Let's hear them. With all the uproar about the R's tax cut plan benefitting the wealthy, it is obvious that nobody is ever going to be happy with the current tax system. And why should we? Whether you are a conservative or liberal, the tax structure in the US is an absolute joke. So could someone please explain why a flat tax is a bad idea? I'd love to hear it...
It makes too much sense and would save the government too much money that it currently spends on IRS bureaucrats.
Give us your proposal. Try to be specific. Then we can have an intelligent discussion. Right off the top of my head, the two main problem with most flat tax propsals are a) they just address federal taxes, and local and state taxes, in general, are regressive. b) a totally flat tax operates on the false assumption that $40K is worth the same to someone making $160K as $10K is to someone making $40K. If you made it a flat tax on all income after a reasonable deduction for basic living expenses, if you made it a tax on discretionary income, then you'd have a fair tax.
Given that the fundament of a flat tax rate is as simple as it is, I think most of the most valid arguments for or against such a tax schematic are found in the marginals of the issue. So, for instance, exemption policy or credit systems which would, if incorporated, imbue a “flat rate” with a curved model shape. The extent to which this minutae is either included or excluded provides the basis for most of the normal debate on effectiveness. That not being the domain of most observers, you are left with basic questions such as “Should the rich pay more tax?”. And then it becomes a matter of ideology or whatever else you choose to label your belief system as and ceases to be a debate about taxation.
I heard a proposal yesterday on the radio (and no I don't normally listen to talk radio unless I'm on a long car trip, which I was yesterday) for a 15% flat tax, but the first $13,000 (I believe that was the figure) per person (so $26k if it's a married couple filing jointly) anyone makes is tax-free. So assuming you're single, if you make 40k a year you're paying $4,050 to Uncle Sam, at $100k a year you're paying $13,050, and at $1 mil you owe $148,050. In any event, I think a great way to reduce federal bureaucracy would be the following: 1.Make all federal employees' (everything from servicemen to IRS agents to the President) salaries tax-free, but reduce their salaries by the amount they had been taxed before, so that at the end of the day they have the same amount of money in their pockets but they're simply getting paid a lower salary instead of paying taxes. 2.Reduce all federal agency budgets by the amount they receive in tax dollars from their own employees. For instance, if in a given year the defense budget receieves $1 million in tax money paid my servicemen and women, reduce the defense budget by $1 million. If FBI agents pay a total of $250,000 worth of taxes that ends up going into the FBI budget, reduce the FBI budget by $250,000. The effect of this will be to keep the money where it's going to end up going anyway, without having it go thru a costly IRS middle man.
IOW, this proposal you heard on the radio was another salvo in the class war, Battle of Fool The Public About Taxes. In the guise of fairness, this proposal is getting rid of most of the progressivity in federal taxes, while doing nothing about the regressivity of the rest of the tax system. OK, I'm just being a smartass there...I'd like to see if the deduction is large enough, in this specific proposal, to outweigh the regressivity of the rest of the tax system. Since you heard it on the radio, I'd bet no, but let's see. PS...what, no deduction for mortgage interest?
Sorry, I haven't drafted one. But the idea, I believe, is simple enough to discuss. I don't see why this matters. Taking it one step at a time is a good thing in my book. Many state and local taxes are flat taxes. Sales taxes are flat taxes. Most property takes are flat taxes. Licenses and fees for government services are fixed regardless of income and do not discriminate based on income. Are these the "regressive" taxes you speak of? So this is what it comes down to - "fairness." Is a flat tax "fair?" Let's talk about that some more... And so it begins. Start making exceptions right from the gate, discriminating based on income levels, discretionary income, etc. Impose emotional judgement on our tax structure. In no time at all, we are right back to our current environment, which by the way, is "unfair" according to 2/3 of America.
An 11% tax on any household income above $45,000. No write-offs whatsoever. The government would have to cut the taxrate so enough because they'd be swimming in money (and you know they wouldn't want to spend it all!).
The flat tax argument assumes that all income is earned at the individual level. What needs to be understood is that income can be generated from various sources, not all of which are easily taxable. There are corporations (regular and Subchapter S), partnerships, trusts, LLC's, joint ventures, the list goes on. So, in order to justify a flat tax, you would have to argue that all of these organizational forms should be abandoned and that all forms of income should be aggregated at the individual level. Besides being impractical, this ignores the fact that tax policy IS and ALWAYS has been used as a mechanism to encourage certain social and economic behavior, and has used these various organizational forms as the method in which to achieve these ends.
Exactly. It becomes about "fairness" and deciding what is "fair." But even more interesting is who decides what "fair" is.
Umm, all of these are regressive, except property taxes. They disproportionately hit the middle class. Your list. You don't know what "progressive" and "regressive" taxes are, do you? Go find out, and then come back and maybe you'll have something meaningful to add here. PS...I don't see how having a deduction is "emotional." It's philosophical. It's an assertion of a certain set of values. You can disagree with the philosophy, but it has nothing to do with emotion.
Every proposal I have seen in favor of the flat tax has accounted for these entities. Why? It's impractical because it is simple? It's the way it's "ALWAYS" been done, so it's right? Sorry, I'm not buying.
Yes, I do. I listed the taxes above because I wanted to be clear that we were talking about the same thing. Since you're intent on being the fuck you so often tend to be instead of discussing a reasonable issue, why don't you check your ego and come back when you can discuss an issue without resorting to personal shots.
Why are we wasting Jesse's server space on this topic? We are going to have a flat tax in this country as soon as we have promotion & relegation in our soccer leagues. Or my personal Pipe Dream of Brazil style regional leagues. With a flat tax, you can't pass out Welfare (Corporate and otherwise) in the form of deductions to those people and corporations that have pictures of politicians with farm animals.
Yes. For an example: In my county in Texas, the annual auto registration fee is $61.80. Inspection and emissions test adds another $39.50. So that's a yearly cost of $101.30 that's mandated by the state. But you're right. It doesn't discriminate based on income. So if you're earning $15,000 a year, it's $101.30. If you're earning $150,000 a year, it's $101.30. The reason it's regressive is that the $101.30 hits someone making $15k a lot harder than someone making $150k. If it were truly a fair and flat tax, then it would be $10.13 for someone making $15k and $101.30 for someone making $150k. Obviously, such a scheme would be incredibly unfeasible, so we got with the fixed fee. But that fixed fee is a bit regressive. But you can also look at sales taxes, particularly on food, drugs, and clothing, as being regressive. The sales tax load for groceries (in states where groceries are subject to sales taxes, which they are not in Texas) is much higher proportionally on someone making $15k than it is for someone making $150k, mostly because the $150k family doesn't spend ten times as much on groceries than the $15k family. Yes, they spend more, but not ten times as much. If amount spent on the necessities of life, like food and drugs and clothing, were proportional to income, then no, sales taxes would not be regressive. But study after study after study has shown that the poor and middle classes pay a higher percentage of their income towards sales taxes than the upper classes do. Sales taxes are regressive. About the only way that a federal flat tax could adequately compensate for the regressivity of many state and local taxes and fees would be to make a large amount of salary exempt from taxation and impose a flat tax on the rest. And while imposing a flat tax on incomes above $45,000 (to use a number that was posted earlier) sounds great in theory, it'll be about ten minutes before someone starts bitching that the poor don't pay "their fair share" in taxes. And IIRC, a graph was posted here a while back that shows that in the current system, every income level pays more or less the same percentage of their income in taxes, when you account for all the myriad of taxes and fees that exist.
Therefore, explaining the success of flat-tax proposals in Congress?? As far as I know, no flat-tax proposals have ever been considered seriously outside of right-wing think tanks. I would be interested in understanding how they do propose to account for income from these entities, however, so if you have any info please pass it along. You can state it that way, or you can state it another way: it's impractical because our legal and financial systems are too complex. The U.S. tax system has always had to respond to new innovations in the structuring of investment vehicles, NOT the other way around. The cleverness and ingenuity of lawyers and financial folks to structure new ways of organizing in order to escape tax liability has resulted in the complexity of today's tax code. Good luck getting a flat-tax system, or any other system for that matter, to do a better job in preventing such slick legal maneuvers. I'm the last person to accuse of accepting things the way they are. In fact, there are quite a few things I would change about the tax code. Instituting a flat tax is not one of them. Back in the 1800's, railroad and steel industry magnates were generating such enormous amounts of income, that they compromised the integrity of government and the U.S. financial system. In order to curb this problem, the government instituted extremely progressive tax rates on the highest incomes, something in the order of 90%. Today, these amounts seem exorbitantly high, but when viewed in a historical perspective, it was an effort to mitigate the influence of a few extremely wealthy individuals on government and politics (for example, back then state governments appointed Senators to Congress, and if your state government owed all its financial backing to the railroads, guess who was going to Congress?). Nowadays, with a larger middle class, more democratized stock ownership, and other social progress has been made, but you still have massive influence by the very wealthy over all levels of government. For example, take a look at this survey for a microcosm of what is happening: http://www.economist.com/images/20030510/CSU745.gif No wonder Microsoft has not been broken up yet...Bill Gates knows how to get decisions in his favor. This is only one example in one industry (IT). But you can explain a lot of the government's policies if you take into account all of the multimillionaires and billionaires in this country who contribute to political parties, and clearly see why a progressive system is necessary to provide a balance against extremely wealthy interests.
Determining taxable income is difficult and is why people pay money to accountants. Determing tax owed on that income is a 6th grade math problem.
Dave - I agree with your side of this, but property taxes equally hit renters as well as homeowners because it is passed through by landlords with all other costs in determining market rental rates. But as a renter, you don't get to itemize it. So I'd say property tax is also regressive, not to mention that the proceeds are narrowly distributed for local purposes rather than general welfare of the state or nation.
Because he spent roughly $2 million in the last election cycle? That's peanuts. Bush plans on spending $200 million on the 2004 presidential race alone. If Gates is so influential, why did the Justice Dept. come after him in the first place? And is it just possible that maybe the reason Microsoft hasn't been broken up is because it would be bad policy? Your theory doesn't even seem to allow for that as a possibility. Indeed, forbes.com notes in a report today: http://www.forbes.com/2003/05/20/cx_ld_0520biggrowth.html In a 100-plus page report called "The Beginning of the End," Credit Suisse First Boston says that Microsoft will participate in an economic recovery when IT spending resumes, but the company "won't benefit disproportionately" as it has in the past. That's because, according to CSFB, Microsoft's "monopoly pricing power faces erosion over the next three years" as Linux becomes more popular. But we already have a progressive system. Your argument seems to have a bizarre bit of logic to it. We need a progressive tax system to prevent multimillionaires and billionaires from corrupting the political process -- something you contend is happening already vis-a-vis the Microsoft example -- under our current progressive tax system.
Income from S corporation, partnerships, most LLCs and Trusts are taxed by passing the income through to shareholders, partners, LLC members or trust beneficiaries. This is no simple exercise, but ultimately tax on these business forms (excluding trusts, which isn't normally a business entity) isn't all that much different than if the business income or loss were realized directly by a sole proprietor. Only C corp. income is subject to US corporate level tax, with shareholders taxed on dividends ... at least for a few more days. This is absolutely correct, though you could find an Internal Revenue Code provision or two that gives away a tax benefit, rather than closing a "loophole." And as member of the highly productive community of tax professionals who create real tangible societal benefits every day, I thank you for the compliment.
There are a lot of other wealthy campaign contributors out there who are determined to knock down Microsoft. Absolutely! I'm defending the current progressive system, as well as describing why it came to be that way in the first place. I think it's better than a flat-tax proposal, which would simplify the tax code, but would probably result in the ability for wealthier taxpayers to shield a lot of income by creating and participating in entities for tax avoidance purposes. At the same time, I believe that as non-multimillionaires, it is in our best interests to preserve a progressive tax system, which helps maintain the balance of power in this nation between the extremely wealthy and the rest of us, whose goals and objectives are not necessarily in line with theirs.
Yes, but the reason that the C-Corp is so heavily taxed is because, of all these entities, it is the least regulated in terms of the quantity of investors and money it can raise. All of the other forms have definite setbacks in terms of limiting the number of investors and/or other requirements that prevent them from growing to a size in which they can tilt the scales of power. That is why the removal of double-taxation is perverse tax and social policy. Large corporations can quickly and easily grow to the size where they dwarf entire national economies...we already have several companies in the U.S. that are larger than most countries. By removing the only disincentive to the corporate form of organization, we are only encouraging and stimulating this giantization, which in my opinion, does absolutely nothing for the average American except further dilute their power in society, as it strengthens the large shareholders and the special interests that represent them in the effort of enacting legislation that is beneficial to them (i.e. repealing the estate tax).
I decided to hold off until I had some time to devote to this, so here goes. I should start by giving full credit to the best argument of the Flat Tax that I’ve read yet, Robert Hall and Alvin Rabushka’s book, “The Flat Tax”: First, the ultimate argument against Flat Tax, from the first time it was presented, was that it was not fair. This is why superdave brought up his not-so-bright questions about progressivity and taxation. The problem with fairness is that there is simply no objective way to measure fairness, especially in taxation. For example, one day it is fair to tax the highest wage earners at a 91% clip, the next day 28% is a more fair number. Who’s right? Without an objective way of looking at it – and there isn’t one – the answer is “nobody.” Everyone is taking shots in the dark, and much of their idea of fairness has to do with the emotional makeup of the population on that particular day. Generally, fairness means not playing favorites, freedom from self-interest, and lacking bias. It means being impartial and equitable. Do you think the current *progressive* tax structure satisfies any of these definitions? Not by a long shot. (We’ll get to superdave and his ilk’s bogus idea of progressive taxation later.) Right about the time of the Great Depression, someone thought of the great concept that their should be “vertical equity” in our tax structure. This means that if you earn more, you should pay a higher percentage of your income to taxes so that rich money could be redistributed to society. “Spread the Wealth” in other words. Before that time, as far as economists were concerned, equity in taxation meant that people in similar situations should pay equal taxes, or “horizontal equity.” How has the theory of vertical equity played out in reality? Not at all. Have the rich been forced to spread their wealth? You be the judge. And yet every time the gap between the rich and the poor is mentioned, graduated taxes are brought up as a solution to the problem. So the same system that we have right now is supposed to fix the same problems we have right now? Wasn’t it Einstein that said that the definition of insanity was to keep doing the same thing and expect different results? Harvard’s John Rawls, who authored “A Theory of Justice” and who is a huge proponent of redistribution of wealth, agrees with the Flat Tax; “a [flat] tax may be…the best tax scheme.” Why would someone so concerned with making sure that the rich pay their fair share advocate a flat tax? Didn’t the genius himself, superdave, say that the Flat Tax is a regressive tax that places the tax burden disproportionately on the low and middle classes? The reason why Rawls, not to mention others of superdave’s own party including Richard Gephart and Jerry Brown, have advocated the Flat Tax is because the supposed “progressive” system in place now has failed miserably. El Jefe said it himself, “every income level pays more or less the same percentage of their income in taxes.” He’s right. I’m sorry, superdave, but that does not meet your own definition of progressivity. Reality does not support the myth that higher tax brackets equate to progressive taxation. History does not support the same myth. It’s time you give it up. Anyway, I’ve got to run. The golf course beckons. I’ll continue on tomorrow…
What the hell are you on about? Because sales taxes, payroll taxes, Social Security taxes and whatnot exist, that means we should replace a progressive income tax with a regressive one? The attempted sleight of hand here is pretty obnoxious.