US Flat Tax Rate

[JerryL]

By circumstance, I have known 2nd and 3rd degree connections to some of the wealthiest people in the country. Over time, I have become amazed at the lengths, that I know about, that they will go to to pay as little as possible to the society and government that they operate within, and the vehicles which allow them to do this. Even more disturbingly that they feel fully justified in doing this.

To quote the US President elect [not paying taxes] "makes me smart"

Until Reagan, the top tax bracket was around 70%. I seem to recall the US having a reasonably high level of prosperity from the 40s forward despite that.

 

[Shadow Wolf]

Unfortunately, any sense of social responsibly among the aristocracy has disappeared over the years, so the implementation and enforcement of any model which compels wealthy people to pay their equivalent share is highly unlikely to be put into place, or even considered.

It certainly doesn't help when their "big name" "framework" authors, professors, philosophers, and economists dismiss this social responsibility, and just assume people will be charitable and responsible. Of those sorts who are still among the living, Alan Greenspan is the only one do an about face and admit he was wrong.

 

[Shadow Wolf]

To quote the US President elect [not paying taxes] "makes me smart"

Until Reagan, the top tax bracket was around 70%. I seem to recall the US having a reasonably high level of prosperity from the 40s forward despite that.

Even when the top bracket was 90%, America was insanely wealthy, incredibly powerful, and the wealthy were still had godly amounts of wealth compared to any king at any point in history.

 

[Revoltingest]

I am fine with it but we still have an issue. As long as corporations and high income CEO's have tax havens and loop holes to dodge taxes, it doesn't matter what system you employ. I believe this to be a much larger problem than anything else at the moment. That is billions in tax revenue lost every year.

Easy....
Eliminate all personal deductions, eg, interest & property taxes paid on one's mansion.
But corporations shouldn't pay income tax because all profits ultimately go to the shareholders,
who then pay income tax on the dividends.

 

[Revoltingest]

If the government just printed the money they needed, it would devalue the currency automatically, and serve as an equally proportioned tax on anybody in the world who used dollars. Why wouldn't that work?

They already do this.
It's why we have inflation.
They do it because....
- Government's liabilities decrease.
- Taxpayers move up to higher brackets.
- It gives the illusion of an expanding, & thereby healthy, economy to voters.

 

[Acim]

Flat taxes are inherently regressive.

Let's imagine that the cheapest housing you can get it $4000/yr.
Let's imagine that the lowest possible transportation costs to and from work and the store is $500/year.
Let's imagine that the lowest possible food costs is $1200/yr.
Let's imagine that electricity, water, perhaps a phone is another $1500/yr.
And these are super low numbers.

So $8200/yr.

Now. One person makes $6000, meaning they are -$2200/yr; and you want to take $600 more.

Why are they -$2200 if they are paying at rate of $0 for making under $25,000 in the year? Where in OP do you see wanting to take additional $600 from this person?

Another makes $10,000 (cool: maybe he can afford to get his tooth fixed, though he can't dream of health insurance); you are taking $1k of his $1,800 for stuff like clothing.

Same point as above.

Meanwhile: Mr.$100,000 has $91,800 to spend on upgrading above bare minimum. You are taking $10k of his leaving him with $81,800.

So while it *sounds* like you are taking an equal impact you are not.

How is 10% for all, not equal? Of course the impact would be different. Like saying the scientific method works for everyone, but if I have less governmental funding than those other scientists, then the impact of my results may (likely will) be treated differently (read as unequal), therefore we can conclude that the scientific method is inherently unfair. That's how your reasoning reads.

It gets worse from there. Let's imagine they need a car.

Poor guy (say our $10k guy you are taking $1k of)

Not accurate, but we'll allow you to continue.

has to buy the cheapest car he can find. Let's say $5000.

I would say in today's market, that would not be the cheapest. Could lease for less, or could find cars for much less, but continue anyway

He has to finance it, and lord knows they don't give him a good interest rate (let's say 15%). So he's going to have to pay something like $7500 for his $5k car, and it's going to break a bunch so he'll need to finance longer (and add in repair costs) and maybe he has a $12k cost.

Leasing would overcome need for repairs (being a new car, and that it is technically owned by car company).

Slightly better off guy buys a certified used car for $10k. He still has to finance, but maybe he pays 5%; so his cost over 5 years is only about $12k, and he dosen't have to worry about added repairs. Also: his insurance costs are likely lower.

Wealthy guy's financing is 0% or 0.9%; he pays no financing costs and also doesn't have repair costs. He can get off cheaper in the long run too as he'll have to replace his cars less often.

Why would wealthy guy have no repair costs in this hypothetical?

In short: The poor person has less of his money for optional things,

And water is wet.

he gets charged more for the things he does buy (through rent-vs-own and higher interest rates), and they are often long-term more expensive. What it looks like he makes on paper (10k is 1/10 100k) and what he functionally has to work with ($0 vs $90k) is very different.

BTW: Why do you go from 0% to full 10%?
$4,999 pays $0
$5,000 pays $500

This would be a huge tax increase on the poor and middle class. Ask them if they feel their taxes are too low now.

I'm curious where you are getting your numbers based on what OP wrote. I thought at first OP must've edited his post, but didn't see that indicated. Then when I saw you didn't actually quote this, I'm thinking you misread that under $25,000 in annual income means you pay $0 in taxes on that income. I think currently that's around $12,000 where you technically don't have to pay, but (according to strict IRS standards) still have to file. Where there would be a problem with this is the person making $24,999 pays $0 and the person making $25,001 would pay $2500 in taxes based on income. If I were in that boat, I'd be negotiating with employer to have me come in under the $25K number or asking for substantial raise (so I'm well over $30K).

 

[JerryL]

Why are they -$2200 if they are paying at rate of $0 for making under $25,000 in the year? Where in OP do you see wanting to take additional $600 from this person?

The exemption has been alternately put in and not.

Feel free to raise the numbers involved. The issue of regressiveness remains the same.

How is 10% for all, not equal?

I refer you to my entire post. That was the subject of it.

It's like calling vagrancy laws "equal". After all: the forbid both the homless man and the wealthy man from sleeping on the sidewalk.

Leasing would overcome need for repairs (being a new car, and that it is technically owned by car company).

That's privilege talking. I take you've never been poor and tried to lease a car.

Why would wealthy guy have no repair costs in this hypothetical?

Warranty. Also: better condition of car at initial purchase.

Where there would be a problem with this is the person making $24,999 pays $0 and the person making $25,001 would pay $2500 in taxes based on income. If I were in that boat, I'd be negotiating with employer to have me come in under the $25K number or asking for substantial raise (so I'm well over $30K).

Which is why, in the real world, brackets are always marginal.

 

[Acim]

The exemption has been alternately put in and not.

Feel free to raise the numbers involved. The issue of repressiveness remains the same.

I disagree it remains the same. Poor people would pay 0 income tax. Please explain how that is repressive?

What I hear you saying is that all taxes are repressive, which I would concede.

I refer you to my entire post. That was the subject of it.

And I refer back to the question after reading and dissecting your entire post.

It's like calling vagrancy laws "equal". After all: the forbid both the homless man and the wealthy man from sleeping on the sidewalk.

Which comes back to the point that taxes are inherently repressive. Is this what your point is?

That's privilege talking. I take you've never been poor and tried to lease a car.

LOL, for how little you know about me, and yet are seemingly making it about me.

Warranty. Also: better condition of car at initial purchase.

That makes sense, but doesn't fully explain why they'd never have repair costs. I'm quite sure they do.

Which is why, in the real world, brackets are always marginal.

I wouldn't call it the 'real world' but also don't see way around this. If it were truly up to me, I'd advocate for no taxes other than those who wish to voluntarily pay them, but I recognize that is unlikely to occur. With what OP is getting at, I'd want the lowest bracket number raised. How much? Me'd I'd go to around $40,000. An alternative would be that if you are say between $25K and $50K, you pay 3% (or something lower than 10%), and everyone over pays 10%. Around $70,000 is where I'd draw line of everyone over that ought to pay 10% if we are going to have taxation be mandatory. 10 years from now, all these numbers would likely be different, given rising costs on everything.

 

[Guy Threepwood]

I have seen the idea of a flat tax tossed around over the years, and I like the idea. This would only be for personal federal income tax. State and local taxes are a different subject, as are corporate taxes.

For example. instead of having different tax brackets based on income, everyone would pay 10%. Using the 10% example, the breakdown is easy. I would advise an exemption clause for any household making under $25,000 per year.

Under $25,000 and pay $0
Make $50,000 and pay $5,000
Make $500,000 and pay $50,000
Make $5,000,000 and pay $500,000
Make $50,000,000 and pay $5,000,000

It does not matter how much you make, the rate is always 10%. Yes the wealthy will pay more in taxes, but they should. They have a MUCH easier life than someone making under $50,000 per year, so they can live off their remaining $45,000,000 after taxes. If they can't live off that, they have some serious issues.

I would see a 15% increase in my paychecks based off my current tax bracket (2017) of $75,900 - $153,100, not including the elimination of the 25% excess tax over $75,900.

Sounds good to me!

Thought I'd want to index that <25k exemption to inflation- and keep all individual write-offs also- Different people have different situations. And extend travel expense write offs to anybody commuting to work, paying tax on fuel to get yourself to work?!

And also for accountancy expenses- I can't write off the cost of all the work needed- just to file the tax returns?!

Okay I'll stop or go on forever!

 

[JerryL]

I disagree it remains the same. Poor people would pay 0 income tax. Please explain how that is repressive?

1) "regressive". Though there was a typo in that one quote.
2) I didn't claim 0% tax was regressive. I claimed flat tax was regressive.

And I refer back to the question after reading and dissecting your entire post.

And I refer back to the post and round we go.

Which comes back to the point that taxes are inherently repressive. Is this what your point is?

No. It's a claim I disagree with.

LOL, for how little you know about me, and yet are seemingly making it about me.

Your statement had no relationship to reality. It was categorically silly.

That makes sense, but doesn't fully explain why they'd never have repair costs. I'm quite sure they do.

Because warranties cover repairs.

You actually brought up an even better point (though that was not your intent). The wealthy person has the option to lease. This means they actually don't even need to part with (via lending or cash) the cost of the car but only the depriciation.

So while the poor person is paying the full cost + signifigant interest,
and the middle person is paying the full cost + less interest,
the wealthy person is paying only depreciation.

Not only does the wealthy person *have* more money, but his money goes farther. Being poor is expensive.

I wouldn't call it the 'real world' but also don't see way around this.

It's called "marginal taxation". It's what everyone in the world does on anything with brackets.

I'd want the lowest bracket number raised. How much? Me'd I'd go to around $40,000. An alternative would be that if you are say between $25K and $50K, you pay 3% (or something lower than 10%), and everyone over pays 10%. Around $70,000 is where I'd draw line of everyone over that ought to pay 10% if we are going to have taxation be mandatory.

Welcome to the tax code.

Now: raise those numbers so that you can actually finance the government.

Once that's done, you'll see that the point-of-pain (where taxation pushes you back into trouble) has raised where you want full vestiture... so you'll increase the number of brackets.

Not that progressive taxes don't have their own issues. In progressive systems, deductions are regressive.

 

[Revoltingest]

1) "regressive". Though there was a typo in that one quote.
2) I didn't claim 0% tax was regressive. I claimed flat tax was regressive.

A flat tax by definition isn't regressive, ie, decreasing rate as income increases.
But the flat tax proposed in the OP is progressive, rising from 0% to 10%, albeit in one step.

 

[9-10ths_Penguin]

But corporations shouldn't pay income tax because all profits ultimately go to the shareholders,
who then pay income tax on the dividends.

... unless those shareholders are in some other country.

 

[Revoltingest]

... unless those shareholders are in some other country.

Why shouldn't we tax income which is generated here, & then taken out of the country?
Another option is to tax corporations, but not dividends.
(A problem with this is that poor shareholders then pay the same income tax rate as wealthy ones.)

 

[JerryL]

A flat tax by definition isn't regressive, ie, decreasing rate as income increases.
But the flat tax proposed in the OP is progressive, rising from 0% to 10%, albeit in one step.

A flat tax *is* regressive, and I've spent several posts detailing why.

Since you didn't address any points I made, I won't remake them. Here:
The flat tax falls flat for good reasons
The Flat Tax: Questionable Economics, Bad Politics, by Reihan Salam, National Review
http://www.usnews.com/opinion/articles/2010/04/12/flat-tax-is-class-warfare

 

[JerryL]

Why shouldn't we tax income which is generated here, & then taken out of the country?

Define "generated here"?

Do you mean "company headquartered here"? The answer is "because companies will simply relocate their headquarters".

Another option is to tax corporations, but not dividends.

Same set of problems.

 

[Revoltingest]

A flat tax *is* regressive, and I've spent several posts detailing why.

Since you didn't address any points I made, I won't remake them. Here:
The flat tax falls flat for good reasons
The Flat Tax: Questionable Economics, Bad Politics, by Reihan Salam, National Review
http://www.usnews.com/opinion/articles/2010/04/12/flat-tax-is-class-warfare

I've heard so many arguments.
None are convincing.

 

[Revoltingest]

Define "generated here"?

Business conducted here

Do you mean "company headquartered here"? The answer is "because companies will simply relocate their headquarters".
Same set of problems.

I don't see company headquarters location as the best criterion to determine where the company is taxed.
But it is a complex issue, & beyond the scope of this threat to resolve.
Suffice to say that I oppose double taxation, ie, corporations pay taxes on income, with what's left being distributed to shareholders who then pay income tax on it.

 

[9-10ths_Penguin]

Why shouldn't we tax income which is generated here, & then taken out of the country?

Figure out a way to do it.

... and one that works whether the income flowing out of the country is going to an individual or a foreign corporation.

Also figure out a way to tell the difference between buying goods and services from a foreign company versus using things like "licensing fees" for the US subsidiary to send money back to the parent company.

Another option is to tax corporations, but not dividends.
(A problem with this is that poor shareholders then pay the same income tax rate as wealthy ones.)

Why not just tax capital gains like employment income?

 

[9-10ths_Penguin]

Suffice to say that I oppose double taxation, ie, corporations pay taxes on income, with what's left being distributed to shareholders who then pay income tax on it.

If all else remains equal (i.e. if the amount of revenue is the same in all cases), what does it really matter if the money that you end up with gets tax removed in two smaller chunks (once while the corporation has it, and again while you have it) instead of one large chunk while you have it? The increased efficiency of only having one tax transaction is pretty minimal.

Or are you talking about leaving your personal tax rate the same while eliminating the corporate tax (i.e. just pay less in tax overall)?

 

[Revoltingest]

Why not just tax capital gains like employment income?

I've actually proposed taxing it like Schedule E income.
But adjust it for inflation because gains realized many years
later are in dollars worth far less than the basis year.
(We shouldn't be taxed on loss of value of the dollar.)
I also propose taxing employment income like Schedule E income.
This would remove the regressive payroll tax.