Author Topic: Flat Tax  (Read 47777 times)

Bob W

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Flat Tax
« on: June 30, 2014, 12:19:55 PM »
A flat national sales tax of 17% has been proposed, with the elimination of all other Federal taxes.   (excluding the inflation tax).  Low income people would receive a rebate by receiving a check in the mail each month.   

This sounds like an interesting plan for mustachians.

What do you think?    Let's all agree that we are either over taxed or under taxed, or taxes are good or bad.   

What I'm looking for is "would this be a better way for paying taxes and would the average mustachian like it this way?"

Middlesbrough

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Re: Flat Tax
« Reply #1 on: June 30, 2014, 12:37:29 PM »
Nope. The only thing we need to do to our tax code is eliminate all the loopholes. You made this much you owe the government this amount. If you support x people you pay this much less. Done.

mrigney

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Re: Flat Tax
« Reply #2 on: June 30, 2014, 12:47:14 PM »
@Bob Werner I think what you're describing has been dubbed the Fair Tax. A flat tax is what @Middlesbrough is describing.

I'm partial to either one over our current monstrosity and see distinct advantages to both. As a mustachian, I prefer the Fair Tax over the flat tax since it is consumption based. In theory, my consumption will be less than the average American, so I would come out ahead. However, I would be perfectly ok w/a flat tax of x% (e.g. what Steve Forbes advocated for years) so that I can simply list my income on one line, the number of dependents I have on a second line, the deduction on the third line, my taxable income on line four, and my taxes due on line five. Seems simple. Generally I'm for any scheme that simplifies the tax code. Both flat and Fair tax purport to be revenue neutral (as a note, the Fair Tax is 17% inclusive, I believe. Meaning that If you buy something that costs $1 pre-tax, with a 17% inclusive tax that item will cost $1.20....0.20/1.20 = 17%).

I think the Fair Tax could have potential implementation issues (rebate on taxes up to the poverty line could be problematic in practice). Not sure I see any implementation problems with the flat tax. I would be ok with modifying the flat tax to give everyone a deduction equal to the poverty level for their family size so that essentially your income up to the poverty level is tax free. This would serve to make the flat tax slightly progressive.

I'm open to persuasion, though.

Cheddar Stacker

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Re: Flat Tax
« Reply #3 on: June 30, 2014, 12:49:12 PM »
I wouldn't mind a flat tax, and I make part of my living filing complicated tax forms so it would be detrimental to my career.

However, from a practical standpoint a sales tax would be a tough way to do this IMO. Many, many people do not understand how to implement sales taxes from a retailer standpoint. I think it would also encourage just as many loopholes and fraud, and it would be harder for the government to monitor than the income tax.

skunkfunk

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Re: Flat Tax
« Reply #4 on: June 30, 2014, 01:08:58 PM »
It would mostly help the wealthy and the frugal, and mostly hurt the poor. So there's that.

Iron Mike Sharpe

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Re: Flat Tax
« Reply #5 on: June 30, 2014, 01:14:00 PM »
I've actually read the Fair Tax book:

http://www.amazon.com/Fair-Tax-Book-Saying-Goodbye/dp/0060875496/ref=sr_1_1?s=books&ie=UTF8&qid=1404155263&sr=1-1&keywords=fair+tax

I support the Fair Tax 100%.

I don't see how there would be nearly as much loopholes or fraud with the Fair Tax.

Under the current system, it takes only one party to commit tax fraud.  Under the Fair Tax system, it would take two parties.  But the fraud would not help the second party - the business owner.  what would be in it for the business owner to commit tax fraud?  They could lose their business over helping Joe Customer save some extra money.  I don't see it happening.


ChrisLansing

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Re: Flat Tax
« Reply #6 on: June 30, 2014, 01:14:19 PM »
There would of course be a "loophole" for food and medicine.   And of course small business people with a sales tax exemption are already expert at justifying nearly all their purchases as "business expenses" sans sales tax, so lots of businesses would start to avoid the 17% sales tax.     

Here's an idea.   Why not tax income, since it's directly related to what a person (or couple) can afford?    Why not tax it in graduated stages, a certain percentage of income up to a threshold amount, then a higher rate between the first threshold and the next one, and so on?   Oh, wait, we already do that.   Our tax system is nearly perfect as it is, except the top rates are too low and FICA taxes shouldn't have a ceiling.   

I always marvel at people griping about the tax code being to complex.   It's not like you have to read it.   Turbo Tax takes care of all that for you.     My dad used to do his own taxes, with the business forms too, and never went to college.   I've always been able to do mine, long form.    But the past several years I've just used a CD that pops into the computer.   

GuitarStv

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Re: Flat Tax
« Reply #7 on: June 30, 2014, 01:25:45 PM »
It would mostly help the wealthy and the frugal, and mostly hurt the poor. So there's that.

Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

bikebum

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Re: Flat Tax
« Reply #8 on: June 30, 2014, 01:32:06 PM »
Does it still hurt the poor if there is a minimum spending you are not taxed on? Then the poor may pay no tax at all. Maybe it would be easier for the wealthy to avoid taxes, and that would hurt the poor?

Pegasus

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Re: Flat Tax
« Reply #9 on: June 30, 2014, 01:33:02 PM »
It rewards saving.  It also rewards under the table transactions to avoid a high rate.  Totally simplifies tax time and all the tax return fraud.  If the poor are compensated to offset the consumption, that alleviates the issue some have pointed out, but needs to be done at least monthly since we know the poor are very sensitive to cash flow hiccups.  On the whole I'd prefer it as I would come out personally ahead, but do we really think the gov will not impose income tax on top of this later?

Bourbon

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Re: Flat Tax
« Reply #10 on: June 30, 2014, 01:37:12 PM »
I think another disadvantage it would have is the increased transaction rate.  Calculating income at a tax percentage vs a tax on every single purchase transaction.  Sounds like a nightmare to audit.

Middlesbrough

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Re: Flat Tax
« Reply #11 on: June 30, 2014, 01:59:00 PM »
I should clarify that I would keep our graduated rates just eliminate all other loopholes. All income no matter where it's from is all taxed the same. The more you make the higher marginal rate you hit.

Eric

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Re: Flat Tax
« Reply #12 on: June 30, 2014, 02:00:55 PM »
A flat national sales tax of 17% has been proposed

What do you mean by "has been proposed"?  I'm of the opinion that the Fair Tax has an approximately zero chance of actually becoming law, so while it's an interesting philosophical debate, that's all it's ever going to be. 

For the record, I think that the complete remaking of the whole tax code will be way more trouble than any simplicity saved.  For instance, how would you handle tIRAs and Roth Iras?  Depreciation?  Mortgage deductions?  And a whole host of other things that go on year after year and are not one year occurrences.

Bob W

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Re: Flat Tax
« Reply #13 on: June 30, 2014, 02:02:47 PM »
Yep,  I was referring to the "'Fair Tax"  concept and not the Flat Tax as I titled this post.  Sorry my bad. 

Probably not going to happen so really not worth a lot of thinking time.   It sure would make it a lot easier to arrange ones investments without having to constantly be thinking about the tax implications though.

I have heard that as much of 15% of business resources are dedicated to tax issues.

I suppose with a "Fair Tax" that there would be huge unemployment in sectors such as accounting,  tax attorneys,  IRS types.  So I guess there is a huge lobby that really likes the idea of free citizens having to report their "private papers" to the Government each year.

I kinda think with a "Fair Tax"  my personal life would no longer be of interest to the Government.   

And of course one argument against it would be that people would just quit buying things?   Although, if the Government was sending out $500 checks each month to people, I bet that money would be spent.

Cheddar Stacker

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Re: Flat Tax
« Reply #14 on: June 30, 2014, 02:09:08 PM »
Can't quote a source here, but I've heard/read the temporary tax laws that keep showing up (i.e.-carried interest, energy tax credits, R&D credits, PMI deductions, payroll tax holidays, etc.) are setup that way on purpose. When they expire in 2 years, it brings the [insert industry here] lobbyists back into senators offices and encourages more campaign donations.

It would be an absolute nightmare to overhaul the tax code and I really don't think it will happen anytime soon. There are too many special interests at play.

Norioch

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Re: Flat Tax
« Reply #15 on: June 30, 2014, 02:13:18 PM »
I'm very interested in the "Low income people would receive a rebate by receiving a check in the mail each month" part. Because from that description alone, it sounds a lot like guaranteed minimum income, a concept a support. But my guess is, the proposed rebate would only be enough to offset the proposed taxes (not to cover basic living expenses) and might also require people to have some non-zero earned income, defeating the purpose.

Huffy2k

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Re: Flat Tax
« Reply #16 on: June 30, 2014, 02:22:28 PM »
Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

The top 1% pay 37% of Federal Income Taxes
The top 5% pay 59% of Federal Income Taxes
The top 10% pay 70%
The top 25% pay 87%

Proportions aside, the rich are already paying the bulk of this nations poor spending habits...

Iron Mike Sharpe

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Re: Flat Tax
« Reply #17 on: June 30, 2014, 02:28:10 PM »
Can't quote a source here, but I've heard/read the temporary tax laws that keep showing up (i.e.-carried interest, energy tax credits, R&D credits, PMI deductions, payroll tax holidays, etc.) are setup that way on purpose. When they expire in 2 years, it brings the [insert industry here] lobbyists back into senators offices and encourages more campaign donations.

It would be an absolute nightmare to overhaul the tax code and I really don't think it will happen anytime soon. There are too many special interests at play.

That's why you don't overhaul it.  You just throw it out and institute the Fair Tax (national sales tax). 

You take away 75% of lobbyist activities.  Sure, they will still lobby for stuff like environmental controls and stuff like that.

Businesses no longer have to worry about wasting tons of money on accountants and lawyers to try and figure out the impossible to figure out tax code.  All of which adds around 22-23% to the sales price of ever product or service, afterall businesses don't actually pay income taxes, they just pass it along to consumers in the form of higher prices.

Illegal aliens are now paying their share of taxes.  And, because they are here illegally, they are not getting the tax prebate sent to them.  So, you take away the financial incentive to people moving here illegally. 

Eric

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Re: Flat Tax
« Reply #18 on: June 30, 2014, 02:30:14 PM »
Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

The top 1% pay 37% of Federal Income Taxes
The top 5% pay 59% of Federal Income Taxes
The top 10% pay 70%
The top 25% pay 87%

Proportions aside, the rich are already paying the bulk of this nations poor spending habits...

On what % of income?  Certainly you can't be citing payment rates on income tax without including income...

Iron Mike Sharpe

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Re: Flat Tax
« Reply #19 on: June 30, 2014, 02:31:05 PM »
I'm very interested in the "Low income people would receive a rebate by receiving a check in the mail each month" part. Because from that description alone, it sounds a lot like guaranteed minimum income, a concept a support. But my guess is, the proposed rebate would only be enough to offset the proposed taxes (not to cover basic living expenses) and might also require people to have some non-zero earned income, defeating the purpose.

ALL legal citizens would receive a prebate.  Basically, it takes the poverty rate - the level of spending to provide oneself with the bare essentials.  It then refunds everyone the 23% sales tax on the poverty level of spending. 

Cheddar Stacker

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Re: Flat Tax
« Reply #20 on: June 30, 2014, 02:34:33 PM »
Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

The top 1% pay 37% of Federal Income Taxes
The top 5% pay 59% of Federal Income Taxes
The top 10% pay 70%
The top 25% pay 87%

Proportions aside, the rich are already paying the bulk of this nations poor spending habits...

On what % of income?  Certainly you can't be citing payment rates on income tax without including income...

Right. The top 1% pay 37% of the total federal income tax, but earn what % of total income? 50%? 60%?

Tetsuya Hondo

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Re: Flat Tax
« Reply #21 on: June 30, 2014, 04:47:44 PM »
Proportions aside, the rich are already paying the bulk of this nations poor spending habits...

Only the ones with shitty accountants.

Tetsuya Hondo

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Re: Flat Tax
« Reply #22 on: June 30, 2014, 04:54:51 PM »
I always marvel at people griping about the tax code being to complex.   It's not like you have to read it.   Turbo Tax takes care of all that for you.     My dad used to do his own taxes, with the business forms too, and never went to college.   I've always been able to do mine, long form.    But the past several years I've just used a CD that pops into the computer.

Do you have a mortgage? A home office? IRAs? Taxable funds? International funds/stocks? An LLC? An S-Corp? Do work in multiple states?

And don't even get me started on having a business with assets and employees.

There was a time when I used to think it was all pretty easy too. Our tax code is too friggin complicated and it's a drain on everyone but the accounting industry.

RyanAtTanagra

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Re: Flat Tax
« Reply #23 on: June 30, 2014, 05:11:35 PM »
I think another disadvantage it would have is the increased transaction rate.  Calculating income at a tax percentage vs a tax on every single purchase transaction.  Sounds like a nightmare to audit.

We already do this at the state level with state sales tax.  I used to work in an accounting office and filed the monthly sales tax reports.  They are ridiculously easy and adding a second one for federal sales tax would be a complete non-issue.  I would love to see the fair tax put into practice because:

1)  Like I said, we ale already doing it at the state level
2)  There are exemptions in many states that could be emulated and would benefit the poor, like food (grocery but not dine-in).  CT used to have an exemption for clothing under $50.
3)  All savings are automatically tax-advantaged.  Don't have to worry about IRAs/401k/HSA accounts.  Everything is tax free until you spend it, and you wouldn't have restrictions on when/how you can spend it.  This seems like it would be a HUGE benefit for everyone.
4)  Individuals no longer have to file taxes, ever.  It's all left up to the business, which files them right now anyway.

The simplification of the system to me makes this a no-brainer.  The biggest problem I see is that it would be so simple it would put a lot of people out of work, which is why I don't think it would ever happen.  Our country runs on inefficiencies.  If it was implemented, it would be purposefully convoluted, which would probably piss me off more than not having it at all.

FireYourJob

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Re: Flat Tax
« Reply #24 on: June 30, 2014, 10:27:59 PM »
It's a great idea which is why it won't be done.

Huffy2k

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Re: Flat Tax
« Reply #25 on: July 01, 2014, 08:58:42 AM »
Only the ones with shitty accountants.

Well, as Knaak just showed, you couldn't be more wrong...

Fishingmn

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Re: Flat Tax
« Reply #26 on: July 01, 2014, 10:18:38 AM »
Any change in tax system that tries to raise the same overall amount of income is going to have winners & losers compared to the current system.

Under a "fair" tax or flat tax the winners will be the top 5% and the losers will be everyone in the middle. Whether that is the intended effect is I guess what's up for debate. Clearly those arguing for a new system are the ones who are most likely to benefit but by labeling it "fair" masks the fact that the vast majority will actually be worse off than what currently exists.

In addition, I believe that any system based on sales taxes/VAT will lead to rampant gray & black market activity, especially as the tax % goes up.

Sonorous Epithet

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Re: Flat Tax
« Reply #27 on: July 01, 2014, 10:55:26 AM »
Any change in tax system that tries to raise the same overall amount of income is going to have winners & losers compared to the current system.

Under a "fair" tax or flat tax the winners will be the top 5% and the losers will be everyone in the middle. Whether that is the intended effect is I guess what's up for debate. Clearly those arguing for a new system are the ones who are most likely to benefit but by labeling it "fair" masks the fact that the vast majority will actually be worse off than what currently exists.

+1

A flat tax with no exemption hurts the poor the most. The reason is because of the marginal value of the dollar. Simply stated, someone making little money spends, say, 90% on consumables just to get by. Someone with a very large income can meet their basic needs on, say, 15% of their income. This means the tax bases are regressive, not flat.

If you create an exemption for the first x amount of consumption, then the people at the bottom pay much less, but then it's the middle class who is bearing the burden of taxation, and become the big losers. I think this is the reason it's never caught on.

In all cases, the "rich" will be the big winners. Rich being those whose incomes exceed the things that have sales tax on them.

One could argue that mustachians are in the "rich" portion because they spend a lower percentage of their income on consumables than the average person in the same bracket. But I think the Fair Tax is bad for America and I don't want to see it implemented even if I may be one of the winners.

There's plenty of room for corporate manipulation, lobbying, and loopholes. Corporations will lobby to make certain things exempt from sales tax, then take advantage either by offering "lower" prices compared to their competitors who are not exempt, or by raising prices to capture a portion of the difference.

I work in a corporate tax office. Sales tax returns are indeed easy. Sales tax exemptions create issues. We often have to deal with customers who dispute the taxability of specific types of transactions.

Edit: fixed quote attribution (sorry bikebum!)
« Last Edit: July 01, 2014, 03:06:49 PM by Sonorous Epithet »

bikebum

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Re: Flat Tax
« Reply #28 on: July 01, 2014, 01:15:09 PM »
^ Thanks for the response. I think the quote got messed up though as someone else wrote what is in the quote box.

Chuck

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Re: Flat Tax
« Reply #29 on: July 01, 2014, 01:18:52 PM »
Wouldn't work. Hikes taxes on the poor while cutting them for everyone not in the 15% bracket. Which is most of the professional class.

Bad plan.

CBnCO

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Re: Flat Tax
« Reply #30 on: July 01, 2014, 10:42:00 PM »
I don't buy that this type of tax system would hurt the poor...I would expect that relatively quickly wages at the low end would naturally adjust to account for the increase in sales tax and the poor would continue to be equally poor.  Further, it's a given that in some form a society must help its least able and the debate should be if tax breaks, which amount to handouts, are the best way.  I'd argue that we invest more heavily in skills training programs focused on teaching people to fish versus giving handouts that are exchanged for votes.  I'm firmly in the camp arguing that our current tax system is way too complicated and serves a host of special interest groups versus being objectively viewed as the most efficient system.  Remember, we haven't always had an income tax which proves there is definitely more than one way to address funding a government...and, this inevitably must lead to a discussion about government scope and spending levels (a topic dear to mustachians); but, that is another conversation for another day!

milesdividendmd

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Flat Tax
« Reply #31 on: July 01, 2014, 11:20:16 PM »
If you want to know who a proposed change benefits, simply look at who proposes it. The flat tax, and fair tax, are proposed by wealthy conservatives, and this is no coincidence. It is a gigantic giveaway to the rich.  (I am a 1%er, and it would certainly benefit me personally.)

What I find particularly distressing about the flat tax and fair tax conversation, is that it conflates 2 largely unrelated issues:

1. Tax code complexity.

And

2.  Progressive taxation.

Our tax code is not complex because it is progressive. It Is complex because it is riddled with deductions, and tax expenditures, and credits, largely written by special interests.

So if you want the tax code to be simpler, just define each dollar earned in anyway identically, (I.e. there's no difference between earned income and investment income) and get rid of all of the deductions and lower all of the marginal rates proportionally so that the government still collects the same amount of tax money.  Problem solved, simpler tax code.  You could write the whole thing on one page.

But the move towards flatness is quite simply a move away from progressivity. In other words, it increases the tax burden on people making less, and decreases (dramatically) the burden on those making more.

I personally believe in a progressive tax code for many reasons including:

Taxes hurt the poor more than they hurt the rich.  (The marginal utility of wealth.)

It increases social mobility from lower levels of society to higher levels of society.

It decreases income inequality.

It is fairer.

And maybe you don't agree with my arguments. But if you oppose progressive taxation, it is intellectually dishonest to pretend like the reason for this is because our tax code is too complex. Progressive taxation simply does not add much complexity.
« Last Edit: July 01, 2014, 11:24:18 PM by milesdividendmd »

EricP

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Re: Flat Tax
« Reply #32 on: July 02, 2014, 09:18:00 AM »
For those looking for an answer from Huffy regarding how much percentage of income the top X% have, I was able to find what was likely his source document here:  http://www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/

So:  Top 1% Pays 38% with 20% of Total Income
       Top 5% Pays 59% with 35% of Total Income
       Top 10% Pays 70% with 46% of Total Income
       Top 25% Pays 86% with 67% of Total Income
       Top 50% Pays 97% with 87% of Total Income
       Bottom 50% Pays 3% with 13% of Total Income



Travis

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Re: Flat Tax
« Reply #33 on: July 02, 2014, 09:34:58 AM »
Quote
It is a gigantic giveaway to the rich.

How is letting you keep money you earned a "give away?"

Quote
What I find particularly distressing about the flat tax and fair tax conversation, is that it conflates 2 largely unrelated issues:

1. Tax code complexity.

And

2.  Progressive taxation.

The issues are related if you think the tax code is a burden on economic activity and wealth creation.  The Fair Tax doesn't conflate the issues, but it solves both of them.

As a nation we spend $400 billion a year in paperwork, billable hours, and productivity wasted in order to pay around $3 trillion in taxes.  Small businesses spend up to 15% of revenue to comply with the tax code.  There is also a regressive effect with the tax code in that the more rules are piled on or rates raised to get more revenue, a higher percentage of projected income falls through the cracks.  The IRS estimates each year how much it ought to collect in taxes and then reports on what it actually collected.  The difference grows each year and is at least in part due to complexities in compliance costs or hiding income to avoid higher taxes.  With a consumption-based tax code of a few pages the special interests would no longer have anything to discuss (except that it would eliminate tax lawyers and the tax preparer industry).  The loopholes and special interests exist because a progressive tax system is open for constant interpretation on what the tax rates should be and everyone has a different notion of what counts as "income."  The progressive tax system has certainly added to the complexity and costs of the tax code.

The Fair Tax eliminates every other form of taxation as well as income taxes.  It makes up for the revenue drop by making goods much cheaper to produce and will attract businesses from around the world (no corporate or payroll taxes).  It also makes every person in the US who buys something a taxpayer whether they be tourists, illegal aliens, or drug dealers.  It also eliminates the need for businesses and individuals to hide billions of dollars overseas if there's no longer income or dividend taxes to pay.  Here on MMM we discuss tax strategies with investing all the time.  How would that conversation go if there were no tax penalties?  The Fair Tax proponents have also offered a rebate system pegged to the cost of essential goods and the poverty line to rebate that amount to the poorest earners so their dollar value improves.  It would also not tax certain medical costs and used goods. 

I'm not concerned with income equality. What's mine is mine and what's yours is yours.  I've yet to meet someone who can mathematically define what "fair share" actually means except that whatever the "rich" pay is never enough.  If we both get to keep our incomes and spend what we want why should it matter to me?

EricP

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Re: Flat Tax
« Reply #34 on: July 02, 2014, 09:52:55 AM »
It's a "gigantic giveaway" because we are all part of this society and need to support it fairly.  And to me it makes more sense to have "fair" be determined by income, not expenses.  I can't tell you what mathematically is "fair."  But I can tell you that if you have two people with the same lifestyle and one makes 50k and the other makes 500k, the person who makes 500k should pay more.

mulescent

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Re: Flat Tax
« Reply #35 on: July 02, 2014, 10:15:41 AM »
To move away from the politics of taxation for a moment, the proposed flat tax would totally suck for a successful Mustachian.  At FI, living a frugal lifestyle you would pay either 5 or 10% long-term capital gains tax on the sale of your invested assets to cover your expenses.  Granted, some income from dividends/interest would be taxed at a higher rate.  In any case, a flat tax would disrupt the currently sweet deal those who live on investment income currently have in this country.

Travis

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Re: Flat Tax
« Reply #36 on: July 02, 2014, 10:21:25 AM »
You can't define fair, but you insist on using it for your argument.  I appreciate the sentiment, but the fact that nobody can clearly define "fair" is why our tax system is such a mess.  I have no problem supporting society, but I have a problem with those wanting higher taxes out of me acting like my paycheck belongs to government first and I should be happy with whatever I'm allowed to take home.  That's why I don't like the "giveaway" remark.  They collect taxes from a paycheck I earned.  My paycheck isn't a gift from them. 

Getting back to the "fair" discussion. I don't think that paying X is fair due to (insert business lobby of your choice) and 80,000 pages of tax code is what you get.  In an income-based system the person who earns more should pay more, but how much more?  How high should it go before it becomes unfair?  It's been a while since I worked for minimum wage, but at the end of the year how much does that person actually pay in taxes versus rebates?  If we all but eliminate their contribution to the tax system is that fair?  A debate about funding a government should be an economic and mathematical debate and not a philosophic one. 

Beridian

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Re: Flat Tax
« Reply #37 on: July 02, 2014, 10:27:44 AM »
Lots of great ideas and comments, however i have to say, any serious tax reform has exactly zero chance of being enacted due to the vice grip lock that special interests have on our government.   Our congress cannot even agree to fund desperately needed infrastructure projects, or even immigration reform where there is a fairly broad consensus.  Hell they cannot even agree on a national budget.  We will see angels flying out of our asses before we see any meaningful tax reform delivered by our current do-nothing leadership.

milesdividendmd

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Re: Flat Tax
« Reply #38 on: July 02, 2014, 10:29:07 AM »
Quote
It is a gigantic giveaway to the rich.

How is letting you keep money you earned a "give away?"

Quote
What I find particularly distressing about the flat tax and fair tax conversation, is that it conflates 2 largely unrelated issues:

1. Tax code complexity.

And

2.  Progressive taxation.

The issues are related if you think the tax code is a burden on economic activity and wealth creation.  The Fair Tax doesn't conflate the issues, but it solves both of them.

As a nation we spend $400 billion a year in paperwork, billable hours, and productivity wasted in order to pay around $3 trillion in taxes.  Small businesses spend up to 15% of revenue to comply with the tax code.  There is also a regressive effect with the tax code in that the more rules are piled on or rates raised to get more revenue, a higher percentage of projected income falls through the cracks.  The IRS estimates each year how much it ought to collect in taxes and then reports on what it actually collected.  The difference grows each year and is at least in part due to complexities in compliance costs or hiding income to avoid higher taxes.  With a consumption-based tax code of a few pages the special interests would no longer have anything to discuss (except that it would eliminate tax lawyers and the tax preparer industry).  The loopholes and special interests exist because a progressive tax system is open for constant interpretation on what the tax rates should be and everyone has a different notion of what counts as "income."  The progressive tax system has certainly added to the complexity and costs of the tax code.

The Fair Tax eliminates every other form of taxation as well as income taxes.  It makes up for the revenue drop by making goods much cheaper to produce and will attract businesses from around the world (no corporate or payroll taxes).  It also makes every person in the US who buys something a taxpayer whether they be tourists, illegal aliens, or drug dealers.  It also eliminates the need for businesses and individuals to hide billions of dollars overseas if there's no longer income or dividend taxes to pay.  Here on MMM we discuss tax strategies with investing all the time.  How would that conversation go if there were no tax penalties?  The Fair Tax proponents have also offered a rebate system pegged to the cost of essential goods and the poverty line to rebate that amount to the poorest earners so their dollar value improves.  It would also not tax certain medical costs and used goods. 

I'm not concerned with income equality. What's mine is mine and what's yours is yours.  I've yet to meet someone who can mathematically define what "fair share" actually means except that whatever the "rich" pay is never enough.  If we both get to keep our incomes and spend what we want why should it matter to me?

Deficit spending aside, taxation is a zero-sum game. So if you tax the same total amount relative to GDP and begin to tax Warren Buffett, Bill Gates, and mitt Romney at 1% of their income, then those billions of dollars must be paid by someone else.(Which can only mean people who have less wealth.) The difference in money goes into the billionaires pockets, and comes out of everyone else's  pockets. It's a great example of income redistribution with wealth flowing from the bottom to the top of the  wealth scale. I think the term "giveaway," is pretty on the mark here actually.

You are once again conflating progressive taxation with the complexities of the tax code. To illustrate this point let me ask you this question: if we moved to a flat 15% tax tomorrow, what would prevent special interests on day two from carving out new tax credits, expenditures and giveaways for those with the most resources?

And If you tax people based on consumption, then poor consume almost 100% of their income out of necessity, while the ultrarich consume less than 1% of income despite lavish spending habits. You've accomplished nothing more than a dramatic shift towards regressive taxation.

In my mind it is fair to pay increasing amounts of taxation as your means go up. I have laid out my reasons above.

You are arguing that it is fairer to tax at higher marginal rates the lower your income. If you have a firm belief in regressive taxation, please share your thoughts with us on why regressive taxation is fairer.




« Last Edit: July 02, 2014, 10:31:06 AM by milesdividendmd »

randymarsh

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Re: Flat Tax
« Reply #39 on: July 02, 2014, 10:39:44 AM »
Nope. The only thing we need to do to our tax code is eliminate all the loopholes. You made this much you owe the government this amount. If you support x people you pay this much less. Done.

You've just added in a "loophole". Why should I pay more in taxes because you're choosing to care for dependents?

Bob W

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Re: Flat Tax
« Reply #40 on: July 02, 2014, 11:59:14 AM »
Quote
It is a gigantic giveaway to the rich.

How is letting you keep money you earned a "give away?"

Quote
What I find particularly distressing about the flat tax and fair tax conversation, is that it conflates 2 largely unrelated issues:

1. Tax code complexity.

And

2.  Progressive taxation.

The issues are related if you think the tax code is a burden on economic activity and wealth creation.  The Fair Tax doesn't conflate the issues, but it solves both of them.

As a nation we spend $400 billion a year in paperwork, billable hours, and productivity wasted in order to pay around $3 trillion in taxes.  Small businesses spend up to 15% of revenue to comply with the tax code.  There is also a regressive effect with the tax code in that the more rules are piled on or rates raised to get more revenue, a higher percentage of projected income falls through the cracks.  The IRS estimates each year how much it ought to collect in taxes and then reports on what it actually collected.  The difference grows each year and is at least in part due to complexities in compliance costs or hiding income to avoid higher taxes.  With a consumption-based tax code of a few pages the special interests would no longer have anything to discuss (except that it would eliminate tax lawyers and the tax preparer industry).  The loopholes and special interests exist because a progressive tax system is open for constant interpretation on what the tax rates should be and everyone has a different notion of what counts as "income."  The progressive tax system has certainly added to the complexity and costs of the tax code.

The Fair Tax eliminates every other form of taxation as well as income taxes.  It makes up for the revenue drop by making goods much cheaper to produce and will attract businesses from around the world (no corporate or payroll taxes).  It also makes every person in the US who buys something a taxpayer whether they be tourists, illegal aliens, or drug dealers.  It also eliminates the need for businesses and individuals to hide billions of dollars overseas if there's no longer income or dividend taxes to pay.  Here on MMM we discuss tax strategies with investing all the time.  How would that conversation go if there were no tax penalties?  The Fair Tax proponents have also offered a rebate system pegged to the cost of essential goods and the poverty line to rebate that amount to the poorest earners so their dollar value improves.  It would also not tax certain medical costs and used goods. 

I'm not concerned with income equality. What's mine is mine and what's yours is yours.  I've yet to meet someone who can mathematically define what "fair share" actually means except that whatever the "rich" pay is never enough.  If we both get to keep our incomes and spend what we want why should it matter to me?

Deficit spending aside, taxation is a zero-sum game. So if you tax the same total amount relative to GDP and begin to tax Warren Buffett, Bill Gates, and mitt Romney at 1% of their income, then those billions of dollars must be paid by someone else.(Which can only mean people who have less wealth.) The difference in money goes into the billionaires pockets, and comes out of everyone else's  pockets. It's a great example of income redistribution with wealth flowing from the bottom to the top of the  wealth scale. I think the term "giveaway," is pretty on the mark here actually.

You are once again conflating progressive taxation with the complexities of the tax code. To illustrate this point let me ask you this question: if we moved to a flat 15% tax tomorrow, what would prevent special interests on day two from carving out new tax credits, expenditures and giveaways for those with the most resources?

And If you tax people based on consumption, then poor consume almost 100% of their income out of necessity, while the ultrarich consume less than 1% of income despite lavish spending habits. You've accomplished nothing more than a dramatic shift towards regressive taxation.

In my mind it is fair to pay increasing amounts of taxation as your means go up. I have laid out my reasons above.

You are arguing that it is fairer to tax at higher marginal rates the lower your income. If you have a firm belief in regressive taxation, please share your thoughts with us on why regressive taxation is fairer.

As the poster of this thread I inadvertently used "flat tax"  when I was referring to "fair tax." 

Under the fair tax all the poor folks receive a check each month to offset their 17% tax.  Something in the range of $500.    This completely negates the regressive tax aspect. 

By the way, I do feel regressive is much fairer as the poor use government services and benefit from all levels of government,  roads,  schools,  Medicaid than the upper middle income folks.   

I was at the local Family Services office yesterday with a client.   Everyone one going in was smoking and overweight.   So essentially you as a tax payer are paying people to smoke and be unhealthy.  Makes no sense.   Prior to the failed war on poverty families stayed intact out of necessity.  With the nanny state you have the vast majority of poor families as single parent moms.   Not a good recipe for a long term civilization.   

I'm firmly in the "all taxes are bad" camp.   The worst tax imho is the school tax.   We have the worst schools on the planet yet are forced (by force of gun,  as in if you don't pay the county sheriff shows up at your house and tells to leave) to pay for them.  I kinda think if people had to pay for their own kids schools they would be way cheaper and kids would actually learn something. 

Iron Mike Sharpe

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Re: Flat Tax
« Reply #41 on: July 02, 2014, 12:03:07 PM »
I believe the Fair Tax is 23%  /nit picked

milesdividendmd

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Re: Flat Tax
« Reply #42 on: July 02, 2014, 01:54:54 PM »
Right. Now we're getting somewhere. You are for regressive taxation.

So this is not really about the simplicity of the tax code. It's about making the tax code more regressive. Fair enough.

The effects of supply side economics are not really debatable in my view. Higher deficits, a shifting of wealth from the middle class to the wealthy, resultant income inequality, and a stagnating quality of life for the middle class.

If that's your idea of utopia, we'll just have to disagree on that one.





tomsang

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Re: Flat Tax
« Reply #43 on: July 02, 2014, 02:36:44 PM »
Taxes are interesting!

Currently we are not collecting enough taxes to pay for all of the expenses.  If we are not ok with the deficits, then we need to raise taxes or cut spending.  The largest overall discretionary expense is military spending which is $1 trillion(wars, benefits, interest on wars, capital expenditures, and personnel) of the $2.3 trillion that we collect in taxes and $3 trillion that we spend in total.

So any tax rate change needs to be revenue neutral or increase taxes paid in total to reduce the debt.  Let's look at revenue neutral. 

If you are decreasing the taxes paid by the top 5%, then the bottom 95% need to pick up the tab to keep it revenue neutral.  The bottom 15% have no ability to pay any more as they currently can't support themselves.  Therefore if you are looking at a flat tax and you make under $250k then you need to be looking at a sizable increase in your taxes to fund the drop in taxes paid by the top 5% and truthfully the top 1%. 

For an individual with a W-2, no house, no rentals or complexities the tax return can be done online in 15 minutes.  Very simple.  The complexity is derived by providing incentives for doing various things and to ensure that people are not gaming the system. 

As an example.  If you have a flat tax and you buy a rental house that generates $10k in rental income and costs $100k to buy the land and building.  How do you account for this on your tax return?

You have revenue of $10k and expenses of $100k.  Hold on now, you can't deduct the cost of the house all at once.  If there are no rules in place, then it would be fair to say the cost of buying a house, building, inventory, etc. is a deductible cost when purchased.  The house will fall apart over time, so what do you do.  Depreciate the house and the contents.  Do you depreciate the refrigerator at the same rate as the house.  More rules more complexity, less ability to game the system.  If you say you can't depreciate or expense, then people would be less inclined to purchase depreciating type assets as they would get all the income with no corresponding reflection of the assets being depleted.

The biggest boon to the rich and tax preparers would be a flat tax because all the various regulations that were derived to keep people from gaming the system would be gone plus they would get a reduced tax rate.  We would be able to take advantage of all of this stuff and eliminate all federal income taxes by structuring deals.  Those with simple W-2 income would need to pay 100% of the taxes because the wealthy would be paying 0%.   

The original tax return in 1913 was a very simple from, with like 5 lines.  The rest of the complexity was added to ensure that people paid a fair amount of taxes and to ensure that the accountants and lawyers didn't game the system.  Loopholes are being filled in at a fast pace, but new laws create new loopholes.  Eliminating all the rules would be huge!!!

I would benefit significantly from a flat tax even without the games I described, but I feel it is not fair to make those making less than $250k pick up the tab.  I have the discretionary income to pay my share of the cost of running the government.

Huffy2k

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Re: Flat Tax
« Reply #44 on: July 02, 2014, 03:02:18 PM »
The biggest boon to the rich and tax preparers would be a flat tax because all the various regulations that were derived to keep people from gaming the system would be gone plus they would get a reduced tax rate.  We would be able to take advantage of all of this stuff and eliminate all federal income taxes by structuring deals.  Those with simple W-2 income would need to pay 100% of the taxes because the wealthy would be paying 0%.   

Now you're just being silly.  It's no wonder this country is so divided.

I'm glad you feel you can pay your share as a privileged 1% er - feel free to kick in as much you'd like - the IRS gladly accepts overpayments.

milesdividendmd

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Re: Flat Tax
« Reply #45 on: July 02, 2014, 03:19:11 PM »

The biggest boon to the rich and tax preparers would be a flat tax because all the various regulations that were derived to keep people from gaming the system would be gone plus they would get a reduced tax rate.  We would be able to take advantage of all of this stuff and eliminate all federal income taxes by structuring deals.  Those with simple W-2 income would need to pay 100% of the taxes because the wealthy would be paying 0%.   

Now you're just being silly.  It's no wonder this country is so divided.

I'm glad you feel you can pay your share as a privileged 1% er - feel free to kick in as much you'd like - the IRS gladly accepts overpayments.

He's not being silly at all.

Nobody likes paying taxes, even liberals.

But the question when you enter a voting booth in a liberal democracy should be what is best for the country as a whole. What is fair?

In contrast the question you should ask yourself when it comes to paying taxes, is "how can I legally pay the least amount of taxes possible given our current system."

You can say this is hypocrisy, but in my view it is just being a smart voter and a smart personal economist. 

And I seem to be in good company. After all warren buffet agrees with me.

http://www.milesdividendmd.com/warren-and-me/





Huffy2k

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Re: Flat Tax
« Reply #46 on: July 02, 2014, 03:30:31 PM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

milesdividendmd

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Flat Tax
« Reply #47 on: July 02, 2014, 03:41:05 PM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

So do conservatives.  It ends up being a question of how to divide up the responsibility of paying for the government.

Conservative policies favor shifting even more of the burden onto the middle class.
« Last Edit: July 02, 2014, 03:43:05 PM by milesdividendmd »

randymarsh

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Re: Flat Tax
« Reply #48 on: July 02, 2014, 03:42:31 PM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

Please stop. That's not even remotely true. The biggest difference between liberals and conservatives today seems to be that conservatives don't think the government does anything good or worthwhile with taxpayer money. Liberals believe that government can be a force for good and there are some things we should collectively fund.

milesdividendmd

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Flat Tax
« Reply #49 on: July 02, 2014, 03:47:02 PM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

Please stop. That's not even remotely true. The biggest difference between liberals and conservatives today seems to be that conservatives don't think the government does anything good or worthwhile with taxpayer money. Liberals believe that government can be a force for good and there are some things we should collectively fund.

Such is the rhetoric.

But If you think this is true, just look at government spending under democratic vs republican presidents.

http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee86db24e970d-800wi

Conservatives talk about hating big government, and then they grow it.
« Last Edit: July 02, 2014, 03:48:33 PM by milesdividendmd »