2011, 6:22pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/98 "2011-05-31T18:22:52Z")
> [@Clothahump](#): > > As I mentioned earlier, I should have said that the 16th would have to go only if the Fair Tax were implemented. My bad. Umm, perhaps still no. Read what the 16th Ad does. wiki _The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results. This amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in Pollock v. Farmers’ Loan & Trust Co. (1895). It was ratified on February 3, 1913._ And, you can’t argue the Fair Tax (which is a national sales tax, and is promulgated by loons and other crazies) in a debate about a Flat Tax. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [May 31, 2011, 6:24pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/99 "2011-05-31T18:24:15Z")
> [@Great\_Antibob](#): > > The Fair Tax folks rebut all these points. Their arguments aren’t persuasive to my mind, but they do attempt to address them. > > . Can we not get into a hijack about a National Sales Tax to replace the Income Tax? the Op is asking about a Flat Tax. ---
**Author:** ![evol](https://avatars.discourse-cdn.com/v4/letter/e/73ab20/32.png) [@evol](https://boards.straightdope.com/u/evol)\ **Post date:** [June 6, 2011, 6:27pm UTC](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343/100 "2011-06-06T18:27:38Z")
One thing’s for sure, the administrative overhead of non-flat taxes is outrageous, as are the cleverly defined loopholes. Whatever else, a flat tax would be administrated with perhaps as few as a hundredth or a thousandth of the staff. Tax returns would be single side single page, or smaller. I like that aspect! I think a deductible threshold could be properly placed such that the median tax amount of the middle class stays fixed before and after the intro of the tax. Then the middle class would pay roughly the same, and, if anything, the poor would pay less (i.e. generally nothing). Would the rich really pay less? Not too likely. None of my wealthy friends have to pay as much as their middle-class counterparts in the end, as it’s very easy to shelter income under the current rat’s nest of a system. [Previous page](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343.md?page=4) [Next page](https://boards.straightdope.com/t/why-wouldnt-a-flat-income-tax-work/583343.md?page=6)