Would a Flat Tax Work If...

[Krastyn]

Flat taxes do not work. Again, flat taxes do not work. One more time, flat taxes do not work!

The problem has NEVER been that the poor pay to little in taxes, its that the rich have enough loopholes to not pay their fair share of taxes!

Basic economic principles show that you get the highest revenue with the least societal impact if the highest tax bracket is between 30 and 40%. Set it there, and cut out the loopholes and we would never have a budget deficit again! Oh yeah, FLAT TAXES DO NOT WORK!!!!!!

You seem to contradict yourself a little. You say flat taxes don't work. Then you say that the best option is when the highest tax bracket is 30 to 40%.

So by your own logic, a flat tax of 30 to 40% would work.

[Endus]

Flat taxes are inherently, deliberately regressive; they are constructed to be a greater relative burden on those who have less wealth. That's the sole purpose of a flat tax.

It isn't to "simplify the tax code". A flat tax has nothing to do with exemptions and claims loopholes or any of that. You can have all of those and a flat tax. And a progressive tax system isn't "complicated". It takes all of a small paragraph to explain. Define the tax brackets, and the rate the bracket is taxed at, and you're done.

"Federal tax rates for 201415% on the first $43,953 of taxable income, +
22% on the next $43,954 of taxable income (on the portion of taxable income over $43,953 up to $87,907), +
26% on the next $48,363 of taxable income (on the portion of taxable income over $87,907 up to $136,270), +
29% of taxable income over $136,270."

That's Canada's federal income tax brackets for 2014. That is not a major part of the tax code or a portion that contributes to complexity in any appreciable way.

If your issue is with tax loopholes and the like, then your issue isn't actually with progressive taxation. It's with the loopholes. You can (and should) address those separately, since there's nothing preventing them being applied to a flat-tax system in the exact same way they're applied to the current systems.

And if you're really interested in making taxation harder on poorer people, at least be up front and admit it. Because that's what a flat tax is about.

[Hothgor]

You seem to contradict yourself a little. You say flat taxes don't work. Then you say that the best option is when the highest tax bracket is 30 to 40%.

So by your own logic, a flat tax of 30 to 40% would work.

No, what I said was the highest BRACKET needs to be between 30 and 40%. Tax brackets are part of a progressive tax scheme, not a flat tax scheme.

[Themius]

Is this supposed to make it magically less regressive? It doesn't.

Instead we could like, you know, use rates the rest of the developed world uses.

NOOOOO BUT OUR RICH WILL LEAVE OUR COUNTRY AND GO TO SOME RANDOM PLACE! Never mind the fact most of their businesses are here... and they get a lot of benefits from being here...

[Krastyn]

No, what I said was the highest BRACKET needs to be between 30 and 40%. Tax brackets are part of a progressive tax scheme, not a flat tax scheme.

But if it "works" with the highest tax bracket being 30 to 40%, then you could easily find a percentage where a flat tax would accomplish the same.

[Omega10]

Could see tax on the money above 25k.

Thats the right formula. Tax = (Income - 25k) * Taxrate.

OKOKOK.. technically it is Tax = Max ( (Income-25k), 0) * Taxrate. I don't think the idea is to rebate those with salaries < 25k.

[Hotasianchick]

12% flat tax for buying and the sale of anything imo. 12% income as well. 12% of a employee's earnings paid by employer.
No loopholes no IRS. well not like we know the IRS. Rich, Poor yes 12%. For anything. Companies would fight to get into our country.
Commodities bought and sold things like stocks, land, things predetermined,12% buy 5% sell.

Currently our system blows donkey. This is as fair as i can think for a prosperous society.

This is not about punishing anyone or rewarding anyone.

Min Wage could be adjusted and could follow inflation. And employers would pay a valued employee much higher than min wage to keep them around. Well depending on business revenue.

Again this concept isn't about punishing or rewarding its not about rich and poor. Its hardly about fair. Its about our society and how to make it function at a much higher level of economic gain for all.

Keep the social safety nets and even have things like your EBT card be tax free when making purchases.

[Rukentuts]

12% flat tax for buying and the sale of anything imo. 12% income as well. 12% of a employee's earnings paid by employer.
No loopholes no IRS. well not like we know the IRS. Rich, Poor yes 12%. For anything. Companies would fight to get into our country.
Commodities bought and sold things like stocks, land, things predetermined,12% buy 5% sell.

Currently our system blows donkey. This is as fair as i can think for a prosperous society.

This is not about punishing anyone or rewarding anyone.

Min Wage could be adjusted and could follow inflation. And employers would pay a valued employee much higher than min wage to keep them around. Well depending on business revenue.

Again this concept isn't about punishing or rewarding its not about rich and poor. Its hardly about fair. Its about our society and how to make it function at a much higher level of economic gain for all.

Keep the social safety nets and even have things like your EBT card be tax free when making purchases.

Sales taxes are still highly regressive, except now we're attacking those that spend on everything, including those that receive benefits...which hurts consumption even more.

[Themius]

12% flat tax for buying and the sale of anything imo. 12% income as well. 12% of a employee's earnings paid by employer.
No loopholes no IRS. well not like we know the IRS. Rich, Poor yes 12%. For anything. Companies would fight to get into our country.
Commodities bought and sold things like stocks, land, things predetermined,12% buy 5% sell.

Currently our system blows donkey. This is as fair as i can think for a prosperous society.

This is not about punishing anyone or rewarding anyone.

Min Wage could be adjusted and could follow inflation. And employers would pay a valued employee much higher than min wage to keep them around. Well depending on business revenue.

Again this concept isn't about punishing or rewarding its not about rich and poor. Its hardly about fair. Its about our society and how to make it function at a much higher level of economic gain for all.

Keep the social safety nets and even have things like your EBT card be tax free when making purchases.

Hey this policy that totally aids the rich and punishes the poor totally isn't about rich or poor! It's about being fair and taxing Johnny 5m a year at the same rate as 15-18k a year cna in the south!

[Omega10]

With the amount of loopholes that are currently available for the rich, a truly flat tax with no loopholes (including removing the mortgage interest deduction) would be a SUBSTANTIAL tax increase on the wealthy, and would very likely end up being about the same rate or less for the middle class and working class.

Especially if the exemption is on the order of $25k.

[Themius]

I don't understand some of the logic in this thread.

"We have so many money issues in this country, you know what we need? Flat tax for all, so we collect even less money from the rich and likely push more people in a position to get benefits! Yeah that seems like a good idea!"

I honestly don't think some people are thinking beyond "low tax good, high tax bad. Why rich pay more tax, all should pay same, then it fair! So what if 15% of 5m doesn't hurt the millionaire as much as it does other taxpayers, it's about what's right! Hey we have debt issues so we'll grow the debt by taking in far less money because we're fucking martyrs!" Like seriously where the hell are we planning to go with this train of thought.

[Endus]

Min Wage could be adjusted and could follow inflation. And employers would pay a valued employee much higher than min wage to keep them around. Well depending on business revenue.

This is inherently contradictory to your desire to lower corporate and high income tax rates. That encourages companies and executives to increase their dividends to shareholders and salaries to executives, as they can retain that much more of it.

If you make the tax rate high, it encourages re-investment in the company and the employees, since money that's re-invested in that way isn't "income" to the shareholders and executives. And they'll reap greater rewards as their employees improve and their business expands.

This is why companies pursue lower tax rates; so they can maximize profits and thus dividends paid out to shareholders. If your country is small enough that you need to attract business, this makes sense, but if you're a massive market like the USA, there's plenty of reasons for a company to want to be operating there in the first place, regardless of the tax rates. Losing 60% of the income on a market of 300 million people is way better than getting 0% of that market in the first place.

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With the amount of loopholes that are currently available for the rich, a truly flat tax with no loopholes (including removing the mortgage interest deduction) would be a SUBSTANTIAL tax increase on the wealthy, and would very likely end up being about the same rate or less for the middle class and working class.

Especially if the exemption is on the order of $25k.

And keeping the same tax system while removing the same loopholes would end up being even higher than the proposed flat taxes would be.

If your issue is with tax loopholes, then a flat tax will not solve it. A flat tax is about having no brackets; the same rate is charged to everyone, regardless of income. The loopholes you're talking about are completely unrelated. They can exist just as easily in a system with 1 bracket as a system with 5.

[TZK203]

Flat taxes are inherently, deliberately regressive; they are constructed to be a greater relative burden on those who have less wealth. That's the sole purpose of a flat tax.

It isn't to "simplify the tax code". A flat tax has nothing to do with exemptions and claims loopholes or any of that. You can have all of those and a flat tax. And a progressive tax system isn't "complicated". It takes all of a small paragraph to explain. Define the tax brackets, and the rate the bracket is taxed at, and you're done.

"Federal tax rates for 201415% on the first $43,953 of taxable income, +
22% on the next $43,954 of taxable income (on the portion of taxable income over $43,953 up to $87,907), +
26% on the next $48,363 of taxable income (on the portion of taxable income over $87,907 up to $136,270), +
29% of taxable income over $136,270."

That's Canada's federal income tax brackets for 2014. That is not a major part of the tax code or a portion that contributes to complexity in any appreciable way.

If your issue is with tax loopholes and the like, then your issue isn't actually with progressive taxation. It's with the loopholes. You can (and should) address those separately, since there's nothing preventing them being applied to a flat-tax system in the exact same way they're applied to the current systems.

And if you're really interested in making taxation harder on poorer people, at least be up front and admit it. Because that's what a flat tax is about.

But are Canada's tax laws complicated, in the sense that they are huge in number of pages? Do they have similiar corporate deductions, exemptions, blah blah blah in the books? Could the US learn a thing or two about how Canada structures its tax laws?

[apepi]

I would rather tax anything that you just save/is a currency and have a sales tax on everything. You mostly get most of the sales tax from the poor anyways, and they don't really save any money. This would just effect the middle/high class people.

[Mormolyce]

Having a hard cutoff would be bad because then people would try to game the system (which to some extent they already do due to brackets).

More importantly, I've read that in order to generate the same level of tax with a flat tax it would have to be set at about 25%. Considering you're exempting a lot of the low end of the market that percentage would have to go up - and considering that a flat tax is much more heavily affected by a change in the number of taxpayers than a graduated tax presumably it would have to go up quite a lot.

How many ivory backscratchers does Mr Burns need anyway?

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$25,000 is far too high for it to work, but something like that would likely be included in a flat taxation reform. The absolute minimum an individual needs to survive can be exempt from taxation for everyone, and then anything made above that is taxed at a flat rate.

How the fuck do you survive on $25k? That wouldn't even pay my rent and bills.

[Hothgor]

But if it "works" with the highest tax bracket being 30 to 40%, then you could easily find a percentage where a flat tax would accomplish the same.

No, you cant. If you recall (or bothered to read my initial post) I noted that even lower income earners pay on average ~25% of their income in various taxes and fees without including their income tax. 25% is only 5% lower than 30%, so no, there is now 'happy' tax bracket that you are talking about.

[Yvaelle]

But are Canada's tax laws complicated, in the sense that they are huge in number of pages? Do they have similiar corporate deductions, exemptions, blah blah blah in the books? Could the US learn a thing or two about how Canada structures its tax laws?

I file both US and Canadian taxes every year (dual citizen) - in my experience Canadian taxes are way easier to comprehend. I also run a business, which I considered registering either in the US or Canada - I went with Canada. Both tax codes are hundreds of pages long, and consist entirely of incredibly boring paragraphs: nothing is really different there.

Canadian personal income taxes are way easier to file, however.

US taxes have far more deductions and exemptions and etc that you need to consider. Just to illustrate this point - I have a pair of masters in economics on top of a BBA, I considered doing my CGA (accountant certification) back during undergrad but realized it wasn't where I wanted to end up. I'm pretty mathy - and have a high threshold for slogging through boring paragraphs.

I file my own Canadian personal income taxes, and my corporations taxes (decided to register in Canada) - but I hire a pretty pricy accountant ($300/hr) to handle the conversion of Canadian tax code to IRS standards for my US filing. I don't want to tangle with the IRS, or get detained the next time I show up in a US airport - and I feel that's a risk I'm not willing to trust in my own hands (with an accountant, I get to point to them and have her explain the error).

Corporate tax law in the US is radically more complex, each state has their own rules and jurisdictional disputes: not so in Canada. Canadian corporate laws are very simple - even easier than personal income tax laws in Canada, IMO. Check this out:

The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement.

After the general tax reduction, the net tax rate is:

18% effective January 1, 2010
16.5% effective January 1, 2011
15% effective January 1, 2012

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is 11%.

That's pretty much it. You pay that, you combine it with the applicable Provincial rate in the table below, and you apply any exemptions or tax credits - which are included in the form itself - and you're done. The entire thing is eight pages long, works nation-wide, and if you check a box or something doesn't add up - they fix it for you and move it onward: the IRS sends forms back until they are correct to their liking, and charges you for any delay in filings this process causes.

Here's the form.



All in all, I'd say both countries could stand to simplify their tax code and reduce exemptions / loopholes / etc - both have long tax codes that get endlessly added to and never revised/simplified over hundreds of years - and that results in 'cheats'. What Canada is better about, is making it easy and painless (relatively) to file, and being upfront about the difference between the stated rate and the effective rate: right in that very first paragraph of the website.

[Ulfhedinn]

The reason the tax code is complicated is very rich people did one of two things... they paid our government to make it confusing so they could get out of taxes or they where getting out of taxes and some rogue agents in our government did their job and closed those loopholes.

Flat taxes are regressive. Sale taxes are as well but people think they are fine because they assume rich people spend the same % of their income as they do. After you break around 60k a year you start moving into Need vs want spending. 200k+ and you are running out of Wants to spend on unless you are into really fancy cars and houses. This is around the point where the poor get screwed... capital gains which are taxed at a much lower rate. Poor people don't have capital gains because they either have to spend everything they make or if they tried to save the government would cut them off from any welfare they do get and eat through those savings in a month or two.

For example in my state a married couple with a child can have one car of any value and assets up to $2000 and still qualify for food stamps. If their second car is worth more than 2000 they get cut off. If they save up some money... yup no more help. And they count any bank accounts in the name of your children. Even they are not allowed to save.

[apepi]

I also want to point out in the 'golden years'(50s-70s) US had a really high tax on corporations, something like 45-50%.

It worked back then! It can work now. The same people who want the golden years back are the same people who have been cutting taxes for decades.

[Independent voter]

I'd be for a progressive flat tax that greatly simplified the tax system. Just pulling some numbers out of the air, lowest 25% of the earners pay 0 taxes, 25-50% pay %10, 50-75 pay 15% and the top pay 25%. Congress could argue over the numbers and brackets.

But I really hate answering over a hundred tax questions every year when I fill out the online tax forms. It should be simpler. Why do llama farmers get a tax break?