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> Flat tax doesn't even simplify anything. Yes it does, depending on the implementation. There's a 2005 Economist article which does a good job of summarizing
by avar 8y ago
> Flat tax doesn't even simplify anything.
Yes it does, depending on the implementation. There's a 2005 Economist article which does a good job of summarizing why[1].
BEGIN QUOTE
Fewer brackets are simpler to administer, but one bracket is simplest of all. Under a pure flat tax, the taxman takes the same cut from the last dollar you earn that he took from the first. The appeal to high earners is obvious. But the administrative elegance of such a system is not so immediately apparent. Because every dollar is taxed at the same rate, it does not matter to the tax collector how many dollars are going to whom. Thus, in principle, the taxman could simply withhold 20% of a company's payroll, without needing to know who was paid what. Add a second rate of tax, however, or a personal exemption, and the tax collector must find out how much money is going into each pay packet before he can be sure of collecting the right amount from the right person. In America, for example, the tax collector needs to tax the wage packets of 130m or more employees, rather than simply taxing the payrolls of 8m or so enterprises.
END QUOTE
The mistake you're making is assuming that the tax system can only be simplified on the individual level, but as the quote above demonstrates this isn't true.
Certain changes to the tax code do entirely away with the need for the government to exhaustively audit large parts of the economy.
Another quote from the article demonstrating such a case:
BEGIN QUOTE
In Canada, Australia and the European Union, for example, staple foods, but not restaurant meals, are exempted from value-added tax. [Therefore] hot roast chicken is taxed, but cold roast chicken is not. “Does anyone expect tax administrators and business owners to have thermometers on hand when they do their tax calculations?”
END QUOTE
In this example, by progressively taxing food you're creating the accounting problem that the government theoretically has to track economic activity down to the level of whether a chicken was warm or not when it was sold.
Simplifying the tax code does away with needing to solve that problem entirely, and eliminates some of the current incentives for tax avoidance and other fraud.
1. https://www.economist.com/special-report/2005/04/14/the-case-for-flat-taxes https://www.economist.com/special-report/2005/04/14/the-case...
- DontGiveTwoFlux 8y agoThe parent's comment still applies. If the progressive brackets were just swapped for a flat tax, the tax man still needs to know how much each employee had as deductibles, e.g. number of dependents, donations to charity, mortgage interest, etc.
- chimeracoder 8y ago> The parent's comment still applies. If the progressive brackets were just swapped for a flat tax, the tax man still needs to know how much each employee had as deductibles, e.g. number of dependents, donations to charity, mortgage interest, etc. No, because the idea behind a flat tax is to eliminate most or all of those deductions, the same way they've already been eliminated for people who pay AMT instead of normal income tax.
- bmm6o 8y agoTrue in theory, but virtually every mainstream "flat tax" that actually gets to the stage of having a concrete proposal acknowledges the need for deductions. I don't recall ever seeing a true flat tax.
- avar 8y agoThere's flat tax proposals and implementations at every level of the economy in different countries, not all of them have to do with income tax. E.g. the case of the warm and cold chicken being taxed at different rates, as described in the linked Economist article. It's common in places with such a distinction in the tax code for some stores to sell packaged cold food clearly intended to be eaten on the go, and then to conveniently offer a customer-operated microwave on-site partly as a way to avoid paying a tax that distinguishes between food sold as groceries v.s. take-away food. I'm not advocating for flat taxes, but it is correct to say that such proposals in general do away with such emergent absurdities, and decrease the need for government bureaucracy.
- chc 8y agoThis thread is specifically talking about tax plans from Republicans in the US Congress.
- bmm6o 8y agoThat there are gray areas (groceries vs restaurants) that can be difficult or because the math is slightly more challenging are not persuasive arguments, to me. As universal as a "flat" income tax having deductions are sales taxes having exemptions, so they also are never "flat" in practice either.
- philwelch 8y agoThat works fine for salaries and whatnot, but even without outright deductions, you would still have to compute net income in a lot of situations, including individual proprietorships and capital gains.