Two problems here: That $4938 number isn't entirely accurate. That ignores, at the very least, the standard deduction that everyone gets, plus any other deductions or credits the person may have. The $2550 assumes a 17% tax rate. I could be wrong, but I think the 17% rate assumes no or a very small standard exemption. I don't think a 17% tax rate generates the required revenue if you have a $20k standard exemption, especially if it's supposed to replace the payroll tax as well. But, if the poor / middle class taxpayer benefits from this, are the rich paying more?
Ya got me for posting drug-addled yet again, and not thinking through the consequences of the hypothetical $20G set-aside. So under this system, it takes less from the poor, and it takes significantly less from the rich. The kill-the-IRS financial benefits are negligible, as pointed out above. How then can this scheme possibly be revenue added, or even neutral? Or is this just another method Catoers dreamed up to "starve the beast," cutting tax revenues to force the killing off of unwanted social programs: Social Security, Medicare, etc.? I don't get how taking that much less in tax revenues can possibly be made up for with supposed improvements in efficiency.
Let see what Mr. Buffett knows.. "Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation. " But what does this guy know? He's only one of the richest men in America.. I'll all for the flat tax my friends..
To mitigate the regressive nature on the lower and middle classes, this provision would have to be an integral part of any consideration of a flat tax. I still prefer the philosophical idea of a progressive tax structure simplified to incorporate the benefits of a flat tax (i.e. fewer loopholes, etc.).
How would creating a corp allow you to avoid paying taxes. The corporation would still pay you a salary and any profit it makes would have to taxed at the corporate rate. I have 4 family members that are doctors and they pay a huge amount of their income in taxes. The reason the ultra rich avoid paying taxes is because most of their income is in capital gains and dividends which is now taxed at a much lower rate .
That's not an argument for a flat tax at all. That's an argument for applying a progressive income tax properly. Our whole tax system is built on the idea that the highest income brackets should be paying a large proportion of their earnings as taxes. A flat tax doesnt do that at all. The issue isnt about a flat tax versus a progressive income tax. The issue is simplifying the tax code and weeding out loopholes that have allowed people to evade paying taxes.
I'll add another "meaningless" post that "doesn't make sense" and say this discussion is on the right track. Deductions/loopholes are a separate and distinct issue from the 6 progressive brackets. Progressive taxation is NOT the why the tax is ridiculously complex.
I thought that corporation could write off more business expenses that a sole propietorship, such as a company vehicle, health insurance, life insurance, and other expenses. The main advantage of a corporation is you are not personally liable for all debts. The corporation is a distinct entity.
Doesn't a flat tax have to shift more of the tax burden upon the middle class? I mean, to get the same tax revenue (and loop-holes have nothing to do with the tax brackets as others have pointed out), if you lower the tax rates on the higher income earners - who pay a lot of the tax revenue, you have to raise it on others to get the same revenue. Money doesn't come out of thin air. This sounds a lot like "Voodoo" economics to me.
This is the question I have. Several people here have defended the flat tax as a good idea, but I haven't been able to get an answer on who exactly will pay more in taxes.
It's only good if the FICA is removed and included in the income tax, and investment income is taxed as ordinary income and rich people who benefit from loopholes According to the GAO $240-600 billion is spent on tax preparation each year. If it's a net zero income tax, it would supposedly save money on IRS auditing and enforcement by reducing staff. It's not that hard to do 20% x income, compared to the massive tax code in several irs publications and multiple forms. Current Married Filing Jointly, tax brackets. 10% 0-16,700 15% 16,700-67,900 25% 67,900-137,050 33% 208,750-372,950 35% 372,950+ 1.45% Medicare Tax 6.2% Social Security tax up to $106k. A married couple making $200k would have a marginal tax rate of 32.65%. A wealthy married couple make $2m/yr from their investments. They would pay a 15% capital gains tax on that income. Some wealthy people like real estate investors also use 1031 exchange, to defer the taxes over and over again. The married couple would pay less at 20% tax rate than a marginal tax rate of 32.65%. The wealthy couple would may more at at the 20% rate than the 15% capital gains rate. I hate the FICA tax and the cheap capital gains tax.
In theory, I agree with this. However, proponents of the flat tax argue that all the deductions would go away in getting to that 17-20% rate. That current 32.65% marginal rate paying couple has plenty of deductions - so we don't really know what their net tax rate is now. Also, the proponents of the flat tax tend to, in large part, also be proponents of lower cap gains rates. Do we know if the proposed 17-20% flat tax include cap gains, or is that maintained as a separate type of income with it's own rate?
IMHO, flat tax has ALL benefits and NO downsides. People against flax tax are the ones enjoying all the current loopholes. A flat tax rate of 15% for any income above 30K for example, will benefit each and every single group ON A FAIR BASE. Low incomers won't pay tax. Mid-incomers will keep 85% of every single dollar they make extra, in any possible way, that's obvious incentive to make as much money as possible. High-incomers will still keep 85% of every extra million dollar they make. They won't be exempted from any policy spin or tax loophole, or mid- or long-term capital gain for stock options or different form of bonuses, etc. But, they will never be punished for making more money. 85 cents of every dollar is a lot. The biggest beneficiary? The government. They can save billions of dollars to cut the bureaucracy around the over-complicated tax code and auditing system. They can pocket 15 cents of every single dollar out there from every tax payer (except for low incomers). They won't need to deal with people like Huffington making millions without paying a cent, due to some tax codes. I thought that's really obvious? Why are loopholes hard to stop? Because you leave them there. If you make it as simple as 15% or nothing for low incomers, where are the loopholes coming from?
One man's loophole is another man's incentive. The real problem with any flat tax discussion is that it whitewashes over all the compromises, social engineering directives and investment incentives devised by Congress over time. The system is what it is and at least the tax lawyers know the rules. Instituting a new system leaves a million unintended consequences that can never be foreseen, like the effect on charitable giving if the 'loophole' for these deductions is removed. It could well be that that the net effect on the social safety net is that government must pick up and pay for many of the services now handled by the non-profits, so that the average tax payer is now burdened paying for things the 'rich' used to pay for, to avoid taxes. It's sort of a "devil you know" deal.
If you know the devil, why don't you kill it by removing the soil it grows on? We know deductions lead to loopholes, why don't we cut all deductions? Are investors going to put all the money in savings bank, if they know they have to pay 15% flat rate even for their capital gain? Are executives going to give up huge stock option bonus, if they know they have to pay 15% flat rate for their bonuses? If donors reduce their normal donation amount for 25%, will that cover those 15% less deduction they enjoyed before? Government can make up that part with the huge savings on bureaucracy and increased incomes by stopping all the loopholes. At least a few lawyers know the system? Don't you think that's exact the problem? You kill people, you will be punished. You earn money, you have to pay tax. That should be common sense, not expertise. If you pay tax, you pay exact same rate as every single one out there who earns more than a base number. What's there so complicated?
Is it a loophole that a person got a 30 yr mortgage on the premise that interest is tax deductible? Is it fair to take that "loophole" away from them 3 years into the mortgage, even though their financial decision was based on that? (essentially lowering the interest rate by 1% or so). The entire IRS budget is $11 billion - you're talking about $1-$2 billion in annual savings, at best. That's nothing in a $2.7 trillion budget. There is no "increased income" - you took that away by creating a 15% tax rate, which doesn't even generate as much revenue as the old system. That said, I'm still curious about whether your 15% flat tax replaces just the income tax or also the payroll tax?
I certainly don't want to be cast as defending the current tax system. I'm just saying that as it exists, it is systemically embedded within the fabric of American society and any proposal for change needs to rigorously examine the consequences; radical changes produce radical results. And, however convoluted system, it is at least, the result of 80 years of debate and democratic political process. Plus, any radical egalitarian economic changes will be held in check in this country by the nature of our privately funded democracy so I think the chances of any massive overhaul are remote anyway. But by all means, debate on.
Mortgage interest is not tax deductible in Canada, and they don't have such a sub prime mess and foreclosure problem. Just coincident? No deduction means ZERO deduction. Without deductions, those millions of stock options will be taxed accordingly, that's increased government income easily. Flat tax means flat tax rate for every single dollar above a base number (20k or 30K). My proposed tax code consists of only one line: Any income above 30,000 is taxable income with a flat rate of 15%, no one and no money is exempted from tax, and there is no reduction.
Yes, it's just a coincidence. The reason they don't have a subprime mess is that they had different regulations determining how many loans they could give out - it has nothing to do with the mortgage deduction. Again - does this replace just the income tax or also the payroll tax?
