US Flat Tax Rate

[Revoltingest]

People really should use dictionaries more.
the definition of regressive

3 (of tax) decreasing proportionately with an increase in the tax base.

The OP's flat tax proposal increases the average tax rate with increasing income.
Asymptotically, it increases from 0% to 10%, so it's effectively "progressive".

 

[JerryL]

I'm sure people can come up with schemes to avoid taxes in ways which we'd want to prevent.

I want to emphasize this because I think it's important: this is what large companies actually do to avoid paying taxes.

As for the scenario you suggest, the profits which are made overseas would be taxed if they come over here.

I'm not sure what "come over here" might entail.

Certainly if I pay dividends to stockholders with US residency you could tax their income

If they're made overseas & stay overseas, I don't see that it's proper for us to tax them for it here.

What will (and does: look at Apple) happen is that all profits will always be made overseas; in whatever tax-haven island works the best (Barbados, Ireland, Jamaca, etc).

 

[Revoltingest]

I want to emphasize this because I think it's important: this is what large companies actually do to avoid paying taxes.


I'm not sure what "come over here" might entail.

Certainly if I pay dividends to stockholders with US residency you could tax their income


What will (and does: look at Apple) happen is that all profits will always be made overseas; in whatever tax-haven island works the best (Barbados, Ireland, Jamaca, etc).

We must get used to the fact that some companies might not want to be here.
They might stay in some form, & exist in a separate form elsewhere.
I'm OK with that.
Other countries need to raise taxes from companies therein too.
If we discourage them from being here, then the problem isn't that we're not
taxing them enuf...it's that we're creating a climate which sends them away.

 

[JerryL]

People really should use dictionaries more.
the definition of regressive

That would be a start; but it requires a bit deeper of an understanding to avoid simple mistakes.

Let's take a "tax credit" for example. You say "I'm going to give everyone a $5k deduction off their taxable income... because it's fair and equal".

So the person at a marginal tax rate of 25% gets a check for $1,250 and the person with a 10% marginal tax gets a check for $500.

The underlying issue is that "equal", while easily defined by a dictionary, is not easily defined in reality.

If I tax everyone the same amount (say $20,000)... that's "equal" right?
What if I tax everyone the same percentage (say 15%)? That's a different number. They can't both be "equal"?

What about people who pay state taxes? Should I charge them tax on the money they are paying the state in tax? Is a gross income tax the equal one, or a net income tax the equal one? If "gross", then it's possible for taxes to exceed 100% of income. If "net", then we have to say "well: what income shouldn't we tax"?

Should we tax the $500 you made that went to SS? We are going to tax it again when you get paid from SS? If not, it's an exemption (like state taxes). Now, suddenly the tax structure starts to look a lot more complex.

There's no single answer for "equal", and so there's no single answer for "regressive".

Is 10% across the board regressive because the rich pay more dollars (same percent?) Or is $20k/person regressive because the rich pay a lower percentage.

The reason that "flat" is "regressive" is, too, mired in the issue of what is and is not "equal".

The OP's flat tax proposal increases the average tax rate with increasing income.
Asymptotically, it increases from 0% to 10%, so it's effectively "progressive".

The simplest way to describe his assertion (assuming we become sane enough to make the tax rate marginal) is it's a single-bracket (10%) tax on net income where the only deduction available is a standard $25k.

So. If you made $50k; and that $50k was taken from your paycheck for medical bills. You got $0, and you owe the government $2,500 you don't have, and likely are about to go to jail.

 

[JerryL]

We must get used to the fact that some companies might not want to be here.

You don't seem to understand.

No companies would make their profit in the US. Already, very few do. I'ts not "some".

They might stay in some form, & exist in a separate form elsewhere.

That's what they do. Profits are made in "tax haven" countries

Other countries need to raise taxes from companies therein too.

And how would you propose to make that happen?

I'm Ireland. I'd much rather have 0.05% of Apple's profits than 0% if they didn't base their profits on my island (BTW: Those are real-world numbers. Apple pays 0.05% tax because it reports its profits in Ireland).

If we discourage them from being here, then the problem isn't that we're not
taxing them enuf...it's that we're creating a climate which sends them away.

Well. In this case: a tax rate of 0.06% (6/100 of 1%) would "send them away".

Your plan will result in no corporate taxes in the US. (Hell: the existing plan almost does too, so I suppose that's not a knock on yours).

 

[JerryL]

How Does Apple Avoid Taxes?

 

[Revoltingest]

That would be a start; but it requires a bit deeper of an understanding to avoid simple mistakes.

Let's take a "tax credit" for example. You say "I'm going to give everyone a $5k deduction off their taxable income... because it's fair and equal".

So the person at a marginal tax rate of 25% gets a check for $1,250 and the person with a 10% marginal tax gets a check for $500.

The underlying issue is that "equal", while easily defined by a dictionary, is not easily defined in reality.

If I tax everyone the same amount (say $20,000)... that's "equal" right?
What if I tax everyone the same percentage (say 15%)? That's a different number. They can't both be "equal"?

What about people who pay state taxes? Should I charge them tax on the money they are paying the state in tax? Is a gross income tax the equal one, or a net income tax the equal one? If "gross", then it's possible for taxes to exceed 100% of income. If "net", then we have to say "well: what income shouldn't we tax"?

Should we tax the $500 you made that went to SS? We are going to tax it again when you get paid from SS? If not, it's an exemption (like state taxes). Now, suddenly the tax structure starts to look a lot more complex.

There's no single answer for "equal", and so there's no single answer for "regressive".

Is 10% across the board regressive because the rich pay more dollars (same percent?) Or is $20k/person regressive because the rich pay a lower percentage.

The reason that "flat" is "regressive" is, too, mired in the issue of what is and is not "equal".


The simplest way to describe his assertion (assuming we become sane enough to make the tax rate marginal) is it's a single-bracket (10%) tax on net income where the only deduction available is a standard $25k.

So. If you made $50k; and that $50k was taken from your paycheck for medical bills. You got $0, and you owe the government $2,500 you don't have, and likely are about to go to jail.

That was all a little tough to follow.
(I've some distractions here too.)

 

[Revoltingest]

You don't seem to understand.
No companies would make their profit in the US. Already, very few do. I'ts not "some".

A claim which needs some support.

That's what they do. Profits are made in "tax haven" countries

If this is so, then what I propose wouldn't change this.

And how would you propose to make that happen?

They're already doing it.

I'm Ireland. I'd much rather have 0.05% of Apple's profits than 0% if they didn't base their profits on my island (BTW: Those are real-world numbers. Apple pays 0.05% tax because it reports its profits in Ireland).
Well. In this case: a tax rate of 0.06% (6/100 of 1%) would "send them away".

If some division of Apple is making a profit in Ireland, I don't care how much tax they pay there.

Your plan will result in no corporate taxes in the US. (Hell: the existing plan almost does too, so I suppose that's not a knock on yours).

You're just not making a convincing case.
If shareholders are here, then income would flow here.

 

[columbus]

That would be a start; but it requires a bit deeper of an understanding to avoid simple mistakes.

Of course, we can dissect tax code infinitely.
The point to the OP is the difference between a flat rate and no deductions and a highly progressive rate with huge loopholes.
Tom

 

[JerryL]

Of course, we can dissect tax code infinitely.
The point to the OP is the difference between a flat rate and no deductions and a highly progressive rate with huge loopholes.
Tom

You mean except for his deduction ($25k)?

And the difference is "who gets completely screwed".

How about we just close loopholes?

 

[columbus]

You mean except for his deduction ($25k)?

And the difference is "who gets completely screwed".

How about we just close loopholes?

The difference being that everybody gets that deduction. And yes, the other point is to close all the other ones that mostly just rich people use.
As Warren Buffet pointed out, his effective rate is lower than the secretary's.
Tom

 

[JerryL]

A claim which needs some support.

Fortune 500 Companies Hold a Record $2.4 Trillion Offshore | CTJReports

If shareholders are here, then income would flow here.

How so? Capital gains tax, I suppose. Not much else.

 

[JerryL]

The difference being that everybody gets that deduction. And yes, the other point is to close all the other ones that mostly just rich people use.

Actually: you haven't touched on most of those.

Like: how are you going to deal with over-seas assets?
What about non-monetary compensation?
Will you be taxing capital gains? With or without write-offs for capital losses (the latter would be a deduction BTW).

The farmers are going to complain about not being able to deduct the costs of depriciation.

Indeed: how *are* you going to deal with non-incorporated businesses.

If I go buy $5000 in stuff off craigslist and sell it for $5500 on ebay, and the fees to ebay and paypal are $250... how much do I owe money on?
If nothing is deductable (and assuming my total income is over the $25k mark) you would be demanding 10% of gross: so $550 of my $250 profit.

If you let me deduct me expenses... well, we are right back to what you were trying to avoid.

 

[JerryL]

So under the OP's plan. I decide to drive for Uber.

I do great. I get $90,000 in money paid to me by my clients. Sadly, I burned through two cars at $30k each and spent another $30k in gas and repairs. So once I've paid for that I have only $30k left
Since I get no deductions: do I owe $10k in taxes (or $7.5k if it's a marginal 10%)? Seems like I'm getting the shaft compared to the guy who used a company car and earned $30k in salary.

As Warren Buffet pointed out, his effective rate is lower than the secretary's.

Is your point that there are issues with the current tax codes? Because I agree with that completely. I just see no reason to replace one flawed code with an even worse one.

 

[columbus]

Seems like I'm getting the shaft compared to the guy who used a company car and earned $30k in salary.

I'll let someone with more patience and knowledge explain the difference between revenue and income.
Tom

 

[Revoltingest]

Fortune 500 Companies Hold a Record $2.4 Trillion Offshore | CTJReports

This doesn't address the claim that they don't pay much in US taxes.

How so? Capital gains tax, I suppose. Not much else.

Shareholders here pay tax on income received.

 

[JerryL]

I'll let someone with more patience and knowledge explain the difference between revenue and income.

I'm well aware of the difference.

I also notice that you didn't answer the question. As an independent contractor: can I deduct my expenses from my revenue to determine taxable income?

What about as an employee? If I have to wear a uniform, can I deduct those costs? What are the criteria under the proposed tax where I can deduct an expense from income? Because the whole idea seemed to be "no deductions"; and now you seem to be allowing them.

 

[JerryL]

This doesn't address the claim that they don't pay much in US taxes.

It claims that they pay zero taxes on trillions in income that would otherwise be taxable.

I've already given you one specific breakdown with Apple.

Here is more: 27 giant profitable companies paid no taxes

Shareholders here pay tax on income received.

What income are you referring to? Dividends? Capital gains? Is that "net gains"? Like: do I get to deduct the loss of capital in one stock from the gains in another? Because that would be another deduction in this simple, flat system. If not: I could lose money and owe taxes on the loss.

Are those deductions only valid against other gains or against income in general?

What about retirement accounts? Are you abolishing those? When do I pay taxes on that? Before I put in? When I take out? Both? Do I pay taxes on gains while that's sitting waiting for me to retire?

What I'm telling you is the proposed tax isn't just simple, it's simplistic. It doesn't actually work. That's why we don't do it.

 

[JerryL]

Another problem: medical expenses.

It seems like the uninsured get screwed here.

If I pay into a risk pool, I'll pay taxes on my premiums (no deductions, remember); but I won't pay taxes on the money (above premiums) that actually goes into medical care.

If I pay out of pocket, however, my medical bills are out of taxes income. I could have medical bills totaling my income, and still owe income tax on top of that.

The entire idea of the $25k exemption was to not tax people 1) on costs of basic necessities and 2) into not being able to provide basic necessities... but for people with high medical bills (the #1 cause of bankruptcy in the US); we don't seem to be accomplishing that. So, maybe you should make those deductible?

Which brings up another issue. Perks. If my company pays for my insurance, do I owe tax as though I made the amount of money the premium costs? if not, that's another loophole. If so, that's more complexity.

 

[Curious George]

How about the part where anyone making less than $25K/year pays no tax?
And anything the make over that is only taxed at 10%.
It takes very little from them, & encourages earning more.

Nope. That changes nothing. You have some good ideas, but one only has some good ideas if one also has many bad ideas.

A flat tax rate is one of your bad ideas.