# Flat Tax

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GENIERE
Just stumbled on the fact that Russia adopted a flat tax system about two years ago. Productivity rose rapidly afterwards and now at 10% growth per year.

I reviewed Dick Armey's proposal wherein he uses a flat rate of 17% for all tax payers, but includes savings for being married, number of children, etc. As it works out, a family of four would pay no taxes if their income was less than $35,000.00 yearly. This is much better than the present$25,000.00. Since there's no itemizing, the form is the size of a postcard.

Democrats opposed this, I have no idea why.

Regards

damgo
Russia's GDP growth is around 4% now. National economics is extremely complicated, and there have been tons of economic/structural changes going on in Russia, especially since 1999, when the current growth picked up.

The problem with that proposal is -- where is the money going to come from? No such thing as a free lunch; someone's getting screwed.

Tom Mattson
Staff Emeritus
Gold Member
Originally posted by damgo
The problem with that proposal is -- where is the money going to come from? No such thing as a free lunch; someone's getting screwed. [/B]

This is a two-sided coin. On one side is taxation, and on the other side is spending. To make low taxes feasible, the government also has to spend less on socialist-type programs.

Originally posted by GENIERE
Democrats opposed this, I have no idea why.

Check the other side of the coin!

GENIERE
The article I read said Russia's GDP was 10% but even 4% these days is very good. The USA is about 1.7% now, and France about 1% I believe.

Tom - DA's proposal at 17% I believe was revenue neutral, so funding for social programs would not be hurt. Of course increasing the percent funding for those programs would be made more difficult. But with our multi-trillion dollar economy growing at 4% there'd be money to spare.

Let's see, at about 120 billion more every year - that buys a lot of social largess.

Geniere

russ_watters
Mentor
Originally posted by GENIERE
Just stumbled on the fact that Russia adopted a flat tax system about two years ago. Productivity rose rapidly afterwards and now at 10% growth per year.

Democrats opposed this, I have no idea why.
You can't assume a cause and effect there. Russia's economy has been in shambles since they tossed of communism. Its nothing for them to have 10% growth. Even at 10% growth they have a LONG way to go to have a decent economy.

And for the record, I'm a republican and I'm against the flat tax. And the thing is, very few people TRULY advocate a flat tax. A real flat tax would mean no standard deduction: the poor would pay exactly the same rate as the rich. And that rate would be pretty high - 30% or so. Thats a lot of money for someone without a lot of money. Estimeates that are much lower than that are dishonest. They hide the fact that they require a massive reduction in government spending.
This is a two-sided coin. On one side is taxation, and on the other side is spending. To make low taxes feasible, the government also has to spend less on socialist-type programs.
Yeah, advocates of a flat tax throw that in there even though its really not connected to the concept of a flat tax. If the gov't reduced spending by 50% we could drop everyone's taxes anyway.

Its a little like the hydrogen fuel crowd. Where does the electricity to make the hydrogen come from? Oh, simple, just upgrade the power grid for solar and wind power. Sure...

Njorl
If you remove the deduction for home mortgage interest, about half the people who refinanced or bought their homes in the last three years would default on their mortgage. It is inconceivable that any congressman could vote in a flat tax without this provision and be re-elected. Once this is in, it isn't a flat tax.

People have just got to get over it. Taxes are not hard to do. Sure, if you've got 3 ex-wives, $200,000 in interest and dividend income and own several small businesses it is a lot of work. Tough. You chose that life. The whole hubbub about flat taxes is to convince the middle class to raise their own taxes and lower taxes on the rich. The conservatives are trying to convince people their taxes are impossible when they take about 2 or 3 hours a year to do. They want people to pay a couple thousand dollars more to save an hour or two. I suppose this seems reasonable to the wealthy, some of whom earn a couple thousand dollars an hour. This is similar to the whole "death tax" fiasco. The wealthy duped a huge percentage of the population into thinking small businesses and farms were being destroyed by estate taxes. The effect was insignificant. But once again, good PR by the rich causes the middle class to shoot themselves in the foot. Njorl Tom Mattson Staff Emeritus Science Advisor Gold Member Originally posted by GENIERE Tom - DA's proposal at 17% I believe was revenue neutral, so funding for social programs would not be hurt. A-ha. I read Damgo's post and assumed he was right about there not being enough to go around ("someone's getting screwed"). GENIERE Yep, a true flat tax is not for the low wage earner, that’s why I referenced Dick Armey’s 17% proposal that excludes taxing low incomes, in effect doing what the Democrats want, i.e. shift the tax burden to the hi-income brackets. It does it without the class-divisiveness of the present system. It eliminates much of its inefficiencies so a dollar collected isn’t diminished as it travels through the bureaucracies. Since I had the numbers in front of me I calculated my taxes per DA’s flat tax. I would have paid more, but the rich would shoulder even more of the burden without access to the present loopholes. Remember the rich can shelter most of their income via many means with the present system. That is not possible with a flat tax. Earn$10,000,000.00, pay $1,700,000.00 period! That said; my preferred tax system would be a sales tax with basic necessities excluded. It would keep Democrats happy for years, introducing bills and debating whether a 21” color TV was a necessity as opposed to a luxurious 22” TV. Njori - The average overpayment by taxpayers who do not itemize such things as motgage payments was less than$500.00 per the GAO. It seems unlikely that half would default for lack of about 1/2 months morgage payment. Those that might are likely to be under the income level of $35,000.00/yr. who would pay no taxes. Regards Zero And, don't forget that the rich will always find ways, as now, to avooid paying whatever taxes they can. russ_watters Mentor Originally posted by Zero And, don't forget that the rich will always find ways, as now, to avooid paying whatever taxes they can. Thats why the tax code needs to be simplified (regardless of if we keep the progressive rate or go to a flat tax). Getting rid of the loopholes would fix a lot of problems. kyleb yep, i am for ought right flat tax; although i do play with the loopholes a lot while they are there. eNtRopY Originally posted by GENIERE Democrats opposed this, I have no idea why. Flat taxes always equal savings for the rich. Think about it. A tax of$17,000 for a person who makes two million dollars per year is like a tax of $170 for a person who makes$20,000 per year. That's almost like not taxing the rich at all.

As we can all see, a flat tax rate would be much more fair.

eNtRopY

Zero
Originally posted by russ_watters
Thats why the tax code needs to be simplified (regardless of if we keep the progressive rate or go to a flat tax). Getting rid of the loopholes would fix a lot of problems.

You mean like the loophole for dividends? And, I don't know about where you live, but here in North Carolina, the Republicans call any loophole closing a 'tax hike'. Talk about your lying politicians!

Zero
If you have a million dollars, and you pay a flat 20%, you are left with $800,000...your lifestyle isn't affected that much. If you only make$30,000, and you pay out $6000 in taxes, that is the difference between driving a new car and an old car, renting vs buying a place to live, etc. A flat tax hits the poor MUCH harder. kyleb oh come on, a flat tax hits everyone proportionately the same; that is the whole point. sure 20% of 30,000 means the difference between a new car and an old car, but 20% of one million means the difference between a new jet and na old jet. oh and i forgot to mention that i think taxes should be optional; but if you wasn't to be able to drive on public roads, have firemen rush to put out your blazing house, or enjoy the other services that taxes pay for then you damn well better put in your share. N_Quire Sweden probably has the highest income taxes in the world (though it's business tax is relatively low). Income tax is progressive and the minimum rate is about 30 percent and that is on all money earned. Sales tax is 25% in most cases. And yet there is widespread support in Sweden for this tax system and the welfare state that in enables. I have lived in Sweden and enjoyed such things as 1 year maternity leave (well my wife enjoyed that) on almost full pay with the job guaranteed when the mother goes back to work. As part of the package was one month's paternity leave for me. I also enjoyed generous sick pay, free or inexpensive health care. I received a grant to learn Swedish and was given free plane tickets to the college. In total over my ten years in the country I received about$50,000 in business grants in order to start my business. I did not have to pay any of this money back. I had a complicated spine operation and three months of physical therapy, all free.

I felt very generously treated in that high tax country and I did not mind paying my share towards the common good. When I earned a lot, I paid a lot. I even supported the fact the labor unions are very strong in Sweden and did a good job of protecting their members' rights. I did not mind that at least 30 cents on every dollar I eanred went to the government, which then redistributed it.

What were the downsides? There aren't as many burger flipping type jobs as in America, the economy is much more organized and labor unions have a much bigger say than in America. You don't just get on the phone or knock on doors to get a job. Nor was there the chance to earn HUGE salaries as in America. I guess too that it might feel unfair if you pay a lot of tax and are never ill, don't have kids and don't require government subsidized retraining.

Sweden, although it is considered a social-democratic country is in many ways much freer and more liberal than America. It is of course a democracy and is certainly a lot less prudish than America and religion has almost zero influence on daily life.

The standard of living in Sweden and USA is pretty comparable. But it is better to be poor in Sweden. And it is probably more fun to be rich in America.

Geniere, Russia also recently got over being a totalitarian state with a poorly and centrally-planned economy. That might just have a little something to do with their growth rate. To say that the flat tax was the cause of their growth is spinning any stats you can get your hands on in the way that you want. There are many, many factors in an economy.

The only way that a flat 17% tax rate could possilby produce the same amount of income is throught the elimination of loopholes--which are put in place and protected by the same side of the political spectrum that wants flat taxes, which tells you what their real motivation is...more money for the rich. Loopholes and flat rate/bracketed taxes are two separate issues. You can eliminate the loopholes without eliminating the tax brackets, or vice-versa (or both or neither). I am in favor of eliminating only the loopholes.

kyleb, to equate not being able to buy a new jet to not being able to buy a decent car is ludicrous. The jet guy already has more than enough money and a super-lavish lifestyle. He won't miss the jet.

kyleb
Originally posted by Dissident Dan
kyleb, to equate not being able to buy a new jet to not being able to buy a decent car is ludicrous. The jet guy already has more than enough money and a super-lavish lifestyle. He won't miss the jet.

who's this "he" you are talking about here; are you speaking in a wwjd sense?

seriously, "he" would most definitely miss the jet just like someone else would most definitely miss having a car. then again, neither of them are necessary parts of life as the fact that most people have gone without either plainly shows. we can play in the sand all day long drawing lines of what to call fair, but but that doesn't make it right. such things are matters of opinion and things tend to go a lot better when we avoid arguing over them, such as by keeping our rules simple and haveing them apply to everyone the same.

Zero
Originally posted by kyleb
seriously, "he" would most definitely miss the jet just like someone else would most definitely miss having a car.

You don't really believe that, do you? A personal jet is a luxury; a car is required to maintain employment in many parts of the world. I don't know anyone who flies to work, but without a car I am unemployed.

GENIERE
Quote from The Cato Institute:

“Countries trying to collect punitive taxes from the rich, like France and Sweden, end up short of rich people to tax. As a result, they mainly rely on flat-rate payroll and sales taxes (VAT). That is another reason we cannot combine revenues from all taxes to gauge the economic damage from high income tax rates. A 1999 study in the Journal of Public Economics by Kneller, Bleaney and Gemmell found that progressive income taxes were clearly harmful to growth, but found far less damage from flat-rate taxes on what people earn or spend.”

Above predicted what happened in California wherein the loss of the well-paid high tech jobs contributed to a massive state debt. All states are feeling the crunch of the weak economy but none to the degree that California suffers due to the progressive tax structure.

People not governments create wealth. Inhibiting economic growth simply removes wealth from everyone.

Is it not better for all to move up a notch than for all to move down a notch?

Steve

Zero
Saying "Is it not better for all to move up a notch than for all to move down a notch?" makes anything you say suspect. There is no way for people on the bottom to move up without someone at the top sacrificing. That is a simple fact, and no amount of argument changes it. If a large portion of the lower class is going to have more, someone else has to have less.

damgo
There is no way for people on the bottom to move up without someone at the top sacrificing.
Not true... consider technological progress, increasing economic efficiency, bringing more natural resources into use, creating more long-term infrastructure.

However, I agree that saying "Is it not better for all to move up a notch than for all to move down a notch?" makes anything else you say suspect. That's straw-man rhetoric; obviously everyone agree with it. Of course the disagreement is with the assertion that X will move everyone up and not X will move them all down.

Citing a Cato Institute opinion on the flat tax is like citing a Greenpeace opinion on genetic engineering. They are obliged to find the 'evidence' shows that a progressive tax is bad, as their libertarian philosophy tells them it must be so.

I could just as easily cite a PPI report:
Tax reform is Washington's latest answer for the discontent Americans feel with national politics and their own economic prospects. Several presidential hopefuls have promised to replace the current system with a new flat tax or a national retail sales tax, and others would substitute a new consumption-based income tax. Among the various proposals, the flat tax in particular has gained a following, probably because it purports to use tax reform to change politics as well as the economy. As we will see, its advocates claim too much. In fact, their analysis of the current tax system is often wrong. Their promise to reform politics is largely empty. And the policy would probably leave the country worse off, both socially and economically, than it is now.

Zero
Even so, damgo, even so...

forteh average person, some new advancement isn't going to give them any more wealth, unless they invent it. There is really only so much wealth, and the more of it is concentrated in a few hands, the less there is for everyone else to share.

Hurkyl
Staff Emeritus
Gold Member
forteh average person, some new advancement isn't going to give them any more wealth, unless they invent it. There is really only so much wealth, and the more of it is concentrated in a few hands, the less there is for everyone else to share.

That's not so.

Well, I suppose it is if you define the total amount of wealth in, say the US, as the number of gold bars sitting in Fort Knox.

But for more sensible definitions, technological advancement can most certainly increase wealth. For example, advances in manufacturing technology could diminish the number of Rubik's cubes that have to be discarded due to defect, thus strictly increasing the number of Rubik's cubes in the world. Since a finished Rubik's cube has more value than a discarded heap of plastic and colored stickers, increases in the efficiency of Rubik's cube manufacturing mean a strict increase in the amount of wealth available in the world!

Hurkyl

GENIERE
I have as much empathy for the plight of poor persons as others in this forum. I have as much suspicion as to the real motivations of those promoting a liberal/socialist agenda as they may have of mine. If we assume all have a honest motivation to improve the plight of the less fortunate, only the means to achieve that end need be considered. It is better to debate an issue’s merits rather than to engage in questioning another’s motives.

I’ll not further defend the flat tax. Not because I don’t believe it’s superior to the present system, but because I prefer a sales tax. The founding fathers were, for the most part, wealthy individuals who spent much time considering taxation when writing the Constitution. They were unfortunately ambiguous in defining what was exactly intended. They used a term “direct tax” as applied to an individual. It’s usage I infer to mean a value added tax (sales tax).

I’d like comments on a sales tax replacing the income tax. For starters a sales tax would not be applied to basic necessities. A tax on a fee for service is the same as a tax paid when buying a refrigerator. What defines a basic necessity, I think is a key issue. Businesses would pay taxes in the same way as an individual.

Regards