A flat tax system

[Jazzy]

How would a flat tax system impact different income groups, such as low-income earners and high-income earners?

 

[Lamb]

Would a flat tax system mean that no deductions on taxes could be made? That's the real clincher I think for the differences between a flat tax for the poor and flat tax for the rich.

 

[tango]

How would a flat tax system impact different income groups, such as low-income earners and high-income earners?

Anything that eliminated deductions would mean the people at the very bottom would pay more.

Whether it would represent a gain for higher income earners would depend on what deductions they lost along the way. The chances are the people at the top of the economic pile would do OK anyway, because it's worth their while to pay accountants to figure a way around it. If you don't want to pay the taxes go and set up a trust fund in Belize or something.

 

[Albion]

Anything that eliminated deductions would mean the people at the very bottom would pay more.

How so? Even with a flat tax, I would think that some at the "very bottom" would pay nothing at all because there wouldn't be a tax bracket for them.

Whether it would represent a gain for higher income earners would depend on what deductions they lost along the way. The chances are the people at the top of the economic pile would do OK anyway, because it's worth their while to pay accountants to figure a way around it. If you don't want to pay the taxes go and set up a trust fund in Belize or something.

Okay. Much depends on exactly how the flat tax proposal would be set up.

It's very unlikely that any such proposal, as it moves through Congress, would come out in its final form with every tax avoidance measure eliminated in favor of tax brackets that are purely based on income levels. In the meantime, however, we who are speculating are thinking of a concept rather than a real piece of legislation and almost unavoidably start by imagining what a "clean" bill would do, even if getting one is very unlikely.

 

[Josiah]

I've always liked the idea of a flat tax.... It not only is simple, fair, and saves billions but it's exactly what God stated (remember the tithe?)

SOME rich would pay more (some billionaires pay nothing now) but some would pay less.
MOST poor would pay more since a shocking number of US residents pay no income tax at all but if it replaced the sales tax, it would be similar.
MOST in the middle class would be similar - depending a lot on real estate.

The biggest losers would be all the tax attorneys, all those tax advisors and the IRS. Millions would be out of work.

The biggest winners would be democracy... everyone would have a horse in the race. Right now, voters often vote to raise taxes because it won't impact THEM (again, a high percentage pay no federal taxes at all), right now many don't give a rip about taxes because they pay none.

As often, "the devil is in the details." Nearly all proponents add exemptions to get around detractors. Some suggest a standard deduction, others want a charity deduction, still others real estate interest or money put into certain savings accounts. When you start adding up these exemptions and things, that tax rate skyrockets - and the whole thing starts to become difficult and perhaps even unworkable. Kept simple: I get a paycheck. Ten percent is withheld. I get the rest. Simple.

I don't think it will EVER happen because those in the legislature of our nation and our states all benefit greatly from all the loopholes and complexities of the current system. It would have to be part of a tax revolution of the masses - but since many poor would pay more, they aren't going to join in such. We're stuck with the very complicated, very unfair, very expensive system of loopholes that we have. Those who could change it like the way it is.



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[tango]

How so? Even with a flat tax, I would think that some at the "very bottom" would pay nothing at all because there wouldn't be a tax bracket for them.

Because at present a couple earning less than about $25,000 pay no federal tax because by the time they deduct the standard deduction their taxable income is nothing. If that deduction goes away then the couple earning $24,999 would pay whatever the flat tax percentage on that money was. Unless the flat tax rate is zero, which seems unlikely, they'll go from paying nothing to paying something.

Okay. Much depends on exactly how the flat tax proposal would be set up.

It's very unlikely that any such proposal, as it moves through Congress, would come out in its final form with every tax avoidance measure eliminated in favor of tax brackets that are purely based on income levels. In the meantime, however, we who are speculating are thinking of a concept rather than a real piece of legislation and almost unavoidably start by imagining what a "clean" bill would do, even if getting one is very unlikely.

You know we're talking about a flat tax, right? Not one with brackets based on income levels. A flat tax. A flat rate of tax across the board.

 

[tango]

I've always liked the idea of a flat tax.... It not only is simple, fair, and saves billions but it's exactly what God stated (remember the tithe?)

SOME rich would pay more (some billionaires pay nothing now) but some would pay less.
MOST poor would pay more since a shocking number of US residents pay no income tax at all but if it replaced the sales tax, it would be similar.
MOST in the middle class would be similar - depending a lot on real estate.

The biggest losers would be all the tax attorneys, all those tax advisors and the IRS. Millions would be out of work.

The biggest winners would be democracy... everyone would have a horse in the race. Right now, voters often vote to raise taxes because it won't impact THEM (again, a high percentage pay no federal taxes at all), right now many don't give a rip about taxes because they pay none.

As often, "the devil is in the details." Nearly all proponents add exemptions to get around detractors. Some suggest a standard deduction, others want a charity deduction, still others real estate interest or money put into certain savings accounts. When you start adding up these exemptions and things, that tax rate skyrockets - and the whole thing starts to become difficult and perhaps even unworkable. Kept simple: I get a paycheck. Ten percent is withheld. I get the rest. Simple.

I don't think it will EVER happen because those in the legislature of our nation and our states all benefit greatly from all the loopholes and complexities of the current system. It would have to be part of a tax revolution of the masses - but since many poor would pay more, they aren't going to join in such. We're stuck with the very complicated, very unfair, very expensive system of loopholes that we have. Those who could change it like the way it is.



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One issue with removing deductions is where corporations are concerned. The business with a huge turnover and very thin margins is a very different beast to the business with lower turnover but substantial margins. Expecting them both to pay the same tax rate either breaks the former, or lets the latter off the hook.

And as soon as you start making exceptions for corporations it becomes very attractive to set up a corporation, even as a private individual. Even now there are probably advantages to many people who make their money in ways other than regular employment to set up a corporation, even if they come with at least some disadvantages.

 

[Albion]

Because at present a couple earning less than about $25,000 pay no federal tax because by the time they deduct the standard deduction their taxable income is nothing. If that deduction goes away then the couple earning $24,999 would pay whatever the flat tax percentage on that money was. Unless the flat tax rate is zero, which seems unlikely, they'll go from paying nothing to paying something.

Well, yes, but we can count on a single person earning less than $10,000 or a couple earning less than %20,000 (for example) to be exempted altogether.

There is no chance of Congress agreeing on payment of a certain percentage across the board, and not exempting ANYONE at all on account of poverty.

That said, if you feel that such a provision negates a flat tax system, that's all right with me. But if it does, we all might as well agree right now that we're only talking theory by talking about a flat tax system.

 

[tango]

Well, yes, but we can count on a single person earning less than $10,000 or a couple earning less than %20,000 (for example) to be exempted altogether.

There is no chance of Congress agreeing on payment of a certain percentage across the board, and not exempting ANYONE at all on account of poverty.

That said, if you feel that such a provision negates a flat tax system, that's all right with me. But if it does, we all might as well agree right now that we're only talking theory by talking about a flat tax system.

... except then you still have the problem that the people who don't pay tax can freely vote to increase taxes, knowing it won't affect them. It's easy to vote for something when Someone Else gets stuck with the tab.

As soon as a flat tax incorporates bands, even if only a zero rate band, it's a small step to create more bands, which takes us right back to where we are now. Sooner or later some genius in Congress will figure that there's money on the table, the people will be quite happy to vote for a higher tax rate for richer people (because, you know, obviously), the rich people will pay lobbyists to create exemptions for them, and the whole process was for nothing.

I guess the people who designed the current system were accountants. It's hard to see anyone else gaining anything from a tax system that invites people to play "guess what form I need for this".

 

[Albion]

... except then you still have the problem that the people who don't pay tax can freely vote to increase taxes, knowing it won't affect them.

Yes, but there's nothing new about that. It's already enshrined in many different government programs and not just with the federal income tax.

As soon as a flat tax incorporates bands, even if only a zero rate band, it's a small step to create more bands, which takes us right back to where we are now. Sooner or later some genius in Congress will figure that there's money on the table, the people will be quite happy to vote for a higher tax rate for richer people (because, you know, obviously), the rich people will pay lobbyists to create exemptions for them, and the whole process was for nothing.

That's right, and a flat tax system would have to have an across-the board rate applicable to rich and poor alike (except that, as noted before, there would certainly be a "pass" given to the very poor).

I guess the people who designed the current system were accountants. It's hard to see anyone else gaining anything from a tax system that invites people to play "guess what form I need for this".

 

[Lees]

How would a flat tax system impact different income groups, such as low-income earners and high-income earners?

In my opinion, the idea of any sort of 'income tax' should be done away. Make all taxes based upon a sales tax. Sales taxes would go up, but everyone pays the same.

It wouldn't work though because the U.S. governemt would lose the power to throw people in jail and bankrupt them for not paying the taxes.

U.S. government will throw it's own people in jail for small amount of money, yet we send 'billions' to Ukraine and get nothing in return. And we can't even balance the U.S. budget.

As to how it would impact different income groups, low and high, what does it matter? If all pay the same amount, it's a fair tax.

Lees

 

[tango]

In my opinion, the idea of any sort of 'income tax' should be done away. Make all taxes based upon a sales tax. Sales taxes would go up, but everyone pays the same.

It wouldn't work though because the U.S. governemt would lose the power to throw people in jail and bankrupt them for not paying the taxes.

U.S. government will throw it's own people in jail for small amount of money, yet we send 'billions' to Ukraine and get nothing in return. And we can't even balance the U.S. budget.

As to how it would impact different income groups, low and high, what does it matter? If all pay the same amount, it's a fair tax.

Lees

This is a good idea in theory but would absolutely hammer older people, who have paid income tax on everything they ever earned and now have to pay increased sales tax so nobody else has to pay income tax. And the older people aren't at a place in life where they can just go back to work to earn the money to overcome the sudden rise in prices.

Another issue with sales taxes is that it makes buying things from abroad very attractive. Then you get into import duties, enforcing import duties and all the associated aggravations.

Of course if we could shrink the size of government that would help a lot. But expecting politicians who get to spend the rest of their lives fleecing the people to vote for ending the gravy train is a tall order.

 

[Lees]

This is a good idea in theory but would absolutely hammer older people, who have paid income tax on everything they ever earned and now have to pay increased sales tax so nobody else has to pay income tax. And the older people aren't at a place in life where they can just go back to work to earn the money to overcome the sudden rise in prices.

Another issue with sales taxes is that it makes buying things from abroad very attractive. Then you get into import duties, enforcing import duties and all the associated aggravations.

Of course if we could shrink the size of government that would help a lot. But expecting politicians who get to spend the rest of their lives fleecing the people to vote for ending the gravy train is a tall order.

Well, I don't think the sales tax would have to be increased to any dramatic amount. Remember, with the sales tax, everyone pays. All the illegals who are here who don't pay income tax will be paying as they will have to buy things. As for the 'older people' our income tax system today doesn't care for the older people. When everything went sky high and remains so, our government didn't raise the old peoples SS to the degree it should have.

Import duties is another matter altogether. I am talking about the income tax system we have. As far as 'import duties' hell yeah. That does need to be addressed. We give 'free trade' to countries to come over and sell their products at a cheaper price because they can build and create them in sweat shops with no saftey laws in place, and no retirement, etc. etc. And free trade allows them to do it without a protective tarriff which makes them sell on equal ground with American companies. American companies are supposed to compete with that?

Instead of taxing foreign countries to gain its wealth, our country taxes it's own people to death. Then throws the money away in Ukraine.

I don't expect America to change. The powers that be have gotten rich. The powers that be have all authority in the world to steal your money and throw you in jail for not handing it over.

Back in 1776 there was a certain group of people upset enough to go to war over taxation.

Lees