Flat Tax Rate In the US

[HemlockGrey]

Is the idea any good? I was getting a good chuckle out of the insane rantings of professional idiot John Hawkwins when I came across this support of a flat tax:

1) Tax rates would tend to stay low because politicians would make everyone angry by raising them.
2) There would be more motivation for people to work hard and be entrepreneurs since they wouldn't be penalized for earning more money. That would lead to significantly increased economic growth.
3) It would make it much simpler and easier to prepare taxes under flat tax.

Those reasons sound a mite...sketchy, if you will, but I've heard flat taxes bandied about before by at least semi-rational people, and I'd like to hear what the informed and esteemed members of this board have to say (yes, all three of them ).

[Col. Crackpot]

the wealthy find loopholes in the current tax system and pay little to nothing now, (Theresa Heinz Kerry for example: 15% on 12 million in income). Why not have a flat rate everyone with an exemption for anyone below $25,000.

[HemlockGrey]

Hmm...15 percent of 12 million is what, 1.8 million? How high would this flat tax rate be?

[Hamel]

the wealthy find loopholes in the current tax system and pay little to nothing now, (Theresa Heinz Kerry for example: 15% on 12 million in income). Why not have a flat rate everyone with an exemption for anyone below $25,000.

Why not fix the loopholes?

[Jadeite]

Some editorialist in our newspaper claimed that a flat tax rate would actually end up costing most of the states that voted for Bush money, and saving money for the citizens of states that voted for Kerry. If that's going to be true, I'm all for the idea.

[Iceberg]

A flat tax rate would severely penalize the lower and middle class. This was gone through during Steve Forbes's presidential run in 1996.

Its primary beneficiaries would be the very wealthy, who currently pay a higher marginal tax rate than the initial rate of any flat tax, and the poor would take it pretty much in the shorts.

[Master of Ossus]

A flat tax rate is a fine idea, since it's actually still a progressive tax provided that there are exemptions for people making less than a certain amount of money. The very wealthy are already all but tax-exempt, since the tax code has been rigged to give them tax breaks, but since a flat tax program would eliminate those it would save Americans time and money.

[Ace Pace]

A flat tax rate is a fine idea, since it's actually still a progressive tax provided that there are exemptions for people making less than a certain amount of money. The very wealthy are already all but tax-exempt, since the tax code has been rigged to give them tax breaks, but since a flat tax program would eliminate those it would save Americans time and money.

And eliminate an entire subclass of lawyers who exist to help people get out of paying taxes, and organizing finances to pay said taxes.

[Col. Crackpot]

A flat tax rate is a fine idea, since it's actually still a progressive tax provided that there are exemptions for people making less than a certain amount of money. The very wealthy are already all but tax-exempt, since the tax code has been rigged to give them tax breaks, but since a flat tax program would eliminate those it would save Americans time and money.

And eliminate an entire subclass of lawyers who exist to help people get out of paying taxes, and organizing finances to pay said taxes.

and greatly reduce the size of the Internal Revenue Service

Why not fix the loopholes?

at this point there are so many embedded into the tax code it would be nearly impossible.

[Symmetry]

Good idea, and while we're at it we should eliminate the corporate income tax but fold capital gains tax into the income tax, treating all capital gains as just another form of income. If you think the normal income tax is a complicated mess, corporate income tax is many times worse - primarily because it taxes net income rather than gross income. Companies on agregate pay over half as much on ensuring compliance and evasion as they do on the tax itself.

Hmm...15 percent of 12 million is what, 1.8 million? How high would this flat tax rate be?

Why not fix the loopholes?

People have been fixing loopholes for decades, but it seems that every time a loophole is closed it either opens up another one or unfairly penelizes a group. Just look at the "marriage penatly." People combine their income for tax purposes after they are married, and there really isn't any way for a graduated tax to avoid either giving a large penatly to those couples who earn equal amounts or a large benefit to those couples with highly unequal earnings. So someone complains about the "marriage penalty" and we fix that, but that means that a decade or two later someone complains about how the tax system unfairly benefits married people and we go back to where we were before.

Also, the more complex a tax system is the easier it is for politicians to write in loopholes for their friends without anyone noticing.

Its primary beneficiaries would be the very wealthy, who currently pay a higher marginal tax rate than the initial rate of any flat tax, and the poor would take it pretty much in the shorts.

I think the most people proposing a flat tax would want to exempt the first $foo dollars in income, meaning that poor people don't pay taxes and middle class people aren't taxed on a substantial part of their income. Even a graduated tax that had many levels of this sort would work a lot better economicallly than our current, "you make $1 more and suddenly you pay $5000 more in taxes" system.

[Master of Ossus]

I think the most people proposing a flat tax would want to exempt the first $foo dollars in income, meaning that poor people don't pay taxes and middle class people aren't taxed on a substantial part of their income.

Right, and it's also much more managable for society as a whole, since we can eliminate lots of overhead costs.

Even a graduated tax that had many levels of this sort would work a lot better economicallly than our current, "you make $1 more and suddenly you pay $5000 more in taxes" system.

Uh... how does that work? After you make it to each inome bracket, you don't suddenly pay your new percentage over ALL of your earnings.

[Symmetry]

Uh... how does that work? After you make it to each inome bracket, you don't suddenly pay your new percentage over ALL of your earnings.

Um, sorry, you're right.

[HyperionX]

The problem with a "flat" tax rate is that in order to avoid penalizing the poor and middle class your going to have to make a lot of exceptions, which practically puts you back to where you started, a complicated tax code. I see no avantage to a flat tax over merely tax simplification.

[The Kernel]

A flat tax rate is a fine idea, since it's actually still a progressive tax provided that there are exemptions for people making less than a certain amount of money. The very wealthy are already all but tax-exempt, since the tax code has been rigged to give them tax breaks, but since a flat tax program would eliminate those it would save Americans time and money.

I've heard this bullshit bandied about many a time and it's simply that: bullshit. Your "tax loopholes" are not universally exploited, nor are they always done so in bad faith (tax write offs exist for a reason). If you want to show proof that most of the wealthy families (say upper 1%) are averaging low income taxes, you go right ahead and show me, but I doubt very much you will find anything to this effect. Oh, and btw, one of the reasons the wealthy pay lower taxes has nothing to do with loopholes but the fact that the government already has a flat tax on the primary source of income for the very wealthy. It's called the Capital Gains Tax.

In any case, here's my problems with the flat tax proposal:

1) It does nothing for the lower class which pays almost everything in payroll taxes, not income taxes.

2) It puts a greater income tax burden on the middle class which is the group that pays the vast majority of income tax.

3) History does not validate economic booming when the upper class gets income tax breaks. In fact, during the times of the greatest economic growth, the top marginal income tax rate was extremely high.

[Knife]

The problem with a "flat" tax rate is that in order to avoid penalizing the poor and middle class your going to have to make a lot of exceptions, which practically puts you back to where you started, a complicated tax code. I see no avantage to a flat tax over merely tax simplification.

Not alot of exceptions, just one. If you make less than X, you don't pay.

If anything, I think the most revolutionary tax change would be to do away with the companies taking it out of your check every payday and have the goverment send you a bill once a year (preferably in early Oct). We, as a people, get nickeled and dimed to death, get a bill once a year for your share of the federal goverment, and then see what the people think.

[SPOOFE]

I think the people that push a Flat Tax greatly overestimate how troublesome higher taxes are for entrepeneurs, as if taxes are the only thing preventing people from starting their own business. Do they ever take into account the fact that starting your own business is simply difficult and most people don't want to do it, much less can?

Anyway. I'm all for simplifying tax codes, and frankly I don't give a fuck about being "unfair" to the poor or whatever. I support whatever works. I opine that our current system works decently well, and any system that gives extra favorability to the poor is going to need to be complex.

It would be interesting, however, to move to a solely sales tax-based system. Don't know if it'd work, but it's interesting.

[The Kernel]

It would be interesting, however, to move to a solely sales tax-based system. Don't know if it'd work, but it's interesting.

Interesting idea, but totally unworkable in practice. The high income tax this would mandate would provide incentives to horde money, not to spend it which is not in the interests of the economy. Further, it would provide incentives to earn money in the US, but not to spend it here which could lead to a lot of money being funneled overseas. Worse, it would totally fuck with the concept of trade with countries that are not engaged in this type of tax system, and it would mandate strictly controlled trade and sales watchdogs to prevent grey markets. That means much more complexity then the current tax system.

[SPOOFE]

The high income tax this would mandate would provide incentives to horde money, not to spend it which is not in the interests of the economy.

The idea is NO income tax. No IRS. You buy something, you get taxed. Crucial necessities, like groceries and medicines, would have no tax. Luxury items, like Ferraris and mansions, would have high taxes.

Horde money? Think we're suddenly gonna turn the nation's affluent into misers? Good luck. Know how quickly Vanilla Ice spent his fortune? Try telling HIM he shoulda horded his money.

[The Kernel]

The idea is NO income tax. No IRS. You buy something, you get taxed. Crucial necessities, like groceries and medicines, would have no tax. Luxury items, like Ferraris and mansions, would have high taxes.

I'm familiar with the concept of the sales based tax thank you.

Horde money? Think we're suddenly gonna turn the nation's affluent into misers? Good luck. Know how quickly Vanilla Ice spent his fortune? Try telling HIM he shoulda horded his money.

Do you not understand the principles you are dealing with here? A slightly higher INTEREST RATE causes people to start saving more and spending less and you don't think a massive sales tax is going to stop people from buying goods?

Worse, what's to stop someone from coming to the US, making a ton of untaxes money and spending it in another country? What's to stop a grey market for foreign goods from developing? What's the net effect of such a system going to be on foreign trade?

[Admiral Valdemar]

The idea is NO income tax. No IRS. You buy something, you get taxed. Crucial necessities, like groceries and medicines, would have no tax. Luxury items, like Ferraris and mansions, would have high taxes.

Horde money? Think we're suddenly gonna turn the nation's affluent into misers? Good luck. Know how quickly Vanilla Ice spent his fortune? Try telling HIM he shoulda horded his money.

I doubt that would work. The UK and others have VAT along with income tax which is just enough for most modern gov'ts. I doubt a purely VAT based taxing system sans-IRS would work.

As much as we hate the Inland Revenue guys taking a lump of our hard earned cash away every year, I don't see it vanishing anytime soon (read: ever).

[Perinquus]

Is the idea any good? I was getting a good chuckle out of the insane rantings of professional idiot John Hawkwins when I came across this support of a flat tax:

1) Tax rates would tend to stay low because politicians would make everyone angry by raising them.
2) There would be more motivation for people to work hard and be entrepreneurs since they wouldn't be penalized for earning more money. That would lead to significantly increased economic growth.
3) It would make it much simpler and easier to prepare taxes under flat tax.

Those reasons sound a mite...sketchy, if you will, but I've heard flat taxes bandied about before by at least semi-rational people, and I'd like to hear what the informed and esteemed members of this board have to say (yes, all three of them ).

A flat tax is a good idea. Dismissing Hawkins as "insane" and a "professional idiot" may be easy, but it does nothing to refute his arguments.

To begin with, tax rates probably would tend to stay low, because a tax hike would reaise taxes across the board, and would be almost guaranteed to be unpopular. It's much easier to approve a tax hike that takes money out of someone else's pocket than it is it to approve one that takes it out of your own.

In the second place, he's right about people being penalized for earning money. As much as it may appeal to people to see the richest in society paying the heaviest tax share, that is not entirely beneficial. When you have the largest tax burdens on the highest earners, it does look like a penalty for financial success. And the fact is, that under the current scheme of things, rich people put a lot of their money in tax-free securities, and other tax shelters, rather than in something that will increase economic activity and create jobs. When Reagan cut taxes in the 80s, or when Kennedy cut them in the '60s, not only did the federal government collect more tax revenue than ever; people in upper income brackets paid a larger amount of taxes than before. They even paid a higher share of all taxes than before. This sounds paradoxical, but there's a good reason for it. When lower tax rates went into effect, it paid to take money out of tax shelters and put it into ventures and investments where it was more productive, both for individual investors and for the economy as a whole. The result of this was an expansion of the economy, and incomes and employment rose. Consequently, tax revenues rose, despite lower rates being charged for a given income. The incomes of people in the higher brackets went up disproportionately, so the total taxes they paid also went up disproportionately - even though they were paying lower tax rates. But regardless of why, the fact is: tax rates went down, but tax revenues went up. (Unfortunately, spending went up even more, but that's another issue.)

And in the third place, I can't see how you can possibly argue with his last point. The current tax code is complex enough that many people have to hire full time accountants to keep their taxes straight. A flat tax would make taxes far simpler.

[Iceberg]

Um, Kennedy cut taxes in the 60s because the top marginal rate in 1960 was too high by any economic theory save communism (at the end of Eisenhower's second term, for every dollar you made over the highest income bracket, you kept 12 cents). Linking Kennedy's tax cut to Reagan's is deceptive to put it mildly. And Bush's tax cuts are just obscene, they're a federally-funded money giveaway to wealthy Americans.

Kennedy's tax cuts were uncontroversially necessary. Reagan's were controversial but ultimately beneficial. Bush's are just fucking stupid.

[Perinquus]

Um, Kennedy cut taxes in the 60s because the top marginal rate in 1960 was too high by any economic theory save communism (at the end of Eisenhower's second term, for every dollar you made over the highest income bracket, you kept 12 cents). Linking Kennedy's tax cut to Reagan's is deceptive to put it mildly. And Bush's tax cuts are just obscene, they're a federally-funded money giveaway to wealthy Americans.

Kennedy's tax cuts were uncontroversially necessary. Reagan's were controversial but ultimately beneficial. Bush's are just fucking stupid.

It's not Bush's tax cuts that are stupid, its his reckless spending. And whatever Kennedy's motivations for cutting taxes, the fact is that in both cases, Kennedy's and Reagan's, cutting tax rates led to increased tax revenues. The fact that Kennedy lowered the rates from an unacceptably high rate, and Reagan simply lowered them from a very high rate does not alter this. In both cases, it had the same effect - increased revenue.

[Darth Wong]

The flat tax is a foolish idea, for many reasons:

• It is usually justified by loopholes, but guess what: a flat tax rate would not necessarily remove any loopholes. Loopholes are generated by finding ways to reduce your taxable income on paper, not by the presence of graduated income tax rates. Even a flat tax would still have to recognize deductions for tax-exempt expenses or business losses, and a tax system which does not recognize deductions would be fucking stupid; can you imagine sending a barely solvent self-employed person a huge tax bill for gross income because he can no longer deduct any expenses?
• The poor simply don't have the money. This will no doubt be dismissed as glib socialist talk by some of you, but it's true. By way of illustration, try dividing the national debt evenly across the population: at its current value of $7.5 trillion, it works out to $25,600 for every man, woman, and child in the country. Therefore, a low-income family of four would suddenly have a new mortgage in excess of $100k: something upon which they could not possibly afford to pay even the interest.
• A flat tax is often justified as being "fair". But how is it fair? Fair because it calculates tax solely on the basis of income? How does it account for payroll taxes, which the rich don't have to worry about? Moreover, how does it account for wealth? The top 5% of the country own more than 60% of the wealth, so why shouldn't they pay 60% of the tax? If you own half of a company, you are also responsible for half of its debts, aren't you? Do you expect the largest shareholder in the company to share debt equally with the secretary?
• The flat tax is also often justified by arguing that it will create more incentive to get rich. This implies, of course, that there is so little incentive under the current taxation system that a significant number of people who would otherwise be ambitious decide to just forget about it, and that quite frankly sounds like a gigantic steaming pile of bullshit. Who are these people? Upon what data are these legions counted?

[Perinquus]

[*]The poor simply don't have the money. This will no doubt be dismissed as glib socialist talk by some of you, but it's true. By way of illustration, try dividing the national debt evenly across the population: at its current value of $7.5 trillion, it works out to $25,600 for every man, woman, and child in the country. Therefore, a low-income family of four would suddenly have a new mortgage in excess of $100k: something upon which they could not possibly afford to pay even the interest.

This is highly misleading. All the flat tax proposals I've ever heard of impose a flat rate, not a flat figure. In other words, everyone pays the same percentage of his or her income, not the same amount of money. People with no income obviously would pay no tax, since any percentage of zero is still zero.