flat tax? this is disturbing

[benfro25]

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=1029&mesg_id=1029

i found it very disturbing that a poster suggested that a flat tax would be feasible and preferable in America. not a single DUer could show him the clear inequities of the flat tax, nor did anyone praise the benefits of the progressive tax system that exists. does anyone else find it unsettling that some of the most progressive Democrats do not vigorously support the progressive tax which is currently being eroded by the Bush administration?

oops i didnt display that link correctly

[RobertSeattle]

1. Didn't turdinthepunchbowl get tombstoned?

Went to his profile and it's a tombstone.

[goobergunch]

2. Yes

If you check his profile, you see the tombstone.

http://www.democraticunderground.com/discuss/duboard.php?az=user_profiles&u_id=129728

[sangh0]

3. Yes, it was tombstoned

You can tell by clicking on the little icon that looks like a face in profile at the top of the posters post.

[benfro25]

5. thats not the point

many DUers agreed with him on the thread, and no one could articulately argue against him.

[papau]

12. "no one could articulately argue against him" - now that hurts!

A flat tax with no deductions at all - the same as the flat tax payroll tax for Social Security, but without the wage cap - would most unfair to those not rich.

But I was trying show the fellow that the 1994 GOP flat tax proposal, which had a per person deductible (say 10,000 adult and 5,000 child) would not only not be regressive, but if the rate was chosen to be high enough to replace both SS payroll taxes and FIT - which would be in the high 30's - the tax would be great for the non-rich.

The use of a large deductible makes the tax very progressive.

Indeed this is why the GOP dropped the idea and is now pushing a sales tax to replace the income tax - or if that can not get through, a modification that ends the taxation of investment income like interest and capital gains - which is 99% of the income that the rich take down each year.

[benfro25]

15. ?

what would be the purpose of a flat tax system with such large deductions? that goes against the libertarian principles of a flat tax. it is not much simpler and not much different from a progressive system. or am i mistaken?

[papau]

25. You are not mistaken?- We capture "flat tax" and make it progressive! :-)

SS payroll tax is 15.3% (any economist will note that while 50% of that is deducted at work - and the other 50% paid directly by the employer - the effect on your wage is the same as it would be if you paid the full 15.3% directly - the employer simply reduces your "gross" pay so that he can afford the overhead of his contribution to the payroll tax).

At 30,000 that works out to about $4,500.

The 4 person family of 4 FIT tax is about $ 1,000.
http://www.fredbien.com/cgi-bin/canat113a.html is an excellent calculator.

So we compare $5,500 to 35% of of zero - and we are better off.

Now we do the family of two - same Social Security, and this time FIT is about 1,800, for a total of $6,300.

So we compare 35% of (30,000 less 20,000) - or $3,500 - and again we are better off.

Folks do not understand how our two income taxes - FIT and Payroll tax - favor the rich and screw the middle class compared to a flat tax with deductible. But the GOP does understand - which is why the 1994 GOP Flat tax proposal now covers only FIT - SS with its wage cap is not to be changed so that we can pretend we have only 1 income tax - and we look the other way while the payroll tax surplus is taken to pay for the Defense Department - and Bush gives Bonds to SS - while Bush screams that in we have a crisis in 2018 because SS will want to cash in those bonds, causing FIT to need to increase to get the money to redeem those bonds - and the rich have no desire to repay the money being stolen to finance the Bush tax cuts. Of course one makes progressive a FIT only Flat Tax by making the deductible 20,000 per adult, 10,000 per child, so that the folks with no kids making 50,000 now is a $4800 tax currently - compared to a 3500 flat tax payment.

Indeed a flat tax can be made progressive easily - just choose a large per person deductible FIRST, and then get a rate that recovers the tax revenue needed. But do not worry - the rich will never let you have such a tax. So today the GOP pushes a National Sales tax to replace the FIT, or the rich wants a modification of the FIT that takes investment income and cap gains out of the income to be taxed - and since that type of income is 99% of the income that the rich report (you thought the rich lived off of wages?) the rich support the GOP.

And the middle class says wow - a tax free IRA, or 401k, or Meddical Savings account - what a great guy is Bush - and the rich wink - as their investment income becomes non-taxable, and the deficit gets larger - and we hit the salaried high income folks a bit - but let the really rich get away with paying less and less.

Dean wants to end the wage cap on SS - an excellent first step in taking back this country from the very rich. A second step is larger per person deductibles in the FIT code - and sure we will use a "flat Tax approach" - no problem (wink --- wink).

:-)

:toast:

:-)

[AP]

29. Your tax burden is a function of your value of a dollar and your value of

a dollar is a function of how many dollars you have.

You can not apportion the tax burden fairly without taxing people with little income low marginal rates and people with high incomes higher marginal rates.

[papau]

36. ?- With a high per person deductible, marginal rate for the poor is zero!

Why is zero a bad marginal rate for the poor?

Replace both SS and FIT, use 20,000 per person, 10000 per child,
'and on every "next dollar - up to 40,000 in a family of 2 - no children - has a tax rate of zero. the next dollar above 40,000 most likely has a rate of 35% - but so what -

I was paying 15% of 40,000 for SS,and an additional $1000 for FIT - and now I pay 3500 - I am much better off.

The deductible makes "flat" into progressive ! :-)

kind of neatr - eh

:toast:

:-)

[AP]

43. Because of posts 35 and 44

And, particulary because you'd create a crappy a economy, and it would inevitably lead to the need to raise more taxe revenue from fees, sales tax, etc.

[Fescue4u]

78. UGGH! Are you serious?

That Dean wants to end the SS cap?

No thanks, that represent a HUGE tax increase. I just finally paid up my SS tax. The last half the of the year (after SS is paid up) is when I get the extra money to fund retirement, family vacations etc.

I suppose if the SS benefits paid out go up in accordingly, that might be alright, but if benefits stay the same thats a massive tax hike.

[AP]

79. If the cap comes off, it means people under the cap now will pay less.

If EVERYONE shares the burden, it means people over the cap will pay more and people under the cap will pay less.

[AP]

80. Incidentally, two logical inconsistencies of pro-flat tax/exemption...

...arguments.

If you don't like the way SS is paid, you shouldn't like a flat tax. SS is a flat tax on the first 88K (?) in income, and then there's no more charged on income over that (which makes it sort of the opposite of a flat tax which doesn't kick in right away--no tax on the bottom income earners, and then a flat tax above the threshold). Is SS tax fair? Most people here don't think so. So how is the flat tax with the high exemption fair?

As I said, in more detail below, if you like the idea of flat tax with a high exemption, what you're arguing is that you like one-step progressivity (ie, you just like progressivity at just around the inome level at which you set your exmption). I have no idea how someone could argue that that's the ONLY place on the income scale where you like progressivity. Just acknowledging that there's one place where you like progressivity should mean that you accept that, at an infinite number of places on the income spectrum, there is a difference between any two points which require progressive income taxation so to recognize the disparity in income levels and additional dollar valuations.

[Fescue4u]

83. If that were true I would support it.

But that requires a massive leap of faith in government.

[sphbecker]

4. Tax system is worce then Taxes

I think the biggest problem with taxes is that the system that administrates them. The rules are too complex, there are too many loop holes, it is a waste to have such a big IRS just to make sure people follow the thousands a pages of tax law. I am undecided about a flat tax system, I really don't think it would work very well, but I think we really need a simple and far tax system.

[jmowreader]

56. The tax system is only as complex as your life

Yes, I know that next April 15, the Republicans in Congress are going to print off a copy of the Internal Revenue Code, band it to a pallet, and forklift it into the Capitol Rotunda while they scream about how complex the tax code is.

It's my favorite time of year because it shows you just how you can distort an issue to suit yourself.

They're then going to bring out Farmer Brown and his inch-thick tax return. Let's see...in that packet will be a Form 1040, a Schedule A, Schedule C, Schedule F...probably 300 forms. Two-thirds of these forms will reduce his tax burden and some will create jobs. Take away his Alternative Fuels Credit for his windmill and see how fast he puts another one up. Tell him he can't depreciate the new combine he's thinking about buying next year and watch him rebuild the engine in his old one.

Mom and Dad with two kids and a mortgage, and nothing else, are going to produce a tax return that fits on three sheets of paper--Form 1040, Schedules A&B, and the Child Care Credit sheet. A guy with a railroad, $50 million in real estate holdings and a billion in realized capital gains is going to produce quite a different return.

[AP]

58. Anyone who doesn't have 6 hours to save a couple thousand bucks

has their priorities messed up.

For a lot of middle class people, the most lucrative way to spend their time is filling out their 1040s dilligently. Who else is going to pay you 500 or 1000 dollars per hour of work.

[HFishbine]

6. Ah er

I know I'm avoiding the point of your post, but I think a national sales tax (excluding basic essentials) is better than any kind of income tax.

[benfro25]

7. a national sales tax would be regressive!

do you not understand that a national sales tax would tax middle- and low-income workers a higher percentage of income than the wealthy?

[sangh0]

8. That's because many liberals

are as ill-informed as many conservatives are.

Now stayed tune for a thread complaining about "the sheeple"

[HFishbine]

14. Depends

Not necessarily. As I said, some things would have to be exempt, for the very reason of avoiding making it regressive. But when it comes to things like cars, vacations, boats, furniture, and so on, wealthy people tend to buy more expensive things, so they'd be paying more in taxes.

A sales tax, properly structured, encourages work, and encourages savings and investment.

[jab105]

62. The lower the income, the higher the propensity to consume...

the poor have the highest propensity to consume, because most of their income goes to buying the things that they need for the week...the rich have the lowest propensity to consume...hence any type of sales tax as the only tax system would be blatantly regressive...

That's why the Republicans are trying to get it...because the faster the tax system gets more towards work earnings instead of capital, the richer the rich become and the poorer everyone else becomes!

[never cry wolf]

71. No, it doesn't add up.

If I make $50 k and spend $12 k on a car it is not fair to pay a sales tax of say 20% the same as someone who makes $1M and spends $60k on a car.

I pay $2,400, or 4.8% of my income and Mr. rich guy pays $12,000, or 1.2% of his income and gets the luxury and status of his beemer to boot!! It is definitely regressive, a flat tax would be better.

Same thing goes for vacations, boats, furniture, etc. The rich spend their big money on investments, which the repugs have seen to are not taxed so much anymore.

[AP]

76. Furthermore, if you're financing thos purchases, you pay interests on tax

and end up paying even more. Rich people who don't finance purchases end up paying even less.

That's why huge banks love sales taxes.

[TXDemGal]

11. Educate yourself

"Don't Buy the Sales Tax" policy brief from Brookings Institution:

http://www.brookings.org/comm/policybriefs/pb31.htm

[AP]

22. People who go into debt every year (ie, poor and middle class)

would pay the highest taxes as a percentage of their salary, and the richer you were the lighter your tax burden would be.

That's worse than regressive.

[rucky]

9. Regressive Taxation 101

Person A makes $2000 per month
Person B makes 10,000 per month

At a 15% Flat Tax (for math sake)

Person A is taxed $300, leaving her with $1700
Person B is taxed $1500, leaving her with $8500

Okay everybody's gotta pay the rent or mortgage. 1/3 of your gross income is average.

Person A pays $667, leaving her with $1033 after taxes
Person B pays $3330 (wow! nice pad!) leaving her with $5170 after taxes

Person A - family of four - spends another $500 on food/utilities - the basics - leaving them with $533 for the month. Leaving them with about 25% to spend on other stuff. We havent even gotten to insurance, car, gas, healthcare, and putting something away.

Person B - family of four - also spends 500 on food/utilities - the basics - leaving them with $4670 for the month. Roughly 47% of their income to spend on the other stuff.

[Nederland]

16. Bad Example

Most flat tax proposals only start taxing at a certain income level like 30K. You make less than that, you pay nothing. Also, many of the proposals do away with mortgage interest deductions...

[rucky]

19. It's all proportional...

It was designed to illustrate the rising percentage of disposable income you have after taxes, based on what you earn. I didn't even consider mortgage deductions, and it still skewed for the wealthy homeowner. You wanna work with higher numbers, go right ahead, it'll still show the same thing.

Or show me an example of a proposal that can make a flat tax less regressive.

[AP]

24. But a person who makes $30,000.01 would pay the same rate

as a peroson making 3,000,000, and Richard Grasso, making 188 million.

That's totally regressive.

[ThomWV]

27. NO

It is not as dire a case as you make it. Remember, its a marginal tax rate and so the guy who makes that $30,000.01 is only going to be paying the higher rate on that last one cent, not the whole amount.

That is the part of the argument that the anti-progressive-tax people always fail to mention.

Thom

[AP]

31. You just said nothing.

There is no reason a person with 35,000 in income should pay the same rate on another 5,000 in income that Dick Grasson would pay on an additional 5,000 in income.

Grasso is barely going to work for his additional income (because he's going to use the money he has to make more money). The person who makes 35K more often than not earns income from working. To increas you income by 1/7th you might have to work 13-25% harder.

To charge both those people the same rates is to discourage labor and to encourage massive accumulations fo wealth.

If you can charge them both a flat rate and make enough money to run the gov't, you can afford to charge the poor guy 10% less and the rich guy 2% more and raise the same amount of money, and you'd be encouraging and rewarding hard work in the process (and America is going down the shit can if we don't do that).

[papau]

30. not with a large deductible per person - that makes it "progressive"

Indeed the poor pay nothing - the middle class pay less than now - and the rich pay more -

if we have a "flat Tax" - meaning one tax rate - but still have a large deductible - say 20,000 per adult, 10,000 per child - with the rate set to recover the tax revenue we need to replace - either FIT or FIT plus Social Security!

Indeed just removing the wage cap on SS gives us a flat tax Social Security at a lower rate until 2018 (we raise the rate in 2018 and again in 2043), and then a modest deductible - say 10,000 per adult and 5000 per child gives us a nice FIT.

[AP]

35. No matter how much you give as a deduction, the person just above that

deductible will pay the same marginal rate on an additional 1000 bucks in income as Dick Grasso would pay on an additional 1000 bucks.

The high deductibles sound nice if you're under them, but the richer you are, the lower your relative tax burden is compared to whomever is just above the cusp.

There is NOWHERE were you can place that dedcutibility limit because there is such a huge range in incomes (and because flat taxes make life so much easier for the rich, you're just going to create more people with more astronomical incomes).

So, basically, when you talk about flat taxes with a deduction, you're talking only about how many people will pay taxes (in the first year). You're not saying anything about fairness.

It's isn't even really fair to people who don't pay taxes under that structure, because you're just going to saddle them with a crappy ecnomy, with fewer opportunities, and more income disparity. I'd rather pay taxes (fairly) and have opportunities, then not pay taxes and have a crappy economy.

[papau]

45. I disagree - marginal rates do not motivate - and total tax paid by

income group (top 20%, next 20%, etc.) do not reach 20%

Indeed from http://www.irs.gov/pub/irs-soi/00in11si.xls

we find that as a percentage of adj gross income we do hit 20% - but as a % of taxable income we only hit 16%.

The high marginal rates do not make the rich pay that much more than the near rich as a percentage.

19.2
20.0
20.4
20.6
21.1
21.4
21.8
are the rates (income tax paid over total taxable income) for 200000 to 499999, 500000 to.... etc to over 10 million - they do not change

[AP]

48. That's an example of how the system doesn't work.

Although we have a facade of progressivity in the fact that there are higher marginal rates, after deductions (and with no AMI on corp income, and with the ability of wealthy individuals to arrange with their employers to pay them in forms which are flat taxed (eg, LTCG on stock options, and, now, dividend income), people's effective rates appear to be flat.

Increasing marginal rates mean that you SHOULD be paying a greate percentage on additional income (and, therefore, higher absolute percentages of tax on total income) as you get wealthier. The political reality is that there are enough ways around it so that, effectively, we HAVE a flat tax system (and see how great that is working for America? Psst. Look at Bush and Cheney and all the statistics on income disparity and decreasing opportunities.) Also, the fact that the top rate starts at a pretty low amount, all things considered, flattens out the effective rates. Think of the real range in wealth above 300K per hear. Even though only 1 family in 100 or so makes that kind of money, that's a lot of regular two-doctor or two-lawyer or small business owner couples in their mid-40s. They're being lumped in at the same tax rate as Richard Grasso (and they have no choice but to take the bulk of their income as earned income). That will really create a flat line for that bracket.

We need more progressivity in the tax code, not just the illusion of progressivity we have now (which, as you point out, isn't working to create progressivity).

[papau]

52. We agree - as I knew we would!

:-)

:toast:

:-)

[AP]

53. We don't agree about flat taxes, which is what we're talking about.

[MassDem4Life]

85. i beg to differ

The richer you are youre tax burden as not less than the person just above the cusp.

Take this example:17% flat tax
$12,000 exemption for taxpayers, $5,500 exemption for dependents. NO OTHER DEDUCTIONS.

Typical family of four, gross income $50,000:
their first $35,000 is tax free. On the other $15,000 they are taxed @ 17%. Their total tax burden is $2,550.

Same family but with income of $500,000:
Their first $35,000 is tax free. On the other $465,000 they are taxed @ 17%. Their total tax burden is $79,050.

Family A has an effective tax rate of 5.1%(2550/50000)

Family B has an effective tax rate of 15.81%(79050/500000)

See this is fair, progressive, and simple, it is less of a burden on the economy, and more efficient.

And it wont cost the government, read taxpayer, $900million just to collect it.

What could possible be wrong with this?

as a side benefit it also makes people less dependent upon handouts, and favors from politicians, more self-reliant.

[AP]

87. Ok, tell me what the tax rate is at 1 mil, 10 mil, 50 mil and 100 mil

and, remeber, Richard Grasso made 140 mil (and he might ast for the extra 48 mil he declined when he didn't think he was resigning) because this was considered a competitive salary on Wall St, so you might as well give me the burden for 140 mil, 188 mil, and 200 mil while you're at it.

Ok, now that you've run those numbers, do you see how you're merely approaching 15% at a very shallow slope with a flat tax?

The progressivity out where it matters is negligible (thus, the flat tax is called regressive).

We have a de facto flat tax on corporate income, and do you see where it has lead America?

Now you want to extend that flatness way down to personal income so that you basically have very shallow progressivity in a very narrow range on the income scale, of what, a 10% swing in the range from 50K to 500K, depending on how many kids you have? That's way shallower progressivity than we have now, by the way, so you're flattening the code even worse at the low income end too.

It's a recipe for disaster. You do this, and it'll be the equivalent of going back to monarchy within 10 years.

[MassDem4Life]

93. define "Fair"

obviously you and I have different definitions.

What does it matter that the slope flattens out as it approaches 17%?

your concern was how fair the flat tax was to the poor and middle class, not the rich. Are you seriously going to bitch because someone who earns 10m is paying almost the same rate, although far different dollar amounts than someone who earns 50m?

Somewhat spurious arguement as both can readily afford to pay what they are going to pay. Why not save your concern for the little guy who is bbeing squeezed to death in the current system. And while you are at it why dont you heap some of your scorn upon the Congress and state governments who spent like drunken sailors during the fat years, and now cry that they have bedget deficits in lean years? The fact is that total government spending, state and federal has risen 39% in the last 7 years. And before you begin preaching, these are by and large not necesary expenditures, mostly new and inventive social programs, with no cost/benefit analysis, and little track record of success.

[AP]

94. I've defined fair throught this thread.

Fair is when the tax burden is born as equally as possible. A poor person shouldn't have to work 10 hours a week to pay his tax bill on the next 1000 in income, while a rich person has to blink once and take no risks to earn the money to pay the tax bill on the next 1000 bucks in income.

It matters that the slope flattens as you approach 17 percent because there's no way in hell that the relative ease of paying the tax bill isn't increasing at that shallow rate. I can't tell you what the exact slope should be off the top of my head, but I know it's way more than 1% easier for a 10 million buck earner to make the money to pay the tax on additional income than it is for a 500,000 earner.

And you're argument isn't that there isn't a difference, you're just saying that you don't care. Well, I care. And at that range of income, we aren't so much talking about individuals, as we are talking about competition between small businesses and large businesses. And, frankly, I do want big businesses have a competitive advantage over small businesses merely because the RWwers in government won't tax corporate income progressively. I'll DEFINITELY bitch about that. Why won't you?

[Hanuman]

32. Flat tax proposals also exclude the basics.

Like food and utilities.

[rucky]

42. ok, so you're talking about a national sales tax???

Which is as progressive as the business lobbies allow it to be. It's not making anything easier, because what is considered a necessity or a luxury will be determined by congress. Imagine rating each consumer good that way, with all the businesses lobbying for tax exempt. That's what happens on a municipal level, and it's pretty damn arbritrary: Do you tax Coca-Cola the same as milk & eggs? Range Rovers the same as a used beater-mobile? Gas for a Range Rover the same as gas for a hybrid? ALL utilities are exempt, or is there a overconsumption penalty? What level? How about the wealthy who uses their extra income for investments over consumer goods? They'll consume less and tie up all their cash if you don't tax that.

It's getting more complicated than FIT, and ends up achieving the same basic result.

[WhoCountsTheVotes]

10. lots of anti-progressive libertarians on this board

lots of libertarians that hate progressive taxes or any social program that helps the non-rich - they used to be a freerepublic.com, but have come over here since that board is dead now.

[quilp]

13. A progressive income tax is about more than just money.

It affects behaviour. A flat tax is the worst social idea to come down the pike in a long time. When CEOs were paying at a 75% tax rate there was little point in giving themselves income 500 times that of their blue collar workers. Rather that pay that kind of money in taxes many corporations gave their employees benefits like health care. The progressive tax system made this possible.

What would have been the point of Ken Lay acting the way he did if he had to give three quarters of those ill gotten gains up in taxes? Nor would we have these layoffs just to boost a short-term income. What would be the point of giving these obscene contracts to sports and entertainment figures that make everyone who works for a living look like a fool and a loser? We need that steep progressive tax back. Not just for revenue, but to control uncontrollable greed, end short-sighted social behaviour, and bring back dignity to work.

[Mel]

17. that's good points, quilp!

What about the one the right wingers shoot back about how
'people just won't earn as much if you raise their taxes'
I wish I had a dollar for everytime I heard a Senator parrot that bs!

I say turn it on them and ask well what about the $5.25 per hour wage and all the unemployed? What if those people just start stealing instead of working so hard for their money?

[quilp]

20. I don't know why people making $5.25 an hour are not turning to theft

A system where a man working 40 hours a week cannot support his family is a system that does not work. How can it possibly be defended by anyone?

Don't tell me that it is" the American way" for a CEO to get ten million dollars year running a company paying less that a living wage. That is not success. It is failure! The commissars in Communist Russia didn't dare pull a stunt like that.

[jab105]

64. Great posts quilp, thanks!

A position that I hadn't seen before, very well put!

[denverbill]

18. Well, one reason might be that it wasn't posted in the main forums.

I, for one, almost never go outside of LBN, GD, and the Lounge. I'd have loved to get in on that debate.

[AP]

21. This has been my pet peeve here at DU for months. And my impression is...

First, I should say that long before the pre-primary season began, long before I knew who the candiates would be, I talked up progressive tax every chance I got, and I would inundated threads with posts whenever the issue came up.

The lack of understanding of basic tax issues here was astounding and depressing. No wonder the Republicans have gotten so much mileage out of the tax code. Everything the Republicans want to do socially -- with entrenched power for the wealth, limiting opportunity for the poor, and the general shift of wealth and political power up the income ladder to a very few, very wealthy people -- they have done MOST effectively through the tax code.

If Democrats don't figure out progressive taxation they won't understand they way they're getting screwed the worst.

It seemed like people were figuring out progressive taxation here after a couple months of serious discussion. Then, Dean and Kerry started their little tussle, and suddenly everyone thinks progressive taxation is bad. I see a direct connection.

[denverbill]

23. What are you talking about?

'everyone thinks progressive taxation is bad'

That's absurd. I've hardly met anyone at DU that doesn't favor progressive taxation, except for a very few liberals, moderates, libertarians, and the numerous freeper disrupters.

"The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state .... 'remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'"
-- Adam Smith, Wealth Of Nations

[AP]

26. In realtion to Kerry vs Dean debate on this issue,

lots of people made arguments that hinged on the assumption that lowering the debt was way more important than a progressive tax code (which I grant is arguable, but not winnable). However, to support that claim, people said alll sorts of mad things about progressivity, like, who cares if my taxes are 40 dollars more a week (well, put that together with the 50,000,000 strong middle class, multiply it by 52, and compare it to the millions the richest Americans are getting in tax breaks and then figure out where they're getting the money to allow them to give the huge breaks...get the point?).

Yesterday, I posted a thing about Grasso and progressive taxation, and people with Dean images on their posts tried to tell me that Lay was the person to focus on, and dismissed the notion that a public debate should be had about progressive taxation in the PERFECT context of Grasso's deferred (to the Bush tax plan years) income.

That's what I'm talking about.

[denverbill]

33. OK, I see now.

So if I favor Dean's plan to roll back ALL the tax cuts rather than just the ones to the rich, that means I don't favor progressive taxation?

The tax code before Bush started screwing with it was progressive. Yes, it was more progressive in the 40's, 50's, and 60's but it was progressive. Ideally, you could leave the cuts in effect for the poorest Americans. Dean thinks the budget deficit is more important than cutting taxes for the poor. I would tend to agree. As Dean says Americans would gladly pay the taxes they did in the 90's in exchange for the economy we had in the 90's.

I doubt this is a major issue with Dean though. If Congress wants to leave the cuts for the poor intact and eliminate the others, I'm sure Dean would agree to that over keeping ALL the cuts.

[papau]

28. I agree - but I like the language "flat tax" - just make it progressive w/

a very large per person deductible!

:toast:

:-)

:-)

[AP]

37. read post 35

[papau]

40. I did read post 35 - and if I pay less in total - do I care that the

eventual marginal rate is 35%?

If so why.

I have more money - the rich have less - after taxes.

The bullshit marginal rate has not made me unhappy - again I have more money after taxes - so I am happy!!!!!

:-)

[AP]

44. See, by arguing this you reveal that you don't have an informed opinion

As your income increases, you have a decreasing marginal value of an additional dollar. To tax someone whith a low marginal valuation at the same rate as a person with a high valuation (eg, $.35 on each dollar) means that you're placing a bigger BURDEN on the low income person. You are making people pay the same price of things with dramatically different valuations.

Even within the same tax bracket the people close to the top cutoff and the bottom cutoff for that bracket are being treated differently. The wider the bracket, the less fair it is for people at the top and bottom.

What you're admitting is that you don't care about the unfairness for someone else, so long as you're not paying. Thats, uh, stupid. If you care about having a functioning economy, you better care that the tax burden isn't being placed unfairly on anyone (and especially the middle class, which is the engine of growth and productivity -- you want them to be super-competitive, economically speaking).

What you are arguing is that you arbitrarily have some cutoff, but you want to have an income band that infinitely large. Currently, the top rate starts at about 300K (Bush wants to lower it to 150K). So, currently the must inequitability in the tax code is between people who make just above 300K, and people who make the top incomes in America (Dick Grasso?--and we're not even going to talk about unearned income, which makes the situation even worse). You want to make the code even MORE regressive than Bush by creating a tax band that runs from 50K to infinity. Do you believe that someonoe making 55,000 had the same valuation on that first 5K in income that Dick Grasso has in another 5K in income? No you don't do you? Then why do you want to screw that person over?

Your answer is, basically, I don't care because that ain't me. Well, you're going to really suffer if the people in America who make 55K are getting screwed over so that Dick Grasso's life can be easier.

[papau]

47. No See http://www.irs.gov/pub/irs-soi/00in11si.xls

You are repeating the motivation concept - we need to motivate by giving poor a larger percent of next dollar earned to keep after tax , than we allow rich to keep of their last dollar earned.

And I am saying total tax is all the rich care about - and the current system gives a 20% rate from those making 200,000 of income to the group of 11206 folks that each make over 10 million a year. They have their flat tax now!

By getting rid of all the definitions of what income is not taxed, or taxed less, they end up paying twice what they pay now (a bit of an overstatement :-) ) and those under 200,000 of income pay much less. And I like that.

Your "lousy economy" concept comes the "need motivation for middle class", "stick it to the rich" idea - and I am saying that rich will pay for modifications in the tax law that removes all that "stick it to the rich" stuff

[AP]

49. You're saying that you don't understand what I'm saying?

?

[papau]

51. We are typing too fast and posts are flying by each other!

:-)

In the best of all designs I'd have both a high deductible single incomeincome tax system that replaced both SS and FIT -

and within that have progressive rates!

But my only point was that we need not fear "flat tax" since that would actually work in our favor and against the rich.

[AP]

54. How can you say that after reading everything here?

Do you not understand the math?

A flat tax totally favors the rich. A person who makes a million dollars a hear doesn't have the same marginal valuation of an additional dollar as a person who make 10 million or 100 million of 200 million. Of course, when you that high, there are way fewer people whom you're treating unfairly.

However, we do have to finance the government somehow, and when you determine how much money you need to do the things you need to do, the next step is allocating that tax burden among all Americans in a way that doesn't unfairly burden ANYONE along the income scale. The ONLY way to do that is to have marginal rates which reflect changing marginal valuations.

Personally, I think the brackets could stand to be as narrow as 1000 buck increments, and have rates increase by decimals in those ranges, and that a person making 100 million should be paying a higher marginal rate than a person who makes 5 million, who pays a higer rate than someone who makes 1 million...and 750K...and 500K...and 350K...and 300K...etc...etc. And right now ALL those people pay the same marginal rate on earned income (they all HAVE a flat tax on income, which hurts the person making 300K all in earned income)...and lots of them are even better off because they're paying flat taxes on LTCG and dividends at LOWER rates than the highest earned income bracket (which generally isn't an option for the 100% earned income two lawyer or two doctor family making 310K per year

[AP]

55. That is not true. Everytime some decides whether they're going

to work a little harder or do something more, they do a mental calculation on some level of whether it's the best way to spend their time.

We have had accountants here say that their small business clients sometimes don't take on extra work because the effort isn't worth the profit. Their profit partly depends on taxes. If you have to put in way more time to only make 65 cents on the dollar of profit, you might pass on work. For a very large corporation, it's rarely not going to be worth not getting the extra 65 cents when you've got your business so large that there's almost no added cost in doing more work.

Ideally the tax code should never create a disincentive for anyone to work. It's ok if size and wealth do, but the tax code shouldn't, and in the above situation it is. The way to make sure small businesses aren't turning down business they should be taking (in order to provide price competition to big business) is to make sure that the small buisiness pays a lower marginal rate on their inocme.

Also your presumptions in the second last paragraph are so wrong. Do you want me to explain it to you?

[AP]

57. Hello?....Papau?....Anyone there?...(sounds of crickets chirping)

Papau...the courage to admit you never thought of it this way?

[FauxNewsBlues]

73. As progressive as ya want it to be.

Why are we talking $30,000? What about $50,000, or $60,000?

A flat tax that basically made 50% of americans exempt from taxation would kinda be sweet. I don't know the numbers that are needed off hand, but, how about a 50% rate after 70k

You make 70, you keep it. You make 80k, you pay out $5,000. Ya make $100,000 a year, you pay 15k in taxes. You make $1,000,000 a year, and ya pay out $465,000 in taxes. No fuss, no muss. Extremely progressive. Wealthy people are taxed heavily. Middle class and poor are not. Limit deductions. If you are tax free at 70k, you should not be struggling afterwards. Everybody knows what they are going to pay. Your income is not touched until you hit that $70k number. It would piss off the rich incredibly. However, it would free up capital that is being currently used to pay for the IRS, CPA's, tax dodges, you name it.

[AP]

75. I already addressed this.

Because wherever you startt the tax, at 50K, 70K or 100K, you're treating the first 5,000 of income above the cut-off exactly the same as the next 5,000 in income for someone who makes 10 million per year.

The rich would love that. And the people just above the threshold would get screwed the worst.

In theory, you could push the threshold up so high that you have fewer people paying taxes, but the fewer people you have paying taxes, the higher the rate is going to have to be when you start charging it. And the higher it is when you start charging it, the bigger the disparity in tax burdens between the people just above the cust and people at the top of the income ladder.

Furthermore, I just don't get the logic of flat tax enthusiasts. It such a contridication in logic to be for the high deduction (ie, acknowledge that people above and below the deduction limit have diffent marginal valuations of a dollar, but disagree that all the people who pay taxes -- 100K to 200 mil earners -- have different marginal valuations of an addiitional dollar).

If you're going to admit that there should be a deductibile, you're amitting to the logic of progressively higher rates at higher income levels.

So, you're stuff in bold...the ONLY place where your proposed code is progressive is within the narrow band of income between about 55K and 100K. That covers an insignificant range of the incomes earned in America. Your system is totally regressive for incomes over 100K. Do you want to be so unfair to people at 100K compared to people at 100 million? 100K is a two-teacher family.

[MassDem4Life]

86. the Rhetoric sounds good, but if you plug number into

the flat tax proposal you will see that the rich actually will pay more than they do now because of the lack of loopholes and deductions.

you will also see that the poor pay less 0%

And it will make everyones life easier. and save money.

AND SPUR THE ECONOMY!!!

[denverbill]

39. You know, if people really realized what a flat tax would do......

90% of Americans would oppose it, IMO.

You lose all deductions - kids, mortgage interest, even the standard deductions, charitable contributions.

All income is treated equally - no tax break for long term capital gains, capital gains on house sale, etc.

It would hurt the poorest people in the US badly, while helping the richest enormously. The middle class would be hurt quite a bit too. Probably 90% of Americans would pay higher taxes.

[friendofbenn]

61. even adam smith is for progressive taxation

:shrug:

[AP]

63. I've written three posts in this thread -- 35, 44 and 60 --

which I think sum up the argument against flat taxes, and I wish someone who believes in flat taxes would try to take on my arguments.

There must be SOME hole in my argument, and I'd like to try to firm these up.

[jackcgt]

34. www.fairtax.org n/t

.

[papau]

38. "fair tax is a GOP sham to push a sales tax that helps the rich - why

promote it at DU?

[denverbill]

41. Well, I'll consider a Fair Tax when they consider a Fair Income.

[NashVegas]

46. Well There's a Silver Lining

With a flat tax, there'd be less need for accountants. You know, the fun people who come up with all kinds of creative ideas that usually end up with jobs being cut.

[AP]

50. If accountants are the price for a system which can

be fine-tuned to stimulate productive economic activity, I'm all for it.

It's not accountants that are bad, it's criminal accountants who are bad.

What Arthur Andersen was doing wasn't accounting, and people should be in jail over that.

[MassDem4Life]

59. OH, Please tell me of the clear benefits of our current

system of taxation. Also, please tell me of the clear inequities of the flat tax system.

The purpose of the high exemptions are to separate blood money(food, shelter, clothing) from discretionary spending. Also to facilitate the end of deductions, and credits, and all the bullshit that currently fill 3.6 millionpages of our tax code.

It actually nails the rich even more than the current system, but is much fairer.

The rate would be roughly 17%

you would get a $12,000 exemption for each taxpayer, and $5,500 for each dependent. NO DEDUCTIONS.

So a typical family of four would have their first $35,000 tax free.
After that they would pay $0.17 on every dollar they earned.

So the family that has a taxable income of $50,000 would pay $2,550 in federal income taxes. For an effective rate of 5.1%

The family that has a taxable income of $500,000 would pay $82,450 for an effective rate of 16.49%

The family that makes $1,000,000 would pay $167,450 for an effective rate of 16.75%


You see, you have eliminated all loopholes, generated more revenue, vastly simplified the tax code so that normal people no longer need to pay to have their taxes done. and it is STILL progressive. The effective rate still increases as your income increases.

Please tell me what is wrong with this scenario?

oh, btw, the best part is that it will no longer cost the government $900 million dollars just to collect the damn money.

[AP]

60. See posts 35 and 44 and this one.

Another thing I haven't gotten into in detail here, but which is important is that corporate and individual tax rates have to be roughly the same because it's too easy to switch back and forth between corporate and indiviually tax forms. If corp taxes are too high, operate as a partnership. If corp taxes are too low, form a corporation, and do everything as a corporation.

The flat tax proponents never talk about the relationship between individual and corporate tax rates.

So, for all the reasons I said above in posts 35 and 44, you dont' want to treat someone making 500,000 and 140 million the same. It's just ridiculous. (And, notice, any flat tax rate you pick, the effective tax rate always approaches that flat rate, with very little variance as you approach infinity. If the tax rate is only increasing 1/32nd of the rate between 500K and 140 million, your building in a ton of inequity in that range (because there's no way an 140 million dollar earner is only 1/32nd better off than a person making 500K, and there's no way that that person's marginal valuation of an additional dollar is 1/32nd less.

However, even if you aren't moved by notions of fairness for INDIVIDUALS making over 500K, you should be VERY concerned about fairness for CORPORATIONS with incomes in that range.

I believe one of the biggest explanations for the reason why LARGE CORPORATIONS dominate the political landscape today is because the tax code is (1) skewed so much in favor of corporations, and (2) skewed so much in favor of large corporations.

Wrap your head around these facts (these are mostly from memory, and I don't think any of them is more than 5% off). An accountant told me that 20 years ago, corporations generated 80 percent of the tax revenue in America, and individuals generated 20%. Today that is reversed. I've seen other statistics that say corporations pay less than 50% of the income tax (and income tax is smaller sum of money than all tax revenue).

Notwithstanding actual marginal rates on earned income, individuals pay an effective rate of income taxation ranging from someting like 12% to 27 or 28% accross the five quintiles (and their effective rate of taxation considering ALL taxes ranges from 12 to 18%, and it isn't the top quintile that's paying the highest rate). So, there's mild progressivity on (only) earned income, but when you take into account all tax revenues for all levels of government, it works out that things are very flat (and even regressive -- in fact NO states tax progressively...CA is the best, and it stills taxes the rich a lower rate than the poor...which is part of the reason the actual tax burdens are so flattened even though we have marginal tax rates on earned income which try to be progressive).

So, we try to be progressive with individual income tax (but it gets washed out), but, get this, corporations pay an effective rate of income taxation of between 2 and 3%. And the IRS publication that sets this out shows it on a completely different income scale compared to the chart for individuals. The corpations chart breaks it down into quintiles (or thirds) in brackests of 0-50 million, 50-100, and 100-infinity. Yes, corporations have an income tax burden which is 1/6 to 1/13t of the average individual's (and this is despite the fact that rich corporations seem to be making money pretty easily in an economy that is decimating the bottom four quintiles for individuals).

So, basically, in America the highest income earners, corporations are paying taxes at a de facto flat rate because, not only do they get deductions, but because they also pay on relatively the same scale as individuals and in the same brackets (ie, the top rate of about 30% starts at 300K) even though their incomes are way way off that scale (in the millions rather than the 10s of thousands). Part of the reason these effective rates are so flat is BECAUSE so many corporations make money in the range of the top bracket, which creates a huge competitive disadvantage when you're close to the bottom end of the top bracket, and a huge competitive advantage for the people at the top end of the top bracket (because they're competing with small businesses which have to work so much harder, and take more risks (like capital and personnel investments) to get extra profit, while paying the same price to the government for the right to that extra dollar).

So if you want to know what a flat tax would do, you just need to look at corporations. A flat tax creates a competitive disadvantage for small income earners, it consolidates wealth and political power at the top range, and it shifts the tax burden down the income scale.

Instead of arguing for a flat tax which is going to extend that inequitable (essentially medieval) econmic realities beyond merely corporations and down into individuals (are you going to bring back monarchy and titles next?), we should be talking about how we're going to make corporate income tax more progresive for incomes in the range of 300K to 150 million, and 1 billion and beyond.

(Oh, and I hope people realize that if we only doubled the effective rate of taxation on corporations up to between 4 and 6 percent over the full range of income, no individual would even have to pay income tax. I'm not advocating that, but I think that should make people think about how fair they think the tax code is. I think this is why the Republicans don't want a corporate Alternative Minimum Income tax. If we did, it multiply by ten times the amount of money we get from corporations in income tax, which, back of the envelope calcualtion, would quintuple income tax revenues)/

[MassDem4Life]

88. i see it is the old punish the profiteers

slogan of socialism again.

Obviously you think that the purpose of the tax code is to punish the rich. As I hope to be rich one day, I dont believe that, I believe that the purpose of the tax code is to fund the necesary functions of government.

Secondly; Lets face, at the bottom line corporations pay no income taxes!!!! That is a fact!!!

let me explain; Taxes are simply a cost of doing business. It is figured into the price of their goods or services. You raise corp. taxes all you have done is raise the price of goods.

Your line about raising corp. taaxes to eliminate personal taxes is great, if you want to go to McDonalds and pay $8.00 for a cheesburger.

And who will ultimately pay those taxes? Not the rich, how many of them go to McDonalds?

And yes I know that example was facetious, but your initial arguement was spurious at best.


The fact is one you separate Blood money from discretionary income, and tax based upon the latter, you have helped the poor and middle class more thanany congress in history.

As for your arguements about the difference in treatment between the 500k earner and the 10m earner, that is not your concern either because both of these people are rich and you obviously dont care about them, your aim is to punish the rich, a class which includes both of these people

[AP]

89. Oh man, are you confused. Start from the beginning and read everything.

The goal of the tax code is to make sure that paying taxes burdens everyone equally. It shouldn't create competitive advantages OR disadvantages.

The burden of the cost of anything (whether it's the price you pay for a good, or the tax you pay the government on income or on a purchase) is a function of how much money you have. Progressive income tax takes into account how much money you have. It's the best way to apportion burdens fairly. A flat tax or a tax with a negative slope as incomes increase is definitely more burdensome on low income people. A progressive tax with two steep a slope is more burdensome on rich people.

I never argued that we should have a super steep slope. I've only argued that the tax code should be sufficiently progressive so that everyone is burdened equally...so that the payment of taxes has a neutral effect on the reward to effort calculs people do in their heads when they decide in which activities they will engage. (And, by the way, look where the reward to effort calculus is today...because of our crappy tax code, big businesses are more interested in controlling the government and making sure the tax coded is regressive because it's easier to make money that way (by shifting public wealth by legislation fromt he middle class to the rich) than it is to make money by working, which is taxed a little too high right now).

So, if you really want to get rich, MassDem, you better learn about progressive taxation, vote for Democrats who care about it, and how that someday America gets back on track to a system which rewards hard work and accomplishment, rather than rewards the already rich which the consolodiatiom of even more wealth and therefore political power.

[AP]

90. A word about "corporations passing on taxes to customers"

The essential fallacy of that argument is that, if true, the same logic should apply to individuals.

I make my money by working. If I'm taxed too much by the government, I should be able to pass those costs on to the consumers of my labor, right? Yes. If my job doesn't make me enough money to make me happy, I should find a way to make more money.

That's exactly what corporations are faced with when they pay taxes. And just like me, corporations are constrained by the marketplace. They can only pass on the costs that the marketplace can bear. And the government should always be concerned that they might be creating too much or too little of a burden on individuals and corporations throughout the full range of incomes.

Corporations aren't different from people. People sell their labor for income (which is taxed at ridiculous rates). Corporations sells goods and services, and find ways to shelter their income.

Granted, I agree that the cost of making money should be deductible for corproations and individuals, which is why corporations have lower effective tax rates -- everything, just about, that a corporation does, is done to make money. However, when companies pay an effective tax rate which is 10% of the effective tax rate individuals pay, something's wrong. We could probably use some combination of more exemptions and deductions for individuals, and higher actual rates on much higher levels of income which will, de facto, capture high income earning corporations moere than they do individuals, and

[AP]

91. and a word about, "they're all rich"

If we had a flat tax which benefited the wealthy, you'd see such a shift in wealth, and such astronomical high-end salaries (in the same way that the de facto flat tax on corporate income has resulted in hugely wealthy corporations), that 500K would become an upper middle class salary (eaten away by inflationary prices), and there'd be a few rich people making 10 mil, 100 mil, 200 mil, and they'd totally dominate American society, politics and the economy.

There'd be a huge difference in the power between the bottom and top of that range, it wouldn't be funny.

And you are totally contradicting yourself. You're saying the 500K and 10 mil earners are both rich. YOu say I want to punish the rich. But I'm the one who wants to treat both of them fairly.

Furthermore, I want to treat the 10 mil earner fairly viz the 40 mil, 100 mil and 200 mil earner, and the 200 mil earner fair viz the 300 mil earner.

Look, you need a certain amount of money to run the government and provide an environment within which the rich can get richer and the poor can get rich. The best way to pay for that system is to apportion the cost in a way that approximates the value people get out of society and the ease they have in making another dollar (which is a function of how many dollars they already have). That's why progressive taxation is the way to go. It's great for evyeryone, especially if you want to get rich by any mean other than consolidating your wealth without having to make an any kind of real, socially valuable effort.

[DoNotRefill]

65. I could get behind a combination system....

exclude all necessities (food, shelter, clothing), implement a flat tax, but put some kind of "rich people's tax" that's progressive in nature on top of it. Either that, or tax the hell out of luxuries at a progressive rate (for instance, if the flat rate is 10% on regular vehicles, bump it to 25% for cars that cost between $30-70K, and 50% for cars over $70K. I know that wouldn't be a truly flat tax, but it might work.

Our current income tax system sucks. How many rich people actually pay serious taxes? We're not rich, and we pay a fair bit.

[AP]

66. There aren't only three bands of wealth in America...

...people under the deductible, rich people, and everyone else.

If you believe that there should be three bands reflecting different exonomic experiences, then why don't you believe in five or 10 or 25 bands.

The bands themselves don't make taxes more complicated (your last step is simply looking at a table, if there were a continually variable progressive system with, effectively, 1 million bands, you wouldn't even know the difference).

So if you agree that there are at least three different economic experiences warranting different marginal rates, I think you've just made the argument for a full, progressive system with many bands, with marginally higher rates as income increases.

[AP]

67. kick, 'cause it's important

[Touchdown]

68. I see nothing wrong with the 30s-60s progressive taxes...

That a few nips and tucks couldn't fix.

However, it seems that people are enamored with a very simple to understand tax structure. So I laid out an idea a couple of weeks ago, and got no bites. Let's see if I can remember it.

The individual 50 states collect all taxes, then they deal with the feds. A mutually agreed upon revenue balance will be taken off the top by the state, and the rest will be sent to the Feds. All sales taxes are federally abolished...no exeptions. A pack of gum, or a yacht...makes no matter, no taxes! Deductions would be reduced to what can fit on a single two sided schedule page. Utility firms get re-regulated and monopolized (Electric, gas, phone, CATV, etc) Corporate taxes fall into 5 progressive levels...

$100,000-5M=5%
$5M-200M=10%
$200M-1B=15%
$1B-10B=20%
10B< =25%

Individual income taxes would mirror the same formula.

<$20,000=nothing
$20K-35K=5%
$35K-55K=10%
$55K-75K=15%
$75K-125K=20%
$125K-250K=25%
$250K-500K=30%
500K-5M=35%
$5M-25M=40%
$25M+=45%

The payroll tax celing would be raised to 1M.

All investment income will be taxed at 20%...that includes dividends, estate, capital gains, etc.

It's a start, and I'm not completely married to it, but feel free to augment, or scrap it.

[AP]

69. A few notes...

I think there should be some mechanism for adjusting the bands and rates in a way so that they are a function of how much wealth the economy is producing, and how easy it is to make money, and how risky it is to invest money, and how much a living wage is, etc.

Also, I think investment income needs to be wealth sensitive. I don't like the idea that there's some avenue for realizing wealth that is flat taxed. If there's a huge disparity between the tax rate on earned income and some other form of income, people who are wealthy and have the option to do so will be able to figure out ways to realize their income through the low-tax avenue. That's what stock options were all about. It was a way to get income taxed at cap gains rates (and long term cap gains rates if you waited more than a year after they vested to cash them in).

So, either you get rid of all those other rates, and tax all income at the same levels as earned income, or you make sure that there are steps for unearned income tax rates. Like, you increase the unearned income tax rates in increments which are triggered by your adjusted gross income (so, even if you're not paying the same rate on earned and unearned income, at least the rate you pay on unearned income gets higher as your AGI gets higher).

[Touchdown]

77. Good points.

I wanted to do an investment ladder, but didn't have the time. Now, I see that there really is no difference between labor income, and investment/inheritance income. Income is income, as far as I'm concerned. So, I would include all investments into the individual earned income ladder. This might make an inheritee take a big hit after daddy keels over, but he will never be taxed on that money again, and he's certainly not going to go hungry because of the taxes.

On adjusting rates...of course. Nothing should ever be set in stone, when it comes to the economy. One could even break it down into 1 percentage increments with smaller thresholds to meet, but my first idea was to simplify the tax structure for those that think a flat tax in a panacea for all their complicated tax problems would find it attractive. Hense, my idea of having the states collect the taxes, so that only 1 return must be filed from then on out. The IRS would get smaller, but State revenue offices would be hiring like mad, so the employment gap between the two (or 51 of them) could cancel each other out.

[AP]

81. There is a difference between different types of income...

...and you want to charge people the lowest taxes on the types of income generating activity which are the most socially valuable.

Since almost all the wealth in America that is socially valuable and productive comes from labor, you want to tax that activity the least.

According to Kevin Phillips's Wealth & Democracy, the sorts of income-generating activities engaged in by insurance and investment companies are the least socially beneficial to society (and are actually come at a huge social cost). Yet, those activities generate income which is taxed at the lowest rates.

So it's no surprise that America is falling apart as more wealth and political power gets concentrated in the hands of people doing the most damage to the long-term viability of the US economy and society.

So, modifying what I said above, you really do want to tax earned income at a different rate than unearned income -- you want to tax it much less -- and you want to tax unearned income at higher, progressive rates.

Also, I think Phillips said that inherited wealth should be taxed to the recipient (which is a great idea) and that there should probably be a one-time wealth tax to fix all the damage the tax code has done to the economy in the last 20 years.

[DoNotRefill]

72. What I was thinking...

was taxation based upon the nature of the product itself. If you buy a hybrid automobile that's inexpensive, dependable, environmentally friendly and geared towards lower-middle class people, you'd pay the same low or non-existant tax rate regardless of your income. If you bought a behemoth gas-guzzling Hummer for $125,000, regardless of your income, you'd pay a much higher rate. If you buy an off-brand pair of $12 work pants, no tax. If you buy a $5000 Versace original pair of "work pants", you pay taxes through the nose. If you buy a 900 Sq. Ft. house in a working class neighborhood as a primary residence, no tax. If you buy a 15,000 Sq. Ft. house on 10 acres on the oceanfront, or if you buy it as a rental property, you pay taxes through the nose.

This way, rich people are not FORCED to pay high taxes if they buy the inexpensive hybrid, the little house to actually live in, or "real people" clothes. Of course, once they actually move to buy something luxurious, they get hit. Their only other real recourse is to just hold onto their cash, which has no real utility to them. What's the point of having it if you can't spend it?

I'm not claiming this is a perfect, viable plan at this point, I haven't thought about it that much. The idea just kind of appeals to me.

[AP]

74. It's not sufficiently precise. Just because the item is a luxury item

doesn't mean that everyone buying has the same degree of wealth, and, therefore, the same marginal valuation of an additional dollar.

A person with an income of 100,000/year (all from earned income) might splurge and buy an expensive car (and may finance more of the purchase price, and therefore, have to finance the sales tax as well). A person who makes 10 million per year (laregely from unearned income) could buy the same car, not have to finance any of it.

By having the government rely largely on a luxury tax to raise revenue, you treat those two people differently. I know it's hard to generate a lot of sympath for people at those levels of income, but I think it's still bad for the economy to treat them so differently by flat taxing them.

I'm all for sin taxes/gas guzzler taxes/taxes depending on weight of cars (because you're just socializing the costs of those items -- you get the people who are ruining the health/air/wearing out the roads to pay for the costs, and perhaps discourage them from buying things that do that), but I'm not sure that a luxury tax is all that smart. If your goal is to get people who have more money (and lower evaluations of additional dollars) to bear the same burden as people with higher valuations, the luxury tax is very dull instrument to achieve that end. You should go straight for the jugular with a progressive tax on earned and unearned income.

Also, I don't think it's smart to discourage people from buying things that are more expensive if they really want things that are more expensive. It's good for the economy, I believe, when there are a large range of quality items for people at all income levels, from the Geo Metro to the Bentley. (I think it's a bad sign the economy creats huge disparities in income unfairly, but I think that when the economy is rewarding people who make great contributions to society with great wealth (and tax it fairly), it's probably good for the economy to let them buy things which maximize their happiness, regardless of price).

Anyway, the super rich are probably the ones that would prefer the luxury tax because they're probably making money from investments in banks, and banks are the real winners with luxury taxes (because they make more interest income when sale praces are higher , which happens when people have to finance the costs of taxes).

[TacticalPeek]

70. cf.

"The law, in its infinite wisdom, prohibits the rich as well as the poor
from sleeping under bridges." - Anatole France

[QuestioningStudent]

82. My idea, reposted.

I originally posted this in the original thread; I am trying to get constructive responses to this. Please help! Original post below:
---------------------------------------------------------------

As I understand it, paying taxes is a way of paying for the benefits you get by being part of a particular society, protected by that society's government, etc. For example, we pay taxes in America because we derive benefit from our government and society, and taxes are our way of paying our dues. Does that sound about right?

If that's the case, and please let me know if you think otherwise, then it seems like the most morally/ethically appropriate tax modality would be some sort of a national retail sales tax. Before anyone gets too upset with that, please allow me to explain myself.

Granted my first paragraph being accurate, then:
-The justification for taxes is the benefit we derive from our
society and government.
-If we are going to expropriate someone's life (in the form of
taxation of money they have earned), it makes sense we have a
logical standard. It seems that standard should be the value of the
benefit they have obtained from living in our society.
-While we obtain money through employment (either working for a
business or corporation, being self-employed, etc.) we do not derive
any actual benefit until we spend our income. More money=more
spending power, yes, but it is only when we spend the money that we
realize a value, whether that value be in the form of food, shelter,
transportation, health care, entertainment, etc.
-If we only derive value from spending money, then we only derive as
much (objectively measurable) value from society as money we spend.
-So to be fair and equitable about taxing people in proportion to the
amount they benefit from our society (and, although the reasons
might be debatable, don't the rich actually realize more of a
benefit from our society than anyone else?), and thus, in proportion
to what they spend.
-In other words, a national sales tax seems like the most desirable
taxation system.

Okay, I know that went on for a very long time, wasn't terribly concise, etc. I will appreciate anyone's constructive criticism--I'm not trying to cause trouble, etc., it just seems to me like this is a rather logical train of argument. If I'm wrong, please tell me (politely and courteously) how, so I don't make that mistake again. Thank you!

[AP]

84. National sales tax is NOT the answer.

I partly agree with your characterization of taxes. My impression of taxes is that we only having them because they're the way you maximize wealth and productivity in society. We didn't have income tax for a long time, and the government could only do a limited number of things. So we needed more money, to do more things which could create even more progress and more revenue. There's no way that you could ever convince Americans to simply give the government money in exchange for a return that is dispersed so broadly that few people would see the connection between the investment and the return, so the smartest way to do this is to compel people to pay in (in theory, in fair proportions) and, if you don't like the investments the government is making, then you stop voting for Republicans and start voting for Democrats.

And we decided that, theoretically, if you benefit a lot, you should pay a little more for the benefits. Also, in the interest of making sure that taxes themselves created an competive edge or an undo burden, we collect them progressively. (I can't keep reapeating stuff over and over again, throughout this thread above is the discussion of the fact that your marginal valuation of an additional dollar as a function of hom many dollars you already have).

So, if we got rid of taxes tomorrow, we'd go through a period of negative growth and misery, and then we'd just vote to have them again so that we could get back on track.

Now, I've already addressed the sales tax thing here as well, so I'll hit the main points:

1) If your goal is to equalize tax burdens, the best way to do it is to make the tax burden relate to how rich you are. How much stuff you buy probably does correlate to how rich you are, but it's a pretty dull instrument. A billionaire could be a hermit and drive a 20 year old car and clip cuppons if he or she wanted to. A poor person who has to spend 110% of his or her income on consumer goods just to make it to the next day does not have a choice.

2) Whereas income tax taxes your income, sales tax taxes your consumption. Rich people are rich because they consume way less than their income. However, poor people AND middle class people often spend more than they make every year. Do you know middle class people who are taking out home equity loans, have 2 or more mortgages, are still paying off their college debt, and put everything on credit cards? I certainly do. For those people, granted not all their purchases are consumer goods, but every consumer good purchased is putting them farther into debt. That means, if we financed the government out of a sales tax, people who go into debt year-on-year, would be paying tax on money they never received. That would be like, if you made 50K a year, but the government made you pay income tax on 75K or 100K. Is that fair? No. Then why's it fair to raise revenue the same way from sales tax.

3) Who would benefit from a national sales tax? Credit card companies and banks which load money out. It would increase the price of everything. People who take out loans to buy things (ie, the middle class) would end up financing their tax bill, with the interest (profit) going to the banks. Now, should the government be in the business of GUARANTYING INCREASED PROFITS TO BANKS? Ok, well, I know they do that in so many ways, but should we really be giving them one more way?

[AP]

92. I'll kick this up for the last time, perhaps, to give...

...all those who claim elsewhere they have been adequately rebutted one last chance to address the rebuttals of their arguments