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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsTrump's tax formula: how a flat marginal rate produces a progressive effective rate.
This new announcement from Trump scares me because I think it's an idea that would be crazily popular.
Let's take a literal "flat tax". In that situation, everyone pays literally 10% (or whatever) of their income in taxes.
Nobody other than Steve Forbes is literally for that.
What most Republicans are proposing is a flat tax with a high exemption.
Trump was vacant on specifics (quelle surprise), but the idea is this:
Set a relatively high marginal tax rate (for argument, say 36%).
Exempt all income up to something close to the median national income.
If required, impose a surtax a few standard deviations beyond that (Trump has been on record in favor of that).
But what intrigues me here is how this produces a progressive effective tax rate.
Half of the country pays 0 income tax (Trump is essentially turning Romney's "47%" argument on its head, and saying that's how it should be).
People who make more than the median income are not taxed on every dollar they make, but on every dollar they make above the median income.
So for the poorest half of the country the tax rate is zero (or even negative; I doubt Trump could undo the EITC). Once you are in the richest half of the country, the tax rate rises from 0.000000001% at $50,000 to nearly 36% as you make money that approaches infinity (keep in mind Trump is on record supporting taxing capital gains like other income).
As I keep saying, we underestimate Trump at our own peril.
Kilgore
(1,733 posts)You are right.
I just ran the numbers for our family, and from a money in the pocket standpoint, we pay way less under Trumps proposed plan.
Definitely can see how this would have mass appeal.
Stinky The Clown
(67,832 posts). . . . . then why won't a Democrat adopt the same thing?
The fact is, a good idea is a good idea on its own merits, the source of the idea notwithstanding.
Recursion
(56,582 posts)Stinky The Clown
(67,832 posts)But whatever. I haven't read anything about it save what you posted in your OP.
Adjust the numbers to make it work.
Recursion
(56,582 posts)Sorry if that came off as harsh on you.
Ilsa
(61,707 posts)even $80,000 a year, which is by no means, rich. In Texas, that would be a couple that are both school teachers.
Recursion
(56,582 posts)Trump's supporters for the most part are at about 1/4th that income level. And he knows it.
Kilgore
(1,733 posts)The first $50k would be tax free and the remainder would be subject to tax. The unknown is how fast the rate reaches the top rate.
I can see this having mass appeal if the brackets above median progress slowly
Gman
(24,780 posts)He starts proposing really good ideas like this.
Ilsa
(61,707 posts)It hits middle class hard at 36% over median income. We're talking about couples where each is a teacher, mechanic, plumber, welder, etc, seeing their taxes go up, not down.
Gman
(24,780 posts)But 36% as an example above is about what I pay anyway.
The flat tax is a good idea because it will effectively raise taxes on the rich across the board.
Recursion
(56,582 posts)To just have a number to work with.
muriel_volestrangler
(101,390 posts)as is the size of the threshold before you begin paying. If the rate doesn't equal the current top rate, then it cannot raise enough money without savage cuts which they'd have to justify. And since some people see their marginal rate of tax as more important than the actual total amount they pay, there will be some who are above the threshold who see it as bad anyway. But even if you set it so that the current top rate payers pay the same as they do now, those just below will pay less than now, so the amount raised will be something less. That would, in practice, be enough less that hoooge spending cuts would still be needed.
How you would argue against a flat tax depends on the rate and threshold, but there are always good arguments against it.
We do not know what the brackets will be above the median.
I can see the appeal, my family would pay zero under this plan.
Do not underestimate Trump.
PSPS
(13,621 posts)1. "Set a relatively high marginal tax rate (for argument, say 36%)." That's a low top rate by historical standards. The top marginal rate should be at least 70% like it used to be.
2. Most people pay little federal income tax today. The biggest hit for them is the FICA (payroll) tax. That's what funds Social Security. These "flat tax" proposals don't affect that unless their sole purpose is to destroy Social Security.
The fact is that this idea, like every "flat tax" plan, it is merely a ruse to lower the taxes paid by the already-getting-a-free-ride under-taxed billionaires with a side benefit of lowering federal revenue to "drown (the federal government) in the bathtub."
1939
(1,683 posts)1. Payroll taxes are a whole different discussion.
2. Elimination of special treatment for dividends and capital gains, elimination of loopholes and writeoffs, and the beginning of the 36% at above the median income cause progressiveness which fades out at "infinity".
3. Look at what the "true tax rate" today is for the 50%, 40%, 30%, 20%, 10%, 5%, and 1% incomes. This will improve progressiveness over what we have today.
4. Quite possibly, we could have a much more simplified tax form and cause bankruptcy for H&R Block.
bbgrunt
(5,281 posts)progressive as stated. Eliminating tax exemptions and various problems including unrealized capital gains vs. realized capital gains and other deductions, however, might be more problematic than apparent at first glance. The definition of income itself is fraught with ad hoc applications and complexities. There seem to always be ways to dodge income tax by taking compensation in ways not defined as income for tax purposes.
Secondly, of course, the devil is always in the details and the necessary political wrangling to specify exact numbers and categories--and these will always be subject to the winds of change.
I love progressive marginal rate schedules, but they cause a lot of problems including,(but not limited to) increased incentives to hide income for those at the higher marginal rates.
Of course it doesn't do anything to alleviate the regressiveness of the social security tax, but on the whole, the idea is definitely appealing.
HughBeaumont
(24,461 posts)People falling for the Fair and Flat Tax smoke and mirrors on a Democratic board.
Don't be fooled. Both are horrible fucking ideas that would not pan out like the snake-oil salesmen say they will.
If Mike Huckabee likes something . . . well, then.
Recursion
(56,582 posts)And this, my friends, is fucking dangerous.
HughBeaumont
(24,461 posts)Ilsa
(61,707 posts)Trumps flim-flam tax proposal. You are right: his rhetoric is dangerous.
lumberjack_jeff
(33,224 posts)lumberjack_jeff
(33,224 posts)Get rid of business investment deductions? Business travel? Meals? Get rid of all the other deductions associated with being a businessman?
Are you also forgetting that every working person making less than 50k a year pays at least 15.3% of their income in federal taxes? Are you also forgetting that the working poor effectively have a negative federal income tax rate?
It doesn't make it progressive, it locks in the regressivity.
You're a pretty smart person. Sometimes I wonder if you really believe in the bait with which you troll.
Recursion
(56,582 posts)Amishman
(5,559 posts)Hopefully it puts tax reform as a leading issue and shifting the tax burden towards the rich as a centerpiece of the conversation.
I can also see why the republican establishment is scared shitless of Trump.
muriel_volestrangler
(101,390 posts)Trump's campaign also claimed that the tax plan would cost nothing. CTJ's analysis suggests that's false, concluding that the plan would cost a whopping $10.8 trillion in its first decade. For context, the Congressional Budget Office estimates that individual and corporate income taxes will bring in $25.5 trillion from 2016 to 2025; Trump is thus proposing slashing income tax revenue by more than 40 percent. That's high even compared with some of his White House rivals' plans. The right-leaning Tax Foundation estimates that Bush's tax plan would cost $3.6 trillion over 10 years on a static basis, and that Marco Rubio's would cost $414 billion a year, or $4.1 billion over 10. Both cost less than half as much as Trump's plan. Rand Paul, however, managed to top Trump with a plan costing $15 trillion, per CTJ.
http://www.vox.com/2015/9/28/9411243/donald-trump-tax-rich
So, this is a massive tax cut aimed at the rich (the top 1% gain by 10.3% of their income, compared with 5.1% for the middle 20%, and even less for those earning less than that), and it forces massive spending cuts, which will affect the non-rich. Plus he wants to abolish the estate tax.
Trump's message is "I want money - screw you, poor people!". This is fairly easy to argue against.