[billw55]

Thanks Art.

When I call a flat tax "regressive," I mean that in comparison to the existing tax structure. Which apparently is not technically correct; although I suspect most readers knew what I meant.

[Winstonm]

 ArtK78, on 2015-April-22, 14:10, said:

It seems clear that some of the terminology being used in this thread is not being understood by all of the posters.

1. A "regressive" tax structure is one that imposes a higher effective tax rate on those with less wealth in proportion to their income. So, for example, a sales tax, which is imposed as a tax on purchases of goods and services at a single stated rate, is regressive because the poor purchase more goods and services relative to their wealth than the wealthy.

2. A "flat" tax structure is one that imposes a single stated rate of tax on all income classes (or, in the case of sales tax, on all sales transactions). For example, if all income is taxed at 5%, that is a flat tax. That does not mean that such a tax structure is regressive or progressive. As with the sales tax, the effect of a flat tax structure may be regressive, progressive or neutral. A flat tax cannot have multiple tax rates as one poster stated.

3. A "progressive" tax structure is one that imposes higher rates at higher levels of income or wealth. The US federal income tax is a progressive tax structure in that the marginal tax rates on higher incomes is higher than the marginal tax rates on lower incomes. This does not take into account deductions, credits, and other tax breaks available in various situations.

The federal estate tax (the so-called "death tax") is a very progressive tax, as it does not apply to anyone who has an estate valued at less than $5.4 million.

Note that while regressive and progressive are terms describing two sides of a spectrum, a flat tax structure is not a middle ground between the two. The "flat" in "flat tax" refers to a single rate of tax. It has nothing to do with its impact on various classes of taxpayers. Flat tax structures may be regressive, as with the sales tax, or they may be neutral, as with income tax if there are no deductions and all income is subject to tax. Or they may be progressive, as with the federal estate tax (the tax rate on wealth of a decedent valued at over $5.4M is flat, but is zero at all valuations below $5.4M). But most so-called flat tax structures tend to be regressive due to deductions and the failure to tax certain types of income which tend to allow wealthy individuals to avoid the tax to some extent.

I would counter that a flat tax is effectively regressive in that a 5% tax on a minimum worker has more impact on that person's ability to purchase good and services than does a 5% tax on a person making $250K per year.

[mike777]

 Winstonm, on 2015-April-22, 14:21, said:

I would counter that a flat tax is effectively regressive in that a 5% tax on a minimum worker has more impact on that person's ability to purchase good and services than does a 5% tax on a person making $250K per year.

Winston in practice any taxes on a minimum worker is likely to have more impact than taxes on a rich person. This is true of progressive tax rates.

If the goal of taxes is for them to have the same impact, rich or poor, fair enough.

This sort of gets back to the debate of what taxes and tax rates should be used to accomplish in terms of social justice/

Many argue that tax rates should be set so the pain is equal and just.
OTOH others argue that tax rates should be set to maximize growth in the economy.
Thus the tension in the tax debate.

TO put it another way the debate is over how to divide the pie up and provide the safety net or how to grow the pie to provide the safety net.


For example one argument goes if we grow the pie this only benefits the rich getting richer so we should worry more about how to divide the pie up.

[awm]

The current US Federal Income Tax is mostly progressive (this breaks down at the very highest levels because capital gains are taxed at a lower rate), with higher rates for higher incomes. However, the overall US tax system is not very progressive, because of several quite regressive taxes:

1. Social security tax. This is a flat tax levied only on the first 118K or so of income (it also excludes capital gains income) at 12.4% (half paid by employer, half by employee). Poor and middle-class people pay this on their full income, whereas the wealthy pay on only a small portion (for a much lower effective rate).
2. Consumption taxes. In the US most sales taxes are levied at the state level, but there are a few national ones (i.e. gasoline tax). The amount of tax paid depends on how much you spend (especially on particular items), and the poor tend to spend a lot more of their income.
3. Property tax. Again this is mostly at the state level. This one may seem weird, because of the immediate reaction that most poor people do not own property. However, middle-class people often have most of their wealth tied up in a house (whereas the wealthy may have a more expensive house, but have a greater percentage of their wealth in stocks and bonds). So the ratio of property value to income tends to be highest for the middle class, and they have the largest direct payment here. As for the poor, they are typically renting, but landlords pass the property tax cost on to renters, so even though the poor do not pay this tax directly, it has the effect of increasing their housing costs.

A flat tax on all income would presumably be a neutral tax in this respect. With a big "standard deduction" it becomes progressive. The issue with various Republican plans:

1. They exclude capital gains, which makes a nominally neutral flat tax quite regressive (the wealthy have a much higher percentage of their income from capital gains).
2. They are replacing a progressive tax (current income tax) with a more nearly neutral tax (flat tax) without modifying the various other (regressive) taxes Americans pay. This will swing the overall tax structure (including property tax, social security tax, etc) to be very regressive.
3. There are reasonable arguments that taxes actually should be progressive and not neutral (i.e. the wealthy can afford to pay a higher percentage, the wealthy have benefitted more from the US economy, the wealthy make more use of certain services like police/fire department, etc).

Here's a somewhat old article giving some graphs on how much tax Americans really pay (by income).

[ArtK78]

 Winstonm, on 2015-April-22, 14:21, said:

I would counter that a flat tax is effectively regressive in that a 5% tax on a minimum worker has more impact on that person's ability to purchase good and services than does a 5% tax on a person making $250K per year.

I know of no strictly quantitative way of measuring the differing impact of a 5% tax on someone making $25,000 per year and a 5% tax on someone making $250,000 per year. The tax on the first individual is $1,250. The tax on the second indivudal is $12,500. One can make an argument that the marginal utility of each additional dollar is less than the previous dollar, so that the $12,500 in tax paid by the higher income individual matters less to him than the $1,250 in tax paid by the lower income individual matters to him. But that is a hard argument to make.

it has been a long time since I was involved in quantitative analysis in economics. I am sure that the argument can be made by others who are better equipped to handle this type of thing than I. But there has to be a point where making the tax rate structure more or less progressive results in equal marginal utility to both the higher income individual and to the lower income individual. Where that point is, I cannot say. But, intuitively, it would seem to be somewhere near a flat tax structure such as a straight 5%.

[mike777]

Speaking of taxes.

Keep in mind a good place to experiment is at the local city, county and state levels.

I think at times we only think of federal taxes and federal tax rates or structures.

[blackshoe]

 gwnn, on 2015-April-22, 13:05, said:

And the question is not whether or not the gold standard per se is a good idea but whether going back to the gold standard (destroying the vast majority of money in circulation) is plausible or would be a good idea.

Who said anything about destroying anything?

[blackshoe]

 gwnn, on 2015-April-22, 13:02, said:

Google "ron paul irs", it's really the first or one of the first ones that come out (on his own website!). Whether or not you recall it, you might have done the chore yourself before you challenge my assertion. Anyway, generally what happens when you defend your libertarian ideals is that the rest of the water cooler asks you uncomfortable questions and you stop answering them because you can't or won't. I wonder if this is the post after which this happens or a few more down the thread.

I made a comment. You don't like it. I don't care.

[Bbradley62]

 gwnn, on 2015-April-22, 08:05, said:

Extreme libertarianism such as eliminating the IRS altogether, going back to the gold standard, ...... Some stuff that libertarians want I agree with but stuff like "flat tax" (i.e., everyone needs to pay 100k$ or whatever each year in taxes) makes me wonder if they really thought any of it through.

Although there are several different proposals for implementing a "flat tax", none of them dictate that each person would pay the same number of dollars in taxes; they dictate that each person would pay the same tax rate on all of their taxable income.

[mike777]

 Bbradley62, on 2015-April-22, 20:30, said:

Although there are several different proposals for implementing a "flat tax", none of them dictate that each person would pay the same number of dollars in taxes; they dictate that each person would pay the same tax rate on all of their taxable income.

thus the problem and complications.

but to be fair....I do not think this is what the flat tax people advocate....they seem to love more than one rate. they often advocate negative income tax.

that is more than one rate

that is more than simple tax on taxable income whatever that means

even the no deductions side has an issue..what the heck is a deduction and a deduction from what the heck?


this is so much more complicated even the press gives up on explaining it.

what you call a deduction or a loophole or whatever I call an expense.

now if you want to forbid any expenses from revenue fair enough.

[gwnn]

 blackshoe, on 2015-April-22, 17:27, said:

I made a comment. You don't like it. I don't care.

You challenged my assertion on whether or not he proposed getting rid of the IRS because "you don't recall." What kind of a comment is that? I asked you to look it up and you still refused to do so.

http://www.ronpaul.com/taxes/
http://www.washingto...t-once-and-all/

[gwnn]

 Bbradley62, on 2015-April-22, 20:30, said:

Although there are several different proposals for implementing a "flat tax", none of them dictate that each person would pay the same number of dollars in taxes; they dictate that each person would pay the same tax rate on all of their taxable income.

I've seen this "flat tax" proposed more than once on the internet, even on these forums. I have not seen the Pauls (or anyone serious) propose it, though, sorry for the confusion.

[mike777]

As I said what many call a deduction or loophole I call an expense.


And trust me people hate to pay taxes on non cash wages or income.

Keep in mind the goal is to reduce non compliance not to make taxpayers do more,. often.

See Italy or Greece/ etc where this is the game everyone loves to play.


the tipping point to more non compliance not less is very very close.

non compliance is more common around the world than I think posters will accept.

[mike777]

Side note I doubt many people know this.


The vast majority of agents who audit or look at rich people, complicated returns, super rich people are at retirement.

My best man has 7out of 11 at super retirement 30+ years in his IRS department. No money to hire replacements at novice level. He has had 6 bosses last 3 years retire, these are bosses at super top levels. His boss is thousand miles away.

This is an open invitation for non compliance.

btw I note he told me IRS can only see roughly 10% of people who have questions on their normal, everyday returns. They hired guards to keep people away, hundreds and hundreds at his site in suburb.


USA has great, superb compliance compared to the world but we are at a tipping point.

[billw55]

 ArtK78, on 2015-April-22, 16:19, said:

I know of no strictly quantitative way of measuring the differing impact of a 5% tax on someone making $25,000 per year and a 5% tax on someone making $250,000 per year. The tax on the first individual is $1,250. The tax on the second indivudal is $12,500. One can make an argument that the marginal utility of each additional dollar is less than the previous dollar, so that the $12,500 in tax paid by the higher income individual matters less to him than the $1,250 in tax paid by the lower income individual matters to him. But that is a hard argument to make.

Interesting. Personally, I think it is not a hard argument at all. In fact, I think it is completely obvious.

[hrothgar]

 billw55, on 2015-April-23, 06:43, said:

Interesting. Personally, I think it is not a hard argument at all. In fact, I think it is completely obvious.

Economics considers it almost axiomatic...

[helene_t]

 hrothgar, on 2015-April-23, 06:56, said:

Economics considers it almost axiomatic...

Yes but there are other issues involved also such as insentitives.

[Trinidad]

 blackshoe, on 2015-April-22, 12:57, said:

Give the government the power to tax, and it will tax. Inevitably, eventually the taxing rises to the level of abuse. There is no way, as far as I can see, to avoid that.

That is a strange attitude towards tax.

Few people like to pay tax. But to consider tax "abuse" is going over board.

In many countries, gifts to charity are tax deductible. I told my children that the tax office is probably one of the best charities that you can donate your money to if you consider what they do with our "donations":

Education
Social security
Infrastructure
Health care
Justice and security
Defense
Stimulate innovation, trade, sports, culture, etc.
Development aid
...

Rik

[billw55]

 Trinidad, on 2015-April-23, 07:49, said:

In many countries, gifts to charity are tax deductible. I told my children that the tax office is probably one of the best charities that you can donate your money to if you consider what they do with our "donations":

Education
Social security
Infrastructure
Health care
Justice and security
Defense
Stimulate innovation, trade, sports, culture, etc.
Development aid
...

Rik

From discussions mainly in these forums, I have often drawn the impression that citizens of some western European nations, on the whole, trust their governments much more than I trust the US federal and state governments. Government waste is rife here, with corruption and theft often not far behind. I would absolutely never, ever, think that a donation was better given to the government than to a private charity that I trust. Nor would I think that a donation to the government would be equal or more effective in providing aid. In fact, I would consider the idea borderline absurd.

In this respect, I really envy you. Untrustworthy government is, IMO, one of our biggest problems here.

[ArtK78]

 billw55, on 2015-April-23, 08:16, said:

From discussions mainly in these forums, I have often drawn the impression that citizens of some western European nations, on the whole, trust their governments much more than I trust the US federal and state governments. Government waste is rife here, with corruption and theft often not far behind. I would absolutely never, ever, think that a donation was better given to the government than to a private charity that I trust. Nor would I think that a donation to the government would be equal or more effective in providing aid. In fact, I would consider the idea borderline absurd.

In this respect, I really envy you. Untrustworthy government is, IMO, one of our biggest problems here.

I think that the reason that you believe that waste by government in the US is worse than elsewhere is that you don't know what is going on elsewhere.

A funny story:

A collegue of mine would always say that no one ever voluntarily and knowingly gave more to the government than he had to. Then I was presented with an estate administration in which the decedent's will provided that 70% of his estate would go to the Social Security Administration. I showed the will to my collegue. He looked at it somewhat in amazment and said, "That's one!"