6 ms·

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

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-...
  - bhickey 11y ago
    1) It looks like I'm mixing up the California withholding rate with the tax rate. Thanks. 2A) Granted. If I had a magical tax wand, I'd obliterate corporate taxation. 2B) It's an argument I've heard, but I'm more interested in avoiding arbitrage. My preferences might be mistaken. :) 3) If I hold the belief that we shouldn't tax income differently based on its source, Mankiw's argument doesn't have much force. His reasoning is sound, sure, but I'm not sold on the premise.
    - harryh 11y ago
      1) Yes. This is true and annoying especially if you care about short term cash flow. If you super care about this you can play games with your W4 to cut down your withholding and instead pay quarterly tax payments. Though if you screw up and underpay you'll owe penalties. 2A) Indeed I agree. Though personally I put the chance of this ever happening at precisely zero due to the political optics. 2B) The difficulty of determining what is a capital gain and what is income is, in fact, one of the biggest theoretical arguments against a zero cap gains rate.
    - newman314 11y ago
      Why remove corporate taxation? From my perspective, corporations already pay a lower effective tax rate and have access to tax avoidance strategies that not available to the individual. I've read the argument that eliminating the corporate tax would spur growth but that's like saying eliminating individual income tax would spur consumer spending.
      - harryh 11y ago
        Because all taxes are taxes on people. Corporate taxes are just a convoluted and bad way of doing so.
        newman314 11y ago
        Are you proposing that eliminating corporate taxes would mean that somehow you would make more at the end of the day and be taxed less overall? I'm not sure I see that happening.
Mikeb85 11y ago
It's not a terrible solution. Ideally a flat tax (which pretty much always means a lower rate than high earners pay) simplifies the tax system, and makes high earners less likely to evade taxes. However it doesn't change the fact that really high earners get a lot of their wealth from investments, so in the end they'll still pay a lower total 'rate'. The highest tax burden will still be paid by upper middle-class professionals who have a high salary but few investments. If governments really want to collect taxes from the ultra-rich, a wealth tax is what is necessary. However that alone poses problems because 'wealth' is not always liquid - do you tax the old lady whose house has appreciated significantly but who doesn't have an income? Do you tax an entrepreneur whose firm is worth several million but hasn't actually realized any significant income? Anyhow, just a few musings, but the summary is that taxes are hard. Too high and people evade them, too low and the government has a shortfall...
- gnaritas 11y ago
  > It's not a terrible solution. It's precisely a terrible solution. Yes, taxes are hard, but a solution that punishes the poor (or the not rich) by not recognizing the marginal utility of money is terrible in any form.
  - maratd 11y ago
    > punishes the poor by not recognizing the marginal utility of money What does this have to do with the poor? Are you under the impression your federal tax dollars get redistributed to the poor? Government contractors aren't poor. Do you have any idea what percentage of government proceeds are redistributed to the poor? Do not include social security. That money was taken from them to begin with.
    - gnaritas 11y ago
      > What does this have to do with the poor? Look up what regressive means and what marginal utility means; nothing I'm saying has anything to do with how taxes are redistributed. Flat taxes are inherently unfair, they ignore the marginal utility of money; they are regressive.
ksec 11y ago
I know this is about US taxes only, ( And i am not from US ). But shouldn't mortgage reduction only be acceptable if you have one property only? If you have multiple property, then you are basically accumulating asset over a long period of time.
- analog31 11y ago
  Apparently, one or two homes, and there are limitations on the deduction for your second home. https://www.irs.gov/publications/p936/ar02.html https://www.irs.gov/publications/p936/ar02.html
deleted 11y ago
[deleted]
shalmanese 11y ago
The biggest difference moving to a flat tax system can make is that you can shift income tax collection from the payee to the payer. Under a progressive system, Company A paying you $10,000 and Company B paying you $10,000 results in a different tax rate so neither company knows how much tax you owe. Under flat tax, Company A can just take $1500 out of your earnings before it gets to you, regardless of any arrangements you have with other payers. Since there are far fewer companies than employees, this makes tax enforcement significantly easier and evasion much less likely. Ordinary citizens now no longer have to deal with the IRS and tax is handled transparently. Every flat tax proposal also tends to come with a negative income tax component to make up for the regressivity. The NIT essentially becomes a basic income like social safety net to make up for the loss of progressivity. And since it involves the govt giving you money rather than you giving the govt money, compliance will naturally be much higher.

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-...
- bhickey 11y ago
  1) It looks like I'm mixing up the California withholding rate with the tax rate. Thanks. 2A) Granted. If I had a magical tax wand, I'd obliterate corporate taxation. 2B) It's an argument I've heard, but I'm more interested in avoiding arbitrage. My preferences might be mistaken. :) 3) If I hold the belief that we shouldn't tax income differently based on its source, Mankiw's argument doesn't have much force. His reasoning is sound, sure, but I'm not sold on the premise.
  - harryh 11y ago
    1) Yes. This is true and annoying especially if you care about short term cash flow. If you super care about this you can play games with your W4 to cut down your withholding and instead pay quarterly tax payments. Though if you screw up and underpay you'll owe penalties. 2A) Indeed I agree. Though personally I put the chance of this ever happening at precisely zero due to the political optics. 2B) The difficulty of determining what is a capital gain and what is income is, in fact, one of the biggest theoretical arguments against a zero cap gains rate.
  - newman314 11y ago
    Why remove corporate taxation? From my perspective, corporations already pay a lower effective tax rate and have access to tax avoidance strategies that not available to the individual. I've read the argument that eliminating the corporate tax would spur growth but that's like saying eliminating individual income tax would spur consumer spending.
    - harryh 11y ago
      Because all taxes are taxes on people. Corporate taxes are just a convoluted and bad way of doing so.
      - newman314 11y ago
        Are you proposing that eliminating corporate taxes would mean that somehow you would make more at the end of the day and be taxed less overall? I'm not sure I see that happening.

Mikeb85 11y ago

It's not a terrible solution. Ideally a flat tax (which pretty much always means a lower rate than high earners pay) simplifies the tax system, and makes high earners less likely to evade taxes. However it doesn't change the fact that really high earners get a lot of their wealth from investments, so in the end they'll still pay a lower total 'rate'. The highest tax burden will still be paid by upper middle-class professionals who have a high salary but few investments. If governments really want to collect taxes from the ultra-rich, a wealth tax is what is necessary. However that alone poses problems because 'wealth' is not always liquid - do you tax the old lady whose house has appreciated significantly but who doesn't have an income? Do you tax an entrepreneur whose firm is worth several million but hasn't actually realized any significant income? Anyhow, just a few musings, but the summary is that taxes are hard. Too high and people evade them, too low and the government has a shortfall...

gnaritas 11y ago
> It's not a terrible solution. It's precisely a terrible solution. Yes, taxes are hard, but a solution that punishes the poor (or the not rich) by not recognizing the marginal utility of money is terrible in any form.
- maratd 11y ago
  > punishes the poor by not recognizing the marginal utility of money What does this have to do with the poor? Are you under the impression your federal tax dollars get redistributed to the poor? Government contractors aren't poor. Do you have any idea what percentage of government proceeds are redistributed to the poor? Do not include social security. That money was taken from them to begin with.
  - gnaritas 11y ago
    > What does this have to do with the poor? Look up what regressive means and what marginal utility means; nothing I'm saying has anything to do with how taxes are redistributed. Flat taxes are inherently unfair, they ignore the marginal utility of money; they are regressive.

ksec 11y ago

I know this is about US taxes only, ( And i am not from US ). But shouldn't mortgage reduction only be acceptable if you have one property only? If you have multiple property, then you are basically accumulating asset over a long period of time.

analog31 11y ago
Apparently, one or two homes, and there are limitations on the deduction for your second home. https://www.irs.gov/publications/p936/ar02.html https://www.irs.gov/publications/p936/ar02.html

deleted 11y ago

[deleted]

shalmanese 11y ago

The biggest difference moving to a flat tax system can make is that you can shift income tax collection from the payee to the payer. Under a progressive system, Company A paying you $10,000 and Company B paying you $10,000 results in a different tax rate so neither company knows how much tax you owe. Under flat tax, Company A can just take $1500 out of your earnings before it gets to you, regardless of any arrangements you have with other payers. Since there are far fewer companies than employees, this makes tax enforcement significantly easier and evasion much less likely. Ordinary citizens now no longer have to deal with the IRS and tax is handled transparently. Every flat tax proposal also tends to come with a negative income tax component to make up for the regressivity. The NIT essentially becomes a basic income like social safety net to make up for the loss of progressivity. And since it involves the govt giving you money rather than you giving the govt money, compliance will naturally be much higher.