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The "flat tax" is, in my opinion, a red herring. If people want a simplified tax code, that's one thing-- but there's nothing inherently complicated about a pr

The "flat tax" is, in my opinion, a red herring. If people want a simplified tax code, that's one thing-- but there's nothing inherently complicated about a progressively graduated tax rate. It's as simple as looking a single number up in simple table. Tax simplification has nothing to do with the flatness of the scale, and it's being used as an pretext to shift the tax burden from the very wealthy to the not-so-wealthy.

dsplittgerber 17y ago
That is a common misconception. Flat taxes don't shift the tax burden from the very wealthy to the not-so-wealthy, as they generally include a tax free amount of income. That leads to hidden progression, so to speak. Also, the poorer you are, the less likely you are to be able to hire a tax advisor, so you cannot use all hidden loopholes etc. So a flat tax would actually mostly benefit the not-so-wealthy.
- gjm11 17y ago
  The so-called FairTax proposed by some US politicians does in fact shift the tax burden, from the very wealthy and the very not-wealthy to the moderately-well-off. FactCheck, who are generally pretty reliable, have some analysis at http://www.factcheck.org/taxes/unspinning_the_fairtax.html http://www.factcheck.org/taxes/unspinning_the_fairtax.html and their second graph (the first one is from the US Treasury Department and is potentially misleading in a way described on that page) divides up incomes at $15k, $24k, $42k, $75k (I'm sure there's a reason for those divisions; are they where current tax rates change or something?) and seems to show the <$15k and >$75k brackets gaining substantially, the $24k-$75k brackets losing out, and not much difference for the $12k-$24k bracket. Later statements there suggest that the actual range in which people will pay more is something like $24k-$200k. So, it appears that at least one prominent proposal for a "flat tax" shifts the tax burden from the very wealthy and the poor to the middle classes. (I'm guessing that in absolute terms the great majority of the benefit goes to the very wealthy, though quite possibly the poor would feel it more.)
  - dsplittgerber 17y ago
    My previous idea of a flat tax (over here in Europe) referred only to a flat taxation of income. The "fairtax" proposal you link refers to a flat taxation of sales; also there are payroll and income taxes in the US. What I don't understand: What's the difference between a flat taxation on sales vs income and, also, what's the difference between a payroll tax vs income tax?
xiaoma 17y ago
There is one inherent complication involved with a graduated rate. If there is a single rate for everyone without loopholes, then companies can pay income taxes as a percentage of their total payroll, instead of calculating individually for each person. In fact, there would be no reason for a non-self employed person to need to calculate anything at all. If X is the tax rate, then the employer just withholds a X percent from every single paycheck given to any employee. This sort of system would make it much harder for the government to encourage various behaviors without resorting to a direct subsidy, but it would redirect a lot of people from the tax preparation industry into productive work. If the rate is graduated, then there is no way to know the total amount of income tax owed by a company's employees without doing separate calculations for each. BTW, the US, UK, and every other supposedly "progressive" tax system I know of actually taxes the rich less, due to complex tax systems that only those who can afford accountants can properly exploit. On a percentage basis, the very wealthy have a much lower tax burden than the middle class under the current system.
- bps4484 17y ago
  I think the key phrase in this post, and what other commenters seem to be missing, and what the hard part of making any changes will be, is "without loopholes". That is the reason the tax code is hard. It's also a small reason(1) wealthy people can manipulate the tax code to their advantage. I don't think it has anything to do with a graduated rate. Granted, a flat tax would allow employers to pay the tax and employees wouldn't have to file taxes, but if there were no loopholes in our current graduated tax system, the government could provide an online form that could have you fill out your taxes in < 5 minutes. (1) I said a small way because if we really want to get the super wealthy to pay more in taxes, a big way could change things is by making capital gains count as income. This is the reason someone like warren buffet pays 17% of his 46 million income, because it's all capital gains taxed at 15% (http://www.timesonline.co.uk/tol/money/tax/article1996735.ece http://www.timesonline.co.uk/tol/money/tax/article1996735.ec...). I would be interested in seeing stats how most of the super wealthy (top .1%) make their money, but I would bet it's almost all capital gains.

dsplittgerber 17y ago

That is a common misconception. Flat taxes don't shift the tax burden from the very wealthy to the not-so-wealthy, as they generally include a tax free amount of income. That leads to hidden progression, so to speak. Also, the poorer you are, the less likely you are to be able to hire a tax advisor, so you cannot use all hidden loopholes etc. So a flat tax would actually mostly benefit the not-so-wealthy.

gjm11 17y ago
The so-called FairTax proposed by some US politicians does in fact shift the tax burden, from the very wealthy and the very not-wealthy to the moderately-well-off. FactCheck, who are generally pretty reliable, have some analysis at http://www.factcheck.org/taxes/unspinning_the_fairtax.html http://www.factcheck.org/taxes/unspinning_the_fairtax.html and their second graph (the first one is from the US Treasury Department and is potentially misleading in a way described on that page) divides up incomes at $15k, $24k, $42k, $75k (I'm sure there's a reason for those divisions; are they where current tax rates change or something?) and seems to show the <$15k and >$75k brackets gaining substantially, the $24k-$75k brackets losing out, and not much difference for the $12k-$24k bracket. Later statements there suggest that the actual range in which people will pay more is something like $24k-$200k. So, it appears that at least one prominent proposal for a "flat tax" shifts the tax burden from the very wealthy and the poor to the middle classes. (I'm guessing that in absolute terms the great majority of the benefit goes to the very wealthy, though quite possibly the poor would feel it more.)
- dsplittgerber 17y ago
  My previous idea of a flat tax (over here in Europe) referred only to a flat taxation of income. The "fairtax" proposal you link refers to a flat taxation of sales; also there are payroll and income taxes in the US. What I don't understand: What's the difference between a flat taxation on sales vs income and, also, what's the difference between a payroll tax vs income tax?

xiaoma 17y ago

There is one inherent complication involved with a graduated rate. If there is a single rate for everyone without loopholes, then companies can pay income taxes as a percentage of their total payroll, instead of calculating individually for each person. In fact, there would be no reason for a non-self employed person to need to calculate anything at all. If X is the tax rate, then the employer just withholds a X percent from every single paycheck given to any employee. This sort of system would make it much harder for the government to encourage various behaviors without resorting to a direct subsidy, but it would redirect a lot of people from the tax preparation industry into productive work. If the rate is graduated, then there is no way to know the total amount of income tax owed by a company's employees without doing separate calculations for each. BTW, the US, UK, and every other supposedly "progressive" tax system I know of actually taxes the rich less, due to complex tax systems that only those who can afford accountants can properly exploit. On a percentage basis, the very wealthy have a much lower tax burden than the middle class under the current system.

bps4484 17y ago
I think the key phrase in this post, and what other commenters seem to be missing, and what the hard part of making any changes will be, is "without loopholes". That is the reason the tax code is hard. It's also a small reason(1) wealthy people can manipulate the tax code to their advantage. I don't think it has anything to do with a graduated rate. Granted, a flat tax would allow employers to pay the tax and employees wouldn't have to file taxes, but if there were no loopholes in our current graduated tax system, the government could provide an online form that could have you fill out your taxes in < 5 minutes. (1) I said a small way because if we really want to get the super wealthy to pay more in taxes, a big way could change things is by making capital gains count as income. This is the reason someone like warren buffet pays 17% of his 46 million income, because it's all capital gains taxed at 15% (http://www.timesonline.co.uk/tol/money/tax/article1996735.ece http://www.timesonline.co.uk/tol/money/tax/article1996735.ec...). I would be interested in seeing stats how most of the super wealthy (top .1%) make their money, but I would bet it's almost all capital gains.