The Flat Tax

[Infinite Hope]

"A few days ago, Craig examined the Fair Tax which is a tax system based largely on sales tax. Today, I will examine the pros and cons of the Flat Tax which is a tax system based on income taxes with everyone paying the same rate. Because everyone pays the same flat rate and loopholes are eliminated in the process, everyone pays in and everyone pays less than they do under the current system. Estimates often suggest a tax rate of 10-15%. Compare that to current rates.

Often, it is rejected out of hand as a regressive tax. At one time, I too recited the usual talking points on the issue. But after examining the issue during my undergraduate career, I began seeing it in a different light. And in recent years, a few liberal economists (a tiny minority) have begun to soften their position on the issue. The fact is that people would pay the same rate so by definition it is not a regressive tax. A regressive tax is one where those with lower incomes pay relatively more. Under a Flat Tax system, everyone would pay the same."

http://thepoliticalpanorama.wordpress.com/2010/05/30/the-flat-tax-is-it-really-all-bad/

[Skink]

1. What about investment income?

mostt poor people don't invest.

[Infinite Hope]

50. Good question. I haven't seen proposals as to what would be done with

investment income.

[PDJane]

2. There are lots of ways to justify a flat tax.

It is still a regressive tax, with the biggest burden falling on those who can't afford to pay it....and those who don't need to consume getting out of tax for the most part.

What is needed is a good system of progressive taxation, one that falls hardest on the top 15% or so, and one that taxes assets.

[jtuck004]

3. It is harder on people with lower incomes - and I don't need

an "undergraduate career" to find ways to justify or talk around that. It's only "fair" if you are one of the people who already has a great income. IMHO those who have a greater income have profited more from the commons and deserve to pay a greater share.

http://en.wikipedia.org/wiki/Regressive_tax

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.<1><2><3><4><5> In simpler terms, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income.

<snip>

[Oregone]

4. Why should everyone pay the same tax level? Why?

Poor people use a larger percentage of the *disposable income* to purchase goods needed to sustain their very existence. After paying for housing and necessary goods, there truly isn't much left over, and nothing left for poorer people to save. If its not saved, its therefore spent, and hence 100% of their disposable income is taxed.

Rich people can not only meet sustenance level, but rather live quite well AND save money; being that rich people keep increasing their wealth, its fair to say that saving money is no challenge even with such a lifestyle. So far less of their disposable income will actually be subjected to tax. Yet, they are the people most able to actually pay taxes without having their standard of living reduced?

Don't we want to promote mobility? Why have a tax system that cuts into the standard of living for the poor but not the rich? Why make one group who can't save have all their spending money taxed, and another group who does have enough to save get to have untaxed funds?

It makes no sense


"Estimates often suggest a tax rate of 10-15%"

I think those estimates are on crack

[SocialistLez]

28. Some folks think the rich shouldn't be taxed so heavily.

After all, they worked VERY hard for that money.

The construction worker? Eh...fuck him.

(These are not my thoughts, BTW)

[DailyGrind51]

29. After all, the guy who bank-rolls the project, "risks his capital"!

The guy on the I-beam only risks his life!

[Infinite Hope]

30. Because under the current system, there are loopholes. The flat tax would eliminate such loopholes..

and so they'd actually pay their fair share and more than they did before, thereby taking the burden off the middle and working classes (and reducing their rate).

[depakid]

35. Ate you STILL at it with this bit?

Do yourself a favor and read the entire article put together by Ernest Partridge called Flunking Econ 101

from which I excerpt this pertinent section:

"The Declining Marginal Utility of Money" is another high-fallutin' term for a phenomenon recognizable to all. The value to an individual of a constant sum of money (say $1,000) gained or lost is inversely proportional to that individual's wealth.

Still too academic for you? It comes to this: because that one grand is about a month's salary to a single mother working at Wal-Mart at minimum wage, a loss to her of that thousand is a disaster. In contrast, when Microsoft zillionaires Bill Gates, Paul Allen and their wives enjoy a night on the town, it is a matter of complete indifference to either who picks up the thousand dollar tab.

In a single day on Wall Street, Bill Gates can lose (and presumably has lost) a billion dollars of his gross wealth. Such a loss would no doubt perturb Gates somewhat less than would the above-noted hypothetical loss of one thousand dollars to the Wal-Mart mom. This means that the marginal value of a thousand dollars to Gates is considerably less than a millionth of the marginal value of the same amount to an individual working at minimum wage.

Ninety-nine plus percent of us are found within those extremes, though the marginal value of cash to the vast majority of us is much closer to that of the Wal-Mart mom.

You know this, I know this – and so too does Steve Forbes. Yet he mounted a credible Presidential campaign on essentially a single issue: "The flat tax." "Its only fair," he tells us, "that we all pay the same rate of income tax." The same rate, mind you, not the same amount.

Even Forbes acknowledges that a dollar to him is not worth as much as it is to the rest of us. But neither is the same percentage: a tax liability of ten percent of Forbes' eight-figure income is far less painful to him than the same ten percent of the five figure income is to the rest of us.

Surely Steve Forbes, and his friends now in effective control of the White House and the House of Representatives, are quite familiar with the concept of "the declining marginal utility of money;" it is, after all, the foundation of the traditional notion of "progressive taxation." However, the "conservatives" would much prefer that we not be aware of this concept and this tradition.

Well we should be aware, as should the "conservatives." In fact, the concept was clearly proclaimed by George Bush's "favorite philosopher," Jesus of Nazareth:

"And Jesus sat by the treasury, and watched how the people cast money into the treasury: and many that were rich cast in much. And there came a certain poor widow who threw in two mites....And he called his disciples, and said: 'Truthfully, I say to you, that this poor widow has cast in more than all they that cast into the treasury. For all they did cast in was from their abundance; but she cast in all that she had, even all her living." (Mark 12:41-44).

Those of us who have the temerity to mention "marginal utility" and to defend progressive taxation are condemned for fomenting "class warfare...."

More: http://gadfly.igc.org/liberal/econ-one.htm

[Oregone]

39. The entire system is a loophole

If you don't want income taxed, dont spend.

Guess whose best at not spending money...yeah, its the rich people who save always because they are filthy rich.

The entire tax system is rigged to allow them to have untaxable income, when poorer people don't have that option.

What a load of shit.

[MattBaggins]

49. Why does the system have to be this so called "flat" in order

to eliminate loopholes?

[Chulanowa]

5. The writer is plain and simply wrong

"The fact is that people would pay the same rate so by definition it is not a regressive tax. A regressive tax is one where those with lower incomes pay relatively more. Under a Flat Tax system, everyone would pay the same."

The problem is that a dollar is worth a dollar, no matter if you have five more just like ir, or five billion just like it; a dollar has the same purchasing power no matter how wealthy you are. Products also cost the same dollar amount no matter who's doing the shopping.

If you're taxed 15% and you made a $150 paycheck, that's $22.50.
If you make a $1,500,000,000 paycheck, you're getting taxed $225,000,000.

Th second person is indeed paying a rather princely sum. But his purchasing power is barely affected. he still has over a billion dollars from that. he can pay his expenses and still have over a billion dollars to play with, while the poor sap making a gas station attendant's wages is cutting meals just to keep the lights on, meals that that $22.50 could have went towards.

Now, if the flat tax system went towards a sizable social spending fund, that might take a lot of bite out of it, and would ultimately end up being a rather effective wealth redistribution system, from the top to the bottom.

But what are the odds of America ever going this route? Maybe if Kucinich ever gets his way.

[Zoeisright]

6. THANK you.

That's the best explanation against the flat tax nonsense that I've ever read.

[SocialistLez]

27. Yep. NT

[Laelth]

45. Well stated. n/t

:dem:

-Laelth

[blondeatlast]

46. Word, word, word. Thank you. nt

[county worker]

7. What you are seeing here is a gradual acceptance of conservative ideology by the Dems.

Soon we will be hearing from our Dem leaders that we have to lower the deficit and to do so we have to cut social security and end social welfare programs. We will be told that we have to accept high unemployment rates and the ever shrinking middle class with a lowering of living standards. It is happening all over the world. There is a concerted effort to turn back all the gains won by the working class since the end of WWII and a final end to unions. It is pure class warfare and the burden of shrinking the deficit will be placed on the backs of the working class. Obama will be a player in this and the first attempts will come after the Nov elections with the deficit committee.

The only way out of this is to tax the property of the wealthy to lower the deficit.

[Pithlet]

8. This flat tax crap is nothing new here. People have been popping in here

on a regular basis proposing this since DU has been around. They come in and attempt to sell the stinky Libertarian-rightwing snakeoil, it fizzles and dies when no ones buy it of course, and then it dies until the next one attempts it. It's like clock work. The internet works in mysterious ways.

[Chulanowa]

9. Oh, the Dems have been as hooked on neoliberal "Market reform" since the 80's

So let's not pretend this is anything resembling "new"; it is in fact by now so deeply trod into American culture that I have no concept of how it could ever be cleaned out again. All we can do is try to keep it from spreading further.

[Pithlet]

10. Look, this is a thread about the flat tax. I'm not saying there isn't a heap of criticisms

that can be flung at Dems, especially right now. But my experiences with people pushing flat taxes have been mostly Libertarian or right wing nut jobs, no disrespect meant to the OP. Not Dems. The flat tax is not a core part of the Dem platform, to my knowledge. It's a stretch to use a flat tax thread as a jumping off point for a Dem bashing fest.

Edit, I thought this was in reply to me.

[Chulanowa]

12. I'm hardly a dem-basher

For real, flip through my post history. I'm a steadfast defender and (usually) happy member of the Democratic party. I also hiss and spit whenever I catch wind of the stench of Friedmanism. Unfortunately the two come as a package deal fairly frequently, is all I'm saying. I'm actually telling country worker to not pretend like it's something sudden and new to beat the Democrats over. it's been with us so long as to make doing so totally pointless.

The flat tax is a largely Libertarian idea; and like all Libertarian ideas, it's a really shitty one. Like I said before, it is an idea that actively punish you harder and harder with the least money you make. While it is not "truly" regressive, it has the same net effect of a regressive tax.

Shortly after our conquest liberation of Iraq, Paul Bremer instituted a 15% flat tax. In nation that had an "offical" tazation rate of 45% of the wealthiest business (and lower rate for lower incomes) and zero (yeah, zero) history of enforcement and tax collections, this was basically a hammer blow to the skull of the iraq economy, especially with the state it was in after our invasion. I imagine this contributed heavily to the spiraling unemployment, destitution, and violence that followed in the next two years.

[Pithlet]

13. I thought I was replying to the other poster.

I thought your post that I replied to was that poster replying to me. If that makes sense :crazy: Edited to add that I'm sorry.

[county worker]

14. If you meant to respond to me what I am saying is the flat tax is part of

right wing ideology that you will be hearing from Dem leaders. They will be saying that it is a good thing for us to adopt along with other things we would have never thought we'd hear from them.

I am not bashing I'm telling it like it is.

[Pithlet]

19. I won't argue that our Dem leadership is fucked up

and that progressives constantly get the short end of the stick. But I doubt we're going to get a flat tax any time soon.

[Cresent City Kid]

11. Flattening rates means the rich pay less

Tax rates can't be flattened by raising everyone's rate to the top rate. It is always suggested as a way to bring the top rate down. The reasons and remedies for government revenue shortfalls are fudged in later.

If everyone lived in a house and ate healthy food in a safe environment, and the government was running surpluses, I could get on board with lowering tax rates for the rich. Here's the rub: the homlessness and hunger, budget deficits and evironmental threats are directly caused by the wealthy rigging the system to get richer.

Theoretically a capitalist system with a few rich investor class types could function without oppresssing the poor and supporting a vibrant middle class. The problem with this theory is that there is no such thing as rich enough. There's no rich even, just getting richer than the guy in the mansion next door. When the limits of how much can be sucked out of a healthy economy are reached, the rich keep going, creating an unhealthy one. When the flow slows to a trickle like in our recession, the next step in getting richer is to reduce expenditures like taxes.

[Infinite Hope]

31. Their rates are less, but generally they pay more as loopholes are eliminated. n/t

[Cresent City Kid]

38. I say eliminate the loopholes at the current rates

Then create an even higher rate for the top 1% with no loopholes or deductions.

[BootinUp]

42. +100 nt

[blondeatlast]

47. But the poor and working class get shafted even harder than they already are. nt

[Fla_Democrat]

15. Too much power in the current code

So it will never be changed. It may be tweaked, but never replaced with a tax system that takes the power out of the hands of politicians. :smoke:

[Hannah Bell]

16. flat taxes *are* regressive, as they hit income the poor & middle need to make basic

expenses.

a flat tax of 10-15% also can't fund government at current levels without significantly hurting the bottom 80%; here's why:

imagine a universe where twenty % of the population makes 60% of the income & the other 80% make 40% of the income:


Total income = $100


20% get total of $60: 10% tax = $6 ($54 left, $2.7/person)
80% get total of $40: 10% tax = $4 ($36 left, $.45/person)

Total taxes collected = $10


versus progressive tax:

20% get $60: 20% tax = $12 ($48 left, $2.40/person)
80% get $40: 0% tax = $0 ($40 left, .50/person)

Total taxes collected = $12



A flat tax might be fine if income were relatively equally distributed. That's not the case in America. Income distribution is highly unequal, & a flat tax can't fund the government without making the poor a lot worse off -- because the top 20% has most of the money.

[Cresent City Kid]

21. I agree, but let's look at that top 20%

It's really the top 1% running away with the loot. What percentage does the top rate apply to, the top 10%? This is essentially a flat tax for the super-rich, and the super-duper-rich. The rates should be unflattened to reflect actual income distribution, with a new higher rate for the top 1%.

[Hannah Bell]

23. the exercise was a hypothetical. going where the money is is what

progressive taxes are about.

just a hypothetical demonstration to show that flat taxes can't fund the government without soaking the poor, not an example of an ideal split.

people often don't get that the top 20% has more income than the bottom 80%, & you can raise more tax from the top without significantly cutting into their wealth than you can from the bottom.

[Cresent City Kid]

25. I got that

The demonstration is solid. Maybe responding to your post wasn't the best place to insert my suggestions, but I think we are on the same page. You'd think I'd be more adept since I've had so much experience with these flat tax posts.

[Hannah Bell]

26. i understood your point; a good system would hit the top 1% the hardest.

i just wasn't sure you got mine wasn't a recommendation for a two-tiered progressive tax.

no problem.

[Captain Boomerang]

17. I thought I was spending enough tax on fuel and now...

you want me to pay taxes on my worn out Firestones.

[Infinite Hope]

32. Perhaps you're thinking of the "Fair Tax" which is a sales tax...different than the Flat Tax. n/t

[William Z. Foster]

18. so obviously false

"The fact is that people would pay the same rate so by definition it is not a regressive tax."

That would be true if everyone had the same income. A 10% tax on the grocery bill for a working class family, making $35,000 a year, is not "equal" to the same 10% on a family making $35 million a year - unless the wealthy family needs to eat a thousand times more food in order to not starve.

With a flat tax those with lower incomes DO pay relatively more, because they need to SPEND a greater portion of their income in order to survive.

The article completely ignores the ways in which the working and poor people are already being soaked on licenses, fees, penalties, sin taxes, gasoline taxes and on and on and on. Taxes that are chump change for the wealthy are crippling the rest of us. That is not "fair" nor is it "equal."

[depakid]

20. "Often, it is rejected out of hand as a regressive tax."

That's because it is without question and quite objective a regressive tax.

As anyone who understands the most basic of economic principles knows quite well for themselves, regardless of the ideology.

i.e. declining marginal utility.

Hence, the author is an idiot trying to tell you that up is down, black is white and arsenic in the water isn't going to hurt you.

[TheMadMonk]

22. (VAT) Value Added Tax is a better name and ideally it has to be draconian.

Any time a transaction adds value to a good/service being traded it is applied.

Oh and no rebates per se under normal circumsances. For all their value to the working man, rebates are primarily a way of turning paper losses into real profits. Instead use a (properly safeguarded) voucher system that allows required expenditure such as personal protective equipment, or a fire supression system to be tax free at the time of purchase. Neccessary expenditure ie. tools of the trade or vehicles, on the other hand shouldn't be tax free.

Where health, safety and the environment are concerned, do allow rebates on amounts spent over and above the minimum necessary to meet regulatory requirements.

Address both minimum and median wage issues. Minimum most certainly has to rise. Median almost equally certainly has to fall.

But then there's all the issues of individuals on small fixed incomes who would certainly need to be tided over to their deaths until the whole system stabilised. And of course the inevitable pool of lost causes. The simple basic unwillingness of Americans to do 100% anonymous charity lies at the heart of so many of its woes. Excuse me Billy-Bob Limbaugh, you don't think The Welfare Queens aren't down at the Salvo's, Smith Family or whatever charity you might toss the occasional dollar to, crying poor, and parading their twenty 'leven children for free food, clothing and other handouts.

[Infinite Hope]

33. That's not the Flat Tax. I believe you're thinking of the Fair Tax which is a sales tax. n/t

[krispos42]

24. Okay, I'll support a 60% flat tax.

As long as the standard deduction is $100,000.

[W_HAMILTON]

34. Damn, you stole my idea.

Except I was going to be a little more generous.

99.9% flat tax with a $500,000 standard deduction.

The Flat Tax is fair since we all pay the same, so a 99.9% flat tax is just as fair as a 15% flat tax, right? :evilgrin:

[krispos42]

43. You're evil

:rofl:

[FormerDittoHead]

36. So many mis-statements I don't know where to start. Bullshit is repeated over and over.

I'll be writing a feature article about the Flat Tax scam on my website, but let's just take some lines just from this excerpt.

1) "the Flat Tax which is a tax system based on income taxes with everyone paying the same rate"

Complete and utter bullshit. This is the heart of the conspiracy - THE LIE. The DEFINITION of wealth is the money ONE HASN'T SPENT.

Those who spend every dollar they make are BY DEFINITION - NOT WEALTHY.

So who do you think would pay more of their income with a sales tax?

2) Loopholes are eliminated in the process

Again, bullshit.

1) doesn't count sales of stocks / bonds.

2) doesn't count sales of USED things such as this:

You make $400,000 - tax free.

You buy one of these used cars - http://bit.ly/aZKi6Y - tax free

You let the "little" people spending all their income on food pay the taxes! Everyone pays the same!! HA!
(let's not forget how a tax on new cars will devastate the new car / manufacturing market)

3) Simplifies taxes - BULLSHIT. States will still have sales taxes along with income taxes. So you still need to calculate those things.

I wish I had the time so I can complete my article so I can just point to it, but PLEASE educate yourself about this SCAM, and GET IT that it's yet another lie being promoted to exploit the unsophisticated into letting the rich pay lower taxes.

[mmonk]

37. Proof that it is a bad system full of ideological mumbo jumbo

is our current exploding debt. If you look at the historical rates, we have been flattening them. Concurrently, the debt is the only thing progressing.

[BootinUp]

40. in.sane. and it doesn't need more study.

and those supporting it are not liberal economists, they are moles.

[PA Democrat]

41. Not again. I can't believe how many DUers fall for this scheme.

So you have a federal flat tax

Guess what? The poor and the middle class STILL get screwed and pay a larger percentage of their income (of which they have NONE to spare) because there are still things like excise taxes, local sales taxes, property taxes, etc. In my state investment income is not taxed by local municipalities, only salaries and wages. My state has a 6% sales tax. My utility bills contain federal and state taxes. The list goes on and on.

And that doesn't even address the issue of what is fair. Should a struggling single mother really pay the same rate as a CEO or as someone living off of a trust fund?

[entanglement]

44. Oh please not this BS again. It is a highly regressive tax system, and its promoters the Ayn Rand

or Cato types.

[blondeatlast]

48. Lots of talk about flat taxes today on DU.

Co-inky-dink? I wonder...

[grahamhgreen]

53. Most likely not...

[Zavulon]

51. The flat tax is pure folly, and even for Repugs it would only be a temporary fix.

What they seem to forget is that the income tax we have now was originally a flat tax. If we were to institute one now, it would only be a matter of a very short period of time until exemptions and "special" breaks were added to it, and eventually we'd be right back to the unacceptable, incomprehensible monstrosity we have now.

[grahamhgreen]

52. It's a scam. Let's simply eliminate income tax on people and only tax corp's. THE FAIREST

[miscsoc]

54. Progressive income taxes are pretty much as simple as flat taxes

The complexity that exists in the present system has nothing to do with the existence of multiple income tax rates.

It's a total red herring. A straightforward progressive income tax would be no more complex than a straightforward flat income tax, if you think about it for a second.

e.g. ultra-simple flat income tax: i earn $100,000, the rate is ten percent, so I pay 10,000

vs

ultra-simple progressive tax: i earn $100,000, the rate is five percent up to 10,000, and ten percent thereafter: five percent of 10,000 is 500, ten percent of 90,000 is 9000, so I pay 9,500.

Both are back of the envelope stuff, even if you add a bunch of further marginal rates.

Flat taxes are not intrinsically simpler in any meaningful way than progressive ones; the problem with complexity in the tax system is NOT to do with the existence of multiple tax brackets.

[Orsino]

55. I reject it out of hand as a regressive tax....

...pimped by the wealthy who would love to pay a rate as low as what America's poorest can afford. It is a clumsily obvious attempt to shift the tax burden further downward, and it sucks.

Don't fall for it.