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I'm not a Trump fan, and despite likely tax hits, his proposal of simplifying the tax code (as many have done before him), getting rid of the IRS (yes jobs lost

I'm not a Trump fan, and despite likely tax hits, his proposal of simplifying the tax code (as many have done before him), getting rid of the IRS (yes jobs lost, but really, I got a certified letter owing $0.51 and they were "too busy with this category to answer. click") would be a positive thing. One short summary of his proposal -- http://www.thepoliticalinsider.com/donald-trump-unveils-his-bold-income-tax-proposal-this-is-a-big-deal/ http://www.thepoliticalinsider.com/donald-trump-unveils-his-... I think a pure flat tax would actually be bad for the country implemented immediately, but maybe a gradual rescinding of tax breaks (mortgage, etc -- i use said benefit) might be worth considering. Wall Street bankers running off pure capital gains is a big problem.

skywhopper 11y ago
The challenge of a "flat tax" is defining "income". It's not as easy as you think, and basic intuitive "fairness" will result in a lot of income being excluded. Given that today's graduated tax system results in top-earners paying lower percentages, a "flat" tax will surely be worse. As for getting rid of the IRS, who will collect, administer, and audit the flat tax?
- paulddraper 11y ago
  That's why "fair tax" advocates flat sales tax. It still leads to questions, but sales taxes are usually simpler than income and capital taxes.
  - themartorana 11y ago
    This is my favorite proposal to date. Sales tax applies equally to a pencil and a yacht. It also encourages savings at lower income levels.
    - jsankey 11y ago
      That's the problem, too -- it applies equally to necessities and luxuries. Sales taxes are regressive because there is a certain amount of non-discretionary spending everyone has to make, regardless of income, just to live.
      - orangecat 11y ago
        Most sales tax proposals include a "universal rebate", which is a fixed monthly amount given to everyone that's intended to cover the tax on necessities.
        jsankey 11y ago
        Certainly there are ways to mitigate the effect, I was just pointing out that the universality of a sales tax isn't all positive.
      - paulddraper 11y ago
        We tried a luxury tax in the 90s. Yachts were more expensive and due to highly elastic demand, the industry plummeted. Companies went under or laid off thousands. But don't worry. Guess who works at yacht manufacturing plants? Not rich people. They weren't hurt, and they were fine with taking their money elsewhere.
        jsankey 11y ago
        Nice straw man. I didn't even mention luxury tax, let alone promote it.
        deleted 11y ago
        [deleted]
        paulddraper 11y ago
        You implied that it would be better if luxury items were taxed at a different (higher) rate than other items. They is a luxury tax. However, if I misunderstood and you advocate having the same tax rate on luxury goods as other goods, then we are in agreement on this point.
      - thesteamboat 11y ago
        It doesn't necessarily need to. We could have a `digit-sales tax', i.e. count the number of digits in the item cost and add a tax at that percent. Something less than $10 only has a 1% tax, while something costing $10,000 has a 5% tax. Clearly the numbers should be adjusted if someone wants to turn this into a serious tax proposal, but it seems possible to design a progressive sales tax.
    - Animats 11y ago
      No, yachts get a break on sales tax.[1] Really. [1] http://www.pressofatlanticcity.com/business/new-jersey-cuts-sales-tax-on-purchase-of-new-boats/article_a33ac27a-9ebe-11e5-9392-075146f9cca6.html http://www.pressofatlanticcity.com/business/new-jersey-cuts-...
    - gnaritas 11y ago
      It's a terrible idea, a sales tax taxes spending instead of earning which automatically is a huge tax cut to the wealthy who by definition spend a far smaller percentage of their income than the middle classes who basically spend it all. Taxes belong on income, not on spending; sales taxes are incredibly regressive.
      - paulddraper 11y ago
        My bad. At the time of posting I thought that FairTax was fairly well known. https://en.wikipedia.org/wiki/FairTax#Monthly_tax_rebate https://en.wikipedia.org/wiki/FairTax#Monthly_tax_rebate
        gnaritas 11y ago
        And as with all things government, it's the opposite of what it's named. The fair tax is anything but fair. If you only tax spending, then the rich, who spend far less than their income, can effectively avoid taxation of most of their earnings by simply living below their means, which they do anyway because that's what being rich is. If I make a million a year but consume like someone making 100k a year, I only pay taxes on 1/10 of my income; hardly fair since the guy actually making 100k is paying taxes on 100% of his income.
    - seanmcdirmid 11y ago
      A sales tax is the ultimate regressive tax. At the low end, you don't have much to save anyways (you need to eat!), so you are spending your income and getting taxed. At the high end, you can save a lot more since you make more. And you can always fly off to Hong Kong for a weekend to buy things (that is what happens today in China which has a high VAT/import tax).
      - paulddraper 11y ago
        No, I think you mean a true flat tax, e.g. a poll tax, is the ultimate regressive tax. I have come to find that "regressive" moves the goalposts. It sounds as if the rich pay less. They don't pay less; they pay more. They just don't pay more when dividing taxes by their total income. I've never heard a convincing argument for why that formula is the ultimate benchmark. And anyway, virtually all sales tax proposals have some per capita rebate/basic income, and that can be tweaked to make it as progressive as your heart desires.
  - skywhopper 11y ago
    Who administers, audits, and collects the flat sales tax? And who decides what counts as "sales" on which to collect this super-simple tax? I assume we would tax the sale of pencils and computers. What about houses? Stock? Haircuts? Babysitting? Will companies be asked to pay taxes on their cost-of-goods-sold (currently deductible from corporate income taxes)? Or their employee's salaries?
    - paulddraper 11y ago
      At the federal level, there's an organization called IRS. Yes. I'm not sure if you're aware, but sales tax is already ubiquitous in the US. The taxable entities are far fewer than income tax, making for less administrative overhead. Tax evasion rates also lower. Of course there are tricky questions, but they're already being answered, IMO better than the personal income quagmire. Having both today is a complicated tax structure (corporate taxes and sales taxes). Between the two, sales tax is the simplest choice.
- gizmo686 11y ago
  What makes defining "income" in a flat tax scheme more challenging (or more important) than defining it for a progressive tax scheme?
  - jsankey 11y ago
    I don't think the GP was claiming it was more challenging. The point is making the tax flat doesn't help solve this key problem, so all you get is a less progressive system overall.
waybull 11y ago
Tax "Simplification" will only happen if it's a massive giveaway to the wealthiest individuals and corporations. In any other case, it will be vigorously opposed by the most politically powerful individuals. A wish for simplification is nice; but in reality, it simply won't happen unless it comes at the expense of people like us (the top end of the working class).
eru 11y ago
Just copy whatever Hong Kong or Singapore or Estonia are doing taxwise.
- deleted 11y ago
  [deleted]
addicted 11y ago
The flat tax is an incredibly pointless solution. The flat tax is opposed to a progressive tax, that says that instead of having a tax rate of 15% for 100% of your income, you have a tax rate of 0% for the first $10000 of your income, 10% of the next 20000, and so on. This is something that can be calculated mentally, looked up using IRS published tables, or calculated with no effort in a 10 line script or some of the simplest Excel sheets possible. The progressive nature of income tax is absolutely not a problem and recognizes the marginal value of money. The problem is exemptions, etc., which a flat tax as opposed to a progressive tax does nothing to resolve.
- bhickey 11y ago
  Sure the mortgage deduction exemption is horrendous, but I think income source discrimination is a bigger issue. We have different rates for wages, long-term capital gains, bonus income. Don't even get me started on carried interest. I'd also like to see social security contributions get uncapped. After $118k in income, your average tax rate falls until $189k. Even then, your mean tax rate will still be lower than someone earning $118k until you earn in excess of $411k.
  - harryh 11y ago
    1) Wages and bonus income aren't taxed differently. 2A) When you take into account corporate taxes, inflation, and risk the difference between tax rates on wages and cap gains aren't as big as you might think. 2B) Many economists argue that there should be no capital gains taxes at all as they create a distortion between consumption and saving behavior. https://en.wikipedia.org/wiki/Optimal_capital_income_taxation https://en.wikipedia.org/wiki/Optimal_capital_income_taxatio... is as good of a place to start as any on this discussion. I also like http://www.thebigquestions.com/2010/01/27/a-quick-economics-lesson/ http://www.thebigquestions.com/2010/01/27/a-quick-economics-... if you prefer things in parable form. 3) With respect to carried interest I generally agree with you but this piece will make some people question their opinions on the matter: http://www.nytimes.com/2012/03/04/business/capital-gains-vs-ordinary-income-economic-view.html http://www.nytimes.com/2012/03/04/business/capital-gains-vs-...
gnaritas 11y ago
> I think a pure flat tax would actually be bad for the country implemented immediately It would be bad in any form, it's regressive; marginal utility and all that, taxes should be progressive or they're not a fair burden.
- wonderlust 11y ago
  I have a problem when people call tax burdens fair. There are so many ways to define fair its rediculous and has no solid meaning. Also, on that note, its not logically possible to tax a business alone. Any tax a business pays must by necessity be passed on to consumers, else the company goes out of business. You can get around it by only taxing profits, but then you open the giant loophole of all value that's not profits, like capital, income, tax free expenses, etc. There is no "fair" way to do that makes everyone happier.
  - gnaritas 11y ago
    > I have a problem when people call tax burdens fair. Well I have a problem with people who think fair doesn't matter. > There are so many ways to define fair its rediculous and has no solid meaning. Fair is like porn, it's hard to define, but everyone knows when they see it. It's genetic, even monkeys have a sense of fairness and refuse to cooperate when they're being treated unfairly. If that's not enough meaning for you, look harder. > There is no "fair" way to do that makes everyone happier. Sure there, look up the veil of ignorance; people think more fairly when they don't know which side of the equation they'll come out on.
anigbrowl 11y ago
Obama also wanted to reduce income tax filing to a single-page affair. Almost all such proposals along these lines founder on the rocks of legislative buy-in. Given Trump's penchant for denouncing other people as idiots and worse, even if he were to be elected I'm skeptical about his ability to get anything substantial done. Sure, some in congress would be intimidated or enthused into working with him, but others would conclude that he would be in place for 8 years at most, whereas government projects and finances typically involve much longer time horizons. I seriously doubt anyone trusts Trump to supervise a rewrite of the Constitution.
- muzz 11y ago
  I thought tax simplification was opposed by the tax-preparation industry: http://techcrunch.com/2013/03/27/turbotax-maker-funnels-millions-to-lobby-against-easier-tax-returns/ http://techcrunch.com/2013/03/27/turbotax-maker-funnels-mill...
seanmcdirmid 11y ago
A flat tax is a bad idea. A progressive tax without deductions might work, but a flat tax would just be a huge tax increase overnight for 90% of Americans.

skywhopper 11y ago

The challenge of a "flat tax" is defining "income". It's not as easy as you think, and basic intuitive "fairness" will result in a lot of income being excluded. Given that today's graduated tax system results in top-earners paying lower percentages, a "flat" tax will surely be worse. As for getting rid of the IRS, who will collect, administer, and audit the flat tax?

paulddraper 11y ago
That's why "fair tax" advocates flat sales tax. It still leads to questions, but sales taxes are usually simpler than income and capital taxes.
- themartorana 11y ago
  This is my favorite proposal to date. Sales tax applies equally to a pencil and a yacht. It also encourages savings at lower income levels.
  - jsankey 11y ago
    That's the problem, too -- it applies equally to necessities and luxuries. Sales taxes are regressive because there is a certain amount of non-discretionary spending everyone has to make, regardless of income, just to live.
    - orangecat 11y ago
      Most sales tax proposals include a "universal rebate", which is a fixed monthly amount given to everyone that's intended to cover the tax on necessities.
      - jsankey 11y ago
        Certainly there are ways to mitigate the effect, I was just pointing out that the universality of a sales tax isn't all positive.
    - paulddraper 11y ago
      We tried a luxury tax in the 90s. Yachts were more expensive and due to highly elastic demand, the industry plummeted. Companies went under or laid off thousands. But don't worry. Guess who works at yacht manufacturing plants? Not rich people. They weren't hurt, and they were fine with taking their money elsewhere.
      - jsankey 11y ago
        Nice straw man. I didn't even mention luxury tax, let alone promote it.
        deleted 11y ago
        [deleted]
        paulddraper 11y ago
        You implied that it would be better if luxury items were taxed at a different (higher) rate than other items. They is a luxury tax. However, if I misunderstood and you advocate having the same tax rate on luxury goods as other goods, then we are in agreement on this point.
    - thesteamboat 11y ago
      It doesn't necessarily need to. We could have a `digit-sales tax', i.e. count the number of digits in the item cost and add a tax at that percent. Something less than $10 only has a 1% tax, while something costing $10,000 has a 5% tax. Clearly the numbers should be adjusted if someone wants to turn this into a serious tax proposal, but it seems possible to design a progressive sales tax.
  - Animats 11y ago
    No, yachts get a break on sales tax.[1] Really. [1] http://www.pressofatlanticcity.com/business/new-jersey-cuts-sales-tax-on-purchase-of-new-boats/article_a33ac27a-9ebe-11e5-9392-075146f9cca6.html http://www.pressofatlanticcity.com/business/new-jersey-cuts-...
  - gnaritas 11y ago
    It's a terrible idea, a sales tax taxes spending instead of earning which automatically is a huge tax cut to the wealthy who by definition spend a far smaller percentage of their income than the middle classes who basically spend it all. Taxes belong on income, not on spending; sales taxes are incredibly regressive.
    - paulddraper 11y ago
      My bad. At the time of posting I thought that FairTax was fairly well known. https://en.wikipedia.org/wiki/FairTax#Monthly_tax_rebate https://en.wikipedia.org/wiki/FairTax#Monthly_tax_rebate
      - gnaritas 11y ago
        And as with all things government, it's the opposite of what it's named. The fair tax is anything but fair. If you only tax spending, then the rich, who spend far less than their income, can effectively avoid taxation of most of their earnings by simply living below their means, which they do anyway because that's what being rich is. If I make a million a year but consume like someone making 100k a year, I only pay taxes on 1/10 of my income; hardly fair since the guy actually making 100k is paying taxes on 100% of his income.
  - seanmcdirmid 11y ago
    A sales tax is the ultimate regressive tax. At the low end, you don't have much to save anyways (you need to eat!), so you are spending your income and getting taxed. At the high end, you can save a lot more since you make more. And you can always fly off to Hong Kong for a weekend to buy things (that is what happens today in China which has a high VAT/import tax).
    - paulddraper 11y ago
      No, I think you mean a true flat tax, e.g. a poll tax, is the ultimate regressive tax. I have come to find that "regressive" moves the goalposts. It sounds as if the rich pay less. They don't pay less; they pay more. They just don't pay more when dividing taxes by their total income. I've never heard a convincing argument for why that formula is the ultimate benchmark. And anyway, virtually all sales tax proposals have some per capita rebate/basic income, and that can be tweaked to make it as progressive as your heart desires.
- skywhopper 11y ago
  Who administers, audits, and collects the flat sales tax? And who decides what counts as "sales" on which to collect this super-simple tax? I assume we would tax the sale of pencils and computers. What about houses? Stock? Haircuts? Babysitting? Will companies be asked to pay taxes on their cost-of-goods-sold (currently deductible from corporate income taxes)? Or their employee's salaries?
  - paulddraper 11y ago
    At the federal level, there's an organization called IRS. Yes. I'm not sure if you're aware, but sales tax is already ubiquitous in the US. The taxable entities are far fewer than income tax, making for less administrative overhead. Tax evasion rates also lower. Of course there are tricky questions, but they're already being answered, IMO better than the personal income quagmire. Having both today is a complicated tax structure (corporate taxes and sales taxes). Between the two, sales tax is the simplest choice.
gizmo686 11y ago
What makes defining "income" in a flat tax scheme more challenging (or more important) than defining it for a progressive tax scheme?
- jsankey 11y ago
  I don't think the GP was claiming it was more challenging. The point is making the tax flat doesn't help solve this key problem, so all you get is a less progressive system overall.

waybull 11y ago

Tax "Simplification" will only happen if it's a massive giveaway to the wealthiest individuals and corporations. In any other case, it will be vigorously opposed by the most politically powerful individuals. A wish for simplification is nice; but in reality, it simply won't happen unless it comes at the expense of people like us (the top end of the working class).

eru 11y ago

Just copy whatever Hong Kong or Singapore or Estonia are doing taxwise.

deleted 11y ago
[deleted]

addicted 11y ago

The flat tax is an incredibly pointless solution. The flat tax is opposed to a progressive tax, that says that instead of having a tax rate of 15% for 100% of your income, you have a tax rate of 0% for the first $10000 of your income, 10% of the next 20000, and so on. This is something that can be calculated mentally, looked up using IRS published tables, or calculated with no effort in a 10 line script or some of the simplest Excel sheets possible. The progressive nature of income tax is absolutely not a problem and recognizes the marginal value of money. The problem is exemptions, etc., which a flat tax as opposed to a progressive tax does nothing to resolve.

bhickey 11y ago
Sure the mortgage deduction exemption is horrendous, but I think income source discrimination is a bigger issue. We have different rates for wages, long-term capital gains, bonus income. Don't even get me started on carried interest. I'd also like to see social security contributions get uncapped. After $118k in income, your average tax rate falls until $189k. Even then, your mean tax rate will still be lower than someone earning $118k until you earn in excess of $411k.
- harryh 11y ago
  1) Wages and bonus income aren't taxed differently. 2A) When you take into account corporate taxes, inflation, and risk the difference between tax rates on wages and cap gains aren't as big as you might think. 2B) Many economists argue that there should be no capital gains taxes at all as they create a distortion between consumption and saving behavior. https://en.wikipedia.org/wiki/Optimal_capital_income_taxation https://en.wikipedia.org/wiki/Optimal_capital_income_taxatio... is as good of a place to start as any on this discussion. I also like http://www.thebigquestions.com/2010/01/27/a-quick-economics-lesson/ http://www.thebigquestions.com/2010/01/27/a-quick-economics-... if you prefer things in parable form. 3) With respect to carried interest I generally agree with you but this piece will make some people question their opinions on the matter: http://www.nytimes.com/2012/03/04/business/capital-gains-vs-ordinary-income-economic-view.html http://www.nytimes.com/2012/03/04/business/capital-gains-vs-...

gnaritas 11y ago

> I think a pure flat tax would actually be bad for the country implemented immediately It would be bad in any form, it's regressive; marginal utility and all that, taxes should be progressive or they're not a fair burden.

wonderlust 11y ago
I have a problem when people call tax burdens fair. There are so many ways to define fair its rediculous and has no solid meaning. Also, on that note, its not logically possible to tax a business alone. Any tax a business pays must by necessity be passed on to consumers, else the company goes out of business. You can get around it by only taxing profits, but then you open the giant loophole of all value that's not profits, like capital, income, tax free expenses, etc. There is no "fair" way to do that makes everyone happier.
- gnaritas 11y ago
  > I have a problem when people call tax burdens fair. Well I have a problem with people who think fair doesn't matter. > There are so many ways to define fair its rediculous and has no solid meaning. Fair is like porn, it's hard to define, but everyone knows when they see it. It's genetic, even monkeys have a sense of fairness and refuse to cooperate when they're being treated unfairly. If that's not enough meaning for you, look harder. > There is no "fair" way to do that makes everyone happier. Sure there, look up the veil of ignorance; people think more fairly when they don't know which side of the equation they'll come out on.

anigbrowl 11y ago

Obama also wanted to reduce income tax filing to a single-page affair. Almost all such proposals along these lines founder on the rocks of legislative buy-in. Given Trump's penchant for denouncing other people as idiots and worse, even if he were to be elected I'm skeptical about his ability to get anything substantial done. Sure, some in congress would be intimidated or enthused into working with him, but others would conclude that he would be in place for 8 years at most, whereas government projects and finances typically involve much longer time horizons. I seriously doubt anyone trusts Trump to supervise a rewrite of the Constitution.

muzz 11y ago
I thought tax simplification was opposed by the tax-preparation industry: http://techcrunch.com/2013/03/27/turbotax-maker-funnels-millions-to-lobby-against-easier-tax-returns/ http://techcrunch.com/2013/03/27/turbotax-maker-funnels-mill...

seanmcdirmid 11y ago

A flat tax is a bad idea. A progressive tax without deductions might work, but a flat tax would just be a huge tax increase overnight for 90% of Americans.