Speaking of taxes........

[glatt]

Originally Posted by glatt

my tax would be 2.8028 times what it is now. I'm opposed to it.

Originally Posted by Hyoi

You've argued strictly for your individual position but you've yet to state a logical argument against the fairness of the overall plan. ...

Next !

I'd be a sucker if I supported a flat tax. A flat tax would hurt me. If you were me, would you support a flat tax? I suspect that many middle class people would find themselves in the same situation if they filled out this form.

Fair? Why should I pay more taxes so Donald Trump can get a larger refund?

[Happy Monkey]

Originally Posted by Hyoi

Incorporations can't have children. Use your imagination and visualize the first line reading simply......Gross Profits, Cash accounting method.

Corporations are irrelevant. People can have capital gains, by owning stock, among other things. The fist line specifies wages, which are often an insignificant part of the income of the wealthy.

[Kitsune]

Originally Posted by Clodfobble

But if they are selling a handful of stock options here and there for day-to-day cash, that money is still taxed as capital gains. Don't most flat-tax plans still count capital gains as income?

Correction: Happy Monkey pointed it out -- this is a tax on "wages". Stock options, dividends, etc, are absolutely not wages. This is massively flawed.

[Hyoi]

I'd be a sucker if I supported a flat tax. A flat tax would hurt me. If you were me, would you support a flat tax? I suspect that many middle class people would find themselves in the same situation if they filled out this form.

Fair? Why should I pay more taxes so Donald Trump can get a larger refund?.............glatt

Answers: In a heartbeat, and you wont. I'm by no means finished with the topic, in that I'm working on an even simpler form, but I thought you and Kitsune in particular might benefit from the following:

Legacy Time: Get to Work on the Flat Tax
Marc Johnson - 1/11/2005

What do Hong Kong and Estonia have in common? Well, for starters, they're among the most economically free states on earth, according to the Heritage Foundation's 2004 Index of Economic Freedom (communist-occupied Hong Kong is #1, former Soviet Republic Estonia #6 -- consider that the United States, supposedly keeper of the capitalist flame, is #10).
Hong Kong and Estonia also have a flat tax, and they are making it work for them.

As America breathes a sigh of relief that the election is over and the administration begins to steel itself for the dizzying array of tasks ahead, there are a lot of folks out there who hope that Bush, relieved of the oppressive yoke of a looming re-election campaign, will choose as his legacy a truly revolutionary change: radical reform of the U.S. tax code and introduction of a flat tax.

U.S. income tax rules are, as most Americans know, labyrinthine, ever-changing and capricious. According to some estimates, the tax code is over 50,000 pages long, and US citizens spend a billion hours (literally) every year reading, re-reading and re-re-reading the rules as they fill out their 1040 forms.

It's a fair bet that there isn't a soul in America who knows the whole code off the top of his head. But that doesn't stop lawyers, accountants, and drive-through tax-preparation outfits from capitalizing on the confusion of Americans. Those citizens who can't afford professional assistance are left to fend for themselves -- hardly a progressive or equitable system.
What current problems would a flat tax system solve?

- Confusion: there are hundreds if not thousands of exemptions and "if this but not that except if this..." rules. They make it difficult if not impossible for ordinary Americans to get a fair shake on April 15th.

- Inequity: One rate for all. No loopholes, no dodges, no accountants, no lawyers. You and Donald Trump pay the same portion of your incomes, the same way.

- Bureaucracy: When the rules are simple enough for even mere mortals to understand, there is no need for a bloated, expensive, and often oppressive IRS bureaucracy. The IRS would continue to exist, but it would need a much smaller building and would siphon off many fewer taxpayers' dollars.

- Gamers: Why are so many companies moving their main offices offshore? Why do investors sell off stocks at the end of the year? Why do big-money businessmen open Swiss bank accounts? Because they are trying to game the system to reduce their tax exposure. With rates lowered, there are fewer incentives to play (and less effort spent playing) these games. And greater overall transparency, which exposes cheaters.

- Revenue: According to the UK's Adam Smith Institute, states that adopt a flat tax "have found the low flat rate produces more tax revenue than the complex system which went before." Low rates stimulate investment and achievement, which leads to growth, more profits, and more tax revenue.

In fact, the concept of a flat tax is gaining popularity abroad, ironically in tax-happy Europe. Despite attempts by EU heavyweights France and Germany to impose their beliefs on incoming member states, many new EU countries have moved to a flat or near-flat tax. The Adam Smith Institute's Andrei Grecu did a survey of nine countries with a flat tax, and found that almost without exception, the system has been beneficial. All three Baltic States (Lithuania, Latvia and Estonia) have a flat tax, as do Russia, Serbia, Slovakia and Ukraine. These last three are recent additions to the flat tax club, but the Balts have been making it work for a decade and have some of the highest GDP growth rates in Europe. Even Russia, the economic basket case that it is, has experienced significant GDP growth since adopting the flat tax (and, moreover, has doubled tax receipts - notable in a country where tax evasion was a popular a pastime).

Flat tax detractors will drag out the usual litany of scare tactics about poor people paying more taxes. They will complain that this is yet another example of greedy Republicans giving breaks to Corporate America. And they will worry that the flat tax won't be applied fairly. What really galls them, though, is that they believe rich people should pay more.

Which is why the Bush Flat Tax has to be done right. It must:

- Be fair: All income must be eligible. Work income, capital gains, dividends, interest, the whole lot. This was the Achilles' Heel of earlier flat tax proposals.

- Be flat: Three brackets do not a flat tax make. The code might be simpler, but it would not be flat, and it would not accrue as many benefits as a truly flat tax.

- Have a floor: Those below a minimum income level (we'll leave it to the economists to sort out where that line is) must be exempt. But nobody should be paying a larger percentage of his income when the flat tax goes into effect, least of all the working poor.

- Be reasonable: Excepting the lowest earners, a flat rate of approximately 21-24% would end up being less than most households currently pay and well within what they are willing to pay. Americans are eminently reasonable and don't expect to go from paying 28% to 5% overnight. Moreover, over time the rate will decrease as revenues rise (this assuming that Congress and the White House are able to finally exercise some fiscal restraint on matters other than the War on Terror).

On the domestic front, President Bush could do far worse than have a revitalized and simplified tax structure as the cornerstone of his second term. As in the first term, he can lower taxes for all Americans. Make payment less of a chore. Create a more equitable system; stop punishing success. And above all, stimulate growth rather than bureaucracy. All in all, not a bad legacy.

The second term hasn't begun, but the clock is already ticking.

For more information about Flat taxes, you can visit Andrei Grecu's Report on the Flat Tax

Marc C. Johnson is a consultant and freelance writer. His work has also appeared in Reason magazine, Tech Central Station, NewsMax, FreeRepublic, and the Washington Dispatch.

[Hyoi]

The Sum of All Fears.....not by Tom Clancy

June 9, 1998
The Freedom to Choose Flat Tax
by Stephen Moore
Stephen Moore is director of fiscal policy studies at the Cato Institute.

Why is an idea that is so unambiguously in the national interest -- with economic benefits that could easily raise family incomes by thousands of dollars a year -- completely stalled politically?

The answer is obvious: because the political hurdles are nearly insurmountable. The flat tax tries -- in one fell swoop -- to topple every well-funded special-interest lobby in Washington, from tax attorneys, to life insurance agents, to realtors and mortgage bankers. Each of those groups will spend fortunes to protect the hundreds of billions of dollars in tax favors and loopholes they have successfully carved out of the tax code. We got a taste of how insidious and effective the anti-tax-reform campaign can be during the 1996 New Hampshire presidential primary when the housing lobby spent millions of dollars on TV and radio ads against the Forbes flat tax.

The home mortgage interest deduction, the charitable deduction and the write-off for employer-paid health care are three of the most sacred-cow tax write-offs in the internal revenue code. They and other tax carve-outs are so imbedded in the current economic structure and political culture that trying to eliminate them is almost certainly futile -- and perhaps political suicide.

It is time for flat taxers to stop trying. ( I disagree strongly) Tax reformers must now acknowledge the message that the political marketplace has been sending us for the past few years: the flat tax has broad-based appeal to voters, but there are still many millions of Americans who are emotionally attached to tax deductions and are very suspicious of politicians who want to take them away.

[Hyoi]

This is a part of what the existing system is costing us. We're already suckers.

Tax Gap

In her testimony before Congress, Nina Olson, the National Taxpayer Advocate, said the following regarding the impact of noncompliance on taxpayers, in general:

"If we divide the 2001 net tax gap estimate of $255 billion by 130 million individual taxpayers, we can see that each of those taxpayers in 2001 paid, on average, an extra $2,000 to subsidize the unwillingness or inability of some taxpayers to pay their fair share."

In 2001 the average taxpayer paid $8,265 in taxes. With an estimated tax gap - which is the difference between what taxpayers should pay and what they actually pay on a timely basis -of $345 billion, this means that the 130 million taxpayers paid on average $2,649 more in taxes to subsidize the unwillingness or inability of some taxpayers to pay their fair share.
In other words, if everyone paid the taxes they owed, average individual income taxes paid per taxpayer could have been 32.1 percent less.

Olson, Nina E., National Taxpayer Advocate, "The Tax Gap and Tax Shelters," Taxpayer Advocate Service,
Testimony before the Senate Committee on Finance, July 21,2004.

Time is money.

According to a detailed study by the Tax Foundation, in 2005 individuals, businesses, and non-profits spent an estimated 6 billion hours complying with the federal income tax code at an estimated cost of over $265.1 billion. This amounts to imposing a 22.2-cent tax compliance surcharge for every dollar the income tax system collects.

A compliance burden of 6 billion hours per year represents a work force of over 2,884,000 people: Larger than the populations of Dallas (1,210,393), Detroit (900,198), and Washington, D.C. (553,523) combined; and more people than work in the auto, computer manufacturing, airline manufacturing, and steel industries combined. Projections show that by 2015 compliance costs will grow to $482.7 billion.

Compliance costs are regressive.

Business pays 55.7 percent of compliance costs, individuals 41.7 percent and non-profits 2.5 percent.

Compliance costs are found to be highly regressive. Taxpayers with adjusted gross incomes under $20,000 incur a compliance cost of 5.8 percent of income. Taxpayers with AGI over $200,000 incur a compliance cost of only 0.45 percent. Over 54 percent of all the tax surcharge savings resulting from tax simplification would go to taxpayers with less than $50,000 in adjusted gross income.

Moody, J. Scott, Wendy P. Warcholik, and Scott A. Hodge, "The Rising Cost of Complying with the Federal Income Tax," Tax Foundation, Special Report No. 138, December 2005.

Efficiency costs.

The efficiency costs of the federal tax system dwarf compliance costs. Efficiency costs occur when tax rules distort the decisions of individuals and businesses regarding work, savings, consumption, and investment. By changing the relative attractiveness of highly taxed and lightly taxed activities, taxes alter decisions such as what to consume and how to invest. When taxpayers alter their behavior in response to tax rules, they often end up with a combination of consumption and leisure that they value less than the combination they could have achieved if they made decisions free of any tax influences. This reduction in value is a welfare loss or efficiency cost. According to research by the Government Accountability Office, efficiency costs are on the order of magnitude of two to five percent of Gross Domestic Product (GDP). Based on GDP of $13.259 trillion in 2006, efficiency costs are an additional $265 billion to $663 billion.

"Tax Policy: Summary of Estimates of the Costs of the Federal Tax System," U.S. Government Accountability Office Report No. GAO-05-878, August, 2005, p. 20.

[DanaC]

Hong Kong and Estonia also have a flat tax, and they are making it work for them.

I did not know that. You learn something new everyday :P

[Happy Monkey]

Originally Posted by Hyoi

- Be fair: All income must be eligible. Work income, capital gains, dividends, interest, the whole lot.

Right there you'll get quite a few of the 401K and associated worksheets back. Most of the form is listing all possible forms of income, and determining how much of it is taxable. You can't "flat tax" that type of complication away, as it is generating the number that is flat taxed.

[BigV]

Hyoi, you seem quite firm in your adherence to these terms: "flat", "fair", and "floor". Don't you see that you can't have them all?

Let's start with flat. Pick your number, doesn't matter. Let's say, 20%, ok? If it were 20% for everyone, for **all** "income", then I contend that it's not fair. Because the poorest, as others have already pointed out, will be paying their one-fifth out of the food and rent money. Not good, certainly not fair.

So, you offer to provide a floor. Right away it's not flat anymore. It's got a big honkin' step right there at the beginning, can't you see that? I mean, if you're devoted to the strict concept of flat, then someone who's income is $100 less than the floor will pay nothing, and someone whose income is $100 over the floor will pay 20%. How is that flat? It's not.

Which brings us to fair. I believe a progressive system where people with higher incomes pay higher rates is more fair than a single rate.

It really hinges on how you define fairness. The proponents of a flat tax are using a simple mathematical definition of "fairness". That's ok, I understand the reasoning, but I do not agree that 20% of $100,000 of income is the same as 20% of $25,000 of income is the same as 20% of $1,500,000 of income. It *is* the same percentage, but how does that make it "fair"?

Think of all the other situations in which "fairness" is an issue. There are none that I can think of that do describe themselves as fair, that are widely held as fair, that also apply a *single* standard of judgment. None. Not sports, where we have pro and amateur leagues, not in our justice system, where we treat differently minors and adults. Not in the marketplace, where capitalism, marketing, intitiative and luck rule the day. Not in our families or our workplaces, where what each gives and each takes is so variable that no two are even the same.

I find a more reasonable concept of fairness in the words of President Kennedy: "Of those to whom much is given, much is required." Much in taxes, much in service, much in devotion. Fair changes over time. I sometimes need more than I have, and I sometimes have more than I need. How do you associate the users of a service with the cost of that service? What about the people who don't use a given service? And what about the cost of the commons? To whom should that bill be sent? To future generations, if history is any example.

One. Size. Fits. All. Doesn't work in the real world, and you know it, I'm sure. One size fits one group. The others fit other groups. You can make it flat, but that doesn't make it fair.

[piercehawkeye45]

I agree with progressive. It helps build a middle class, which I am in a big favor of. A good middle class means a strong economy.

[pourbill]

would not be on what we earn but rather on what we spend. No Income tax just a 17% value added tax on all purchases. Advantages 1) Wal Mart does the book keeping, take all receipts and send 17 % to the government 2) No more hugh, expensive breaucracy (though some could remain in an enforcement capacity) 3) No loop holes, even drug lords would pay--you spend the money, you pay the tax 4) Conserve resources, quit printing forms and books that stack to the moon and back every year 5) Help for the poor and middle class, the first 25000 anybody earns is not taxed (you send in a W-2 at the end of the tax year and get 17% of your earnings up to 25000 back in a chunk 6) Nobody ducks it, foreign tourists, illeagals, lawyers, and trust me people with money will spend it like always.

Who doesn't like this? The super rich for starters, the crooks, and of course the tax professionals. Don't worry they could get real jobs. A flat tax is unfair to the poor, this isn't.

[Happy Monkey]

The super rich and crooks would love it. The rich spend a much lower amount of their income than the poor, and wouldn't have much trouble buying particularly expensive stuff outside the US anyway. Crooks would have a 17% more profitable black market to play in.

Sales tax is pretty much the most regressive tax there is. The $25000 mark might shift the burden away from the poverty-level folks lucky enough to have W2s, but the middle class also spends a much higher percentage of income than do the wealthy.

[duck_duck]

Originally Posted by Hyoi

Hong Kong and Estonia also have a flat tax, and they are making it work for them.

Hong Kong has both a flat tax and a progressive tax system you can choose between the two.

[Clodfobble]

Originally Posted by Happy Monkey

Sales tax is pretty much the most regressive tax there is.

Texas has no income tax, only sales tax. 8.25% in most cities. No one ever complains about it. Basic needs like food and housing are exempt from sales tax, so it's not as regressive as it might appear.

[DanaC]

We have VAT. It's charged on trasactions and services. Some stuff is zero rated (Books in the UK are zero rated for VAT purposes. Also zero-rated are newspapers, journals and periodicals; printed music and maps and charts and doesn't apply to services such as insurance, some types of education, training and loans) and some stuff is 'reduced rate', like household fuel and sanitary towels (reduced rate is 5%) Most goods and services however incur the full rate of 17.5%.