# A naive question, but what's wrong with a flat tax rate?



## RandomPhantom700 (Aug 15, 2011)

I was just reading how Warren_Buffet_wants_to_to_increase_taxes_on_the_rich. Big surprise, I know. But it just reminds me of a question that nags at me everytime the whole political rhetoric regarding taxes comes up. What is the problem with a flat tax _rate_ on all income brackets? I know that establishing a flat static tax would inherently disfavor the poor, but why would an across-the-board tax rate be infeasible? It seems so simple and straightforward to me that I know there has to be a reason it's done differently. 

Or is the only real issue a political one wherein everyone wants to either favor one side or the other and a flat tax rate doesn't favor either? Thanks for humoring my newbness ahead of time.

Also, why does the link type-over insist on putting a space in the word "rich"?


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## granfire (Aug 15, 2011)

ri ch people need more space ^_^


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## Steve (Aug 15, 2011)

Wrong is kind of subjective, and "flat tax" means different things to different people.

Some common objections to a flat tax are that it disadvantages the poor.  In other words, the taxes for the poor will go up in a true "flat tax."

Another one depends on what is taxed.  As a person gains more wealth, the percentage of their income that is derived from wages decreases.  In other words, a middle class family gets close to 100% of their income from wages, whether self employment or otherwise.  As the income brackets increase, you'll see more and more of their income coming from dividends, capital gains, and such.  So, in a true flat tax, where ALL income is taxed equally, the actual tax rate for the rich will also go up.  In a flat tax only on wages, it will go down and we'll have a regressive tax system.


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## Bill Mattocks (Aug 15, 2011)

RandomPhantom700 said:


> I was just reading how Warren_Buffet_wants_to_to_increase_taxes_on_the_rich. Big surprise, I know. But it just reminds me of a question that nags at me everytime the whole political rhetoric regarding taxes comes up. What is the problem with a flat tax _rate_ on all income brackets? I know that establishing a flat static tax would inherently disfavor the poor, but why would an across-the-board tax rate be infeasible? It seems so simple and straightforward to me that I know there has to be a reason it's done differently.



A flat income tax has the advantage of being simple.  It has the disadvantage of being unfair in the sense that a flat rate is harder on the poor than the rich. 

What is the point of taxation?  In my mind, it is to produce the needed revenue to operate the government.  I understand desires to be fair, but I also don't see an end to the ongoing fighting over what is fair and what is not.  One might say that 20% tax across the board is fair - all are taxed at the same rate.  Another would say that's not fair, because 20% tax on the poor is crippling, while 80% tax on the rich is closer to the pain the poor feel paying 20%.  Is it about revenue, or is it about making sure everyone hurts the same?  Would an 80% tax on the rich hurt the overall economy, or would we be just fine and have much higher tax revenues also? There's your basic questions when it comes to flat-tax arguments.


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## Twin Fist (Aug 15, 2011)

17% is the same for everyone. there is no such thing as it being "harder on the poor"

17% is 17%


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## Big Don (Aug 15, 2011)

RandomPhantom700 said:


> I was just reading how Warren_Buffet_wants_to_to_increase_taxes_on_the_rich. Big surprise, I know. But it just reminds me of a question that nags at me everytime the whole political rhetoric regarding taxes comes up. What is the problem with a flat tax _rate_ on all income brackets? I know that establishing a flat static tax would inherently disfavor the poor, but why would an across-the-board tax rate be infeasible? It seems so simple and straightforward to me that I know there has to be a reason it's done differently.
> 
> Or is the only real issue a political one wherein everyone wants to either favor one side or the other and a flat tax rate doesn't favor either? Thanks for humoring my newbness ahead of time.
> 
> Also, why does the link type-over insist on putting a space in the word "rich"?


If Warren wants to pay more taxes, he can, shoot, he can give his whole damn fortune to the federal government.
A flat tax is claimed to be "Regressive" because it makes the poor pay taxes as well. As it stands now, 48% of Americans pay NO TAXES WHATSOEVER, were there a fair flat tax, the poor would have to pay some. 
There is no nobility in poverty, if there were, poverty would be a goal.


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## Touch Of Death (Aug 15, 2011)

Twin Fist said:


> 17% is the same for everyone. there is no such thing as it being "harder on the poor"
> 
> 17% is 17%


Progressive and regressive. Look it up. There are such things. They offer Macro accounting classes at you local community college.


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## RandomPhantom700 (Aug 15, 2011)

Twin Fist said:


> 17% is the same for everyone. there is no such thing as it being "harder on the poor"
> 
> 17% is 17%



Actually there is.  Keep in mind, I'm not saying that I think this is a reason not to impose a flat tax _rate_, but the essential difference is this.  For the CEO making $20,000,000 a year, 25% tax rate puts him at 15,000,000 net earnings.  For a person making $20,000 a year, the same tax rate puts him at $15,000 net earnings.  That $5,000 loss, as the argument goes, hurts the $20k/year taxpayer more than the $5,000,000 loss hurts the $20m/year taxpayer.  The rates are teh same, so the argument goes, but the impacts are substantially different.


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## crushing (Aug 15, 2011)

The biggest problem with a flat or proportional tax (which lies between progressive and regressive) is that it would be too easy and may impact the employment of the lawyers and accountants that have a tremendous amount of pull in government.  With the present convoluted system comes an increased probability that people will mess up when doing tax returns.  This adds pressure on taxpayers to purchase tax software or hire a tax preparer and it moves people to tread more carefully when dealing with the government that may audit them at anytime.


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## Bill Mattocks (Aug 15, 2011)

Twin Fist said:


> 17% is the same for everyone. there is no such thing as it being "harder on the poor"
> 
> 17% is 17%



Yes, 17% is 17%.  That is completely true.

However, the base cost of things ensure that 17% to one income group is very different in total effect than 17% to another income group.  That is where many people see the 'unfairness' between 17% for the poor and 17% for the rich.

It gets complicated, but consider something like food.  The difference between the income of the very poor and the very rich may be huge, but the difference between the cost to feed them is not huge.  So a very poor person may spend 25% of their total after-tax income on food; a very rich person might spend 2.5% of their after-tax income on food.  The same disparity in percentage of income is true in housing, transportation, and so on.  A poor person may have a less-expensive car than a rich person, but not in proportion to the difference in their income, and their gasoline costs the same.

Another way to look at it is that 17% is a rather large number for a poor person after you consider the necessities of life; it's rather small for a rich person.  As a percentage of the money they have available to spend, 17% is not 17% when you look at it that way.

So the question comes down to whether or not we want to consider fairness in taxation.  Should all be equally yoked in terms of a mathematical percentage, or should all be equally yoked in terms of the percentage of their income?  17% hurts a poor person a lot.  It doesn't hurt a rich person nearly that much.

And then of course, it also has to be said that there are those who simply do not like the fact that others are rich, and want to see them punished with heavy taxes as a penalty for being greedy, selfish, uncaring, pigs.  I say this because whenever the subject of higher taxes comes up, I seldom hear arguments about how we need to raise taxes on the rich to balance the budget.  I do hear complaints about how the rich are greedy, selfish, uncaring pigs and they need to be punished for it.  Sorry, facts is facts.  If some people didn't hate the rich, they would not say things like that; so it's hard to argue that's not an agenda item for many of them.


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## Twin Fist (Aug 15, 2011)

"because they can afford to lose it" is no justification for robbery.

17% is the SAME as 17%


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## Steve (Aug 15, 2011)

Twin Fist said:


> 17% is the same for everyone. there is no such thing as it being "harder on the poor"
> 
> 17% is 17%


Or on the rich.  17% tax on all income will be an increase for many "rich" people.


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## Twin Fist (Aug 15, 2011)

thoser are just words someone PICKED FOR EFFECT because they sound good or bad when applied.

fair=equal in this context and 17% is equal when applied to EVERYONE.

the poor? **** the poor, almost HALF of the american people pay NO TAXES AT ALL

THAT isnt fair. 

how is it fair to charge some NONE and some 50%?

the ONLY reason is "because they can afford it"

and that simply doesnt justify robbery in my book and more than "she was asking for it" jusitfies rape.


Touch Of Death said:


> Progressive and regressive. Look it up. There are such things. They offer Macro accounting classes at you local community college.


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## Steve (Aug 15, 2011)

Twin Fist said:


> thoser are just words someone PICKED FOR EFFECT because they sound good or bad when applied.
> 
> fair=equal in this context and 17% is equal when applied to EVERYONE.
> 
> ...


We had a thread on the boards a while back where I pointed out that many of our richest people pay zero income tax.  There's a double standard at work when you want to quadruple asterisk the poor but lick the boot heels of our richest citizens.  I was raked over the coals for being some kind of communist, but my point then as it is now is that we need to recognize that our richest citizens have it friggin' made and the middle class is paying the price.  I'll see if I can find that thread if I get a few minutes.


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## RandomPhantom700 (Aug 15, 2011)

Twin Fist said:


> "because they can afford to lose it" is no justification for robbery.
> 
> 17% is the SAME as 17%



It's recognizing that there's a disparate impact when the tax rate is viewed in an economic context rather than a vacuum.  Essentially, it's the same as observing that higher gas prices hurt lower and middle-income brackets far more than they hurt the higher-income brackets (some of whom don't even notice the difference unless it affects their stocks).  



> the poor? **** the poor



No thanks, the poor are already being ****ed enough as it is.


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## Big Don (Aug 15, 2011)

stevebjj said:


> We had a thread on the boards a while back where I pointed out that many of our richest people pay zero income tax.  There's a double standard at work when you want to quadruple asterisk the poor but lick the boot heels of our richest citizens.  I was raked over the coals for being some kind of communist, but my point then as it is now is that we need to recognize that our richest citizens have it friggin' made and the middle class is paying the price.  I'll see if I can find that thread if I get a few minutes.


Why, then, is it OK to steal from the rich?
Close all the loopholes and watch the CPA's and Tax attorneys howl...


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## Big Don (Aug 15, 2011)

RandomPhantom700 said:


> No thanks, the poor are already being ****ed enough as it is.


Yeah, that is why there are so many of them, and why they stay poor...


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## RandomPhantom700 (Aug 15, 2011)

Big Don said:


> Yeah, that is why there are so many of them, and why they stay poor...



Are you serious?


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## granfire (Aug 15, 2011)

Big Don said:


> Why, then, is it OK to steal from the rich?
> Close all the loopholes and watch the CPA's and Tax attorneys howl...



It's Robin Hood's way, don't tell me he was wrong?!

it's not stealing, it's taxes.

On the same token, stealing from the poor is better?


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## Bill Mattocks (Aug 15, 2011)

Twin Fist said:


> "because they can afford to lose it" is no justification for robbery.
> 
> 17% is the SAME as 17%



Let's try it another way...

A poor person earns, say, $10,000 a year.  17% tax on that is $1,700.  He has $8300 left.
A rich person earns, say, $250,000 a year. 17% tax on that is $42,500.  He has $207,500 left.

The poor person pays his rent or mortgage, say $500 per month x 12 months = $6,000.  He has $2,300 left.
The rich person pays his rent or mortgage, say $2,500 per month x 12 months = $30,000.  He has $177,500 left.

The poor person buys his groceries, say $50 a week x 52 weeks = $2600. He's three hundred dollars in the hole.  And he hasn't paid for his car's gasoline or insurance yet to get to work, or his health insurance copays and deductibles, or any of the myriad other things most of us must pay for.

The rich person buys his groceries, say $200 a week x 52 weeks = $10,400.  He has $167,100 left.  Money to pay for gas, car and health insurance, his kid's braces, college fund, retirement account, maybe a little cabin in the woods or on the beach.

I'm not saying that 17% is not 17%.  It is.  And I agree that taxing people in a punitive way is not a justification for robbery.  But is it a justification for taxation?  When we tax to raise revenue for the state to function, do we wish to be 'fair' in a mathematical sense, or fair in an 'equally yoked' sense?

Here's a story I heard when I was on Okinawa.  I don't know if it's true or not - probably not.  It was probably just an apocryphal tale.  But it illustrates the issue, I think...

When I got to Okinawa in the early 1980's, I was a Marine MP.  We were introduced to our Japanese counterparts, because the USA gave Okinawan US military bases back to Japan in the 1970's.  The bases were not sovereign US territory, so crimes committed on base could and sometimes were prosecuted by the Japanese courts.  We were told a number of things that I found interesting.  One was that the conviction rate was over 90% in Japan.  Another was that when you were sentenced to prison, you made paper bags all day long and did not speak.  You got one hour of free time per night to write letters home.  The rest of the time you were supposed to think about your crime.  There was no parole, you did your time, all of it.  But here is the kicker.  The Japanese treated their prisoners all alike.  That means they spoke to the prisoners in Japanese.  If you didn't understand what was being said, you learned quickly.  You got the same food as the Japanese prisoners; and the same quantity.  That was a problem.  Japanese, especially Okinawans, were quite a bit smaller than the typical American.  And some American convicts died from malnutrition because of it.  But the were all treated the same, you see.  They all got the same amount of food.  If that amount was enough for one person, but another would starve on it, so what?  They all got the same.

I see flat tax as kind of the same thing.  Insisting on a flat rate is 'fair' from the point of view of math, but some people will starve on it, and others won't even notice.  There are many ways to define 'fair', but I'm not sure I'm comfortable with this one.


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## Bill Mattocks (Aug 15, 2011)

Twin Fist said:


> fair=equal in this context and 17% is equal when applied to EVERYONE.



I do not agree that mathematical equality is the definition of fairness in this sense.



> the poor? **** the poor, almost HALF of the american people pay NO TAXES AT ALL



If there were a flat tax, they would, so I'm not sure what that has to do with anything.



> THAT isnt fair.



I do not know how much money would be generated in tax revenue by taxing everyone.  I presume more than is presently taken in, but how much more, I do not know.  And I wonder at the effect it would have on our economy if the lowest economic group were suddenly unable to buy food or pay rent.



> how is it fair to charge some NONE and some 50%?
> 
> the ONLY reason is "because they can afford it"
> 
> and that simply doesnt justify robbery in my book and more than "she was asking for it" jusitfies rape.



I don't see taxation as _'robbery'_.  We certainly have the means, as a society, to end taxation.  We can vote it out of existence, amendments and all.  Not something robbers usually put up with.

And _'because we can afford it' _is often the answer I give when asked to donate to charity, or when my family wants to see a movie or go out to eat - or decide *NOT* to donate, see the movie, or go out to eat if the answer is that we *cannot* afford it.  Is it not also a valid question to ask when taxing our citizens to pay for government services?

It would seem so under the current scheme, because we have a tiered tax system based on income now.  So it would appear that yes, we **do** think it is fair to tax the wealthy more than the poor, at least on paper, and at least until we get all the deductions, breaks, shelters, and other methods of evading taxes legally figured in.


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## Balrog (Aug 15, 2011)

A flat tax would be better than what we have now. No deductions, no exemptions.

But even better would be repealing the 16th Amendment and implementing the Fair Tax.


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## RandomPhantom700 (Aug 15, 2011)

Bill Mattocks:

Would a system that first negated a base, average yearly cost-of-living amount from the gross income, and then calculated tax rate off the remainder, be substantially different from the current exemption system in place?


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## Bill Mattocks (Aug 15, 2011)

Big Don said:


> If Warren wants to pay more taxes, he can, shoot, he can give his whole damn fortune to the federal government.
> A flat tax is claimed to be "Regressive" because it makes the poor pay taxes as well. As it stands now, 48% of Americans pay NO TAXES WHATSOEVER, were there a fair flat tax, the poor would have to pay some.
> There is no nobility in poverty, if there were, poverty would be a goal.



Not entirely true, but true from a certain perspective.  A lot depends on how you look at it.

This article was very prescient, and it really laid out exactly what we're looking at RIGHT NOW:

http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html



> Yes, 47% of Households Owe No Taxes. Look Closer.
> By DAVID LEONHARDT
> Published: April 13, 2010
> 
> ...



But here is the kicker.  None of this matters in the sense that we in the USA have to cut expenses and raise revenue.  Period.  We can argue about how to do that, but it has to happen.  The budget cannot be (I am convinced) balanced without doing both.  So.  If that is true, from where does the money come?  Democrats want to raise taxes and not cut benefits.  Republicans want to cut benefits and not raise taxes.  Neither one will work by itself.  End of story.

If taxes have to go up, I am no longer as certain as I once was that ending the Bush tax cuts is the worst thing we could do.  I certainly enjoyed those tax cuts and it would hurt to lose them for me.  But the money must come from somewhere.  DNC stubbornly insisting on taxes without cuts and GOP insisting on cuts without taxes is seriously beginning to put a burr under my saddle.  Get off it, guys, it isn't working.  Time for a new plan.


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## Bill Mattocks (Aug 15, 2011)

RandomPhantom700 said:


> Bill Mattocks:
> 
> Would a system that first negated a base, average yearly cost-of-living amount from the gross income, and then calculated tax rate off the remainder, be substantially different from the current exemption system in place?



Yes, I believe it would be very different, if I understand what you're saying properly.


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## Bill Mattocks (Aug 15, 2011)

Balrog said:


> A flat tax would be better than what we have now. No deductions, no exemptions.
> 
> But even better would be repealing the 16th Amendment and implementing the Fair Tax.



There are a lot of things that would be better than what we have now.  Personally, I'd like to see a national sales tax in place of a revenue tax.  It would capture the money currently lost to taxation through the underground economy, and people could avoid taxation by avoiding excessive purchasing.


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## Twin Fist (Aug 15, 2011)

Bill Mattocks said:


> I don't see taxation as _'robbery'_.




I dont either.

I DO see taxation at rates approaching 50% as robbery


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## Steve (Aug 15, 2011)

Big Don said:


> Why, then, is it OK to steal from the rich?
> Close all the loopholes and watch the CPA's and Tax attorneys howl...


Ugh.  Don, where did I say it was okay to steal from the rich?  If someone who makes over $200,000 pays no net income tax, how is that stealing?


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## Big Don (Aug 15, 2011)

stevebjj said:


> Ugh.  Don, where did I say it was okay to steal from the rich?  If someone who makes over $200,000 pays no net income tax, how is that stealing?


Ask John Kerry. He and his wife aren't scraping by to live on his Senate salary.


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## Nomad (Aug 15, 2011)

How does this:



> Buffett said his federal tax bill last year was $6,938,744.
> 
> "That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income​ - and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent," he said.



translate into the rich carrying "more than their share" as I've heard many argue of the current US tax burden?  Apparently, as a billionaire, he pays less (in percentage of earned income terms) than his much less-wealthy colleagues.  I'm hoping this will shut up a few of the people that claim that we're already over-taxing the incredibly wealthy and they can't afford to pay more (for example, the same percentage that I have to pay) as it would stifle the economy... but I'm sure there's another way to spin this that says exactly that...


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## Twin Fist (Aug 15, 2011)

if he really only paid 17%, then close the loopholes, dont raise the taxes, when you know they will just use the loopholes in place to avoid that rate too....


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## Big Don (Aug 15, 2011)

Nomad said:


> How does this:
> 
> 
> 
> translate into the rich carrying "more than their share" as I've heard many argue of the current US tax burden?  Apparently, as a billionaire, he pays less (in percentage of earned income terms) than his much less-wealthy colleagues.  I'm hoping this will shut up a few of the people that claim that we're already over-taxing the incredibly wealthy and they can't afford to pay more (for example, the same percentage that I have to pay) as it would stifle the economy... but I'm sure there's another way to spin this that says exactly that...


Pretty easily, when you see how disingenuous Buffet is being:
See Here, see here, see here.


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## billc (Aug 15, 2011)

Yeah, thanks Big Don, I had heard about Buffet's do gooderism on the tax issue as well.

Here is one proposal for a flat tax that helps "the Poor" but still gets the flat tax.  Exempt the first 40,000 dollars of everyones income, everything else gets hit with the flat tax.  The really poor are spared, and the first 40k of the middle class is spared, and the rich still pay more.

On a side note, coming home from class I was listening to Mark levine talking about the 10 to 1 question at the republican debate, if you are interested you can look it up.  He came up with a great idea, especially geared to doing what Buffet wants, increasing his taxes.  Start a new "utlra-rich" tax bracket at 40 billion dollars.  anyone making 40 billion dollars a year would pay 10 billion dollars in taxes, and, under the 10 to 1 question, you would get 200 billion dollars in budget cuts.  An all around beautiful plan, and then Warren Buffet could stop "saying" increase my taxes, and start "paying" more taxes.  Bill Gates would get it to for all the people who hate Bill Gates.


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## crushing (Aug 16, 2011)

granfire said:


> It's Robin Hood's way, don't tell me he was wrong?!



It always makes me smile when Robin Hood's way, taking from the tax collector and giving it back to the people, makes these tax discussions.  Thanks.


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## punisher73 (Aug 16, 2011)

billcihak said:


> Yeah, thanks Big Don, I had heard about Buffet's do gooderism on the tax issue as well.
> 
> Here is one proposal for a flat tax that helps "the Poor" but still gets the flat tax. Exempt the first 40,000 dollars of everyones income, everything else gets hit with the flat tax. The really poor are spared, and the first 40k of the middle class is spared, and the rich still pay more.
> 
> On a side note, coming home from class I was listening to Mark levine talking about the 10 to 1 question at the republican debate, if you are interested you can look it up. He came up with a great idea, especially geared to doing what Buffet wants, increasing his taxes. Start a new "utlra-rich" tax bracket at 40 billion dollars. anyone making 40 billion dollars a year would pay 10 billion dollars in taxes, and, under the 10 to 1 question, you would get 200 billion dollars in budget cuts. An all around beautiful plan, and then Warren Buffet could stop "saying" increase my taxes, and start "paying" more taxes. Bill Gates would get it to for all the people who hate Bill Gates.



When I had first heard of the idea of a flat tax rate, this was how it was proposed (don't remember who I was talking with or context).  That under a certain amount you wouldn't pay or would pay a lower flat rate.  This way their wouldn't be a hardship on paying the taxes.


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## Bill Mattocks (Aug 16, 2011)

punisher73 said:


> When I had first heard of the idea of a flat tax rate, this was how it was proposed (don't remember who I was talking with or context).  That under a certain amount you wouldn't pay or would pay a lower flat rate.  This way their wouldn't be a hardship on paying the taxes.



Of course, this is what we have now, more or less.  And it's not the definition of a 'flat tax', it's a graduated tax.  The difference is that we started out with what you described above and then added tax breaks, loopholes, shelters, and all sorts of things to it, for good reasons and bad, until we have a nightmare.  If we just removed all deductions and returned to the simple tax brackets we already have, we'd be fine, I think.

The problem as I see it is that lawmakers could not refrain from using the tax code for two purposes OTHER THAN generating revenue to operate the government.  First, they used it to create and steer social policy; for example, by giving tax breaks on home mortgages to encourage people to buy homes rather than rent.  Second, to reward those who give them money.  Get rid of all tax breaks; all of them.  Student loan interest, mortgage interest, having kids, etc, etc, etc.  Simple tax based on income.  End of story.  Just rip the guts out of the tax code and leave the brackets.


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## CanuckMA (Aug 16, 2011)

billcihak said:


> Here is one proposal for a flat tax that helps "the Poor" but still gets the flat tax.  Exempt the first 40,000 dollars of everyones income, everything else gets hit with the flat tax.  The really poor are spared, and the first 40k of the middle class is spared, and the rich still pay more.



I had to come back for a cataclysmic event.

I actually agree with Bill. :boing2:

But here's what's going to happen. 

You introduce something like that, and next you'll have advocacy groups in large, expensive cities clamouring for a higher floor because of the highr cost of living. So now we'll introduce floors depending on region. 
Then someone will sya,"we need to encourage retirement saving". So we'll introduce exemtion for 401(k) contributions. 

And so forth...

Pretty soon we're back to the unholly mess we have now.


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## Twin Fist (Aug 16, 2011)

everything above 40K taxed at a flat 17%, no exemptions, no double taxing like captitol gains and estate tax, those are BS.

bet the taxes comming in would actually go UP


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## granfire (Aug 16, 2011)

Twin Fist said:


> everything above 40K taxed at a flat 17%, no exemptions, no double taxing like captitol gains and estate tax, those are BS.
> 
> bet the taxes coming in would actually go UP



well, those are income, too. Tax everything at 17% that comes through the door. You are already making excuses for those who can actually make a profit from selling stuff (or have had lucky/wealthy ancestors)


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## Big Don (Aug 16, 2011)

Twin Fist said:


> everything above 40K taxed at a flat 17%, no exemptions, no double taxing like captitol gains and estate tax, those are BS.
> 
> bet the taxes comming in would actually go UP


But, then, revenue increased under the dreaded Bush Tax Cuts...


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## granfire (Aug 16, 2011)

Big Don said:


> But, then, revenue increased under the dreaded Bush Tax Cuts...


did it?


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## Bill Mattocks (Aug 16, 2011)

granfire said:


> did it?



Good question.  Answer?  Unclear, or It Depends On Whom You Ask...

http://en.wikipedia.org/wiki/Bush_tax_cuts


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## punisher73 (Aug 16, 2011)

I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.

Thoughts?


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## Bill Mattocks (Aug 16, 2011)

punisher73 said:


> I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.
> 
> Thoughts?



In general, I like the idea.  First of all, it taxes people based on consumption; they control their effective rate of taxation by controlling their consumption to the extent that they can (everybody buys food, but not everybody buys caviar).  Second, it captures tax revenue at the point where the money changes hands in a retail environment; retailers already collect sales tax and remit it on a quarterly basis to the city and/or state governments.  Third, it captures tax revenue from the so-called underground economy, which includes illegal aliens and drug dealers; everybody buys, so everybody pays taxes.  Fourth, it completely does away with the IRS and lowers the burden on employers who now have to follow complicated tax laws to withhold taxes from paychecks.

Many states have no income tax; some have only a state sales tax.  It seems to work.

This has the added advantage (for those who see the government's role as encouraging social policies through taxes, which I don't) of allowing the government to continue to encourage change via sales tax rates on different things.  For example, the recent angry posts about GM's CEO stating that if the government really wanted to encourage people to buy high-MPG cars, they would raise the tax on gasoline by a buck a gallon, not simply mandate that car manufacturers meet certain fuel efficiency standards.  His comment was widely misunderstood except here in Detroit, where all the car makers say the same thing.  If the government simply cannot resist trying to control what people buy (high MPG versus whatever people want, like huge SUVs), then the way to do that is to encourage them to buy by making gasoline costs painful - not by forcing the makers to build cars that nobody wants.

So yeah, national sales tax.  I think it would work.


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## granfire (Aug 16, 2011)

punisher73 said:


> I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.
> 
> Thoughts?


well, it would make sense. You buy more (and more expensive) you pay more.

I think there is a model out put together by economists, not politicians that has something like 3 brackets and no loopholes...it would lessen the burden on most while over all increasing revenue...but I did not catch the name of the people who thought it up, makes for a frustrating time searching for it.


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## cdunn (Aug 16, 2011)

punisher73 said:


> I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.
> 
> Thoughts?



Unless you tax the purchase of financial vehicles, it ends up severely regressive. The wealthy do not spend their wealth, they invest the majority of it and live off the returns, AKA, capital gains - and with the current banker's shell games, it ends up not even counting as 'purchasing', because it's in a bank account that they can freely withdraw from, while the bank has made the investments, and just tidies over the slop.


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## Bill Mattocks (Aug 16, 2011)

cdunn said:


> Unless you tax the purchase of financial vehicles, it ends up severely regressive. The wealthy do not spend their wealth, they invest the majority of it and live off the returns, AKA, capital gains - and with the current banker's shell games, it ends up not even counting as 'purchasing', because it's in a bank account that they can freely withdraw from, while the bank has made the investments, and just tidies over the slop.



I don't quite think that's the case.  All wealth eventually gets spent.  I'm not saying a billionaire spends every penny until they're broke, but that they consume retail goods and services, and at a higher rate than the common citizen.  Houses, cars, food, travel, entertainment, etc.  Worst case would be misers who don't spend much of their money, despite becoming richer and richer.  And if you wanted to capture that tax revenue stream, then put the sales tax on the 'transaction' of inheritance.  The longest a person could hold wealth and avoid taxes would be their own lifetime.  And remember, to shelter it, they can't spend it.  Money in the bank is the same as not having money; you cannot use it until you use it.

So the question here is this - are we concerned with capturing enough tax revenue through sale taxes to run our government and services, or are we pre-occupied with making sure that rich fat cats don't squirrel away their money and avoid 'fairness' in paying?

See, to me, that's a problem.  And it doesn't matter what basis for taxation we use - flat tax, tax brackets, or sales tax.  It comes down to an issue of 'fairness' for certain individuals; they can't stand the idea that some people aren't paying enough and it's not about how much is collected to pay the bills our nation must pay.

So we have to decide.  Are we interested in paying the bills, reducing the deficit, balancing the budget, or would we rather ensure that we punish rich people?


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## RandomPhantom700 (Aug 16, 2011)

punisher73 said:


> I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.
> 
> Thoughts?



My first thought is that it sounds great in a booming economy, but when the market takes a dump (i.e. now) and people start spending less, such taxes would become trickles.  An example is my native State of Florida, which traditionally has relied on tourism sales taxes instead of property taxes.  That's great during a boom economy, when everyone's going to MickeyLand every summer, but when belts start tightening, the state legislature suddenly finds itself working with much smaller numbers.  

Relying on sales taxes rather than income taxes, I worry, would suffer a similar vulnerability.


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## Bill Mattocks (Aug 16, 2011)

RandomPhantom700 said:


> My first thought is that it sounds great in a booming economy, but when the market takes a dump (i.e. now) and people start spending less, such taxes would become trickles.  An example is my native State of Florida, which traditionally has relied on tourism sales taxes instead of property taxes.  That's great during a boom economy, when everyone's going to MickeyLand every summer, but when belts start tightening, the state legislature suddenly finds itself working with much smaller numbers.
> 
> Relying on sales taxes rather than income taxes, I worry, would suffer a similar vulnerability.



It's always going to be a problem, no matter how you collect taxes. Tax on revenue also suffers; higher unemployment and people take pay cuts.  I myself got THREE whacking big pay cuts in 2009, and yes, my taxes went down because of it.  I also cut my spending...so it does harm tax generation either way.

However, you can also argue that sales tax is less affected in the sense that people may cut out trips to Disneyland, but they don't stop buying groceries or gasoline or car insurance, etc.  All goods and services which could be taxed under a sales tax in lieu of an income tax.  It's actually harder on the people and a bit easier on the taxing entity.  Even unemployed people who get various kinds of financial aid have to buy food and gasoline and pay insurance, and so on .


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## CanuckMA (Aug 16, 2011)

Then you get into the mess of wanting to exempt basic necessities. And to define those necessities. 

And if the states want to get into it, then online vendors will have to start collecting taxes based on the shipping address.


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## Steve (Aug 16, 2011)

punisher73 said:


> I have also heard people say (might have been mentioned in this thread as well) to do away completely with income tax, and only have a national sales tax so all people would pay on what they buy.
> 
> Thoughts?


I think it's worth considering.  The only real issue I have with it is that the government doesn't tend to repeal taxes.  The precedent for a Federal income tax has been well established, and my fear is that the Federal government would do what many States have done and simply ADD a Federal sales tax on top of everything else.  Even if it included an initial drop in the federal tax, we've all seen them creep up over years.  The opposite has been proposed here in Washington State, where some have proposed a limited State income tax, but we already pay among the highest sales taxes and the highest property taxes around (and the highest gas taxes and the highest... well, you get the picture.)  I just don't believe for a second that the State income tax would be "limited" for very long.


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## Twin Fist (Aug 16, 2011)

so someone that knows about it give me a quick and dirty on the national sales tax?


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## CanuckMA (Aug 16, 2011)

Twin Fist said:


> so someone that knows about it give me a quick and dirty on the national sales tax?



The Canadian National Sales tax applies too all goods and serices with the execption of unprepared food. It is a Value Added Tax, meaning that the tax is added at every step of the handling and production chain, but i everybody but the consumer offsets tax paid with tax collected.

In essence, a manufacturer pays no tax on raw material because it is presumed that the tax chrged on the finished goods will be more than the tax paid on the raw material. It is also a way to ensure products are not inflated by the rate of tax all the way through.


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## granfire (Aug 16, 2011)

Twin Fist said:


> so someone that knows about it give me a quick and dirty on the national sales tax?



what is there dirty about it:
all goods you purchase are subject to a predetermined tax.
Right now it's a communal thing, around here it varies from 8 to 10 %

Not sure how high the percentage is...Germany has that type of Tax (on top of income, property etc...) I think it's 16% bt I have not checked lately.


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## MPC1257 (Aug 16, 2011)

I don't have the answers regarding increasing taxes, I am more concerned that if we do increase revenues then our elected "leaders" will just increase expenses until we need more revenues.  Regarding the national sales tax or VAT, I don't like it.  My wife and I brought our son and nephew to Quebec City last year and it was so expensive due to their taxes that I'll never go back to Canada again.


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## granfire (Aug 16, 2011)

MPC1257 said:


> I don't have the answers regarding increasing taxes, I am more concerned that if we do increase revenues then our elected "leaders" will just increase expenses until we need more revenues.  Regarding the national sales tax or VAT, I don't like it.  My wife and I brought our son and nephew to Quebec City last year and it was so expensive due to their taxes that I'll never go back to Canada again.



there are expenses and there are expenses.

In a more ideal manner government decreases it's involvement in the market place when business is doing well and the economy is rolling along. That's when they ought to make reserves for the inevitable recession.
Then when the private sector is slowing, government ought to inject it's finances in order to stimulate the market.

That is naturally not done by purchasing 3600$ hammers or allowing MPs insane expense accounts, but by providing incentives for businesses or individuals. Like furthering education, or sponsoring research in new technology or something like that.

But not waste.
Not giving subsidies to booming industries or building roads to nowhere...

In the end though thee has to be a goal of monetary value behind it.
Hitler did great for a while piling all the unemployed in the countryside putting cobble stones on east bound express roads, known as the Autobahn...however noble the government had no means to actually pay the workers and without WWII (for which the roads were designed in the first place) the house of cards would have collapsed sooner or later. That is the opinion of leading economists over yonder anyhow.

I guess it's something like the hoover dam tho. Even though it's insanely expensive, there is a huge payoff to be expected in the end.


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## Ken Morgan (Aug 16, 2011)

MPC1257 said:


> I don't have the answers regarding increasing taxes, I am more concerned that if we do increase revenues then our elected "leaders" will just increase expenses until we need more revenues. Regarding the national sales tax or VAT, I don't like it. My wife and I brought our son and nephew to Quebec City last year and it was so expensive due to their taxes that I'll never go back to Canada again.


Quebec has the highest tax rate in the country. If you go to Alberta, they have no provincial sales tax, so you would see a 10% difference right there. 
Cost is relevant. Prices in the US tend to be cheaper then up here, but head over to Europe if you want to see expensive.


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## Bill Mattocks (Aug 16, 2011)

> And if the states want to get into it, then online vendors will have to start collecting taxes based on the shipping address.



Already happening.  A number of states have started to go after big online retailers like Amazon and others.


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## Bill Mattocks (Aug 16, 2011)

> I don't have the answers regarding increasing taxes, I am more concerned that if we do increase revenues then our elected "leaders" will just increase expenses until we need more revenues. Regarding the national sales tax or VAT, I don't like it. My wife and I brought our son and nephew to Quebec City last year and it was so expensive due to their taxes that I'll never go back to Canada again.



The idea behind a national sales tax would be to replace the income tax in the USA, so a push. Of course, there is a psychological point there; people tend not to 'see' the extra money in their paychecks, but they do 'see' the higher costs when new sales taxes are added.  So many people might decide that they were paying more when in fact they were not.

Sales tax does allow you to control your taxes in a way that income tax does not; paycheck earners generally cannot make their pay go up and down unless they get paid overtime (I don't) and can control how much they work.  But they can cut down on unnecessary expenses, thus controlling some of the taxes they pay.

And of course, to your point about spending versus revenue, I agree.  Without both Democrats and Republicans in Congress forcing a compromise, either side would bankrupt us.  One with not enough taxes to pay the bills, the other with increased spending over what is taken in, no matter how much.   They're complete idiots left to their own devices.  We need them to oppose each other, but they also have to compromise.  My opinion.


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