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

[RandomPhantom700]

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"?

 

[granfire]

ri ch people need more space ^_^

 

[Steve]

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.

 

[Bill Mattocks]

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.

 

[Twin Fist]

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

17% is 17%

 

[Big Don]

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.

 

[Touch Of Death]

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.

 

[RandomPhantom700]

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.

 

[crushing]

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.

 

[Bill Mattocks]

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.

 

[Twin Fist]

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

17% is the SAME as 17%

 

[Steve]

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.

 

[Twin Fist]

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.

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

 

[Steve]

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.

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.

 

[RandomPhantom700]

"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.

 

[Big Don]

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...

 

[Big Don]

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...

 

[RandomPhantom700]

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

Are you serious?

 

[granfire]

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?

 

[Bill Mattocks]

"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.