Time to revisit a modified flat tax?

[thesquanderer]

In presidential campaigns of the past, out-of-the-mainstream candidates Jerry Brown on the left and Steve Forbes on the right had unexpected moments in the sun, largely due to their promotion of some variant of a flat tax. If Obama wants to do something bold with U.S. economic policy, this could be a real opportunity.

The key thing about some version of a flat tax isn't the flatness per se, it's the elimination of tax breaks (i.e. deductions).

Tax breaks are what make ostensibly more progressive schemes (like the current one) actually less progressive, because they provide so many ways for the wealthy to pay a lower effective rate than the non-wealthy.

Tax breaks are perhaps the biggest driver of corruption in our system, as so many lobbyist efforts and campaign dollars are ultimately targeted at getting preferential tax treatment for some company or industry.

Tax breaks are what make people (correctly) think our system is fundamentally unfair, as it is filled with loopholes for those of means.

So let's say personal income tax was a flat 15%, with, say, the first $20,000 of income not taxed at all. (The actual figure of how much would not be taxed is a variable I'll get back to, but for now, I'm just using this for illustration.) No deductions. And let's similarly make the corporate tax rate also a flat 15%, but taxed from dollar one, where corporations would pay that tax on all income except they would not pay income tax on money paid out to employees, contractors, or stockholders (all of whom would get W2 or 1099 forms and pay tax on that money themselves); and the companies would not pay income tax on money paid out to suppliers for inventory that they either sell or incorporate into the manufacturing of an item that they sell. No other business deductions.

Deduction elimination sounds conceptually painful for many people and companies, but if you only pay 15%, deductions are not "worth" so much anyway. It is ultimately a good trade-off for creating a more fair and less corrupt (and corruptible) system; and it is still somewhat progressive, arguably more than today's system once you factor in deductions, since income below a certain threshold is not taxed at all.

For now, the amount of income that is not taxed (which I arbitrarily pegged at $20k above) could be adjusted to whatever number makes the system revenue-neutral with the current scheme... because the only plans of ANY type that could possibly get Republican support today must be revenue-neutral on the income side. In the future, since there are no deductions or subsidies to play with and no "loopholes" to close, the only ways to adjust the plan are simply to alter the level at which tax kicks in, alter the 15% to some other figure, or at some future date, perhaps add a surtax on personal incomes over $250k or whatever. But no matter what, a great step will have been taken toward a more fair and less corrupt system. That might not have been Obama's initial goal in these negotiations, but it would be a very positive outcome.

It is an idea that has been shown to be popular with democrats, republicans, and voters. Republicans even get a version of their wish to tax all corporate income at the 15% capital gains rate. Of course they would rather not give up deductions to get it, but it is a negotiation after all. If it were revenue neutral, it would be a tough policy to argue against. It doesn't immediately solve the problem of adjusting revenues and expenditures, but the two parties are too far apart to properly address that anyway, and in the future, at least it could be adjusted from a more comprehensible, more fair, and less corrupt system from the start.

[Warren Stupidity]

1. I think this is rightwing bullshit, but that's just me.

1) it isn't 15% it is 15% + FICA - or are you proposing to scrap social security and medicare too?
2) A person at the low end being taxed at 15% is paying that rate on money desperately needed to make ends meet, a billionaire is paying the same rate on money not needed at all - the marginal value of your income decreases as your income increases, which is why a progressive tax system makes a whole lot of sense.
3) what'cha gonna cut, buster? You've reduced federal revenue by once again lowering taxes on those most able to pay them, so what are you going to cut from the budget?

Income tax loopholes for the wealthy are insignificant these days. Instead the rich have bought the government and voted themselves above board tax cuts - massive tax cuts - over the last 30 years. Proposals to further lower the rates on billionaires are absurd and disgusting.

[thesquanderer]

4. answering your questions

Thanks for your questions.

1. FICA is its own system and should be maintained, but the "cap" of how much income is subject to FICA should be raised. I don't see that happening in the current climate, though.

2. By not taxing the first $20k or whatever, the modified flat tax is still progressive (that's why it's called modified). Even though there's a single rate of 15%, someone earning $20k pays zero; someone earning $30k is paying 5% (i.e. only paying 15% on the amount of earnings over $20k); someone earning $40k is actually paying 10%, and so forth. Progressive doesn't simply come from having different rates, it can also come from exempting the first chunk of income.

3. No, as I said, the non-taxable level (postulated above at $20k) would actually have to be adjusted to be revenue neutral to the current system, so the system is not, as you say, reducing federal revenue. Whether the cut-off is $20k or $18k or $23k or for that matter, whether the universal rate above that amount needs to be 15%, 14% or 16% is all in detail that could be adjusted, I'm really just illustrating the concept. (And perhaps not so well!) Ultimately, such a system should be adjusted to *increase* revenue (as I mentioned, a surtax on higher income earners could be employed toward that end and to increase progressivity), but it needs to start somewhere, and with something that could appeal to a reasonable percentage of both democrats and republicans, as such a plan has in the past.

4. (although you didn't number it as such) -- It's not really a "proposal to further lower the rates on billionaires." As has been widely reported, due to all the tax breaks of various sorts, CEOs often pay a LOWER rate than their employees, despite a rate that looks higher on paper, but "no one pays." This plan prevents that from happening. On paper at first glance, a modified flat tax looks less progressive than our current system, but in practice, our current system is not really nearly as progressive as it seems. You have to look at all the details.

[thesquanderer]

12. correction

whoops...

someone earning $40k under this plan would actually be paying 7.5% (not 10% as I mistakenly typed above). Zero on the first $20k, 15% on the next $20k, means 7.5% effective total tax rate.

(I went to correct it in place, but the time period for editing had expired)

[thesquanderer]

6. FICA...

...actually, I'm not sure how FICA plays into it. I don't know how accurate the numbers are, but I saw somewhere that a something-teen modified flat tax with no deductions might bring in enough money that such a plan could absorb the function of FICA as well. There's a positive there, in that FICA is largely regressive; but also a negative in that the current FICA system ostensibly keeps Social Security funded no matter what. (Where's Al Gore's lockbox when we need it??)

Maybe the best approach would be to keep FICA, and use that to create an even larger initial exemption from personal income tax. For instance, a combination of FICA as it stands with a 15% flat tax that fully exempts the first $40k or $50k of personal income, if it brought enough money, would make the flat tax that much more progressive.

[Mimosa]

17. Totally agree

The whole tax code has been carefully crafted to help special interests and the wealthy. Politicians get rich depending on how well they serve the rich.

[Honeycombe8]

46. It's disproportionately unfair to the lower income earners, AND lobbyists won't allow it.

Lobbyists own Washington. They get big bucks from tax dollars through incentives and deductions for investments, etc. They will never allow the removal of those incentives and deductions.

Secondly, there is already, for the poor, no or almost no taxes for the first $20K of income. A lot of people earn ONLY $20k, remember.

The poor and lower middle class have no deductions. So they basically already pay a flat tax rate.

Also,there is a reason for SOME deductions. The government wants to encourage some activities, like buy hybrid cars or other green technology. This is how burgeoning businesses, which are good for the country, get off the ground. We wouldn't have hybrid and electric cars now, were it not for tax incentives.

Oh, and let's not forget the religious and other charitable organizations. They'll form a full-out assault against anyone who dares to touch charitable deductions.

If you're suggesting that everyone pay the same flat rate, well, you know that's unfair. 15% to a low income earner is worth far more than 15% to a wealthy person. 15% of a wealthy person's income comes out of expendable income. 15% of a lower middle class person's income comes from $$$ needed for necessities. In order to make it fair, then we're back to a progressive tax rate.

So, you see why a flat tax will never happen? It's not good for anyone...absolutely anyone...except the wealthy (whether they're people or companies).

[thesquanderer]

53. yes, modified flat means modified to make it progressive

re: "If you're suggesting that everyone pay the same flat rate, well, you know that's unfair. 15% to a low income earner is worth far more than 15% to a wealthy person. 15% of a wealthy person's income comes out of expendable income. 15% of a lower middle class person's income comes from $$$ needed for necessities. In order to make it fair, then we're back to a progressive tax rate."

Yes, as I've been saying, I do want it to be progressive, and in message 37 I clarified the three progressive elements of the plan. The key to the "flat" aspect is to eliminate the tax breaks that allow the wealthy to pay less than their actual rates, to the point of even paying a lower rate than their employees. And if you don't tax the first $20k, $30k, $40k, whatever, even an otherwise identical rate becomes progressive. (Sorry to be repetitious, but the same criticisms prompt the same answers.)

As for wanting the government to use the tax structure to encourage particular activities, I addressed that in message 29. I understand the other side as well, and it's a point where we may simply agree to disagree. Thanks for the thoughtful response, though.

[thesquanderer]

61. details...

re: "The poor and lower middle class have no deductions. "

Actually, they do. Everyone gets certain deductions (for dependents, charitable contributions...). But wealthy people have a lot more.

re: "Also,there is a reason for SOME deductions. The government wants to encourage some activities"

A number of people have mentioned that, and I addressed it in message 29. I understand the position, but I think using taxes to manipulate people's behaviors, despite often laudable goals, overall does more harm than good, for reasons I explained in that message.. But I understand that many feel otherwise.

re: "If you're suggesting that everyone pay the same flat rate, well, you know that's unfair. 15% to a low income earner is worth far more than 15% to a wealthy person. 15% of a wealthy person's income comes out of expendable income. 15% of a lower middle class person's income comes from $$$ needed for necessities. In order to make it fair, then we're back to a progressive tax rate."

As I said in the OP and repeated to many people who said the same thing (does ANYBODY actually read the posts before replying? ;-) ) -- the flat rate I described is modified to make it progressive, primarily by not taxing the first $20k (or more) of an individual's income. So even someone who makes $40k actually only pays 7.5%, since he's only paying 15% on the amount over $20k. Hence, progressive. It is also progressive in other ways, further described in message 37.

[Cosmocat]

2. Just another marketing concept

meant to have the middle class WILLINGLY take on more of the burden from the ultra wealthy.

It does not even come close to passing the initial common sense test.

I get partisan Rs and "libertarians" buying this BS, but not anyone with the first lick of sense.

[thesquanderer]

7. the middle class does not pay more this way...

...because the current system means the wealthy often pay so little, regardless of their ostensibly higher marginal tax rate.

You can't fix the current system one loophole at a time, because each line of each page of the huge tax code has its constituency. You need to throw it all out and start again.

The problem with "the initial common sense" response is that you have to at least give some thought to the details, and how the outcome compares to what we have now, before making a determination. The current system, largely "progressive" only on paper, is essentially corrupt by design.

But I understand there are certain "buzzwords" which cause many liberals to recoil from the mere mention of the word, regardless of the context and the detail, and "flat tax" may fall into that category. So maybe it needs to be called something else. ;-)

[Cosmocat]

15. Wrong ... by a mile ...

The clowns selling "fair tax" or "flat tax" schemes ALWAYS undersell the rate.

The schemes cut the top rate even more than it is now, and to make up the difference you have jack the rates up even higher.

The lower your income, the greater percentage of your income you use on the items that are taxed.

Sorry, the BS meter blows off on these concepts.

You people keep packaging up the same BS and calling it something new, and sadly sometimes get traction with it. You recoil at trickle down economics being called trickledown economics.

If you gotta figure out how to call something you are trying to pitch something new, what you are selling is shiite.

[thesquanderer]

16. you're mixing up two things

Your response has nothing to do with my post. When you say "The lower your income, the greater percentage of your income you use on the items that are taxed" you're providing the common argument against a sales tax. That's not at all an argument against any variant of income tax, which is the topic here. Your comment is a non sequitur.

Also, I am not endorsing "trickle down" in any sense. You seem to be assuming that a lower top rate means that wealthy people will pay less, but you're missing the point that wealthy people do not actually pay the top rates today because of all the tax breaks available to them, that's part of what this kind of plan is designed to address.

[Cosmocat]

23. They are both scams ...

and they get flipped and flopped depending on what goal posts are being moved to try to get the rich out of paying more taxes ...

The new repackaging of the crape you seem to be pushing now is the "flattening and broadening" scam - which, not surprising, includes closing the deductions the middle class is most reliant on - children, mortgages, ect ... while maintaining the disasterous cuts to the top rate/investments AND in fact lowering the top rate.

Just more horsecrap to sell lowering the top rates.

Look - you want to buy having yourself screwed so the rich can continue to have their tax rates dropped, enjoy yourself.

But, don't be doing your prototypical arrogant, self entitled, intellectual elitist you just don't understand the greatness of how you should bend over and get anally screwed to give the rich more tax breaks crap.

[Honeycombe8]

47. You're not listening. When two people pay the same rate on anything...

whether it's income or sales, it hits the poorer person harder.

You seem to be saying, well, they're both paying 15% of INCOME, so it's proportional. Yes, it's proportional. But since I guess you've never been poor, you don't seem to understand that that doesn't matter, in teh case of a flat tax.

When someone makes, say, $30k a year, and pays 15% in income tax, that 15% comes out of money needed for necessities. 15% is a hard hit for someone who barely scrapes by.

15% for someone earning $250K a year is not such a hard hit, since 15% comes out of expendable income (if it's not expendable, then that means the person is what we call overextended...spending above his means).

When those two people go to the store and see towels on sale for $2.00 each...they both may say, what a deal! But the poor person has to think, do I have the $$$ to buy that towel? And if I do, does buying the towel mean that I won't be able to buy some food or medicine or my rent? But the wealthy person need only consider whether he should get another towel, since he has expendable income.

The AMOUNT of income someone has is critical to the tax system. Only a progressive tax system is fair. Now, it can be flat in the sense that there are no deductions allowed (that'll never happen, btw...too many powers that be will see to that), as long as the "flat" tax gradually increases, along with amount of income.

So we're back to a progressive tax rate, in order to be fair. It's the IMPACT of the tax rate that you are not considering. Take 15% to someone earning $30k....what percentage is equal to that IMPACT for someone earning $250k, do you think? Remember...you have to get to the point where the $250k earning has to reach into his earnings that he needs for necessities, in order for the IMPACT to be the same. That is not the case now, and it would not be the case with a flat tax rate.

So a flat tax wouldn't help anyone, except the wealthy.

You keep harping on doing away with deductions. Fine. Do that. But you can do that w/o going to a flat tax rate.

But no matter. We'll never have a flat tax rate in this country.

[thesquanderer]

50. True, but you ignored the "modified" part

Everything you said about the flat tax is true, but you are the one who wasn't listening because you left out is the "modified" part I mentioned, that the first $20k (as an example figure) will not get taxed at all.

So when you said "When someone makes, say, $30k a year, and pays 15% in income tax..." you ignored the fact that, if the first $20k isn't taxed, the net result of the 15% rate on a $30k income is an effective rate tax of 5%, because he's only paying tax on $10k of his $30k income.

I agree that there needs to be progressivity in the system. As I said in message 37, there are three progressive elements to what I proposed, and that is one of them.

Also as I said, the figures were for illustration. Maybe $20k isn't the right cut off, maybe it could be $30k, $40k, or even $50k (depending on whether or not the system is also used to displace FICA, among other things); and maybe the 15% should be a point or two or three different. And adding an effective higher marginal rate for high income earners via a surtax is fine too, though would not be politically viable with the current level of Republican control, so that would be something that could be added later.

The important point isn't the flatness (I already talked about modifying it so it isn't truly flat), the important point is cleaning it up so that the inherent unfairness and corruptness of a deduction-based system is eliminated.That is the real benefit of a no-deduction modified flat plan. In a sense, the flattest aspect isn't the rate (which effectively can vary, as I've shown), it's the fact that people actually pay the posted rate, and lose the ability to manipulate their way out of it.

[Honeycombe8]

57. I see. That's better...as long as a wealthy person doesn't get the "first $20K no tax" benefit.

That merely extends the disproportionate impact of the tax rate.

I would like there to be a lower rate and no deductions. But I truly believe that if we did away with deductions, the rate wouldn't be that much lower, and would gradually increase, anyway. So that we'd end up paying the same rate eventually...with no deductions.

And then there's the country's interest in encouraging and discouraging certain activities through incentives (deductions and credits). The country does have a real interest in doing that. Encouraging home ownership, for instance. Encouraging buying green products for your house, or buying a green car. It saves the country in power useage. It also spurs small businesses, which creates more revenue. Then there are the lobbyists who control Washington and would put all their power to bear against doing away with deductions and credits that help them.

I haven't even mentioned the HUGE religious impact that removing charitable donation deductions would have.

I just don't see this happening. Maybe removing some deductions is what will happen. But nothing like what you're describing will EVER happen. The country is controlled, now, by corporations and mega wealthy people. They simply won't allow it. They'd like a flat tax, I'm sure. But they'd have to have a pretty low flat tax rate in order to go along with removing their precious deductions/credits and other tax benefits.

Consider that Exxon, one of the wealthiest companies in the world, paid ZERO taxes in the U.S. last year, after credits/deductions and other tax benefits. That's a heck of a lot better than a flat tax rate. I'm betting Exxon won't go along with removing their tax benefits.

[canoeist52]

3. No sale. nt.

[lonestarlib]

5. no

[bigwillq]

8. No (nt)

[cheapdate]

9. Holy shit, that seems to make sense. n/t

[thesquanderer]

10. Thank you! That's one. :-) (n/t)

[Creideiki]

56. Yes it does. To most Republicans

and people who don't understand economics, tax theory, consumer-driven paradigms...at an 8th grade level.

[dwilso40641]

11. No N/T

[golfguru]

13. Even formerly communist Russia now has flat tax! n/t

[Creideiki]

55. And somehow a bigger wealth disparity than us!

Wow! What a grand idea! We can have 200 families with 95% of all the wealth in the country while the lower 99.8% scramble for the scraps!

How...progressive.

[yurbud]

14. this is what would happen: deductions would be eliminated briefly or not at all and the wealthy...

Would end up paying less than they do now. Isn't that what happened when the ''simplified'' the tax code in the 80's?

[golfguru]

19. What will the rich do with all that excess money?

[yurbud]

21. paper the walls, wipe their ass, burn it, then repeat over and over and over again until its gone

in about ten generations.

[golfguru]

24. Nah, they will invest it

and get richer. They will own more Apple stock. You can't keep these suckers down. How many rich people do you know who are being hurt by this long recession? My guess is lot less than middle class.

[yurbud]

26. most are making even more money off of it, betting on failure

[Fearless]

18. No. Ever. Period.

[golfguru]

20. Flat tax will put tax lawyer Bachmann out of business!

[quaker bill]

22. no, bad idea

'fair' taxers and flat taxers suffer with the confusion inherent in the belief that the tax code is only about raising revenue.

[thesquanderer]

29. Interesting point

You're right, I do see the tax code as being for the purpose of raising revenues to pay for services. And I do understand the "other side," that the tax code can also be used to influence people's behaviors to produce desired outcomes. In principle, I can accept that as well, but in practice, (a) allowing these kinds of tax code manipulations is part of what opens the whole system up to corruption and abuse, (b) how desirable we find the "desired outcomes" tends to vary with which party is in power which is a recipe for all kinds of troubles, and (c) any tax manipulation designed for the purpose of social engineering has a significant risk of provoking the law of unintended consequences.

But yes, if you're married to the idea of a tax code that intentionally manipulates people's behavior to do things they might not otherwise do, then the idea of going with any kind of system that basically eliminates tax breaks is simply going to be incompatible with your goals; and I think then you just need to accept a system that will be rife with abuse and corruption, and that the party in power may have different ideas than you do about what consumer behavior should be encouraged. The question then is whether the good outweighs the bad in such a system, and you and I may simply disagree there.

Thanks for bringing a different and relevant perspective into the conversation, Bill, and for keeping it civil!

[quaker bill]

35. Monetary theory

indicates that raising revenue is the smallest and least significant purpose of any tax code. This is even more true when the tax code in play is created by a soveriegn issuer of a fiat currency. A "fair" or "flat" tax code manipulates the economy no less than any other tax code, it just manipulates it in a different direction. No system, regardless of how construed, is free of corrupting influences. Unintended consequences are a basic property of all legislation. A basic principle that is rarely violated runs that 1/2 of any legislative session is spent undoing the unintended consequences of the last legislative session.

In a democracy, the people place a tax burden on themselves. This tax burden moderates growth and inflation by removing purchasing power from the private sector, which is then replaced by public sector purchasing power. In a defict situation, purchasing power in the economy is increased as public sector purchasing power added is greater than the private sector purchasing power removed by taxation. In a surplus revenue situation the opposite result pertains in that aggregate purchasing power is decreased through the net destruction of assets. Another means purchasing power is reduced is through aggregate savings. Privately held savings are funds removed from circulation in the economy.

All government action is social engineering. A "flat" or "fair" tax is no less a feat of social engineering than any other choice. Under such a system the disparity in income and wealth will continue to increase, and perhaps accelerate. This is a social experiment and unfortunately one that has already been run with truly unfavorable results. In a situation where labor was truly organized as an effective countervailing economic force, demands for better wage and benefit concessions from management might rebalance the equation, but no such situation exists here at this time. In the absence of this force, a truly progressive tax code is the only mechanism capable of rebalancing wealth distribution to an optimal curve. The balance of wealth distribution is in fact more important than overall productivity in terms of GDP. A vast sum of wealth in very few hands does not make for a productive society, as a person only needs so many Ferraris...

[thesquanderer]

37. Good points

More good perspective, Bill.

And you are right that every decision manipulates the economy in some fashion, even if it is to a lesser extent. (It reminds me of the saying that even choosing not to choose is still a choice. You can't get away from your actions or inactions having consequences.)

I still think the *primary* purpose of tax is to pay for services. If nothing else, while one could argue about whether a tax should do this or that, the fact remains that, without taxes, roads don't get built. If there was no need for the government to do anything, it would be hard for the government to justify an income tax at all, don't you think? I mean, regardless of what else you might want a tax to accomplish.

I do agree that the tax code should be progressive. As I tried to point out, what I was discussing is progressive, despite it's "flat tax" foundation: First, by exempting $20k of income (perhaps more). Second by eliminating deductions that allow wealthy people to take a 35% rate that looks progressive on paper and effectively reduce it to where they are paying a lower rate than the far less well off people who work for them (in that sense, our current system is not really very progressive at all, and it amazes me that people defend it as properly progressive as opposed to what I suggested). And third, by suggesting the addition--when political realties permit--of a surtax that effectively increases the rate on people with more than a certain level of income.

[quaker bill]

49. You are correct in many respects

the system as currently construed creates economic distortions. First, it massively favors passive capital gains over profits from labor and creative efforts. This has created an economy where the GDP is increasingly composed of financial transactions as opposed to labor and production. The mistaken intent was to reward folks who took risks, built successful businesses, and eventually sold them. However it is been generally faster, more profitable, and generally far less risky to speculate in financial instruments (until recently). By reducing the tax margin on such transactions, the threshold for profitability and the increased extent of profitability make this line of work vastly favored. A brick and mortar proposition that employs people has to be potentially profitable very quickly and in an extreme manner to compete.

It took addled minds stuck in a 19th century frame of reference to fail to predict this outcome. Back then, unless you owned a seat on the exchange, it was more or less impossible to engage in this sort of financial speculation in a remotely proficient way, now anyone can to this anywhere using their smartphone or desktop machine. Pre Great Depression, the path to real wealth most frequently involved building a business empire that employed 10's of thousands of people. The concept in supply-side-ism was that given the cash, people would again behave as they did 100+ years ago. This has been a totally out of context notion that has predictably produced the only result one would expect in current context. The deformed tax policy that allows Warren Buffet to pay a lower rate than his secretary arose from this poorly considered idea. A flat tax does not cure this problem, though it might help a bit.

What we actually need is a tax code that makes financial speculation less potentially profitable than building a real business. One must consider that building a business is slow and generally only becomes truly profitable over the course of years, so the tax rate for business profits must be markedly lower than that applied to passive capital gains, not just equal or flat. This will begin to cure the economic distortion created by 30 years of bad policy.

As far as taxes being necessary to fund services, this is only true at some level, it is entirely true at the state and local level and only partially true at the federal level. There is a point at the federal level where if the tax burden was consistently low and spending consistently high, aggregate purchasing power in the fiat currency would at some point grow to exceed the supply of goods and services available resulting in inflation. We are in fact currently spending more than twice as much money as we collect in revenue at the federal level, and if sustained this will eventually become a problem. However revenue is not as big a problem as most conclude in the current debate. Most of the problem results from an unfortunately skewed wealth distribution curve, which is the product of intentional and very poorly considered tax policy that was adopted with absurd, nostalgic, and romantic notions in mind.

It is not so much corruption, as it is bad economic and social philosophy that has taken us to this place. It is a most carefully deduced philosophy that originates in a false apriori concept. Attempts to substitute a lack of philosophy for mistaken philosophy might give the appearance of improvement, but it isn't, the dysfunctional pattern has already been set in place and must be actively removed.

[thesquanderer]

52. Thanks for the thoughtful post

Lots of good perspective there.

Of course the wealthy want to do exactly the opposite of what you suggest... not only don't they want capital gains taxed higher than traditional business profits, they want the capital gains tax eliminated entirely! Though again, while I do understand the foundation for wanting to treat capital gains differently, as I've said, my inclination is to want to create as little behavior-engineering into the tax code as possible, so I'd still be quite content with all types of income being taxed equally.

I agree that there has been a lot of "bad economic and social philosophy that has taken us to this place." But I think the corruption endemic to the system is equally problematic. One of the best "campaign finance reforms" would be to eliminate a tax code that invites catering to the special interests who are financing campaigns.

[quaker bill]

63. We will agree to disagree then

A flat or "fair" tax is behavior engineering just as much as any other plan. It will favor short term profits over long term investment, just a bit less than the current system. Because it is not progressive, it will allow the disparity in wealth and income to continue to expand, though perhaps at a slightly lower rate than the current system.

Fixing this mess will require an active approach. At some point, once the economic distortions are fixed, a simpler system could be appropriate. At this point, a flat tax leaves the results of decades of bad policy in place. It is not a good choice at this time.

[BlueMTexpat]

25. No. nt

[FormerDittoHead]

27. Only if we had a FLAT WEALTH TAX TOO. Otherwise this is bullshit. n/t

[Jakes Progress]

28. Ohh. You just made grover norquist come.

[Leontius]

30. Flat tax no, simple tax yes

Five rates, only one deduction, all income types taxed at same rate.

[thesquanderer]

31. What's your one deduction? (n/t)

[Leontius]

33. Something along the lines of the

fed poverty guideline for family of 4 so first $22,500 would be exempt.

[WAFS]

64. Agree

Your example is probably the most fair system, outside of no taxes at all.

[grantcart]

32. No that was 1913.

[newportdadde]

34. Ask yourself who is always asking for a flat tax... its assholes like Forbes.

If a millionaire is telling you how great something will be for you, go ahead and get out the lube.

[wizstars]

36. Not only no, HELL, NO!!!!

I said "HELL, NO!!!!"

[mac56]

39. +1

[bhikkhu]

38. Because everything else is getting done so well?

Basically we have a modified flat-tax - its a flat tax modified by your ability to pay - more tax on high incomes, less on low incomes. What part of that needs modified?

[thesquanderer]

40. the tax breaks

re: "What part of that needs modified?"

the tax breaks that effectively take out much of the progressivity by creating a bunch of higher marginal rates that people don't necessarily pay.

A tax of 15% on virtually all of a half million dollar income that actually stays at 15% is arguably more progressive than a 35% marginal tax rate which deductions and tax breaks reduce to something that can be far less than 15%.

I've essentially been accused here of having the wool pulled over my eyes by the wealthy... but I think it's some of the people who defend the current "progressive" system who may be having the wool pulled over their eyes by the wealthy. The wealthy make out very well indeed under the current system of "campaign contributions for preferential tax treatment" that many people here seem to find preferable, as long as they see that big 35% or larger number at the top of the chart, regardless of what people are actually paying.

[quakerboy]

41. How about an unmodified flat tax, and no corporate taxes

0% corporate tax, and in return corporations lose all legal standing as persons with any form of civil rights.

Then an unmodified flat tax. All personal income, regardless of source.

Say, 65%.

With Universal health care, and a system that provides a monthly housing stipend and a monthly food stipend to each and every citizen. Enough to rent a modest apartment and eat a healthy diet.

That's a flat tax I can get behind.

[thesquanderer]

43. 0% corporate tax is a horrible idea

With a 0% corporate tax, many people would be able to form corporations-of-one, set themselves up as subcontractors, and never have to pay any income tax. It would become a huge tax dodge.

As for the rest, I'm afraid I can't go with that either. I don't think we need a system that supplies monthly stipends to each and every citizen (Bill Gates certainly doesn't need it), and a 65% tax from dollar one provides very little incentive for many people to work (since they get their housing and food stipend regardless). I mean, if you're going to be living in the same apartment and eating the same food regardless, would you rather do what you want all week, or work at McDonald's for 40 hours to get merely $100 in your pocket? I admire your general goal, but I think the implementation is problematic...

[quakerboy]

44. I think you are wrong

It wouldn't matter if they were "subcontractors". If they had personal income, regardless of source, it would be taxed (benefits and perks are income, in my opinion). No dodges. If they leave it in the company, fine ok. Business needs capitol to grow, Or so I hear. But when they take it out, pay it to their "subcontractor" self, tax.

As for the rest... Who is satisfied with food and shelter? I suspect that only people who are desperate and need food and shelter would be satisfied with just food and shelter and health care. People with the ability to work and get that extra hundred a week can get an X-box. Or a car. Or Cable TV. Or whatever else they want. Plus they get to know they are contributing. I think that it is a Republican smear on the working poor that leads us to believe that they would all just up and quit and never work again if they could get away with it.

But even if that were the truth, I think our current job market tells us exactly how overstaffed we really are as a nation. we don't need 300 million workers at 40 hours a week to accomplish the work that needs done to keep our society running comfortably. Why should the rich be the only ones to benefit by the reduction in man hours needed to produce/accomplish that our modern technology has provided?

As to the Bill Gates comment: if everyone gets it, its "fair". The amount of cost to provide Bill Gates (and every other billionaire) with a monthly stipend is well worth it to have it be a universal social program, not a "welfare" program. Everyone pays their equal, fair, flat 65%, everyone gets their equal stipend for living essentials.

[thesquanderer]

45. I'm not sure that works, QB

I agree that people are not typically satisfied with food and shelter... but that 65% tax from the start means so little extra money for so much more work, it may be hard to tempt people into entry jobs. At least today, they keep most of their (still small) earnings, and can still qualify for various kinds of food and housing assistance if necessary. And think of all the 18-20ish people living "at home" with little to no food and housing expenses as it is. I think many of them would turn their nose up at going to work for a net of $100 a week. You mentioned getting a car... even if they got a car for free, that wouldn't even pay the insurance and gas. Instead, I think a 65% tax would lead to a huge "underground" economy of unreported income.

But you do allude to an interesting point, in the "overstaffed" remark, that not working should not necessarily be seen as a fatal character flaw! Whether it is in society's interest to promote that idea is another topic, though...

Back to your top point... the problem is that, if a person sets himself up as a one person corporation, the distinction between personal income and "what they leave in the company" becomes very blurry. The person will take out only what he needs to spend on non-business items. With a 0% corporate tax rate, all "savings" would remain in the business account, perpetually tax free.

[quakerboy]

48. I am sure that a 15% flat tax does not work

And I am sure that our current system is very broken as well.

Right now I think many people are spending more than 65% on the combo of Taxes, housing, food, and healthcare. Reduce those costs to a set 65%, and they gain disposable income. Not lose.

I think you underestimate the 18-20 crowd. I bet most of them would rather move out than stay with parents. There is a lack of jobs for them. And if they move out, Moms car is not there, Dads big screen is not there, Etc. You have to supply your own. And the only way to do that is work.

In the end, I think that people want to be productive, want to participate in making our nation great. But its awful hard to want to do that if your option is Albertsons checker, knowing that you could easily be replaced with a u-scan machine, or Mcdonalds order taker, again knowing you can be replaced by a touch screen. Doubly so when those jobs do not cover the basics to begin with.

As to whether it is to society's benefit.. I think that we could probably cover all the man hours if we let people retire at 60, reduced to a standard 30 hour week(maybe less) and increased standard vacations across the board. I think we would benefit in happier, healthier people, in stronger families, and financially in much higher employment rates. I don't think we should encourage people not to work. But I do not feel that the rich, the corporate higher ups, should be the ONLY ones to benefit from the fact it only takes 7 farmers to feed a thousand people instead of 100 farmers, and the fact that a plant can turn out 30 cars a day instead of 3(and with a smaller workforce). But that is the way things are now.

Again, With the corporate thing.. Ok. But in the end it still works. It ends up taxed eventually. When they want to buy a boat, they gotta take money out, and its taxable as income to them. A house? the same. Christmas presents for the family? gotta take out money, and get taxed. It works especially well if we go back to limiting corporations. That's why I added that bit on my first response. Make them nonpersons, and you can go back to limiting them to existing for a set purpose for a set time. And then they have to dissolve. Turning into income for the owners.

[thesquanderer]

51. mixed feelings about that

re: "Right now I think many people are spending more than 65% on the combo of Taxes, housing, food, and healthcare. Reduce those costs to a set 65%, and they gain disposable income. Not lose. "

That's an interesting hypothesis. It may or may not be true, but I think there is also a psychological factor to consider, about the sense of wanting to "keep what I earn" regardless of what services the government is providing, and I think that will be a hard sell at 65%.

As long as we're talking about things that won't happen ;-) what might be an interesting variant is to let people buy into such a system. A person could voluntarily agree that they will pay a 65% tax for the next 20 years or whatever, in exchange for entry into the assured quality housing/food/healthcare plan. They immediately get a high level of security, in exchange for agreeing to pay into that system for a long period of time regardless of whether or not they will still need those subsidies or how much they start to earn. I'm not saying I endorse any of this, but it is interesting. I still tend to feel that any such high rate is going to do too much to encourage an "underground" economy.


re: "I think that we could probably cover all the man hours if we let people retire at 60, reduced to a standard 30 hour week(maybe less) and increased standard vacations across the board. I think we would benefit in happier, healthier people, in stronger families, and financially in much higher employment rates."

I don't know the economics of that, but in principle, it makes sense to me.


re: "Again, With the corporate thing.. Ok. But in the end it still works. It ends up taxed eventually. When they want to buy a boat, they gotta take money out, and its taxable as income to them. A house? the same. Christmas presents for the family? gotta take out money, and get taxed."

The problem is that wealthy people can't spend their money fast enough. ;-) Seriously, they don't spend it all, they save most of it. (Putting it into investment vehicles is still saving it, even if they are putting it at some risk.) They do not ever "gotta take the money out." There are only so many houses even John McCain needs to buy. By setting up a 0% corporate rate, you're making it too easy for an awful lot of people to not pay any tax except on the money they use to actually buy things... it turns the whole idea into a sideways version of a regressive national sales tax.

[quakerboy]

58. I do to, but If one is going to

approach a flat tax, i think it is the fairest option. And I am enjoying this conversation a lot.

The problem is that 15% flat with no deductions is a hardship for the guy making $9,436 a year, but not even noticeable for someone like Paris Hilton. And I do not believe it provides the needed financing for the government. So I set about the mental excercise of figuring out how a "fair" or flat tax could be made less regressive. The only way that I can see to do that is to increase the rate and increase the universal services.

I am curious would it make any difference In your mind if I said 50% instead of %65? The number is admittedly a hard sell. On the other hand, I think in some ways, as soon as such a thing was implemented, it would get a lot easier. People don't like paying taxes. But then people have a hard time seeing all the things that money buys. If they suddenly have a card or account printed with "your tax dollars at work" that provides shelter and food, I think that would make a psychological difference.

I do not think the buy in system would work. Paris Hilton would never buy in. And that's what makes it all work. Taking the "fair" flat tax idea, and applying it in such a way that it benefits everyone.

As to my work reduction idea... I do not know the exact numbers. But I am certain that automation and technology make this world a place where less man hours are needed to do the same work as 100 years ago. But my understanding is that adjusted for inflation, the average worker is not making as much per unit of production as they were 100 years ago. I would be interested to see an actually economist take this on and come out with calculated rather than guesstimated numbers.

I guess one key facet of my idea that I think you have missed is this: To pull a random example out of a hat, Walmart is a company that is reliant on stock boys and checkers and deli workers to make money for the company. And make money they do. If a Walmart worker could be secure in his food and housing and health, they might not want to go back right now. In that you have a point. But again, I see that as a positive. The worker has an option. Walmart needs people. If Walmart wants people to work for them so that they can stay in business, they would have to create a more friendly environment where people felt they were making enough to be worth going. Better pay, more reasonable schedules, fair labor practices. The Waltons would make less money, but that is something I can live with.

I guess, in a strange way, it gives everyone the power of being in a Union, while virtually rendering the Unions almost pointless. It puts workers in relative parity with the corporate entities. I think people want to work and be productive and feel useful. Plus people like to have nice things. make it so that they can afford it, and as long as they are offered good work at a good wage, I believe the vast majority will do it.

Finally... If a corporation has to dissolve every 20 years or so(as I understand used to be the case), then whatever they save gets taxed at least every 20 years. Totally rendering the potential issue of dodging tax that way moot. But even without that, the money is taxed at least generationally. And that is plenty enough to solve the issue on its own. No one can live forever. And there is no hurry to get the money ASAP. Give the taxman some teeth, and let him take care of the problem.

[thesquanderer]

60. corrections, etc.

re: "The problem is that 15% flat with no deductions is a hardship for the guy making $9,436 a year,"

As I said, I would not tax the first $20k (or some such number) of income. That's why it's a "modified" flat tax. Everyone gets one deduction, if you want to call it that as another poster did, i.e. the first $20k or whatever you make. So someone who makes $9,436 pays nothing. Only income over $20k or whatever is taxed.

On another point, corporations don't have to dissolve every 20 years. Most corporations that will come to the top of your head have already been around more than 20 years, I bet. Ford, IBM, Microsoft, whoever... they go on and outlive their founders. A corporation of one could be passed on to an heir, the money never has to leave the family, even when the earner dies.

I do find interesting your proposition that a high tax rate combined with a high level of government services would effectively force low-end wages to rise. I'm not sure it's true, but it's an interesting perspective.

One other thing I'd point out is that, even today, the government provides those of very limited means with subsidized housing and food stamps, without anything like a 50 or 65% tax (at least in NY, though it is admittedly a highly taxed state). Since most people earn enough to pay for housing and food as it is, I'm not sure most people would see the appeal of paying higher taxes to guarantee something better that the current help available to those who need it; especially since most people--who are able and willing to work enough to not need assistance under the current system--will not see a clear personal benefit. Will the average person who is getting by okay be willing to pay much more tax so that people who need a housing subsidy have better options than they have today? That's an awful lot of altruism, I think.

[quakerboy]

62. The problem is that breeds contempt

That's the whole thing we are dealing with now. If you make under 12k or so(dont recall exact number) you probably wont pay taxes and may actually make a little. And so the right argues, with some success in the under informed, that it is not fair, that the rich pay all the taxes, and you cant tax these job creators.

As to corporations. They currently do not have to dissolve every 20 years. But if you take away corporate person hood, we would have the opportunity to move back to a system where they do. It might be a worthy of a separate conversation, but my understanding is that back toward the founding of our country, corps were limited. They had to be created for a specific purpose, the purpose had to be acceptable to the government body regulating corps for the public good, they were accountable to that purpose and when the purpose was completed, they had to be dissolved.

As to the subsidies currently available. How many homeless people are here on DU? Maybe the best known was Bobolink(sp), but there are others who are homeless or under served. Same goes for food. There are resources available, but they are not meeting the need. And they are in great danger of being reduced in the mean time. I want it funded to the max, I want a situation where a parent never has to question whether they will be able to feed their child or keep a roof over their head. I want a world where a woman never has to stay with an abusive man just because he is the breadwinner.

I cannot think of a single area of society where it would not be a benefit, from start to end. Mothers to be who are secure give birth to healthier babies. Well fed, safely housed children learn better in school and, as I understand it, are better behaved overall. Better educated young adults make better workers and parents. Adults who know their future is secure are less stressed and healthier. Grandparents who are free from the struggle to make basic bills and vital med's can help their children and grandchildren, rather than becoming financial burdens.

I don't look at it as altruism. I think its basic fairness. Everyone contributes to society, and everyone should benefit from it. And when I look around I do not see that happening with our current system, and surely not with a flat 15%.

[Blue-Jay]

42. Time to revisit my ballsack?

[Onlooker]

54. Awful idea--It leaves the biggest loophole of all

It ignores the fact that virtually all government (not just fed) spending recycles through corporations. In other words, far more tax dollars end up benefiting corporations than individuals. Get rid of that loophole and you have, heaven forbid!, communism. The only way to create tax fairness in a capitalist country is with a progressive income tax and loopholes that promote safety, health, education, and so on. That's what we had in the Kennedy days, when the wealthy paid tax rates upwards of 70%, but there were more loopholes.

[Sherman A1]

59. NO,

[blueclown]

65. Ever heard of the alternative minimum tax (AMT)?

[dwilso40641]

66. There will

never be a time for any flat tax.

[Fearless]

67. No.

[yellowcanine]

68. "modified" flat tax is an oxymoron. Either a tax is "flat" or it isn't.

If it is "modified" it is no longer a flat tax.

Any income tax which taxes some income at one level and other income at a different level is not a flat tax.

Any truly flat tax is inherently unfair.

[ClassWarrior]

69. I never visited it in the first place.

:shrug:

NGU.