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In practice a 20% flat tax on all people and corporations without exceptions and deductions would be more progressive than the current system. The wealthy pay v

by Joeri 10y ago

In practice a 20% flat tax on all people and corporations without exceptions and deductions would be more progressive than the current system. The wealthy pay very little taxes.

danielvf 10y ago
In 2015, the top 20% paid 84% of collected income tax. That would hardly qualify as little taxes.
- vkou 10y ago
  They also own 88% of the country's wealth. And collect 65% of the country's income. (More if you include investment gains.) Pardon me if I don't shed too many tears. [1] Increasing taxes on them would hardly qualify as hardship. The utility of a dollar is much lower when you have ~$300,000 in savings (80th percentile), then when you have ~$300 in savings (20th percentile). Related anecdote: With an annual income of ~$250-300,000, my net tax rate, including untaxable benefits and investment income is the same as that of my partner - who makes ~$30-40,000. If I had an income of $2,500,000, it would be substantially lower. [1] https://en.wikipedia.org/wiki/Wealth_inequality_in_the_United_States https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...
xienze 10y ago
A couple things... The parent is talking about "progressive" as in "the tax gets progressively higher as you make more money", not in the "social justice" sense. The flat tax being regressive means that the poor would have to actually pay more in taxes than they do now, which is very little. That's seen as a bad thing. Obviously there are solutions to that in flat tax proposals. Second, "the wealthy pay very little taxes" is a meme. I mean, look at what we've got here: http://www.pewresearch.org/fact-tank/2016/04/13/high-income-americans-pay-most-income-taxes-but-enough-to-be-fair/ http://www.pewresearch.org/fact-tank/2016/04/13/high-income-... Those making $250K and up are responsible for 51.6% of all income tax revenue. How much more should they be expected to contribute? Remember: the truly wealthy can live anywhere in the world. There's a balancing act that needs to be established between "you're not paying your fair share" and "soak the rich."
- tertius 10y ago
  Just one simple example would be that there is an untaxed amount, let's say $25k (or whatever the poverty level is) and everything above is 20%.
  - weaksauce 10y ago
    That is still regressive. A truly progressive tax system would be similar to what we have now but with much fewer deductions that the affluent can use to lower their effective tax rate. (Oft cited that warren buffet has a lower effective tax rate than his secretary because of all the deductions and loopholes.) Not to mention that there is a huge misunderstanding of how progressive tax rates work. A very affluent businessman was on tv saying they would essentially have no motivation to work if the marginal tax rate increased for him when Obama was campaigning. His idea was that the tax bracket above 250k per year would somehow affect his entire income if he earned more than that figure so he would only want to work until he had 249,999 dollars and then stop making money to avoid "making less money". Of course the marginal tax rate is the rate that your money is taxed above that threshold. In this case the tax rate would go from say 15% to 20% on the money earned after 250k. Let's say you made 260k that year. Your extra tax burden because of the marginal rate increasing would be 20-15= 5% on the 10k dollars. You don't get taxed an extra 5% on all your money made like that fellow thought. Flat tax is regressive and sales tax is regressive.
    - Cshelton 10y ago
      The point that the businessman was trying to make is not that he misunderstands how marginal tax rates work, but for the next dollar I'm going to earn, I now get to keep less. My incentive to earn the NEXT dollar is therefore less. This is exactly why we don't have a tax rate on the top bracket of 90% like in the Eisenhower era. It's not about being taxed on all your money when you make over that amount, it is, where is the incentive to grow my self or my company if I only get to keep $0.10 of the next dollar I make. Most people who pay multiple tax rates across brackets understand how it works.
      - 10y ago
dlp211 10y ago
This is such a ridiculous argument because you will never replace all taxes with a simple 20% tax since states, counties, localities, and ports all have the ability and incentive to tax and impose fees. Due to this, I will focus on what it means to replace the income tax system with a flat 20%. A family of 4 (2 kids under 18) making $50,000 per year pays about $200 in federal income taxes if they do nothing but file their taxes and take the standard deduction, personal deduction, EITC, and Child Tax Credit. A family of 4 making 70k pays something like $2000. A family of 4 making $150k last year contributing to 401k, HSA, IRA's, 2 kids under 18, have an effective tax rate of like 8%. In every single one of these cases, the families would be worst off (some significantly) if they were required to pay a 20% flat tax.

by Joeri 10y ago

In practice a 20% flat tax on all people and corporations without exceptions and deductions would be more progressive than the current system. The wealthy pay very little taxes.

danielvf 10y ago

In 2015, the top 20% paid 84% of collected income tax. That would hardly qualify as little taxes.

vkou 10y ago
They also own 88% of the country's wealth. And collect 65% of the country's income. (More if you include investment gains.) Pardon me if I don't shed too many tears. [1] Increasing taxes on them would hardly qualify as hardship. The utility of a dollar is much lower when you have ~$300,000 in savings (80th percentile), then when you have ~$300 in savings (20th percentile). Related anecdote: With an annual income of ~$250-300,000, my net tax rate, including untaxable benefits and investment income is the same as that of my partner - who makes ~$30-40,000. If I had an income of $2,500,000, it would be substantially lower. [1] https://en.wikipedia.org/wiki/Wealth_inequality_in_the_United_States https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...

xienze 10y ago

A couple things... The parent is talking about "progressive" as in "the tax gets progressively higher as you make more money", not in the "social justice" sense. The flat tax being regressive means that the poor would have to actually pay more in taxes than they do now, which is very little. That's seen as a bad thing. Obviously there are solutions to that in flat tax proposals. Second, "the wealthy pay very little taxes" is a meme. I mean, look at what we've got here: http://www.pewresearch.org/fact-tank/2016/04/13/high-income-americans-pay-most-income-taxes-but-enough-to-be-fair/ http://www.pewresearch.org/fact-tank/2016/04/13/high-income-... Those making $250K and up are responsible for 51.6% of all income tax revenue. How much more should they be expected to contribute? Remember: the truly wealthy can live anywhere in the world. There's a balancing act that needs to be established between "you're not paying your fair share" and "soak the rich."

tertius 10y ago
Just one simple example would be that there is an untaxed amount, let's say $25k (or whatever the poverty level is) and everything above is 20%.
- weaksauce 10y ago
  That is still regressive. A truly progressive tax system would be similar to what we have now but with much fewer deductions that the affluent can use to lower their effective tax rate. (Oft cited that warren buffet has a lower effective tax rate than his secretary because of all the deductions and loopholes.) Not to mention that there is a huge misunderstanding of how progressive tax rates work. A very affluent businessman was on tv saying they would essentially have no motivation to work if the marginal tax rate increased for him when Obama was campaigning. His idea was that the tax bracket above 250k per year would somehow affect his entire income if he earned more than that figure so he would only want to work until he had 249,999 dollars and then stop making money to avoid "making less money". Of course the marginal tax rate is the rate that your money is taxed above that threshold. In this case the tax rate would go from say 15% to 20% on the money earned after 250k. Let's say you made 260k that year. Your extra tax burden because of the marginal rate increasing would be 20-15= 5% on the 10k dollars. You don't get taxed an extra 5% on all your money made like that fellow thought. Flat tax is regressive and sales tax is regressive.
  - Cshelton 10y ago
    The point that the businessman was trying to make is not that he misunderstands how marginal tax rates work, but for the next dollar I'm going to earn, I now get to keep less. My incentive to earn the NEXT dollar is therefore less. This is exactly why we don't have a tax rate on the top bracket of 90% like in the Eisenhower era. It's not about being taxed on all your money when you make over that amount, it is, where is the incentive to grow my self or my company if I only get to keep $0.10 of the next dollar I make. Most people who pay multiple tax rates across brackets understand how it works.
    - 10y ago

dlp211 10y ago

This is such a ridiculous argument because you will never replace all taxes with a simple 20% tax since states, counties, localities, and ports all have the ability and incentive to tax and impose fees. Due to this, I will focus on what it means to replace the income tax system with a flat 20%. A family of 4 (2 kids under 18) making $50,000 per year pays about $200 in federal income taxes if they do nothing but file their taxes and take the standard deduction, personal deduction, EITC, and Child Tax Credit. A family of 4 making 70k pays something like $2000. A family of 4 making $150k last year contributing to 401k, HSA, IRA's, 2 kids under 18, have an effective tax rate of like 8%. In every single one of these cases, the families would be worst off (some significantly) if they were required to pay a 20% flat tax.