3 ms·

That’s possible of any tax policy, but presumably a flat tax eliminates significant complexity from the tax code which reduces the possible avenues for wealth

That’s possible of any tax policy, but presumably a flat tax eliminates significant complexity from the tax code which reduces the possible avenues for wealth defense. What other thoughts do you have on the issue rather than a simple dismissal?

lotsofpulp 6y ago
A flat tax means all income is taxed at the same percentage rate. Or I guess it could mean everyone pays the same flat dollar amount in taxes. A marginal income tax is just as simple, and not regressive.
- AnthonyMouse 6y ago
  A marginal income tax is dramatically more complicated because the rate depends on your income from other sources. If you take a contract for $500, whether you pay 15% or 25% depends among other things on whether you take a totally different contract with an independent party which pushes you into a higher bracket. It makes every transaction depend on every other one rather than allowing them to be independent, and requires a corresponding invasion of privacy to ensure compliance. Compare this to where the taxes are deducted by the employer without even having to disclose who the employee is to the tax authority, and a total elimination of tax paperwork on the part of the employee. It also creates arbitrage opportunities to minimize the rate, e.g. hiring your nephew who is in a lower tax bracket and then deducting his wages as an expense from your own taxes even though the money remains in your family.
  - lotsofpulp 6y ago
    This is way overstating the complicated-ness of marginal income taxes for 99.9% of people. Adding up your income and performing 2 or 3 basic arithmetic operations is not "dramatically" more complicated, nor are marginal tax rate increases dramatic enough to affect any decision about doing more work or not. And with the use of computers and electronic databases containing individual's unique ID # (e.g. social security #) and the internet to transmit payroll information, even a marginal income tax does not require employees to do any paperwork. >It also creates arbitrage opportunities to minimize the rate, e.g. hiring your nephew who is in a lower tax bracket and then deducting his wages as an expense from your own taxes even though the money remains in your family. This is irrelevant and I don't see why anyone would have a problem with people "minimizing" taxes in the way shown as it's above board, and tax policy taxes individuals, not families. If you want to consider money distributed to other members of your tribe as yours, then go for it. That kind of stuff doesn't last too long in my experience though, once people get a taste of financial independence, the individuals in a "family" start looking out for themselves first.
    - AnthonyMouse 6y ago
      > This is way overstating the complicated-ness of marginal income taxes for 99.9% of people. Only because it is a cause of 99.9% of people operating that way. The amount of tax and other paperwork involved is one of the primary reasons people don't commonly take on small side jobs (or do but don't report them). That is one of the major costs of the complexity. > And with the use of computers and electronic databases containing individual's unique ID # (e.g. social security #) and the internet to transmit payroll information You don't see how this is, itself, a dramatic increase in complexity? With a flat tax individuals wouldn't even need to have a unique ID. That we might be able to dump the complexity of this on businesses instead of individuals isn't making it go away, it's just making it harder to do business because now you need complicated tax software and central databases. Also, the individual is still doing paperwork, because how else is the employer getting their ID number? > This is irrelevant and I don't see why anyone would have a problem with people "minimizing" taxes in the way shown as it's above board, and tax policy taxes individuals, not families. It's clearly a violation of the spirit of a progressive tax system. If a rich person buys his nephew a car, he has to pay his own marginal tax rate on it. If he instead pays his nephew the value of the car as a salary, he pays no tax on the money and the nephew pays the lower marginal rate. And that assuming the entire thing isn't just a kickback system where the rich person ends up with use of the car anyway and they privately agree to do it that way to split the "savings" from the marginal rate arbitrage. It's subverting the intent of the system, in a way that can't be done if they were both paying the same marginal rate and progressivity was achieved by giving everyone a large fixed starting credit (i.e. UBI). > That kind of stuff doesn't last too long in my experience though, once people get a taste of financial independence, the individuals in a "family" start looking out for themselves first. But it's still a dependent relationship. The nephew only continues to get the money by staying on the good side of his "employer" -- it's the same situation where the wealthy use their money to control those in their social circle, but now you're giving them a tax discount for doing it.
notahacker 6y ago
A flat tax simply eliminates tax brackets; usually the upper one is one that goes. It's entirely possible to have a flat tax system with an incredibly complex and irrational set of deductions, just as it's possible to have a progressive tax system with zero deductions. As for Winters' book, which I haven't read, it sounds like a more pessimistic version of Olson's Power and Prosperity, which essentially argued that all forms of security arrangement involved those with power extracting money from people, but kings had less incentive to pillage and more incentive to protect than bandits, and democracies more interest in using extracted wealth for public benefit than kings. I doubt Winter would disagree with my characterisation of campaigns for flat taxes as being one of oligarchs' wealth defence strategies in a democracy.
- germinalphrase 6y ago
  Thank you for the response.

lotsofpulp 6y ago

A flat tax means all income is taxed at the same percentage rate. Or I guess it could mean everyone pays the same flat dollar amount in taxes. A marginal income tax is just as simple, and not regressive.

AnthonyMouse 6y ago
A marginal income tax is dramatically more complicated because the rate depends on your income from other sources. If you take a contract for $500, whether you pay 15% or 25% depends among other things on whether you take a totally different contract with an independent party which pushes you into a higher bracket. It makes every transaction depend on every other one rather than allowing them to be independent, and requires a corresponding invasion of privacy to ensure compliance. Compare this to where the taxes are deducted by the employer without even having to disclose who the employee is to the tax authority, and a total elimination of tax paperwork on the part of the employee. It also creates arbitrage opportunities to minimize the rate, e.g. hiring your nephew who is in a lower tax bracket and then deducting his wages as an expense from your own taxes even though the money remains in your family.
- lotsofpulp 6y ago
  This is way overstating the complicated-ness of marginal income taxes for 99.9% of people. Adding up your income and performing 2 or 3 basic arithmetic operations is not "dramatically" more complicated, nor are marginal tax rate increases dramatic enough to affect any decision about doing more work or not. And with the use of computers and electronic databases containing individual's unique ID # (e.g. social security #) and the internet to transmit payroll information, even a marginal income tax does not require employees to do any paperwork. >It also creates arbitrage opportunities to minimize the rate, e.g. hiring your nephew who is in a lower tax bracket and then deducting his wages as an expense from your own taxes even though the money remains in your family. This is irrelevant and I don't see why anyone would have a problem with people "minimizing" taxes in the way shown as it's above board, and tax policy taxes individuals, not families. If you want to consider money distributed to other members of your tribe as yours, then go for it. That kind of stuff doesn't last too long in my experience though, once people get a taste of financial independence, the individuals in a "family" start looking out for themselves first.
  - AnthonyMouse 6y ago
    > This is way overstating the complicated-ness of marginal income taxes for 99.9% of people. Only because it is a cause of 99.9% of people operating that way. The amount of tax and other paperwork involved is one of the primary reasons people don't commonly take on small side jobs (or do but don't report them). That is one of the major costs of the complexity. > And with the use of computers and electronic databases containing individual's unique ID # (e.g. social security #) and the internet to transmit payroll information You don't see how this is, itself, a dramatic increase in complexity? With a flat tax individuals wouldn't even need to have a unique ID. That we might be able to dump the complexity of this on businesses instead of individuals isn't making it go away, it's just making it harder to do business because now you need complicated tax software and central databases. Also, the individual is still doing paperwork, because how else is the employer getting their ID number? > This is irrelevant and I don't see why anyone would have a problem with people "minimizing" taxes in the way shown as it's above board, and tax policy taxes individuals, not families. It's clearly a violation of the spirit of a progressive tax system. If a rich person buys his nephew a car, he has to pay his own marginal tax rate on it. If he instead pays his nephew the value of the car as a salary, he pays no tax on the money and the nephew pays the lower marginal rate. And that assuming the entire thing isn't just a kickback system where the rich person ends up with use of the car anyway and they privately agree to do it that way to split the "savings" from the marginal rate arbitrage. It's subverting the intent of the system, in a way that can't be done if they were both paying the same marginal rate and progressivity was achieved by giving everyone a large fixed starting credit (i.e. UBI). > That kind of stuff doesn't last too long in my experience though, once people get a taste of financial independence, the individuals in a "family" start looking out for themselves first. But it's still a dependent relationship. The nephew only continues to get the money by staying on the good side of his "employer" -- it's the same situation where the wealthy use their money to control those in their social circle, but now you're giving them a tax discount for doing it.

notahacker 6y ago

A flat tax simply eliminates tax brackets; usually the upper one is one that goes. It's entirely possible to have a flat tax system with an incredibly complex and irrational set of deductions, just as it's possible to have a progressive tax system with zero deductions. As for Winters' book, which I haven't read, it sounds like a more pessimistic version of Olson's Power and Prosperity, which essentially argued that all forms of security arrangement involved those with power extracting money from people, but kings had less incentive to pillage and more incentive to protect than bandits, and democracies more interest in using extracted wealth for public benefit than kings. I doubt Winter would disagree with my characterisation of campaigns for flat taxes as being one of oligarchs' wealth defence strategies in a democracy.

germinalphrase 6y ago
Thank you for the response.