Flat tax support, arguments for or against it?

[Danner]

Except what really happens in the first context is (this is purely income tax, not payroll or excise taxes):

- Earn 10k, I have deducted 10% tax, through deductions and credits I get a refund in excess leading to a negative tax rate
- Earn 50k, I have deducted 30% tax, through deductions and credits I get a refund which leads to a 12-18% tax rate
- Earn 100k, I have deducted 50% tax, through deductions and credits I get a refund which leads to a 15-35% tax rate

The current progressive tax system is too bogged down by deductions and credits to even give a momentary consideration for the "on paper" tax rates. No one pays that.

I completely agree that the tax deduction system is needlessly complicated and open to gaming.
But that's a side point.

Tax Deductions systems are applicable to both with a flat rate system (everyone pay 30% income tax), and with a progressive rate (your tax rate increases as your income increases, with joe average paying 30% income tax). Assuming the rules of tax deductions being equal in both systems, we can disregard them from a comparison.

If the argument is to eliminate all or most of those potential tax deductions and instead just do a lower (but still progressive) income tax, I could get on board with that idea.

[Theinquisition]

Meh, if it was a progressive flat tax id be for it.

10,15,20,25,30 % maximum of 35% marginal. Different flat rate for each individual tax bracket.

[Endus]

Meh, if it was a progressive flat tax id be for it.

10,15,20,25,30 % maximum of 35% marginal. Different flat rate for each individual tax bracket.

That's literally exactly what progressive tax rates are. There's nothing "flat" about that; you're describing the same system the USA currently uses, basically, with some tweaks to the actual numbers and that's it.

There's no such thing as a "progressive flat tax bracket". Either you're arguing for a flat tax, which is that everyone is part of a single bracket that pays X%, or you're arguing for a progressive tax bracket system, which is what you just described.

[Theinquisition]

That's literally exactly what progressive tax rates are. There's nothing "flat" about that; you're describing the same system the USA currently uses, basically, with some tweaks to the actual numbers and that's it.

There's no such thing as a "progressive flat tax bracket". Either you're arguing for a flat tax, which is that everyone is part of a single bracket that pays X%, or you're arguing for a progressive tax bracket system, which is what you just described.

The flat tax I would like to see has no exclusions of deductions, just a rate that comes directly from the payroll. I've never had a problem with progressive tax rates as long as they NEVER exceed 50% in any way.

I believe the tax code is purposefully complicated and puts too much of a burden on the middle class, while giving additional benefits to those that didn't contribute as much as they are taking out. Earned income tax credit for example. I got told I make too much to benefit from it, yet somehow my sister in law who works part time for 1/2 the year gets 4k back for her son. She didn't even get close to paying that much in taxes.

[Endus]

The flat tax I would like to see has no exclusions of deductions, just a rate that comes directly from the payroll. I've never had a problem with progressive tax rates as long as they NEVER exceed 50% in any way.

Then you're not talking about "flat taxes" at all, in the first place, so why are you distracting from your own argument by using the term incorrectly?

A flat tax doesn't do anything to affect the state of deductions and exclusions, which are just as capable of working alongside a flat tax as they are a progressive tax bracket system. If those deductions are your issue, then stop talking about flat taxes, because that's completely irrelevant to what you're apparently actually taking issue with.

This is exactly what I was getting at, in my initial post; many people who are for flat taxes don't understand what flat taxes are, or what they do.

I believe the tax code is purposefully complicated and puts too much of a burden on the middle class, while giving additional benefits to those that didn't contribute as much as they are taking out. Earned income tax credit for example. I got told I make too much to benefit from it, yet somehow my sister in law who works part time for 1/2 the year gets 4k back for her son. She didn't even get close to paying that much in taxes.

That's exactly the purpose of the EITC. It's a tax credit, that's meant to benefit low-income families by providing them additional support. I'm not sure what's confusing about that.

[Theinquisition]

Then you're not talking about "flat taxes" at all, in the first place, so why are you distracting from your own argument by using the term incorrectly?

A flat tax doesn't do anything to affect the state of deductions and exclusions, which are just as capable of working alongside a flat tax as they are a progressive tax bracket system. If those deductions are your issue, then stop talking about flat taxes, because that's completely irrelevant to what you're apparently actually taking issue with.

This is exactly what I was getting at, in my initial post; many people who are for flat taxes don't understand what flat taxes are, or what they do.



That's exactly the purpose of the EITC. It's a tax credit, that's meant to benefit low-income families by providing them additional support. I'm not sure what's confusing about that.

Yeah, that's bullshit, why should someone get free money for shitting out a kid, while my wife and I bust our ass and get nothing back.

[Endus]

Yeah, that's bullshit, why should someone get free money for shitting out a kid, while my wife and I bust our ass and get nothing back.

Like I said; you don't understand what a tax credit is, and your attitude here is pretty blatantly misanthropic.

The rest of us have issues with the idea that kids might suffer from being raised in poverty.

[Kokolums]

I think we do have a flat tax in some cases. Most sales taxes are flat taxes, aren't they? The sales tax in Los Angeles is 9% and it is the same no matter how much you earn. The world does not seem to end.

[judgementofantonidas]

What would be your arguments for or against flat tax?

Although it is the only fair means of taxation it would only support the country if that flat rate were enforced equally. Which it is not. The rich have too many loop holes to escape their taxation.

[Theinquisition]

Like I said; you don't understand what a tax credit is, and your attitude here is pretty blatantly misanthropic.

The rest of us have issues with the idea that kids might suffer from being raised in poverty.

Or we could stop encouraging people who can't afford kids to have more.

OR even better we could make it FAIR across the board and give that credit to everyone, regardless of income and encourage people who CAN afford to have kids to have kids.

Stop digging in my picket to give money to people who didn't earn it.

[Kokolums]

Although it is the only fair means of taxation it would only support the country if that flat rate were enforced equally. Which it is not. The rich have too many loop holes to escape their taxation.

There is no fix for that either. The people with the most money will usually be among the smartest people and will pretty much always find the loopholes in modern complex economies.

[Deleted]

It's one of the most stupid ideas ever.

The reason why the wealthier you are the higher your tax rate is because the money needs to come from somwhere to pay for shit like infrastructure military, public schooling system, etc etc. The only thing a flat tax would ensure is that either the country collapses overnight or we're all taxed to oblivion and the economy collapes anyway.

I wish that (in the US anyway) the tax deduction system was seriously looked at. It's hilarious how little of the taxes they're supposed to pay a lot of people pay (especially if rich). Don't get me wrong, I like my taxes low, but what you're supposed to pay you should pay for god's sake!

[Raeph]

I completely agree that the tax deduction system is needlessly complicated and open to gaming.
But that's a side point.

Tax Deductions systems are applicable to both with a flat rate system (everyone pay 30% income tax), and with a progressive rate (your tax rate increases as your income increases, with joe average paying 30% income tax). Assuming the rules of tax deductions being equal in both systems, we can disregard them from a comparison.

If the argument is to eliminate all or most of those potential tax deductions and instead just do a lower (but still progressive) income tax, I could get on board with that idea.

Same. The cleanest "Flat tax" idea I've seen is still a two tier progressive tax plan.

No to limited deductions (charitable donations, business investment and losses with capital gains income folded into personal income, state income and excise taxes) then all income below about 200% of poverty line, with a regional differential to account for variable living standards, is taxed at 1-5%, then above that is taxed at 22-24%. Its still fairly complicated and involved, but you end up with 200-300 bill more in income tax receipts per year.

Even in that system you still may end up with excessive loopholes and deductions. Anything less complicated than that though and you end up with an over taxed lower and middle class which would harm consumer spending.

[Tyrianth]

we tried the " progressive " system it has not worked and our current tax code is beyond repair. in a 2 tiered flat system everyone pays their fair share still.

Bob earns 100K he is tier 1 10% thats 10K a year in taxes, Jill earns 1.2 mill thats tier 2 20% she pays 240K a year

Dan co is 750K a year, dan co is tier 1 10% thats 75K a year in taxes, lesley LLC is 2 mill a year, lesley LLC is tier 2 20% thats 400K a year in taxes

how is this worse than a progressive system?

A two tiered flat system isn't a flat system... it's a progressive tax system. Flat tax means EVERYONE pays the same tax, no tiers. You're arguing against a progressive tax system by proposing another progressive tax system.

[Raeph]

It's one of the most stupid ideas ever.

The reason why the wealthier you are the higher your tax rate is because the money needs to come from somwhere to pay for shit like infrastructure military, public schooling system, etc etc. The only a flat tax would ensure is that either the country collapses overnight or we're all taxed to oblivion and the economy collapes anyway.

I wish that (in the US anyway) the tax deduction system was seriously looked at. It's hilarious how little of the taxes they're supposed to pay a lot of people pay (especially if rich).

Though you run into issues not having a large enough tax base to weather migration. Extreme example: if your tax base is 100 million out of a total population of 300 million people then if you lose 50-100k tax payers it doesn't hurt the bottom line too much. If your tax base is 1 million out of a total population of 300 million then if you lose 50-100k tax payers it does hurt.

That is one of the benefits of a flat tax; a much wider tax base. Does that benefit out way the negative effects of regressive taxation on lower and middle class? that one is debatable.

[Tyrianth]

I'd be ok with this. I mean what really got me though about this was when one of the doctors I work with was literally busting his ass last year and due to tax brackets he actually made less money after he filed his taxes and I mentioned that in a similar thread and people were like "boo hoo rich people" as if working more and being educated shouldn't entitle you to more money not more penalty.

That's not how progressive taxes work and it's not possible to make less money due being bumped up a tax bracket.

[Nadiru]

Depends. Flat taxes are regressive, as are consumption taxes and VATs. Ironically this tends to mean that European tax structures keep the poor down, which is balanced out by an extensive social safety net. On the other hand, consumption taxes provide a useful service by directly reducing consumption and channeling the revenues from all consumption into a specific thing or things.

A flat income tax ignores that capital is self-reinforcing, though the utility of a flat income (or capital gains) tax is explicitly to push people into one revenue source or the other, which may have positive externalities associated with it.

So basically I'm gonna go with "sometimes it's good, sometimes it's not."

[Deleted]

If the differences in wealth among people in society aren't reflected in the tax structure, then the greatest burden ends up landing on the shoulders of those who start out their lives from a position of poverty.

If you live in a society where the wealth gap is relatively small (e.g. where the wealthiest in society only have, at most, 2 or 3 times the amount of wealth compared with the poorest), then a flat tax is less of a problem. However, most societies have a vast wealth gap, with a lot of poverty and a hugely disproportionate amount of the wealth belonging to a small minority. (as of 2015, more than 50% of the world's wealth belongs to 1% of its population, and sadly the number has been growing in the wrong direction)

For example - in the UK the lowest paid earn around £12,000 per year for a full time worker (£7.20 per hour). Low earners in the UK often have very little wealth to their name, and each pay a very minimum amount of tax (no more than £300 per year in total); yet despite paying barely any tax they still struggle to pay rent, food, bills, etc.

Many people in the UK also earn over £150,000 per year, which puts them into the top-rate tax band (around 1% of the UK population - obviously including a lot of people who earn millions each year), but the total combined contribution of the 1% is almost the same as the total combined contribution from from the millions of low paid minimum wage workers. However, the top 1% of earners are able to live privileged lifestyles; not just because of their earnings but because they can significantly increase their wealth through fairly low-risk investments, such as land ownership, investing in stocks/shares, etc.

A flat tax would add unnecessary additional wealth to those who already enjoy a privileged lifestyle while simultaneously crippling the poorest. "taking from the poor and giving to the rich" comes to mind.

It's only right that people ennobled by society into a position of wealth are also required to contribute exponentially more into that society; because it is the structure and the laws governing society which allow them to spend their lives in such a privileged position, and which gives them a plethora of opportunities to gain even more wealth, which most people simply will never be able to take advantage of.

Of course, the ideal situation is to live in a society where "low paid" doesn't equate to "one foot in poverty", where nobody is entitled to extreme wealth, and where wealth is something which must be earned, rather than something which some people happen to be entitled to. However, that is difficult to do in practice.

There are a lot of anomalies in society which cause this extreme inbalance; including the ability for individuals to be able to profiteer from land wealth (i.e. those who own land or property also earn rent money, even though they did no work to earn that money themselves - no amount of tax on rent changes the fact that they essentially did nothing to earn the rent money in the first place);

Then there are those who inherit large sums of money from their parents/grandparents/ancestors - again, no amount of inheritance tax can take away from the fact that the family member who profits from this kind of wealth transfer has not earned it themselves.

Then there are those who use their existing personal wealth to extract even more wealth from society by putting their money into various lucrative and relatively safe investment schemes; again, not being the ones actually doing any work to create that wealth.

those anomalies are just some of the reasons why a flat tax effectively punishes the least-wealthy; you could summarise it as "wealth creates wealth" and "poverty creates poverty"; the link between existing wealth and potential future earnings is not a flat line but an exponential curve, which is why the fairest system of taxation is one which roughly follows that same curve.

[Kanegasi]

You are literally describing tax brackets.

Tax brackets are steps, platforms you are worried about surpassing. Currently, if you made just a few extra dollars while near a bracket change, you could wind up paying several percent higher. I know too many coworkers worried about too much overtime since our average income is near a bracket change. I'm talking about a straight line from 10% at $100k (and below) to 40% at $1mil (and above). It really wouldn't matter if you were in danger of surpassing 100k for a year, since the tiny percentage change isn't a big deal. Why would I want to get rid of all the tax laws but keep the convoluted brackets?

[Tyrianth]

Tax brackets are steps, platforms you are worried about surpassing. Currently, if you made just a few extra dollars while near a bracket change, you could wind up paying several percent higher. I know too many coworkers worried about too much overtime since our average income is near a bracket change. I'm talking about a straight line from 10% at $100k (and below) to 40% at $1mil (and above). It really wouldn't matter if you were in danger of surpassing 100k for a year, since the tiny percentage change isn't a big deal. Why would I want to get rid of all the tax laws but keep the convoluted brackets?

It's not possible to take home less money due to being bumped up a tax bracket. That's now how a progressive tax system works. You only pay the increase tax for the income you make that is IN that tax bracket.

Country has 5 tax brackets:

0-15,000 = 0% tax
15,001 - 25,000 = 10%
25,001 - 40,000 = 20%
40,001 - 50,000 = 30%
50,001+ = 40%

Bob who is making $45,000 would be in bracket 4, so his taxes would be calculated like this:

First 15,000 of income ($15,000) = $0.00 taxed
Next 10,000 of income ($25,000) = $1000 taxes paid
Next 15,000 of income ($40,000) = $3000 taxes paid
Next 5,000 of in come ($45,000) = $1500 taxes paid

Total taxes: $5,500, Take home: $39,500.

Now bob gets a raise and is making $50,500 and bumped up a brakcet, his taxes now look like this:

First 15,000 of income ($15,000) = $0.00 taxed
Next 10,000 of income ($25,000) = $1000 taxes paid
Next 15,000 of income ($40,000) = $3000 taxes paid
Next 10,000 of in come ($50,000) = $3000 taxes paid
Next 500 of income ($50,500) = $200

Total taxes: $7,200, Take home: $43,300