Let's say we combine income and capital gains...

[cthulu2016]

Last edited Wed May 23, 2012, 04:00 PM - Edit history (1)

On seeing the replies here, I guess this was read as a policy proposal (which would be ridiculous in literal terms) rather than a question about what potential level of tax-free income was implicit into the system... how far up the burden would have to be shifted to offer a very comfortable tax-free living.

Geez louise... of course flat tax rates at any level are moronic. And nobody would want to implement a sharp (0 to 50) level at any point, for obvious reasons. I consider such things so freaking obvious that nobody could think they were being discussed as policy, but I suppose not.

(In fairness to the commenters, the OP is not well written, and I suppose I have seen flat-tax gibberish on DU but I tend to skip over it.)
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Let's say we combine income and capital gains...

and let's say we take the number of how much tax we collect on those two things...

Let's call that total revenue X.

Okay, imagine zero taxation up until a point Y, and then a flat 50% over that point so that total revenue still equals X.

What would Y be? $30K/year? $80K/year? $150K/year?

Say it was $80K/year (I have no idea what it is) and we said, "The first $80,000 you earn is tax free. After that it's 50%."

It sounds pretty fair. Eliminate federal taxation of the great majority of the nation. You can make enough to live pretty darn comfortably without paying a penny of federal tax. What's not to like?

Oh, right... it would piss off people who make a billion dollars. I forgot about them.

Nevermind.

[hfojvt]

1. actually it would sorta piss me off too

First of all, let's take 1996, since that is closer to the way things ought to be, than now, in the post-Bush tax cut era. In that year 8.1% of tax filers had income less than $25,000 and more than $20,000. They paid an average tax rate of 7.9% or an average of $1,770 in income taxes.

Now let's take a richer group, those making between $50,000 and $75,000. 11.9% of tax filers fell in that group, but only 9.9% of tax filers were above that level. Now that group paid an average tax rate of 12.1% or an average of $7,338 in income taxes.

Your plan would clearly help that richer group much more than it would help the poorer group. BTW an astoundng 44.9% of tax filers in 1996 had less than $20,000 in AGI (doubtless some of them were teenagers).

But your plan would simply provide much greater benefits to households making $79,000 or even $90,000, than it would to households making less than $30,000.

I happen to be in that latter group, and I give two thumbs down to plans that give $500 to me and give $2500 to people making two or three times my income.

[pnwmom]

2. I don't think people making $80K and $80 million should pay the same tax rate.

And I'd say the same thing about $200K and $200 million.

I believe in a progressive tax system, with the rate rising with income.

[limpyhobbler]

3. It might have some issues.

Would you see a lot of people earning right up to the Y amount but not going over? Because if they go past 'Y' they only keep half. So even though they would still make money, the incentive would be less. It would be half. So in this example, people might bunch up around the $79,000 mark. And so that bunch would avoid tax and decrease revenues. Possibly that could happen. Why not phase the tax rate in gradually as income increases, to avoid such drastic tax brackets that might distort people's incentive structure? It might be a good idea, I'm just raising this other question.

Also, notice this idea is a flat tax. It's not like a Steve Forbes flat tax because the 50% rate is much more. But it does raise an issue of fairness. How is it fair that income between $80k and $100k should be taxed at the same rate as income between $80 million and $100 million? $80k isn't really that much money for a larger family, or in some cities.

[dkf]

4. I guess if you wipe out all benefits to individuals that would work.

But if people don't pay taxes and only receive benefits, that sounds like a great recipe for overspending and fiscal irresponsibility.

[Warren Stupidity]

5. What is the fascination with a flat tax rate?

Seriously, why is that at all important?

Your proposal would, as always with flat tax schemes, sock it to the middle class.

[badtoworse]

6. I don't care what Y is. Your idea sucks.

If I happen to have a good year, the government automatically takes half? No way.

[Warren Stupidity]

7. well no, the government would only take half of

your income above some threshold. That would never be half your income, although if you made millions in your good year, and the threshold was low enough, it might as well be half your income. But then again if you make 10,000,000, a tax of 5,000,000 is not unreasonable.

Once upon a time, until shortly after that asshole Reagan was elected, the tax code adjusted for people with an exceptionally good year by letting you do "income averaging". That was back when the tax code was actually pretty fair for working middle-class families. Now thanks to rightwing world, we are all paying at the same rate as Warren Buffet, only he gets to exempt piles of loot from income taxes entirely, paying at the much lower capital gains rate instead.

[badtoworse]

9. I'm well aware that the 50% would apply only to marginal income.

The idea is particularly unfair as it relates to capital gains. The government gets 50% of my gains in a good year, but if I lose money, I get no deduction? Pretty good deal for the government!

Even now, taxing 100% of the gain in the year it is realized, but only allowing a $3,000 deuction on losses (with carry forwards) is not fair. I can live with it because capital gains are taxed at a lower rate. Tax capital gains as earned income and a limit on the capital loss deduction would be very unfair.

[Warren Stupidity]

11. well I completely agree that flat tax schemes are bullshit.

but I have no problem at all with taxing capital gains at the same rate as earned income. Of course you should also be able to deduct any losses with no cap. And income averaging should be resurrected, along with a lot more brackets and a much higher top marginal tax rate. The system we had circa 1980 was actually pretty damn fair. And then we got 30 years of bullshitty neolib plundering.

[Romulox]

8. LOL. Like one DUer told me: "It's bigotry--against the RICH!". nt

[bemildred]

10. From those to whom much is given, much is asked in return.

Progressive taxation and confiscatory estate/gift taxes is where it's at, if you want a vibrant economy and society rather than an "ownership economy" and a feudal society.

[Volaris]

12. isn't there a way to define the difference between income and wages?

Wages being money earned in exchange for a person's labor, and income being money earned form things like business ownership/investment, inheritance, lottery/casino winnings, etc.?
and NOT tax wages until a certain threshold is reached (say $100,000/per year) and let business owners and CEO's pay themselves a WAGE at whatever the want, but AFTER the threshold is reached, we tax it on a PROGRESSIVE scale, so that the those who make out like bandits and are actually BILLIONAIRES pay a top tax rate of like, 75-80%, but if you are only making 10,000/year over the threshold, it's taxed at like 15%...

Just asking, I haven't had an Econ. class yet....

[Egalitariat]

13. And we could win the presidency and most congressional seats without the vote of a single taxpayer

It will eliminate tax discussions from campaigns.