Is a Flat Tax the Solution for American Taxpayers?

[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.

 

[quantumdude]

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]

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

 

[quantumdude]

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]

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.

 

[Dissident Dan]

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]

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

 

[kyleb]

Originally posted by Zero
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.

well in keeping with damgo's policing of straw-man rhetoric, i have to point out that it is the sacrificing of the people who make up "the bottom" that puts others in positions at "the top." those people make their fortunes though carriers of exportation of people services though jobs, and they lure people into those jobs with the the same products they need employes to create. it is a vicious damn cycle and someone generally gets the short end of the stick but it still takes two to tango.


oh and sure a jet is a luxury but so is a car, and there are plenty of places in this world where one can easily go without either; last time i looked neither was listed on Maslow's hierarchy of needs and i have done without the former all of my life and the ladder for the better part of it.

Originally posted by Hurkyl
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.

why would you do something silly like that?


lastly, GENIERE, i have always though that tax should be moved to one side or the other and across the board like they are now; but i don't know why i would support sales tax over income tax.

 

[damgo]

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.

Agreed! The important thing I think here is to be critical of sources... it's all too easy to find plausible-sounding economic arguments for almost any position. I generally discount pretty much any economics coming from a politically-affiliated group.

I'm not sure about the sales tax, I know very little about the whole issue. (links would be welcome) My initial concerns are 1) it would seem to add 'friction' to the economic system by discouraging transactions/trade; 2) it wouldn't provide adequate income redistribution effects; and 3) there would be no taxation of the 'sale of labor', so a business owner who is in effect buying labor from his employees and selling the product would avoid being taxed.

well in keeping with damgo's policing of straw-man rhetoric, i have to point out that it is the sacrificing of the people who make up "the bottom" that puts others in positions at "the top." those people make their fortunes though carriers of exportation of people services though jobs, and they lure people into those jobs with the the same products they need employes to create. it is a vicious damn cycle and someone generally gets the short end of the stick but it still takes two to tango.

I tried to parse this but failed... can you maybe rephrase?

 

[Hurkyl]

/boggle

I don't think I've ever had just a contentless part of my post quoted solely for the sake of a contentless reply... I feel special now!

Hurkyl

 

[GENIERE]

Please assign the lowest income level that determines a person’s economic status. Assume Caucasian single male to keep things simple. Example: Over $1,000,000.00 determines “wealthy” status.

Wealthy
Rich
Comfortable
Upper middle class
Middle class
Lower middle class
Poor
Destitute

Assume you pay no taxes other than a sales tax and basic necessities are excluded. A sales tax could be flat or progressive. Do you prefer flat sales tax of say 35% on all fees or purchases, a progressive tax wherein a higher percentage is applied to more expensive items, or progressive by income level?

The aim is to make a more efficient tax system, eliminate the loophole ridden, extremely complex, difficult to enforce present system. Inefficiency robs us all, especially the poor, if bureaucracy, accounting firms, and law firms consume 90% of our tax dollar. With a flat sales tax system, a small business with gross receipts of $1,000,000.00 at year-end would simply pay $350,000.00 in taxes and not need an accountant.

Recall the recent corporate crimes and accounting firms abetting those crimes. The more simple the system, the easier it is to enforce compliance. Should a more efficient system be presented to Congress, expect an intense lobbying effort by law firms and accounting firms to prevent passage.

Our trillion-dollar economy need not grow much to provide a decent income for all. Further growth provides all needs of health care, education and quality of life. In this Star Trek utopian world, employment may be optional. All depends on allowing capitalism to work as efficiently as possible.

Regards

 

[kyleb]

Originally posted by Hurkyl
/boggle

I don't think I've ever had just a contentless part of my post quoted solely for the sake of a contentless reply... I feel special now!

Hurkyl

lol, Hurkyl; i was just joking on the fact that our economic system has no physical basis, gold or otherwise. but I am glad i could warm your heart a little.

and damgo, I'm not sure what the problem is what part do you not understand? i suppose a generalized rephrase would be; the fat man could not have gotten fat without others letting him hoard their share of the food.

 

[Zero]

Originally posted by Hurkyl
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

But, hey...only theb people who own the resourses see any benefit from that. Me and you might save a dollar on one, but the guy making them makes millions extra.

 

[Zero]

Originally posted by kyleb

oh and sure a jet is a luxury but so is a car, and there are plenty of places in this world where one can easily go without either; last time i looked neither was listed on Maslow's hierarchy of needs and i have done without the former all of my life and the ladder for the better part of it.

Well, in rural areas (where the average income is lower anyways, in a double whammy!), without a car you are sunk. Not only could I not have a job, but I would have to walk 5-7 hours to even apply for unemployment benefits, and walk 2 hours every time I had t cash my check. A car IS a necessity for some of us.

 

[kyleb]

or hop on a greyhound for 50$, move someplace else, and stop whining about how trapped you are. ;)

 

[Zero]

Originally posted by kyleb
or hop on a greyhound for 50$, move someplace else, and stop whining about how trapped you are. ;)

Well, how do you do that if you have a mortgage, bills, children and school, etc?

And how is that 'whining' somehow less important than some billionaire complaining that his taxes are too high to buy tha island he's always wanted?

 

[kyleb]

please don't argue in circles with me; i never once claimed that anything was "somehow less important" than anything else, it seems you are suffering from a case of fault projection here. oh and as for the mortgage, bills, children, school and the like; it's not like they just magically appeared or something. i mean i don't see how you can rightly expect me to explain how to fix every little trouble anyone ever brought upon themselves; i am always glad to help but i only have so much time avalable so i must insist on a more direct of a question and even then i can't say i am the best man to give the answer. however, there is always the choice between bending over and taking it or standing up for what you believe is right, and doing the latter is were most people will find happiness.