I bring this up because apparently Arnold in CA wants it to be considered. While I don't see it happening anytime soon, if it were to happen anywhere, the state level seems most likely. I know there are a lot of flat tax supporters on both sides of the political spectrum here and I wanted to get your thoughts on what it helps to solve. I'm not particularly a fan of the idea - I think it does help simplify the system (a very good thing), but it doesn't solve the problems its argued to solve in my opinion (fixing the revenue base, making things more fair, etc). And I think it takes a away an important gov't tool in tax incentives, though it's way overused right now. Tax incentives are great for encouraging education or things like that; not so much in encouraging buying hybrid cars. That said, my questions about a flat tax: 1. Is it designed to raise more revenue or the same amount as the current system? If it's the same amount, what is the primary benefit besides simplification? 2. Let's assume for simplicity that it raises the same amount. Who are the winners and losers? Do the poor pay more or less? How about the middle class or the rich? Are these good things? 3. If it's designed to raise more, who does the extra burden primarily fall on? Poor, middle class, rich, etc? Let's try to keep this an actual discussion on the topic, rather than our usual fare...
simplication lends to much efficency to the tax system. a flat tax means that there be no tax loopholes. As a result, the role of the IRS would be dramatically minimized, to that of a collection agency. effectively, a layer of the federally bureaucracy (IRS auditor / attorney, tax courts, etc.) will be chipped away. because there are no tax loopholes the economy, as a whole, would be more productive. the BIGGEST winners are the middle class folks whose major source of income is from a job. On the flip side, the BIGGEST losers are conglomerates who currently exploit the tax loopholes to avoid US taxation. Thanks to tax loopholes currently available for offshore operations, Corporations like Accenture, Tyco, Haliburtion, etc, while making profits in excess of hundreds of millions, are not subject to taxation in the US. under the flat tax system, these priviledged fat cats, like everyone else, will have to pay their share, dramatically lessening the tax burden on the middle class. it is designed for simplication and efficiency. Proponents of the flat-tax system say that a flat rate (where everyone pays taxes) in the high teens---17-19%--would bring in about the same tax revenue as the current convuluted system. Assuming that the proponents' estimates are correct, should the Gov want to generate more or less tax revenue, it can alter the flat tax rate.
The biggest losers will be the really rich and the poor. Really rich would be the people who make the majority of their income in investment versus work. The poor/lower middle class since they don't pay much taxes as a percentage right now. The big winners will be the high wage earners like doctors who currently pay over 30 percent in total taxes.
ur wrong on that one. Doctors make enough $$$ to afford tax loopholes, which are available to people w deep-pockets.
But the tax loopholes are not in the rates, but in terms of what money gets taxed. For example, the big loophole Obama is trying to close is that money that isn't repatriated into the country isn't taxed, so corporations keep that money abroad. But you can close that loophole without a flat tax, or you can have a flat tax with that loophole. I could see that, depending on what exactly it would replace. Would the flat tax simply replace the income tax, or would it also replace payroll taxes?
It sounds simple and fair, assuming we could erase every single other federal tax and loophole on the books - including all the non-profit deductions (charities, churches and colleges) - and we could simultaneously spend less on defense, social security and healthcare. And it'd still need to be around 40 - 45%.
Except that most flat tax proposals I have seen include the idea that the first $20,000 of income is exempted from taxation at all. The poor would pay less tax than those with more means.
Smoke and mirrors. Loopholes have nothing to do with whether the income tax is flat or not. 99% of the complexity of the tax code are the deductions and loopholes NOT THE NUMBER OF TAX BRACKETS. I'll repeat: The number of tax brackets and the multitude of deductions and loopholes are two separate and distinct issues. Flat-tax proponents don't want this distinction understood. What makes income taxes hard is determining ones taxable income, NOT calculating the amount of tax (after the taxable income is determined). To simplify the tax code and "minimize" the IRS, we could just eliminate the deductions or chop the number down to the bone without changing the brackets.
You don't know the difference between deductions and brackets? There are thousands of deductions. There are 6 tax brackets. Eliminate the thousands, leave the 6 alone. Get it now?
Question: If the thousands of deductions are completely eliminated (or reduced to a precious few) and 3 to 6 new progressive brackets remain, would that not greatly simplify the tax code?
Instead of this, why don't you try to explain your point? A_3PO has a point. Deductions/loopholes and tax brackets are very different things and they address different issues in the tax code. As I noted in my second post, your corporate loophole thing has nothing to do with a flat tax - Obama is trying to close some of that stuff now, without any connection with a flat tax. Regardless if you have a flat tax or a progressive tax, you have to have a method to determine taxable income.
Not true at all unless they own their own business. In that case they have access to the same write offs as any other business owner regardless of income. If you have a high salary, there is no way of getting out of paying taxes on it.
The middle class would get dicked again with a flat tax, unless FICA is taken away. Anybody making over the SS tax threshhold would hit the 0% marginal tax for the rest of their income. The poor actually won't play a flat tax, due to the cut off at $20k. It would be a negative tax for them. They get all the federal dollars through through welfare and social security.
Wouldn't most doctors create a corp, if they have an accountant? They would have to be dumb to run their business as a sole propietorship.
I side with A3PO on this. Clearly, the issue of loopholes (Outrage! Hulk smash!) is popularly conflated with the notion of a flat tax only in order to better hoodwink for the flat tax. Most arguments I've seen for a flat tax argue/assume that it would be revenue neutral, which always strikes me as absurd. If such "simplification" won't raise more money, why risk making the shift in the first place? Obviously, the poor would be the biggest losers in this scheme, as they would go from paying next to nothing (while receiving benefits) to paying, say, 17% of their meager incomes. If a set-aside is still in place in a flat tax (e.g. the 20 grand above), then the biggest losers will be the lower middle class, whoever pays more in taxes after the flat tax than they did before it. The rich would be the biggest winners. (Arguments about their use of "loopholes," though overstated, are correct; however, fixing those loopholes is indeed a separate issue.) Assuming the present capital gains rates were abolished (another loophole: Buffett's CEO vs. secretary), the rich would go from tax rates in the 30s down to that 17%. Any argument about "simplification" seems to me to be a way to ignore this fundamental shift of the burden onto the poor, off of the rich, opposite the very purpose of a graduated income tax. And the flat tax rate proposed is usually in the high teens, suspiciously always far less than the tax rates for the very wealthy (the ones who ultimately propose it). Anyone remember who first aggressively pushed this in the public sphere, outside of only think tanks? I remember Steve Forbes running for president on this (as a single issue candidate) in 1996; he sounded reasonable enough, until it was pointed out it would personally save him around $130,000 in taxes a year, as he would go from paying in the high 30s for most of his income to 17% for all of it. I'm curious, was there a proponent who ran on this issue before him? The flat tax seems to always lurch around on the fringes of acceptable debate, and needs to be batted back down again before it gains any more popular credence.
It may be revenue neutral, but expenses would decrease due to a much smaller IRS. Same revenue minus less expenses equals more money left over to run government and decrease the deficit.
The annual budget of the IRS is $11 billion right now. I imagine the one-time cost of switching to a flat tax system would dwarf any annual savings you might get there - you're talking about fairly minor amounts in savings, but a complete overhaul of the entire tax industry, the IRS's current functioning, etc.
Wrong...wrong...wrong. Take the example of a single filer making $35,000 a year. Under the present system, they will pay $4,938.00 in Federal taxes. That is 14.11% of their income with a marginal tax rate of 25%. That same taxpayer under a flat tax with a $20,000 set aside will pay $2,550.00 in Federal taxes. That is 7.3% of their income. Explain how that guy, who is in the lower middle class, loses under the flat system.
