Let’s all move to France! 35 hours a week, pensions, the good life.
Can someone please give us a rational argument why implementing a Flat Tax system in America is not fair? We don’t know if we can continue posting without thoroughly understanding this issue first. From a percentage basis, each person pays an equal amount of their income towards taxes, and from an absolute basis, richer people pay more!
Why don’t we just start taxing people according to height? The shorter you are, the more you have to pay! Brilliant idea, thanks. Here’s a commentary from a site that really got me thinking about the word “comrade” and the phrase “melt your pots for bullets.”
Those of you rich folks in the top 39.6% tax bracket (~$400,000 and higher) need to stop whining. You don’t get to whine. I hope this administration taxes the beejesus out of you all…it’s time you paid your fair share and get with the program. It’s only fair the wealthy pay more out of their millions and billions of dollars to subsidize the rest of us who need it the most. We are struggling in this recession and it’s time to fix the problem – by taxing the rich!
Gee whiz, last I checked, we live in America not North Korea. Why people believe it’s fair to tax one class of citizen a higher percentage than another confuses us. Is this not a pure form of discrimination? Fine, let’s agree that anybody below the poverty line of $25,000 for a family of four ($10,000 for a single person) are exempt from all income taxation.
Here’s a reasonable 15% Flat Tax Example:
“Poor” Man Income: $50,000 / year.
“Rich” Man Income: $1,000,000 / year.
How much does the poor and rich man pay as a percentage of their income? 15% each = equality!
How much tax does the poor man pay in absolute dollars? $7,500.
How much tax does the rich man pay in absolute dollars? $ 150,000
———-> The rich man earns 20X more than the poor man, but also pays 20X more than poor man in taxes! Equality!
Let’s put a twist to this example. Let’s say the rich man is a 50 year old ER doctor who saves lives every single day. He spent 15 years after high school studying, and $300,000 in tuition to become a doctor. Is it right to reward this doctor who studied harder than most of the population with a higher tax rate just because he makes $1 million a year?
One could argue this doctor deserves a tax holiday, or should spend regressively less on his taxes. But then, the honorable $50,000/yr school teacher says she’s helping people too, and should pay less taxes as well. It gets complicated, but not with a flat tax!
LET’S STOP DISCRIMINATING AGAINST PEOPLE
Should we tax everybody who makes more than us an even greater amount than we are taxed to help subsidize our own living? Should I buy the domain name: “Financial Socialist Samurai of America?” We are craving for rational reasons from the personal finance community as to why the flat tax is not fair. Everybody understands racism and bigotry is bad. Why then do we accept discriminating against income levels?
Mathematically, the flat tax makes perfect sense and expunges words such as “should, fair, subsidize” from the tax argument. What the government has is a serious spending problem. The first thing we’ll tell the president is the mother of all personal finance advice: spend less than you earn!
We have a monster budget deficit due to reckless spending and this must stop. The second thing we’ll tell the government is: discrimination is illegal. Damn, maybe we shouldn’t have revealed the secrets, for now it’ll be hard to make millions from the government.
Tax Progress For 2019
2019 Federal Income Tax Rates
I’m glad that that tax reform in 2018 and beyond has stopped severely penalizing couples who want to get married. In the past, it was 1 + 1 = 1.2. Finally, it’s 1 + 1 = 2 up to each partner making $300,000 a year if you check out the latest tax bracket above.
Despite the standard deduction going up to $12,000 for singles and $24,000 for married couples, the State And Local Tax (SALT) deduction cap of only $10,000 hurts individuals and couples who live in high cost of living areas around the country.
For example, the median home price in San Francisco is $1.5 million, resulting in a $18,000 a year property tax bill. This couple might also pay $30,000 in state income tax for a total of $48,000 a year. $38,000 of their $48,000 in taxes can no longer be deductible. Meaning they lose out on thousands of dollars in tax refund.
This penalty against coastal cities and other high cost of living areas is why everybody should consider investing in the heartland of America. Due to technology, the trend is away from HCOL areas. The best way I’ve found to invest in lower cost areas of the country with lower property valuations and higher net rental yields is through real estate crowdfunding.
Check out Fundrise if you are a non-accredited investor or Realty Mogul if you are an accredited investor. They are the top two best platforms. It’s free and easy to sign up and explore various properties that were once unavailable to regular investors.
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Update for 2019: After leaving Corporate America and making little money in 2012 and 2013 from a lot of money a decade before, and now back to making a decent chunk of change with my online media business and various consulting gigs, I’ve got to say that my feelings about a flat tax have not changed. A flat tax above a certain poverty level by individual and family count is absolutely the fair and simplest way to go to not only collect more tax revenue, but to also simplify the tax filing process.
A flat tax can take two forms… a flat tax on consumption or a flat tax on income. If the flat tax is on consumption, it is regressive because poor people spend virtually their income on consumption, whereas wealthy people spend a substantial portion of their income on investments. So a consumption flat tax would result in the poor paying a higher tax then the rich.
A flat tax on income will almost always evolve into a regressive tax. The poor derive most of their income from wages. Wages are easy to see and easy to tax. The wealthy derive most of their income from non wages. These other income sources are difficult to identify and therefor tax. Simple example: the poor guy earns $15,000 a year… 10% flat tax = $1,500. The wealthy individual owns a stock portfolio of $50 million, real estate of $50 million and earns businesses which earn $5 million annually. He takes a salary of $1 million.
The portfolio appreciates $10 million (in the following year the market goes down $4 million). The real estate appreciates around 4 million a year, but like stocks the amount varies. The business has been re-investing its profits to grow and adds jobs along the way.
So how much is the income of this guy? Do we tax the appreciation? If not what if he never sells and simply borrows against those assets as they appreciate. Say he borrows $1 million a year against his real estate… but never sells it… Do we tax the borrowing as “income” or do we tax the appreciation? Or does he never pay tax even though he is enjoying the benefits of the appreciation through the loan.
I do support a national sales tax on consumption to replace payroll taxes, since I think it improves the competitiveness of our business by shifting some of the tax burden of entitlement programs on to goods manufactured overseas. The current payroll tax is already regressive… so replacing it with a “better” regressive tax makes sense.
But flat taxes sound good… but they do end up being regressive…
1. Raise the minimum wage to $15 an hour and then a 10% flat tax.
Hi Financial Samurai,
I read your article a few months ago and you raised some really good points. Ever since then, I have been giving it some serious consideration and quite frankly have been stumped on what I believe.
Today, I finally came across a brief article that I believe presents a really good argument for the problems with a flat tax:
https://www.demos.org/blog/3/10/14/arguments-flat-taxes-are-universally-bad
Namely, I think the “diminishing utility of money” is what really convinced me. In summary, a salary increase from $50k to $100k has a huge impact on quality of life for a family. Whereas a salary increase from $100k to $200k only has a marginal improvement on quality of life.
Now say the flat tax was 50% (I know this is absurdly high). That would have a much bigger impact on quality of life for a family making $100k as opposed to a family making $200k.
Sometimes I find extreme examples are best to determine what you don’t want.
It’s harder for people to live in the lower brackets. Excluding deductions, you are always going take home more money than those in lower brackets. The incentive to make more money is still there. Government should be about the pursuit of happiness, and a flax tax would just shift more of the burden to the people who are already having the hardest time. That’s the basis of how I see it.
But those of us who don’t make much money are at fault because we are lazy. We don’t work hard like NBA players who make a big contributions. Those who pick fruits and vegetables are lazy and don’t contribute much to society and don’t make much money and it’s all their fault.
The other unfair thing that needs to be fixed are taxes that are not a percentage of your net profit, but rather a set fee, so that you can end up losing money AND still have to pay taxes on top of it.
I live in California and the business taxes here are insane. Things like sales tax, LLC tax and city taxes etc are often flat fees that don’t take into account if you’re profitable or not.
So if you’re starting a business and have to run into the negative for the first few years, you can still get hit with $10,000 of taxes while the big internationals get away with paying $0 by claiming they are based out of Ireland.
Just my $0.02
Hi,
I don’t see a ‘contact me’ section so I hope you get this. I need help. Ok here we go, I’m a loser, and make $15 an hour, oh yeah and I’m 49 yr old. Should I do Roths or Reg IRA’s. I have one of each now with about $10ishK in each.
Thank you,
Craig
I can agree with a flat tax if there is a standard deduction as well, a deduction that is high enough, that would take into account how lower income people need more of their money to pay for their living expenses. Something like a flat 50% tax on everybody with a standard deduction of $50,000 would be just about right.
If you tax net wealth % it would be great since it incentivizes wealth hoarders to spend all their income each year and never own anything. With our current economy being 75% consumption-based this would keep the bull market going forever!
Then just get rid of all other taxation except a national sales tax of 2% on everything you purchase (which will all be leased or rented anyway to avoid owning anything).
I still think Sam is correct in his original post…the real problem is the government spends more than it makes. Taxation without representation still exists and all citizens should be able to vote on their tax returns the top ten budget categories they want to apply their taxes towards.
flat tax sounds good only because you had it at 15% in the example. wouldn’t sound so good if everybody had to pay 30% or more. you should look at it the other way around. people who don’t make much money cannot afford to pay all the taxes they should pay (i.e. 30% or more) but wealthy people can, so they do. it’s not socialism, it’s just living in a society and equally distributing resources and wealth. if you are making a lot more money than others, it means you are also using a lot more resources from the country where you are living, so you should pay more taxes percentage-wise. it’s basically like saying you have a bigger overhead because you are a larger company.
@Max, I agree. People earning less that are just workers do not benefit as much from the tax funded government business supporting infrastructure. Business owners and wealthier individuals should pay more in this system because they can buy more political access and they benefit more from the infrastructure.
A flat tax seems fair to me and it would incentivize those at the bottom to work more and harder because no matter where you are in the wealth ladder, every $1 of income is taxed at the same rate. ALL people regardless of the character of the income (wage, cap gains, dividend, rents, etc) get to take home the same percentage of income earned (in the general sense not the tax accountant definition). The current tax system has too many distortions which incentivize and rewards certain lobby connected pockets of society and sometimes it does not take into account the income level of the individual receiving the income; see cap gain (carried interest) and divs rate for billionaire hedge fund managers vs. an upper middle class high earning W-2 accountant, attorney, or doctor (23.8% vs 33-37%). How is that equitable? It simply rigs the tax system in favor of the wealthy, politically connected capitalists. No payroll taxes or automatic income tax withholding (on divs or interest) for passive investment income…WOW, the house wins again!!!…how does this keep happening? Fair capitalism works better than tilted taxation systems. No wonder income inequality in the U.S. is broadening year after year.
Would you be incentivized to work a W-2 salary capped job if you knew that you would be receiving pennies on the dollars in the form of a bonus for hours worked over 40 in a given week? People in general are lazy, but the incentive structure drives the behavior.
The “power” of money increases exponentially, not linearly, as you become more wealthy, and therefore some kind of marginal tax system represents this power curve better. This makes a flat tax regressive, which is “unfair”. Gross oversimplification, but: the person who makes $10MM has more than 200x control of his or her surroundings, life, politics, etc. than someone making $50k.
Perhaps my views will change when my income significantly spikes in <1 year, but it didn’t change after I had a large spike 4 years ago. I’m not convinced by the “fairness” of a flat tax, although I am by its simplicity.
I definitely feel a strong affinity for the non-linear effect of disposable income. The explanation to me for the reason that a flat tax is net regressive is by considering that money is a medium of exchange (i.e. power).*
Under any tax system the government collects funds (dollars) and then spends those funds on particular goods and services (guns and/or butter). The balance sheet can be one of three scenarios: surplus, balance, deficit. Surplus governments are just flatly inefficient: the surplus chokes off production at best. The balanced budget is effectively impossible, and is growth neutral. Budget deficits are situations where government spending is putting more money into hands than they are demanding: the end result is that there will need to be someone paying for this in the long term. A flat tax assumes that the state will treat all contributors without discrimination…AND has always done so. Racism and bigotry are bad: They have negative economic consequences for the affected. A progressive taxation system SHOULD result in higher churn of high income earners–this has not happened. The reason is that spending does not benefit rich and poor alike.
Sam’s argument regarding the doctor and teacher ignores the structure of government spending and its resulting effect on compensation. Doctors receive more patients that are subsidized through the state at a deficit; the additional result of subsidized medicine is that medical costs are more expensive for those that are not subsidized through some government program/mandate. (ie HMOs) The three Ms industry–medicine, military, and manufacturing–are heavily propped up through: tariffs implicit and explicit, social safety net programs, wars, and systemic corporate welfare.
Taxation and expenditure will always create an aggregate class of those who benefit economically from government spending and those who are disadvantaged. Our system curbs the benefit to the advantaged–it does not eliminate it.
*Arguments can and have been made that if the tax system were truly flat that the government would be more efficient. Another plausible and well researched position by smarter people than me is that natural trends towards charitable giving would be more efficiently distributed to individuals in society at the more granular level through individual donation. (To douse that notion–consider the Carnegie Library in Atlanta, GA. A valuable public funded resource for learning to ALL MEN–therefore, no Negroes allowed.) None of this changes the fact that money is analogous to power: Taxation is elected representatives exerting power over citizens, government spending is giving power to citizens, and governments will never be able to allocate that power in an evenhanded way.
Treating people the same is no longer considered “fair”. It says a lot about the state of our society what people consider fair these days. Fair is judged by the outcome, and not by the action. It should be judged by the action, but it isn’t. Here is an illustration.
Suppose a poor village in the middle of nowhere receives word that their volcano will erupt and they have a couple of hours to get clear of the blast radius. It’s a foot race for survival, but many are ill equipped because they are old, young, and in poor health. Is it fair to ask the strongest to carry those who can’t save themselves even though it may cost them their own lives? Don’t try to change the facts either, everyone isn’t going to make it. I say it’s not fair to punish the strong for the sake of the weak. Those who can save themselves have every right to do so, and that right comes from nature or God or wherever you want it to come from. It’s what the founders of this Nation meant when they talked about liberty. Liberty is using your property as you see fit, not giving it all to a government that takes too much and redistributes it to others.
As others have pointed out, the reason flat tax isn’t fair from a mathematical standpoint is because costs of living are not measured as a percentage of income, they are absolute. This means that after all compelled payments (bills, rent, etc.), a flat tax actually consumes a *greater* portion of usable income the lower a person’s gross income is. That is the opposite of fair. It is a penalty for being poor that is harsher the poorer you are.
Life Cost does not follow a “flat tax function”, that’s the reason.
If A has ten time the earnings of B, his life won’t be ten time higher, but probably less.
A “exemption bracket” though, would be probably unfair too, Since by gain a few more you may end up paying much more taxes as such something like progressive rates have to be used.
Although a flat tax seems like it would be fair, wouldn’t the actual only fair tax system be to have everyone pay the exact same amount. I wouldn’t really say it’s intrinsically “fair” that someone making $1 million per year pay $150,000 in taxes and someone making $100k pay $15,000 in taxes. Is the guy making $1 million getting 10x as many government benefits as the $100k guy? Most likely not. Try walking into any store and demanding a price based on your income. It’s not really fair to charge a lower earner less for a car than a higher earner for the exact same product. We’re all paying into the exact same services from the government but high earners have to pay a way higher absolute figure for the same thing. That doesn’t sound fair to me at all even if the percentages are equivalent. I realize that there are plenty of issues with this tax model but if we’re arguing about “fairness”, then this is the only method that is truly fair.
Lance Light, intriguing idea. A fixed fee for all government services. At first I thought it would have to be too high to work, but consider some numbers. The U. S. Federal govt currently collects about $3.5 trillion in taxes from around 130 million Americans. Divided out, you’d need a Fixed Fee (FF) of $29,167/year from every working American to collect the same taxes. Pretty steep. But why ask only employed Americans? All Americans benefit from government services. So, maybe we impose it on all adult Americans: about 250 million adults. Now the FF is only $14,000/year. High, but getting close to what you the average American pays in federal taxes today, and remember the FF replaces ALL federal taxes: social security, income, etc. Some people would not be able to pay it, of course. We could discuss ways to handle that, but perhaps for example the warren buffets of the world might voluntarily contribute to a fund to make up the difference. Now, probably we should not include corporate income tax, which is about 11% of federal tax collected, in this equation. Removing it lowers the tax burden to about $3.2 trillion, and the consequent FF per adult American to $12,800.
But consider a further benefit of a FF for all government services: it’s now very easy to balance the budget. Simply adjust the FF at year’s end to charge everyone for what the U.S. government actually spent. If we spend $4 trillion (probably close to the real number) and exclude corporate tax as before, that only raises the FF per adult American to about $14,400/year. And guess what: all the CPAs calculating tax returns can be turned loose on more productive tasks, like … pretty much anything.
I should add before the flamethrowers are engaged
1) I worked this out on a napkin at 1 AM, so my stats and/or math may be bogus. Feel free to correct them but please don’t bash the whole discussion
2) I came here to praise Samurai’s flat tax arguments, which are brilliant. I’ve always been a big advocate of a flat tax. But lance light’s idea intrigued me so much I commented on it instead
3) I’m not advocating forcing poor people to pay $15,000 they don’t have. I’m only exploring how the idea might work. A FF has a lot of pros, including but not limited to now everyone has skin in the game, and suddenly all Americans would be equally motivated to reduce government spending.
FairTax is the only way to go, because it is a sales tax and charges based on a person’s usage of the countries resources, not based on their income.
Nobody should have to pay millions of dollars in taxes if they don’t get anywhere near that in benefit from the country.
And if taxation happened at the point of sale, that means corporations who burn through a ton of resources will be taxed on what the buy, rather than the taxation coming out of their employee’s paychecks.
The only fair tax, flat or otherwise, is 0%.
No government in the US is worth paying for. What we are paying is outrageous. The services are offensive even to the illiterate. Congress is laughable at every level. With all the talk about intelligence, you’d think someone had a little. Their work product proves otherwise.
Taxation is theft, hence criminal.
The 16th Amendment is unconstitutional because it violates other previous accept tenants. No body, no people can enact a law that violates other parts of the Constitution. It is that simple.
But this criminal act is only the tip of the ice berg. Most of what the fed.gov does is illegal. Doubt it? Go to law school AND think for yourself. ©2017
So late this this game but here is a real life example of a place that has flat tax that works – and it’s not a tiny country like Micronesia (example cited above).
In Hong Kong, personal income tax is “pay the lessor of either regressive tax (2% first $40K, 7% next $40K, 12% next $40K, 17% anything above) or 15% of your income”. Very few deductions are allowed. 2 page tax form. Really simple to fill out – we made over $120K so we took the 15% deduction. It took us 10 minutes to fill out the form.
One of the biggest reason this would never work in the USA (similar to the reason why socialized medicine would never work in the USA) is that many accountants, H&R Block type companies and IRS employees would be out of a job.
When we returned to the USA, because some of our income was earned overseas, we had a tax accountant do our taxes – 200 pages and about $12k of services (luckily the company paid).
I think everyone pays and no one complains about taxes because it seems fair and equitable because everyone basically pays 15% (obviously not if you earn very little).
There was no Social Security but rather a mandatory pension fund (similar to 401K but mandatory). There is property tax (we rented so don’t really know anything about it). Apparently, “Assessable profits of corporation are taxed at the corporate tax rate of 16.5%. “. There are all sort of transaction based taxes (called Stamp Duty).
For services, there is socialized medicine but some will pay for faster and (perceived) better service at private hospitals. Mass transit is world class. Roads, etc. – world class (high taxes on gas/petrol).
Hong Kong is THE BEST example of how awesome a flat tax is for the good of the economy. Although, the property market is now prohibitively expensive, and may burst.
Singapore is the next best example… or maybe it is the best at a 20% rate.
Welcome back to paying taxes in America!
Let’s start with this question:
At what income level does this flat tax kick in? If you start taxing the first dollar of income, a person with $1,000 annual income would pay tax – even though they didn’t have enough income to remotely maintain a standard of living Americans would consider reasonable. There is also the issue of feasibility of collection; how would anyone even collect tax on that level of income. It’s not as if the person would have an asset, or even money sitting in an account, easy to reach.
Side note: A number of flat tax proposals have been floated in recent years by candidates, and they generally have kicked in somewhere just north of ‘federal poverty guideline’ income, i.e what people often call the federal poverty line.
I support the flat tax proposal floated last year by Ben Carson; it allows taxpayers to earn up to 150% of poverty level before income is taxed. That would allow Americans to keep (in 2017) the first $17,820 of earnings before paying tax.
If you tax everyone the same amount the rich guy would lose more, but he also gains more. While the poor man pays less so he doesn’t go bankrupt.
That is the best answer!!!! ;-)
Don’t hurt your shoulder there, patting yourself on the back. ;-)
There’s a problem here. Deduct out all the necessities of life from these incomes (i.e. housing, food, healthcare, childcare, education, etc). Imagine that this money isn’t liquid and that these assets are being held just like taxes are before you file your returns for the year. So instead of comparing total income, you’re comparing liquid income, the money you can blow however you’d like. The teacher making 50K has to use about 30k to live off of. The CEO (doctors don’t make millions, y’all clearly don’t know any) lives large but not too large and uses about 80k a year for housing, healthcare, etc. So now tax day comes around and Uncle Sam walks off with 15% from each.
20k*0.15=3,000
920,000*0.15=138,000
Now lets compare these amounts to the original incomes:
3/50 = 6%
138/1000 = 13.8%
That’s how the tax bracket works. It’s not about how much you make, it’s how much you’re able to pay. It’s also a factor of how much you rely on the government. Unemployment or disability is small shrimp compared to the cost of the roads that the CEO’s hypothetical trucks drive on. A flat tax isn’t fair because people who can afford to pay more end up paying much less, and living expenses are much more even across the board than incomes.
And now to go burn some more Atlas Shrugged copies….
Also, the premise of this article is incorrect. Everyone’s taxable income IS taxed at the same rates. It’s just that people with lower incomes aren’t taxed at the highest tax brackets because they don’t make as much money.
I dislike income tax generally, but if you’re going to have it it needs to be more stratified, not less, for reasons @saichai touched upon.
I also disagree with the author’s premise that there is more tax avoidance over $200K because taxes are so high. Tax avoidance is so high at those levels because everyone wants to avoid taxes, and those people are the ones with the most means to do so. Why wouldn’t you legally reduce your tax bill if you were able?
“There’s a problem here. Deduct out all the necessities of life from these incomes [and we find the poor teacher has to spend more on life necessities than does the CEO].”
I don’t get people who think this is a bug.
It’s not. It’s a feature – of life.
Don’t have enough money left over at the end of the month?
There’s a solution for that – start making more money.
Best thing to do is not pay taxes launder your money hide it from thieves. learn the system then avoid it’s hands in your pockets, social justice warriors liberals all lazy people who want handouts from the strong the smart the hard working
I felt horrible when I saw my good friend a Carpenter who works 7 days a week much of the time he works harder then most people barley sees his family he made around 80-90 thousand dollars through his hard work and the government robbed him of 35.000 almost half his income stolen to support others so Canada can give money to other countries and take in refugese and spend like they are rich. how is it fair that this hard working man barley supporting his family comfrably throught blood and sweat how is it fair he looses more money to taxes then many people make, he went to school took a loan to pay for certification and 5 years of training now that he make it he gets robbed, FLAT TAX IS FAIR TAX I can understand if you are making over 1.000.000 dollars you pay more then the flat tax but fuck the hardworking man is paying for lazy people and our goverments cronick spending fuck all you stupid people who think you are entitled to get money or help from someone else lazy dumb fucks get paid minimum wage all their lives,
Ok, I’ll buy your argument about the doctor who worked hard, studied hard and all that. Let me throw a curve ball at it though. Let’s say the doctor had the good fortune to be born into a family with the means to at least help pay for if not totally pay for his education. Let’s also say the guy making 50,000 had the potential to become a doctor. Heck maybe he even thought about pursuing it, but was born into a low income family, single parent, whatever who’s existence was focused on surviving and just didn’t have the means to pay for nor the supportive environment to achieve this goal. So both these people, if roles were reversed would have ended up roughly following the same path as the other.
So what do you say to person with the unlucky birth? “Sorry pal, better luck next life.” I think you underestimate the factor luck plays in success. Don’t get me wrong, there are a lot of hard working self made folks out there who deserve every bit of what they have achieved. But there are also lots of people who have had a lot of things handed to them, or just happened to be born in the right place at the right time.
I think a flat tax is not out of the question, but I would add one caveat. No one can inherit more than $100,000 (or some other figure that is reasonable). The rest can be given to charity etc or forfeited to tax revenue. This fits with your theme of non-discrimination as the same rule goes for everyone.
In closing I would as you a question. Do you see extreme and increasing wealth inequality in the world today as a problem? If so, what do you propose as a solution? I certainly don’t feel that a flat tax will help
Excuses are like assholes. Taxation is theft regardless of the amount, a flat tax is just the most fair implementation. Why are you so interested in taking things away that aren’t yours?
Here is a thought, NO taxes are fair.
If someone comes into your house, takes your money, your TV, your property, in order to pay for his child’s schooling. It is still theft. If he does it to pay for his grandma’s medical bill, it it is still theft.
If the theft only takes 10% of your property cause you live in a craphole, it is STILL theft, if he takes 15% from everyone on your road to pay for a war in another country, it is STILL theft.
No taxes are fair. The fairest you could ever do would be a national sales tax where when you BUY something, you get robbed.
IMHO, the answer is something in between. Mike suggested different prices for gas as an example of how silly our current tax system is- but that’s not a completely fair assessment. Our tax system SHOULD be much like our road system. Certain taxes are flat rate, while others *seem* variable to achieve this mythical ‘fairness’ everyone (on both sides) keeps talking about.
Consider this: We all pay gas taxes based on how much we consume, but at a fixed percentage. However, in many states you pay registration fees based on the value of your vehicle; so everyone pays on a sliding scale for what’s basically the same item. That’s the whole picture, and gives an insight into a system that’s more reasonable.
A couple notes up front. Things like the EITC and mortgage interest deductions are NOT taxes, they are payments. The tax code should be limited to collecting taxes, not redistributing the funds. Nor should it concern itself with who nets the greater benefit from the system. If you want to give someone money, I’m fine with having that discussion; but do it honestly and cut them a check. Don’t try to hide it in the tax code. Some people need a helping hand, and that’s a discussion we SHOULD have. I’m just getting tired of listening to people deride the supposed ‘takers’- then gleefully taking their various deductions like that’s not the same thing. I don’t actually care if 47% of the population gets more than they put in; but it drives me nuts that so few understand that it’s actually 80+%! To be clear; I’m fine with that too, so long as we all understand that’s what’s happening.
Sorry, back to taxes. Here’s the plan, simplified the best I can:
Things that are income-related, like Social Security or unemployment insurance, are taxed at a flat rate through income. The tax is as low as possible (1%?), and covers every dollar made above the top of the second quintile for the previous year. (just over $40K last year). Reimbursements are income related, but the payments are needs-based. By that, I mean they still work that SS benefit sheet you get every year, that tells you what you can expect to get, but with a high-low value.
A bit complicated to properly explain here, but as an example- You averaged $60K/year while you worked, and Soc Sec says you should get between $12,000 and $36,000 every year. If you ended your career with no assets or retirement funds, your contributions into the system would ensure you made no less than $3K/mo. However, as you make money (pensions/investments/etc.) in retirement, that number is reduced until you reach the $12K mark. Probably on a sliding 2-for-1 scale, meaning for every $2 in income, your benefit is reduced by $1 to the minimum. You ‘make’ $12K, your total with benefits is $42K; you bring in $36K, you still end the year with $54K. Soc Security payments are not taxed, because, well, that’s just stupid.
While there’s no upper limit on income-based taxes, there would be a max disbursement- probably tied to the top of the 4th quintile ($115-ish right now). So, none of those top wage earners would get any more than what the guy at the top of the 80% crowd would get, but they’d pay into the system on everything. There would be very little benefit to hiding income, as is done now, because the rate would be pretty low- and even people who work under the table would be best served by contributing to the system, because the bulk of the tax base wouldn’t be tied to income, but valuable services would be.
Part two, is all other spending (i.e., any services not tied to how much you make, like making war and schools) would be funded through a sales tax. There’s some room to argue how that tax should be structured, BUT, in the simplest form; if rent, food, and medicine are exempt you end up with a pretty progressive tax structure, that’s still technically flat- as everyone pays the same percentages and gets the same ‘deductions’; but wealthier people, who allocate a larger percentage of their expenditures on goods that are not exempt, would pay a far higher amount of the total.
Not a complete accounting. I didn’t go into adjusting for liquid assets in retirement, or medical care. While every system will have people who find ways to take advantage of it, this system broadens the tax base; by including those who skirt the system (drug dealers and illegal immigrants still buy stuff) and ensuring that even the guy at the very bottom kicks in a few bucks. But, in the long run, it’s as ‘fair’ as any other way to pay for the privilege of living in this country. Those in the bottom 40% are largely untaxed, and even have a bit of control in HOW much tax they pay, by selecting lower-priced goods.
The devil is in the details, and there will be plenty of arguments about where to draw the lines.
The annoyingly over-educated lifestyle coaches on the left (see DirtyLiberal’s rather disgusting ad hominem attack above) will demand that things they deem bad for you be given additional taxes to curb ‘unhealthy’ behavior, in their never ending campaign to ensure you’re *given* the best opportunities in life.
The holier-than-thou right will likely have a whole list of things they want to try to control through additional taxes; but I couldn’t even begin to guess at what kind of wacky tax code they’d envision. Probably a 90% tax on abortion & gay marriage to fund special ‘teaching the controversy’ science classes in public schools.
Whatever. The point is, I’d be thrilled to sit back with the last bottle of reasonably priced soda and sub-$100 bucket of fried chicken to watch the debate in the Committee on Ed & the Workforce over how it’s completely reasonable that Jesus created the world in 7 days, and ridiculous that the flying spaghetti monster did it in 6; knowing that no one’s grandma will have to eat cat food tonight.
Imagine if you went to the gas station and everyone paid a different price for gas based on their adjusted gross income that year. Further imagine that the poor paid a discounted price below the cost to produce the gasoline. If this seems fair then you should love the American tax system. If it doesn’t seem fair, then you probably think a flat tax is a good idea.
Mark Zuckerberg has benefited financially from the tax burdens of hundreds of millions of fellow Americans. Joe the plumber has not benefited financially from the tax burdens of hundreds of millions of fellow Americans. This is why Zuckerburg should pay a higher percentage of taxes. He is exploiting the US government more than Joe the Plumber is.
Zuck is also suing native Hawaiians out of their ancestral lands because 700 acres isn’t enough. Pretty amazing.
Very late to the game, but here’s my two cents. A flat tax is more than fair. Does the guy in the shinny new beamer pay a higher toll for crossing the Golden Gate Bridge than the guy with the rusted out Chevy? The only reason the typical American doesn’t see the inherent logic and fairness of a flat tax is because his teachers, journalists, entertainers, and politicians have told him his whole life that he has a constitutional right to live off of others.
The reason a flat tax isn’t fair is because the people who like this idea in congress like low numbers like 10 – 15% Which would bring in way less money not only to the federal government but it would shrink the amount of money coming back to the states from the government for different projects….Because of this states will have to make up the difference and they would do this by doing several different things like raising taxes on the things they already tax as well as add more things to be taxed, so anytime anyone who isn’t rich goes to the store for anything it is hitting the percentage of their discretionary income at a much higher rate then it is someone who is rich so in effect the poor and working poor end up paying a much higher percentage of their discretionary income in taxes then what the rich do. Not only that, but considering the rich benefit more then any other group out there from all of the laws created for buisnesses, tax loop holes, subsidies etc etc of any kind then they should be expected to pay taxes in proportion to the benefits they receive.
I think a flat tax system would be fair only if we also had a flat income system paired with it, where all of us got about the same amount of income, which is not true now.
Maybe. See: Socialism As A Means To A Brighter Future
Should we pay for food based on our income? Instead of bread being $5 a loaf, it will be 0.05% of your income. Sounds fair… not!
It would be funny if we discriminated on pricing based on race or sex.
And it would be more funny when people argue why one race or sex should get a lower price than the other and vice versa.
See: https://www.financialsamurai.com/how-about-affirmative-action-based-on-income-instead-of-race/
We already pay for goods and services based collectively on our respective incomes!
When my neighbors become more affluent, I have to pay more for housing. When Sam’s neighbors become more affluent, he is insulated from housing price shocks, so he probably laughs all the way to the bank.
Non-sense,
I’ve been working since I was 14 legally. I was taught working hard pays off in the long run. If you want something, no one is going to give it to you. You have to earn it.
I went from construction to IT and improved my income at each step of the way.
A flat tax is the only fair tax. Why am I penalized because I am successful? I worked harder than anyone to get to where I am today.
I have student loans over $100k? Who is paying my student loans? Guess what, I am!
I went to school to better my life. Everyone in America has this opportunity. Those who say they do not have not honestly made the effort to improve on their situation. There are few who truly have issues but its not the case 99.99% of the time.
And I am in the $32% tax bracket. Now I work 2/3 jobs that puts me in the 38% bracket range because I want to get ahead by paying my student loans off, enjoy vacation with my family, etc.
So now I have to pay more taxes because I work 2x harder than everyone else. Again, non-sense and you will never convince me I should pay more taxes because I work 2x-10x harder than everyone else. I chose to make my life better and easier. By working harder and making more money makes it easier.
So tell me, what gives the government, you or anyone else to take my hard earned money because they believe it is the right thing to do?
Because I’m here to tell you its non-sense! I’m successful, because I choose to work 2 or 3 jobs to make my life easier and I do not need someone telling me its fair to pay more because I work harder and make more money. Again, non-sense!
The TL;DR: Flat Tax is rhetoric promoted by wealthy conservatives. A system designed to promote disproportionate distribution of wealth, protect the opulent few, and further strengthening the status quo. Understand the simple concept that the more money you have, the less valuable the dollar becomes.
Long version: The answer is basic and simple to understand, but it falls on deaf ears for people who simply just favor the flat tax. That being said, it’s probably a waste of my time, but I don’t care. Maybe there’s one person out there in the world that may have enough common sense to agree.
Ready?
The more you have of something, the less valuable it becomes. In this case, money. The more you have of it, you’re more likely not to care what you spend it on. We know this, see this, or experience this daily. Take for instance someone who is living paycheck to paycheck and has to budget themselves with a $300/week salary. Filling a tank of gas alone is 10% of their weekly earning, and that isn’t including rent, bills, food, or other basic costs of living. On the other end of the spectrum, we have Mr./Mrs. DotCom exec, who’s weekly salary is $8,000/week. Filling up a tank of gas won’t even crack 1% of their weekly spending budget.
Now, we take into account the average cost of living in America.
Yes, we can technical and say that cost of living depends on which city you live in etc, but let’s not get sidetracked here. We are talking about the “average” population, earning the “average” wage, and the cost of living a modest life.
As you can imagine, the person earning much less, will need to watch what they spend because any percentage increase in sales tax, income tax, or even any add-on charges in utility and bills can literally determine if a one goes to bed hungry, not have enough money for gas, or fails to pay their rent on time. For example, if one doesn’t have money for gas or public transportation, they can’t go to work. If they can’t go to work, they may lose their job. Everyone knows how unemployment causes a cascading financial strain on the community on multiple levels.
Obviously, the more money one makes, the less of a liability they become to the community. Here’s the conservative spin on why flat tax across the board is a “good” idea. First, they make it sound like it’s a “punishment” for being rich or have money. On the surface, the $7,500 vs $150,000 example in the article “sounds” logical on the surface. HOWEVER, the flat tax scheme is designed to maximize the earnings of top money earners, and perpetuate the DISPROPORTIONATE gap of wealth. Having a $1,000,000 annual salary is nice. After the 15% tax, one still has $850,000 left over, and if one is fired after that year, it’s still more than what most people will make in their lifetime! And the reality is, there are many who earn way more than 1M/year, and keep that salary for longer. Obviously, the people behind this flat tax rhetoric are the ones with a money in the first place, because wealth not only buys freedom, but also [political] power.
Why is this a bad thing? When the top 20% of Americans own 85% of the country’s wealth, 80% of us should be very concerned with how our lives are affected on all levels, from healthcare, food and agriculture, job stability, housing, and so on. Only a FOOL would believe those who hold the majority of wealth, would also have the well-being of the “common folks” in their best interest.
Wealthy people spend money like it’s water. They have so much of it, that they can’t seem to spend it fast enough on the “average cost of living” items. Which is why we see them spend lavishly on extravagant materialistic things. Don’t twist this around and say that wealthy people aren’t allowed to buy extravagant things. They are, but the level of spending that happens here ultimately has no intrinsic value to society.
This ideology is what separates those who think of only themselves, and those who have a greater scope of the society: The money one makes, whether it’s $1 or $10,000,000, came from other people (consumers). Without people, there would be no business, no company, no money. It is a MORAL obligation to contribute back to the community which helped them succeed, so that it perpetuates future success and future wealth. People aren’t going to voluntarily donate money, hence the creation of income tax. The business model of promoting a disproportionate distribution of wealth, further increasing the wage gap between, and favoring the opulent few is not a self-sustaining model. It’s only a matter of time when the 80% of the population will suffer so much, there there will be a major backlash against the selfish 20%.
Taking into account of the average cost of living, what’s “fair” and morally right, is to have a sliding scale tax bracket. But instead of just 3-4 tiers of tax bracket, it should be a bit more comprehensive. Don’t take these numbers literally to the T, but an example that would be better than what we have now or the flat tax would be something along the lines of:
< $15,000 @ 10%
$15,001 – $35,000 @ 15%
$35,001 – $55,000 @ 19%
$55,001 – $75,000 @ 23%
$75,001 – $95,000 @ 28%
$95,001 – $120,000 @ 31%
$120,001 – $200,000 @ 33%
$200,001 – $300,000 @ 35%
$300,001 – $500,000 @ 37%
$500,001 – $1,000,000 @ 39%
$1,000,001 – $2,000,000 @ 40%
$2,000,001 – $4,000,000 @ 43%
$4,000,001 – $8,000,000 @ 45%
Anyway, you get the idea. A 45% tax may sound shocking in this example, but who honestly wouldn't mind the caveat, being that your salary would be 4M a year!? When people win the lottery, almost half is taxed, yet that doesn't deter people from playing. Think about it.
People, don't buy into the rhetoric that a flat tax is a great idea. The well-being of our society rely on the investments of selfless people and organizations who answer to the public! Government is often given a bad rep for its bureaucracy and cited corruption, but if government isn't acquiring enough resources to promote a healthy society, do you really think the wealthy elites operating private companies will? If you have blind faith that the private sector will take care of you, then you have been tragically misinformed or have been living under a rock.
Corporations answer only to their investors, not the general public. Remember how tobacco companies denied the dangers of smoking, until the evidence became too big to hide. Remember how the chemical industry introduced aerosol and denied the negative impact on the ozone layer, until the evidence became too big to hide, and they were forced to search for alternatives. Remember how today, high fructose corn syrup [cheap sugar] is causing so much health problems, companies are not just trying to reduce its contents (due to public pressure), but also re-naming it in hopes that people are dumb enough to forget what it is.
For a society to excel is not to hoard wealth for the select few of the population. Wealth must be distributed responsibly by the government (not talking about "free handouts" so don't take this out of context either), because placing blind faith in private corporations is irresponsible and naive.
Non-sense
when i worked abroad in the Federated States of Micronesia, they used a flat tax system and it worked well. There was no need for individuals to file taxes unless they owned a business or had legitimate work expenses to write off. Their equivalent department of the IRS was simplified and ran on significantly less overhead. Less people felt the need to find every single loophole possible to lower an annual tax filing
Awesome example and thank you for sharing. I truly believe if we have a flat tax of 20% or 25% all in above the poverty level, tax revenue would go up, more people would be helped, productivity would increase, and more jobs would be had. Of course the tax industry and their lobbyist with suffer. But who cares.
Sorry, how is this example awesome? Nicholas spent some time in a country where the economy is based almost entirely on subsistence fishing and farming, and where the wealth of the average person is about 1/17th of the average American. Nicholas says that “it worked well.” The advantages – a smaller IRS equivalent? People living on the brink of starvation don’t have to search for tax loopholes? Micronesia is a state where a tiny few control all the wealth; income inequality there is at least 30 or 40 times worse than in America. This is the inevitable result of the flat tax, and of the “Conservative”-influenced belief systems teaching that a a flat tax, or even more regressive taxes, are somehow “fair.”
The real reason you see it as a good example is in your reply – “I truly believe if we have a flat tax of 20% or 25% all in above the poverty level, tax revenue would go up, more people would be helped, productivity would increase, and more jobs would be had.” You offer no evidence for this belief but you “truly” believe it.You are a “True Believer.” This belief is unshakable, because it is an article of faith for you.
Many people have clearly explained in this thread why regressive tax structures have always and will always produce the opposite of the results you “truly believe” they will produce. I mentioned before that the “golden” years of economy for western democracies, the economy conservatives always pretend they will restore, was built in the years from the end of WWII to the mid-sixties. During this period,(until the end of 1963) the marginal tax rate on the highest portion of income was 91%. That rate applied to income over about 2 or 3 million per year in today’s dollars. By your beliefs this should have been disastrous, not producing the strongest and most stable economy this country has ever seen. This was Big Government, New Deal Democracy – and it worked.
There is nothing wrong with being ignorant; it is fixable. But when you eagerly accept the most irrelevant and spurious arguments as valid and weighty, and simply choose to ignore the mountains of logic and evidence that contradict your “True Belief” – then, yes, you are being idiotic. This idiocy is harmful to America, to democracy, and to humanity. It benefits only the very very rich, and it is they who pay heavily to promote these ideas and get ordinary people to buy into them. As you can tell from the comments here of folks obviously not in the top tenth of 1 percent of wealth, the worst among those hyper-wealthy, and their lackeys, (“Conservative” “media” and “think tanks” – ie propaganda factories) have become extremely skilled at influencing people to passionately embrace the very ideas that are being used to exploit them and to unfairly redistribute the fruits of their labor to those who already have the most.
Aaron, the great question you have to ask yourself is: what are YOU doing to help make the world a better place?
There’s no point telling me I’m ignorant if you aren’t helping educate others or paying lots of taxes yourself. Remember to always try and take action. Look yourself in the mirror before looking down on others.
Related:
How To Prepare For Trump’s Middle Class Tax Hike
Why We Must All Embrace Ever Higher Property Taxes
Fairness is not based on dollar or amounts or percentages it is based on impact on ones lifestyle and the burden on the economy.
All arguments about how many dollars one pays or what percent are meaningless. A pauper who sees 20% of his income taken away is drastically more effected in discretionary spending than taxing a billionaire 70% of his income.
So what is your suggestion and solution?
Flat taxes are a great deal for rich people, which I define as having $10,000,000 in assets or $1,000,000 in annual income. Having this amount of wealth would put you on the first run of “rich,” which is to say “poor rich”. If you are not poor rich or better, you should run as fast as possible from the suggestion of a flat “fair” tax, as it is definitely not in your best economic interests. This means for 99% of the population, a flat tax is a very bad idea. For the 1% it’s an excellent idea.
As for society, I believe it’s also a very bad idea. It leads to an aristocratic class; polarization and the ability of the 1% to influence policy and use their power in ways that could be (are?) quite negative. I concede that the rich do many positive things, but on whole, the risk of civic mischief is high.
The real sucker deal for the 99% is the social security payroll tax. This tax tops out at $118,500 (2016) meaning that if you earn under that amount, you pay 100% of the tax, which is the majority of tax payers. Those earning above $118,500 get a tax holiday on every penny above that amount. The CEO earning $5,000,000 per year pays a pittance of his total compensation in SS tax compared to the working stiff. Further, said rich person still gets to collect his/her benefit, even though he/she may not need a cent of it. Remember, it is an insurance plan, essentially, and should only payoff in limited circumstances. You could count yourself among the fortunate, if for example, SS benefits were means-tested for wealth/income. If you don’t need the help; lucky you! Imagine you paid car insurance for 50 years and never had to use it! We would have to agree that would be a good outcome, right?
The main argument for a progressive tax system stems from the basic idea of “to whom much is given (allowed to earn), much is required.” The wealthy person uses resources that the state subsidized, public education and the courts for example, to generate wealth. The wealthy employer didn’t pay for the education of his/her workers, but rather the state and/or individual did. The wealthy industrialist didn’t pay for the court system, which enables him to own properties enforce contracts and collect debts, but the state via taxes did. The nabob doesn’t pay for the highway system, but certainly profits from it greatly.
My answer to those who suggest it is a disincentive to tax high income is simple. You can easily avail yourself of the lowest tax rates by not earning much. If that is a choice you want to make, so be it. On the other hand, if you choose to apply yourself and use your talents, you can still live like a “jet setter,” and take solace in the fact that you are giving back to society. The choice is really yours. While I am not a “jet setter,” I know where my sentiments lie, which is to earn as much as I possibly can and I am always happy to see my income rise, even if I have to pay more taxes.
My suggestion to those who absolutely hate to pay taxes is this. If it is so very painful, by all means, put yourself in the lowest bracket and see how that works out for you. Conversely, you could shelter as much as humanly possible, move to tax haven, illegally shelter income, etc., but these ploys come with certain risks. For myself, I believe it is better to live really well and just pay the full freight and be done with it. Really, what’s it going to matter in 100 years anyway? And please, let’s not bring the kids into this as they are probably better-off making their own way in this life.
10% flat tax for ALL Income that’s personal and corporate but that’s all you get out of my paycheck.When I made 20,000 a year waiting tables I think 2000 a year is fair for my part of national security and all also 10% sales tax for ALL Sales in All states. The states should take care of their own people and disasters.. But also they need to get rid of all the sneaky taxes like gas, beer, weed, that they get you on. ALL sales for personal and corporate should be at 10%
“How much tax does the poor man pay in absolute dollars? $7,500.
How much tax does the rich man pay in absolute dollars? $ 150,000”
There’s just one problem. Where the hell is anyone making $50,000 supposed to find $7,500 in their budget to pay their taxes?! I make more than this, and even my car cost less than $7,500 and I still had to take out a 10-year loan to purchase it with a solid credit rating.
I’m primarily right wing, but the flat tax idea has always sounded stupid to me.
Holy shit this is stupid. It’s like the right wing people (people that got Cs in school) just meticulously elaborate on basic arithmetic (because they need to in order to understand it) and never even touch the complex discussion of real impacts on people, philosophy of ethics, psychology and behavior, etc. Meanwhile the left (people that got As in school) just assumes that everyone understands this absurdly basic math, and debates on a far higher level about the actual effects of a system, using all kinds of complex associations with how reality actually works (centering on people!).
The right sees the lack of math being mentioned in the arguments of the left, and thinks that the left just discusses anecdotes and feelings because the left is too stupid to do the math. In reality, the left understands the math instantly, and is skipping forward to a meaningful discussion of human nature and complex systems — a conversation that the right is incapable of.
Federal level: low single digits federal income tax to pay for defense and federal worker salaries. That’s it. Close all other federal programs through attrition over the next few decades.
State level: there could be a small fair tax/property tax. Generate most of their income from a flat corporate income tax. Let insurance companies compete across state lines.
Goal: states can address local inequality issues. There is no federal one-size-fits all tax plan. The founders would throw up if they knew about federal income tax.
Too lazy to break out the math, but I’ve seen it down by various economic institutes. It could be considered a risky plan… but the reward is freedom.
I guess they will say I’m a Ron Paul guy… but it’s just what I believe. I don’t trust an all-knowing authority that for most of us is many states away.
I want to see incentives for people to work hard and, usually, by so doing help the economy. I believe a flat tax rate does that. Yes I am all for the poor and the uneducated getting a fair shot in life. The best way to do that perhaps is have a yearly income, above which the flat tax is applied. I believe having a graduated system of increasing the tax percentage on the larger wage earner, is actually counter incentive. Why work harder if more of your money will be taken away??
I didn’t see much in the way of comments on how a tax system effects incentives for people to improve themselves?
Exactly. I STOPPED working harder after a certain income, and actually figured out a way to negotiate a severance package and permanently leave Corporate America behind in 2012 at the age of 34! The severance check is STILL paying out 5 years later in 2017, and I work 70% less now, and only for myself.
So in a way, the progressive tax system has made my life BETTER b/c I’m now the architect of my own life. If there was a reasonable 20% flat tax, I would still be a wage slave dealing w/ micromanagers and difficult clients!
Isn’t 20% a bit high? I’m in the 15% bracket, yet I pay social security and medicare and state tax and stuff like that so I’m already paying out 30% of my gross. Raising my income tax 5% I would need to pay 35% and wouldn’t even be able to put away anything for retirement.
How about charging one flat rate for everyone? That is, merge FICA, Medicare, the income tax and unemployment insurance premiums into a single tax? That would be a flat tax that’s simpler than Republican proposals, but more progressive than what we have today.
And yes, tax dividends and capital gains at the same rate as income earned through sweat. That would be sort of fair.
Could you tell me how this would work? Would everyone pay 20% of everything they earned? Would there be a deduction for dependents?
I’m in favor of scraping the whole “dependents” tax breaks for children. Having kids is a choice that has financial obligations to be covered by the parents not supported by the government.
Yes in the case of a”caregiver” for elderly parents and handicap people of any age there should be support, but don’t expect a handout just because you decided to procreate.
My colleague had three babies and was out for 12 months in a six year span plus vacations while women who did not have babies got nothing. Pretty interesting dichotomy!
Would there be a standard deduction and personal exemption–usually amounting to about $10,350? I would be in favor of allowing deductions exemptions (I am not an expert) for two children but no more. I knew a couple who was very poor who had six children. They got enough deductions they didn’t pay any tax and yet they continued to breed. They inherited a house and rented out rooms. I was one of the renters and we, the renters supported them with our rent payments and payment of their taxes. If I made $20,000 and got a deduction/exemption of $10,000 and paid 10% of $10,000 that would be $1000 in tax and if you earned $100,000 and paid of $90,000 you would pay $9000. I would have $19,000 and you would have $91,000. I wouldn’t be concerned about that. I would be concerned if they took $2000 from me and $20,000 from you.
The rich vs poor man is the perfect example. After paying the flat tax the rich man still has 850,000 left over. Thats still more than anyone really needs to live comfortably. Therefore any argument of unfairness is simply greed in disguise because even rich people know they don’t need all of that money. No matter how hard they worked for 1 million dollars 850k can still put you in a mansion or whatever you want to but. Flat tax is what we need.
I agree with you – a flat tax rate seems fairer. And imposing a flat tax rate above 30K, or whatever number is sufficient for basic living expenses, seems to be a fair plan; however, I would not vote for it.
Progressive tax rates have helped create an maintain a middle class – benefitting lower income earners while putting greater burden on higher-income earners. This seems pretty unfair taken at face value, but I think we have more to gain as a community with a progressive tax rate because it helps lower-income families gain better education, improve their neighborhoods, decrease crime rates, etc. When we improve poorer communities, we all benefit in general. We all benefit from safer streets, educated citizens, and improved communities across the board. We benefit from greater output per individual on a national scale, and we become a richer nation (in terms of money and ideas), although our earning potential may decrease as individuals.
I was born in a country where the disparity between rich and poor was very large. The rich lived in gated communities and afforded the very best luxuries (better than in the U.S.), but I didn’t see much good in it when they were held up by gun point right outside of their gated communities or when they suffered from deeply dysfunctional and corrupt public officials – sometimes in their favor, sometimes not. The best solution I’ve seen to this has been an increase of the middle class. When the middle class gets bigger, you get more educated citizens, you get demands for a functional system, you get a better nation, you get people making educated decisions at the polls, and everyone lives better.
So I agree that a flat tax rate is fairer, but I wouldn’t vote for it because I think it would create more income disparities and education disparities, and I value community well-being over fairness. What I grapple with is how much unfairness is a reasonable price to pay for the well-being of the community?
Military spending is not what IS budget soends most on! Its SS then medicate medicade and then military.
Social programs SS and medicase care make up 51% of total budget! And you want to add more!!!
https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
You are right
What a bunch of whinning lil brats you sound like folks. A flat percentage is fair, Do away with deductions and exempttions and EIC and refunds period!
It does not matter if you believe it less of a burden on those with more money. Flat percentage is as equal as it can get! I bet if you were in that tax bracket your tune would change real quick.
Dont make enough money? Do something about it! We all have opportunities in the US, we can go to college and make something of ourselves, yes even poor people, like myself. It is not hard to get into a school or a trade school or community college! Guess what, the federal government will loan you the money to do so!
Quit bitching like a bunch of jealous children and make it h appen. You’re on your own in life. This is America the opportunity is there if you quit complaining and feeling sorry for yourself long enough to take advantage of it!!
The top progressive tax rate in the US from 1946 to 1964 was 91% – what a shambles those crazy socialists made of the US economy.
The flat tax is unfair because it’s regressive. It falls disproportionately on those with lower income levels.
Tax policy should be done in a way which is the least harmful to the economy.
A flat tax (or especially a flat-fee) which generates the same revenue of a progressive tax puts huge burden on the middle and working classes and thus depresses their disposable income. This makes little sense in a consumer driven economy like the US.
Just for a quick example, if you charged an even fee to every working American to generate the total government revenue in 2014, it would be $41,000. Over half of all American workers make less than $30,000. You’d quickly destroy the national economy as the middle and working classless went bankrupt.
Whatever you’re views on the size of government, it makes economic sense to fund it through a progressive system of taxation.
My main reason to not support the flat tax yet is I have gone from poor to upper middle class. I also understand taxes and have watched what has happened with our taxes. I see how we pay a smaller percentage now and how so many expenses become tax deductible when you are wealthy or in business, ie if you work in Hollywood you can deduct you cable bill as a work related expense. My #1 reluctance is the working class will pay the 15% and the rich will still be deducting their cable bills and getting their income down. The working poor is trying hard to start small businesses but there is only so many people to buy oils or Avon and they have no money for bigger ideas. When I was very poor, I did use way less resources and now approaching 60, I use way less then 10 years ago. But that is not my real issue, My real issue is I do NOT trust our Congress or Senate to keep all the benefits for the wealthy transparent or out of the equation. The truth is when you are poor, you walk or just don’t go. We schedule all trips and make only 1 per day. I watch some neighbors come and go 5 or more times per day. Do you really trust the new tax laws to be equal? My brother-in-law supports the flat tax and has for years and he is the biggest crook I know! All said, I am open to it but have no trust!
If there were no income taxes or corporate taxes, people would have a lot more money to spend. Corporations could move production here to the US after the elimination of corporate taxes because they can now afford to pay their employees higher wages and have no reason to dodge the American taxes. Next, with no income taxes, all the people who now have jobs secured in manufacturing, management and other middle class jobs can spend their income that they earned however they choose instead of letting the government choose how its spent for them. (Socialist premise).
Instead of an income taxes, implement a nationwide sales tax on all transactions and services. Its the fairest tax. Poor people pay less because they can afford to buy less things, therefore paying less proportionally, but still the same percentage of sales tax.the rich who buy lavish things will contribute more as they buy more things. And all of this will be boosted with all of the disposable income people have with the extinction of the wretched income tax. Its time for new ways to look at things. I want people to rethink their perspective of everything and have a lot of great ideas. Willing to talk email me lynchryan56@yahoo.com
Taxation schemes considered by themselves cannot be fair or unfair. You have to also consider what taxes are being spent on.
The largest part of our budget is military spending. The military is protecting our lives and our STUFF. If you have all of the stuff, you should pay more for protection. Currently 10% of the population has 75% of the stuff (wealth).
Imagine that our government manages to eliminate all spending, except military. I work at a job and earn $100,000 a year. You inherited $3,000,000 in real estate and “earn” $100,000 a year. We both pay the same tax, but you receive more benefit because our military is protecting your real estate.
Fair?
That real estate earns money because people or businesses occupy them. If it is your apartment that you pay rent on, or your business on a lease, you benefit from government protection despite non ownership.
I still to this day don’t understand why people are opposed to the flat income tax. I can see sales taxes, death taxes, and to a degree property taxes being a complicated subject, but not income tax. If you’re destitute, you don’t pay, if you get by or better, flat tax. While we’re at it, we put a tax on import and export, even in terms of industrial shipping; in fact, geared towards outsourcing. A ‘pay to play’ tax on stocks that comes out when buying, but not when selling which would still keep margins high. Though I praise charity work, we need to do something about the doubledip loophole of donating earnings from for-profit organizations to self owned non-profits that then use said funds on services from the for-profit side. Honestly, there are so many ways to do that kind of thing that I’m not sure where to start on that can of worms. Sales taxes need an ascending curve based on price, property taxes perhaps should be based on total property owned, making it easier for a double income family to buy their first home than for a real estate mogul to get their second apartment complex or sixth rent house. We need a stronger system to prevent insider trading, though again I’m clueless as to how we’d do that. Maybe if PRISM is real (The NSA snooping program), then something like that could be used. who knows. We (The USA) need to use our petroleum reserves to affect the market prices and prevent people from gouging us. If they spike, we lowball the country who’s creating holding out to create the demand, and when they’re low, we buy to restock the stash. I personally hate death taxes, and I’d be fine if we just did away with those. I mean, enough people know that they can gift their belongings to someone before they die to avoid that anyway, might as well stop forcing their hand about it. Honestly, I’m not bothered that the rich get richer. A good combination of ambition, determination, ingenuity, and wisdom merits accomplishment. All I hope for is an America where small businesses can stand their own against big business. If we realize, as a nation, that we are the only ones who can stand against corporate tyranny, then maybe we’ll actually achieve that free market economy that was promised to us. To tie up this rant, I’d just like to say as well, The Gettysburg address said “Of the People, By the people, for the people”. We’ve turned it to a farce “Of the entitled, by the highest bidder, for the corporation”
Agree or disagree, the choice is only yours to make. In any case, I wish all of y’all the best. Health, Wealth, and a strong since of self.
If you made $10K a year and had to pay $2K in tax so you would have $8K and out of that would come state taxes and medicare and social security would you be eager to have a flat tax where you had to pay pay 20%. If you were paying alimony to an ex-spouse you would be paying taxes on the alimony you paid to him while he wold not be paying any taxes on what he received. Would you want that?
The main problem I see with a flat tax is that the amount taxed on lower income people reflects a greater percentage of what it costs for basic living – rent, food, utilities, etc; those don’t change much no matter how much you make. Of course if you make a lot more money your expenses will also go up such as housing, toys, private school, more expensive food, travel, etc, but those are your choices. If you tax take an individual making $20,000 per year ($10/hr?) at 15%, that is $3000, leaving $17,000 or about $1,417 per month. For an individual, approximate monthly basic expenses are $300 for food, $500 or so for rent (I know, get a roommate), $100 or so for utilities. That leaves a little over $500 for gas, car payment, and any other miscellaneous expenses I haven’t thought of like insurance premiums or maybe a child. Someone making $200,000 pays $30,000 leaving $170,000/year or $14,170/month. That minimum to live ($900-1000 for the low end income person) is a lot less of a percentage for this person. Of course, the person making more $$ will more than likely have a big mortgage, expensive car and related expenses, a bunch of cell phones, etc to close the gap, but either way, $900/$1417 for basic living is about 65% for the low income person and $900/$14,170 is 6.5% for the higher earner. These figures are of course not precise, I’m just trying to make a point. I suppose an upside to a flat tax is that it is supposed to be designed to eliminate tax loopholes and other tax breaks, which of course a lot of low end earners rely on.
Yes, this is the downside for lower income earners, however, I think if we can do a flat tax above a certain minimum, such as $30,000 per individual, I think that works.
There needs to be more simplification. There’s too much tax dodging and waste in the system.
A flat tax above a minimum amount is technically a progressive tax. You know that, right? It is simply a progressive tax where the tax rate is 0% for a lower income bracket and X% for a higher income bracket. You just argued for a simple progressive tax system, not a flat tax. I hope that makes sense.
Building off of your idea, I think we can agree the certain minimum in your proposal is very difficult to determine.
Do we set it low? Is it the poverty line? I guess it depends on how to define the poverty line. Doesn’t what can be considered poverty differ depending on where you live? It’s already getting complicated…
Do we set it high? Why not just make the minimum a higher amount, like $100,000? Scientific studies have shown that money is not correlated with happiness above a certain income, why not set the minimum above that income?
Valid arguments can be made for many minimums. It is certainly complicated. Something that is fair in one way is not fair in another. Something is always lost and gained. Ultimately, we decide what we want to lose and gain based on our values as a society.
Unfortunately the Flat Tax has powerful opponents.
1. The tax preparation industry is huge and a simple flat tax would eliminate the need.
2. The ultra rich never pay anywhere close to the 39.6 tax bracket. Remember Mit Romney paying closer to 15% (I need his tax advisors! ). The middle class is the group chipping in 20-30%.
A consumption tax is an idea but when you add in state sales tax, hello black markets.
And to all the idiots who don’t believe in any tax. ..
Next time your house is on fire don’t call the fire department, or the police if you have a burglar, or use any public road. These services actually cost money.
I think the idea of a flat tax would be more interesting in a world where there was a real linear relationship between ambition and income. Unfortunately, hard work, and more importantly necessary work, do not guarantee financial stability. The economic game we are playing at this point in history often has trouble taking care of those whose contribution is most important because economic value does not adequately reflect intrinsic value.
Consider someone like Lebron James. No one could claim he doesn’t work hard to maintain his physical condition and skill at the game of basketball. But I take it as an objective truth that not only is his work less intrinsically valuable than the work of a farmer, or electrician, or carpenter, or plumber, but that his opportunity to make a great living playing a game would not exist if not for the societal foundation created by these inherently valuable jobs.
Furthermore, most of the people employed in the occupations listed can probably never expect to earn in a lifetime what James does in a season. This imbalance between economic and intrinsic value is at the heart of the unfairness of a flat tax given the state of our economy, in that it taxes everyone at the same rate, even if one job is unarguably more important than another. This unfairness is amplified by the income inequality between jobs which are fundamental to society as we know it (example- farmer), and jobs which are built on the foundation which they create, and therefore less necessary (example-professional actor/entertainer).
Advocating for a flat tax seems to require a faith that this version of the economy is an adequate, if not great arbiter of how people are rewarded for their contribution to society. Commenter Faris questioned earlier in this thread “Why is more of his time, under the progressive system of taxation, (of which we all have a limited amount) taken and called fair?” The author of the original article pondered “why people believe it’s fair to tax one class of citizen a higher percentage than another”. These are questions about the fairness of the redistribution of wealth, but they skip over the question of the initial distribution of wealth. These comments take for granted that the economy grants wealth fairly, and are now concerned with the fairness of its redistribution through taxes. I simply do not share this faith.
An answer to both question could go like this: It is sometimes fair to tax one group higher than another because we have created an economy where there is an incredible potential for group A to accumulate drastically more amounts of economic wealth than group B, even though the labor of group B is more intrinsically valuable than group A. Given this inefficiency, it is just to redistribute asymmetrically because the initial distribution was flawed.
A lot of commenters here have an admirable concern for fairness, so I turn the question around. Is it fair that we live in an economy which allows for the labor of Ryan Seacreast to be orders of magnitude more economically more valuable than a farmer who spends 100 hours a week growing food?
I personally wouldn’t pay LeBron James or Ryan Seacrest the salleries they command, but somehow the economics must work. This trend has priced me out of taking my family to any more NFL games but whatever.
If society has deemed that Kim Kardashian should make 10000 times more than a school teacher, so be it. I’ll just have to be satisfied knowing she never got a dime out of me.
Recent Government Tax Revenue is about 3.3 Trillion Dollars.
US population between 18-64 years of age is around 197 Million.
Lets take a VERY conservative guess that 8% are mentally or physically unable to work, leaving us with a potential workforce of 181 Million people.
Corporate Taxes represent around 10% of Total Government Tax Revenue ie $330 Billion.
That means to cover the remaining 2.97 Trillion every able bodied American would have to fork over $16,408 each year in federal taxes if everyone paid the same amount.
Great for those earning over 100k but good luck finding someone to do your landscaping. They went back to Mexico.
Sounds like budget cuts are in order.
The main argument against a flat tax is that living off of $100,000 is much easier than living off of $30,000. Why should making more money result in a punishment of a higher tax? And if you can’t make a living with a flat tax of say “10%”, then either find another source of income, pursue a new career, or start making investments. Just because someone is better at making money doesn’t mean they deserved to be punished.
Fairtax.org has the best flat tax strategy that i have come across. It allows equal taxation as well as assistance to everyone for basic living expenses. You keep your entire paycheck and only pay taxes as you spend your money. It’s a dream tax system for people interested in saving money and achieving financial success.
If we can’t pass something like FairTax i would like to see a minimum federal tax of 5% on everyone no matter what deductions or credits you try and utilize. I can’t stand people paying negative tax rates when we have a 19 trillion dollar debt to deal with.
No, we can’t pass something like the FairTax because it redistributes billions and billions of dollars upward from renters to homeowners, and renters would scream bloody murder if they had to pay tax on every dollar of rent, month after month after month.
Now I could live with a tax on rent if every homeowner paid the same tax on their housing consumption, but that’s not in the FairTax and never will be in the FairTax.
The awesome thing about this argument is that the wing nuts on the right contribute less tax dollars, but use more than their share of welfare and other social programs. So the people arguing for a higher taxes on the poor would be in for a hell of a surprise when their standard deduction goes away and now they have to pay several thousand dollars to the government with no welfare, no food stamps, no energy assistance and have to pay 100% of their expenses. The only real fair way to do it without destroying the poor and middle class, a long-term goal of Republicans, would be to exempt the first $25,000 of income. Otherwise you’ll decimate the middle class, push more poor people onto the streets and into prisons and how is that good for the economy? Red states have less wealth, more welfare, more teen pregnancy, more abortions, higher crime rates, more people in prison, more unemployment and your solution is taking more money away from them? Good luck with that.
Adam,maybe you should take a look at the australian governments attempts to bring the standard of education ,living and job prospects up for Aboriginal Australians. The more money,programmes,housing community funding etc poured in to the problem the worst it gets. Poorer health ,less enrolment in schools,more violence against there women,more people jailed. Etc. Etc. My point is people need jobs Not more welfare . ..If you tax the hell out of people like myself,there wont be any jobs. I am ready to sell up because I am sick of working to pay so much tax.Cant beat em .,join em. If everyone does the same where are funds for welfare going to come from? Toothe fairy perhaps?
It’s true many people struggle on low income and genuinely have little opportunity to advance themselves. However many people in this situation do have opportunities through hard work to improve there situation. I personally started as an apprentice mechanic working for $6 dollars an hour. I now pay over $100000 in tax per annum .Many people had the same or even better opportunities than me however chose to party and holiday when I was working a second job to build what I currently have now. I have 4 children whom I want to help get started in life. Why should my children be disadvantaged because I decided my family was more important than partying and sleeping weekends away. Why should I be helping someone who made a decision to do less and live a little. That’s fine . That’s ok. However don’t tell me paying 10 times more tax because I want to help my children is fair. People against flat tax need to ask themselves what would happen if there weren’t idiots like me carrying everyone else. Whom would the hospitals and roads by funded by ? Also is it fair to ask someone who works 100hrs per week to pay more tax than someone who works 38hrs a week. Please explain.
Have any of you seen what these people of lower income are getting back as a refund? A lady who made $26,000.00 working at Wal-Mart got back over $10,000.00 in an income tax refund. She has 3 children and also gets a form of government assistance (foodstamps) she paid $2k in federal taxes. She was able to claim eic and the child tax credit in order to get this amount… Then we have a family of 8 where dad makes $105,000.00 a year. And pays over well $8k in taxes but even after claiming the 6 children he still owes $1700.00. How is this fair? Why should low income people catch a windfall when they dont pay into the tax system what they get back? And before anyone claims this can’t be true go look it up online. This is the real problem.
The way these people get back thousands of dollars is by having children. The Bush Tax Cuts expanded tax credits for children, and Democrats expanded them further to give free money to lower-income parents.
Everyone knows about the 47% who pay no federal income tax, but childless minimum wage workers pay federal income tax even though they are at the bottom of the wage scale.
The only “fair” tax would be one that requires every person to pay the same amount of tax, if you earn $50,000 per year you pay $10,000 income tax, if you earn $400,000 per year you pay $10,000 income tax.
I earn a substantial amount of money per year because I work my ass off and I make smart decisions, I am 45 years old and don’t have a child because I didn’t feel I could afford to have a child and still live the style of life I wanted, why should I have to pay more money in taxes ? I drive the same roads as everyone else, I get the same hospital care as everyone else , the police and fire provide me the exact same care and protection as everyone else.
I live in Canada and this year I will be giving the government approximately $150,000 in income tax, this has been a great year for earning for me and next year maybe the same, less or more but I still don’t think it is fair that I should pay one penny more or less than any other person that lives in this country.
Unfortunately it is obvious that an actual lump sum amount of income tax per person will never happen , it is the only “fair” amount.
You can choose to agree or disagree with me but I will never be ok with paying 10-20 times more money to the government that others because they made bad choices, didn’t want to put in the work, or were just “victims” of circumstance.
What about a flat and consistent sales tax on everything sold and bought. No income taxes across the board.
Of course, there is no way you can make everyone pay $10,000 tax. How do you collect from someone who has $0 or even $5,000 income?
I’ve just read this article, I’m from the UK so it doesn’t directly apply to me in the sense that I don’t pay U.S. taxes but I completely agree! I’m a director of several companies that through my hard work have succeeded and how do I get rewarded? By paying huge amounts of tax here in the UK. Fair enough, I have some companies that sell products that are of a ‘luxury’ essence but some of them genuinely make a difference to people’s lives, yet I still get taxed unreasonably highly. I back a flat tax rate all the way- be it in the UK or the United States- as I can empathise with guys who have built companies up from nothing and put there heart and soul into building a profitable business, only to get taxed ridiculous rates because of their success. Just for the record, I’m from a very humble background and have built somewhat of an empire from nothing but hard work and educated, yet sometimes somewhat risky decisions.
Here’s the problem with the flat tax: All the math that flat tax advocates use is wrong. The claim is that we can fund the government with a 15% tax on everyone, with the poor paying about the same and the rich paying more. Wrong, Wrong, Wrong. Today high income earners – the top 25% – account for about 90% of total taxes paid. This is because 1) they make more and 2) their tax rates are higher. If we institute a flat tax, the revenue from the top 25% will be less, and the bottom 75% will need to make up the difference. Is it fair to make poor working families pay more while high income earners pay less? I say no.
Thanks for making the point that a minority of people pay a large majority of taxes even beyond their income share.
The solution is to:
* Decrease the size of government
* increase the tax base
Nobody is looking for a hand out. You will be surprised at home many people are willing to pay taxes if given the chance. Depending on the government is dibiliating.
Taxation is theft, you guys. When are we finally going to wrap our heads around this?
Taxation is no more theft than the check the waiter brings you at dinner. You benefit from the advantages society brings, and so you give back to society in order to keep things running smoothly. Advocating that we all Dine-and-Dash on society is the real theft.
Except you can choose to eat at home, what you would like to eat, or impact the financial viability of the restaurant if you are not satisfied by refusing to return. The difference is that one act is voluntary and the other coercion.
I don’t understand what’s so hard to understand about the problem with flat tax. In a country where $25,000 a year leads to an incredibly difficult time raising a family, let alone covering your own costs, the concept of a flat tax being “fair” is simplistic to say the least.
And before anyone starts pointing to how you can achieve more wealth, I’ll do my best to stay on track and use by way of example my dear friend’s salary as a 2nd grade teacher after 30 years…a crucial job in our society in which her income is capped. (In other words, let’s actually talk about someone with a college degree and a career that has an undeniable place of benefit in our society)
Boil a flat tax down to its simplest form: let’s take 10% from two parties. $25,000 a year pays $2500. $1,000,000 a year pays $100,000.
Fair, I suppose, if one were to look no further than the dollar amount and assume that the person with $1,000,000 contributed more, even relatively speaking, to society than say, the 2nd grade teacher who provided education for a child’s crucial next step in one day surviving our nation’s economic system.
For perspective, allow me to say in simple terms, that I think all of us can agree, surviving on $900,000 is far easier than surviving on $22,500.
In fact, let me go one further to say that surviving, in our nation, on a salary of $900,000 is FAR easier than surviving on $25,000, a scenario in which our 2nd grade school teacher has paid in no taxes. If you’re not convinced, I’m not sure what to tell you except to give it a shot, see how close you come to living in this country on $25,000.
In fact, let me go further still to say that surviving in our nation, on a salary of $500,000 (an absurdly high and unprecedented 50% effective tax rate to the wealthy…yes unprecedented, for the sake of this point I’ll not bother with the details), no matter the work hours put in, or the value of the supply of goods and services, is still easier than surviving, in this country, on $25,000 (an effective tax rate of 0%).
I’m not advocating a 50% effective tax rate for the wealthy. I believe an individual should be able to strive for more financial success than her or his neighbor. But this idea that 10% flat tax rate is “fair” for all levels of wealth is unsophisticated, and certainly misplaced.
But what really surprises me is how many people talk about this issue as if higher tax rates on the wealthy directly apply to them.
Where are these complaints coming from? Less than 10% of individuals earn more than $106,000 a year. Less than 2% earn enough to qualify for the top tier tax bracket.
Am I missing something? How many in favor of a flat tax, who understands the purpose of a marginal tax code, actually make less than $100,000 a year? Just curious
I believe in a flat tax above a certain minimum wage e.g. flat tax above $30,000 per individual. Once we make sure everybody can at least survive, what’s wrong with instituting a streamlined tax system that is flat? We get rid of tens of thousands of pages of tax code, save money and confusion, and increase the breadth of tax collection in an equal way?
How would a flat tax rate of X% rather than graduated rates of A B C D E% reduce pages in the tax code?
Money can be earned and distributed by individuals, C-corporations, trusts, estates, nonprofit orgs, investment banks, partnerships, and a whole slew of quasi-partnership flow-through entities like LLC’s. All of them have different rules. That’s why the IRC is complex. Not to mention rules for timing of revenue recognition, industry differences for business deductions, and various credits or incentives for socially desirable behavior (e.g. renewable energy expenditures).
% brackets have nothing to do with complexity.
Sure it does. What percent of the population can name the levels of all the different progressive tax rates, federal and state? I would say less than 5%. Confusion baby! That’s how all my government contacts tell me how they make money and keep them plump and happy.
Read a parking sign recently? Confusion gets folks to part with their money.
“What percent of the population can name the levels of all the different progressive tax rates, federal and state? I would say less than 5%.”
So what? Why does that matter? Are we really gonna pretend it’s the single tax-due calculation (which is performed by software anyways) that confuses people about tax, as opposed to all the detailed rules about what an individual, a schedule c business, a c-corp, a partnership etc can deduction and when? Rhetorical.
“Confusion baby! That’s how all my government contacts tell me how they make money and keep them plump and happy.”
Glad we went off the deep end into paranoid fantasy-land stereotypes about Big Gummamint stealin’ the private sector’s hard-earned money. Next up Chem Trails?
Laissez-faire economics has plenty of advantages, with the chief drawback of having wealth amass in a small percent of the population – not surprising given that people who control corporations and decide their own salaries have the freedom to pay themselves well beyond the value they actually create in society. Progressive taxation redistributes money back to the working class after it was originally redistributed away from them. Heaven forbid.
I don’t think most people are as smart as you as to understand a 70,000+ tax code and know all the various federal marginal tax brackets and cutoff amounts. I certainly am not.
May I ask you how much you pay in Federal and State income taxes a year? The funniest thing I’ve discovered is that so many people who want progressive taxes, and don’t want a flat tax tend not to pay much taxes at all themselves!
Regular people don’t need to understand the entire revenue code, most of which has no relevance to them anyways. Just read the instructions for Form 1040. If you have a question not answered there you’re probably smart enough to earn enough money to do the research to answer your own question, or hire a tax professional.
Form 1040 instructions, about 100 pages. # of pages needed to explain the tax brackets? One.
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
My taxes? A bit over 7K per year in federal income – still pay a bit in the 25% bracket after maxing 401(k) / IRA. Nothing for state – higher property / sales tax here.
Everyone wants to pay less tax so yeah, no big revelation on who supports prog vs flat tax. Republican politicians and their rich donors uniformly in support of a flat tax? Shocker there. And vice versa.
Progressive taxation makes more sense to me because it actually grows the economy. The economy is a two-way street – working to earn money, and spending that money. Bottom 90% saves 4% of their income while the top 1% saves 38% – that’s why ordinary people are far better job creators than the rich and why progressive taxation makes sense. The excess of hoarding of money is economically irresponsible for society and you need to dis-incentivize it.
I’ll be very frank. If I contributed nothing to state taxes, paid no property taxes, and only paid $7k a year in Federal taxes, I’d be very much for this current progressive tax system to make other people pay more. I’d feel like I was Winning each year because I’d consume more than $7k in services.
I’ve paid more than $100,000 in federal and state taxes every year since about 26 years old. I was finally smart enough to leave work at age 34.5 so I could enjoy retirement and pay only about $50,000 a year in taxes. But I hope to be like you and pay even less.
How old are you and do you hope to contribute more in taxes one day? How much do you think is too much?
Great post cheeses. It’s a point that gets overlooked far too often and hits at what my comments (above) about shareholders of a company not really benefitting the economy in any meaningful way. Give the poor more money and they spend it to stimulate the economy.
“I’d feel like I was Winning each year because I’d consume more than $7k in services.”
Hard to put a number on. More than $7K in government services? I don’t use any of them directly… Guess I get my proportional benefit of military protection, using federal airspace, driving on federal roads, etc.
“How old are you and do you hope to contribute more in taxes one day? How much do you think is too much?”
28. I plan to make more money as I age, either by being promoted at work or through self investing. Personally I would never try to make more than $100K a year because I don’t need the money and value my time more. Most of the things I spend money on are cheap relative to how many hours of enjoyment they provide. What’s the point of making a bunch of money you will never spend? To lord it over everyone else? Rich people donate money to Republicans to argue for tax cuts on their behalf… so they can make even more money that they will invest and not spend. Why bother?
I think people are too focused on their own personal earnings and hard work to realize that their success is interdependent on the country they live in. They feel they earned their salary and that taxation is theft. The reality is that their job (or anyone’s job) exists not solely because of need for their skilled labor, but because of other people’s labor, other people’s consumption and willingness to spend money, and the American infrastructure.
What tax rate is too high? Taxation reduces unemployment – additional taxes on people who only spend 62% of their income moves that money to the government who spends 100% of its income, which creates jobs. Personally I’d set the top marginal rate from 39.6% to 50% (fyi begins at $413,000) and abolish the preferred rate on long term capital gains, instead treating it as ordinary income. I’m a tax professional and cannot fathom a reason that capital gain is taxed lower than labor except as a direct handout to the rich, considering ordinary people virtually never have cap-gains except on their house which can already be excluded.
Thank you. This is very well expressed…much better than I could have done it.
Samurai,
I couldn’t agree with you more. Even though some other posters pointed out that your increased effective tax is only for income in that bracket – that doesn’t denote the fact the more you make the bigger the percentage you pay on each new chunk of money. A flat rate tax is really the only “equal” form of taxation. A flat percent means each person pays and equal share and the richer obviously pay more. However, when you start getting into new brackets and the extra 50k a year you’re now making is getting taxed at 33% + self employment + state tax, it is really demotivating. Why bother making more when it takes considerable more work to “go to the next level(bracket)” when half of it or more is taken away.
Tevor:
“Demotivating”? Perhaps, or even certainly, but again the analysis does not end. Having ANY tax begins the demotivating process; yet, nobody is advocating no tax. Having to pay an employee is a demotivation to hiring; but, nobody is advocating the return of slavery. So – your point only begins the questions. Personally, if I walk away with 10 million dollars after earning 20 million I believe I made out well. I did not earn 20 million last year (maybe next year!!) so perhaps my attitude would be different if I had. This is especially true if I did little to “earn” the 20 million. But – again I am neither a trust fund kid nor a CEO with a golden parachute.
The bottom line is a flat tax is only fair if the benefits of government are equal. You have to prove/show the latter before you have a valid argument that the flat tax is fair. Simple as that. It cannot be assumed that I benefit from Government equally to Bill Gates. I am certain I do not, but will stand corrected if shown otherwise.
First off, I am 14 yrs old so take what I have to say with a grain of salt, but CHILDREN benefit greatly from your tax money. I go to public school. My education, and my food, and all costs associated with it are subsidized by taxes paid. But you don’t expect me to work, and pay taxes for what I benefit from. People who pay little to no taxes benefit from taxes. There hasn’t been a war on American soil since the civil war, yet we have the largest army in the world, and pay a significant amount of federal taxes to pay for it. The only people who benefit from that are the people in other countries, not ours. Food for thought.
Exaclty
I agree with phillip
“Mathematically, the flat tax makes perfect sense” Yes – it does, but life is not 4th grade math. It is more complicated. Your analysis is one dimensional.
The tax/spend formula is in part an attempt at equity, emphasis on attempt. Not everyone drives a car. Because of this, we fund infrastructure improvements such as roads and bridges with fuel taxes. A new park, sewer, or local swimming pool will improve the real property value of the community. Therefore, it is more equitable to pay for such things from a tax paid for by property owners, not the homeless man buying “hot” soup from the grocery store.
Someone working at a Walmart in Iowa making minimum wage has little need for the 6th fleet in Italy or a U.S. embassy in Liechtenstein or the Vatican. The flat tax is proportional. Benefits from our government are not. The more wealth you have, the more likely it is your wealth is in part the product of overseas benefits coming from Uncle Sam. A taxpayer should pay for the benefits received no? You 4th grade math fails to calculate the quadratic function/rate of change of benefit from government services. You need to upgrade to Algebra.
Wow thank you I really appreciate your perspective
A lurker here, but I had to respond to this –
“The more wealth you have, the more likely it is your wealth is in part the product of overseas benefits coming from Uncle Sam. – See more at: https://www.financialsamurai.com/were-idiots-please-tell-us-a-flat-tax-is-not-fair/#sthash.apUlYK5r.dpuf”
Except this just isn’t true to any meaningful level. You may or may not avail of certain government services more than the average Joe (wouldn’t you more than make up for this in the job creation and corporate tax you pay through your company anyway?) but any actual extra services rendered by the government are nowhere near in proportion to the quantity of taxes you would pay. Let’s say the government was to bill you for any of its consular or other special services that Average Joe wouldn’t use at $100/hour, along with a $1000/mo retainer fee for consulate assistance, in addition to retainer/hourly fees for any other types of special assistance. Adding up all these fees which would be incredibly profitable for the government as a business if billed hourly and with a retainer would still be far less than what they receive through tax from higher income earners.
A person paying $300,000 a year tax on $1m (30%) is not going to avail of $150,000 more a year of government services than if he just paid a flat tax of 15%. He’d still pay $150,000 in tax, which is grossly more than the services he’d ever, ever use from the government in the financial year, and he is still heavily subsidising lower income earners. And even yet, with this subsidy and still discrimination against the higher income earner, the left are not satisfied. Even if the higher income earner was willing to make a compromise, and continue to subsidise everyone via the flat rate system, the left will not be satisfied until we are all completely equal financially, and there is no longer any incentive to innovate or create.
Capitalism is dead, viva la socialism? Except socialism doesn’t work for various reasons. But if it’s your ideology there’s no logic that will change that.
I think what you fail to note is that 25% of someone’s income at $50,000 is much more of a burden than someone taxed 25% at $500,000. The state recognizes this and that is why all first world countries have some version of a progressive tax system. I also think calling it ‘fair’ is quite absurd given that we all start on such unequal footing and the wealth created from capital alone (which benefits basically no one) is taxed at a reduced rate. If you inherit or have big bucks in equities, you can pay less than a struggling school teacher. It’s highly ‘unfair’ to take away 2 dollars from every 10 that a McDonald’s Cashier makes while saying that taking 200 out of $1000 has the same effect. It doesn’t.
What you fail to understand (and frankly anyone that uses your arguement) is that there is a plan out there that covers those of you complaining about the poor man getting stepped on by the rich…It covers that issue (or really what I call a non issue) of “$20 taken from my paycheck hurts me worse than $200 from yours because you have more left over than I do”, which I feel is complete BS and just an excuse, but I digress…
The plan is called the fair tax. Not to be confused with a flat tax. I don’t want to explain it all again (as I’ve done multiple times on this thread), but it covers everyone tax free up to the poverty line. After that, you are taxed o what you spend. So the millionaire spending 500k on a new boat or crazy fast car gets taxed on that the same percent as the man making 30k per year buying a birthday card for his wife.
Oh, and the reason I am so adamant about your BS argument is because about 6 years ago my wife and I were the ones who couldn’t afford to feed our kiddo. WE (not the government handout) worked our butts off for 2 years and put OURSELVES in a position to be successful. We will for the first time this year eclipse 100k after making a combined 28k 6 years ago. You know who built that? I built that…not the damn government, not some teacher from 2nd grade social studies, and for damn sure not the current administration. It sucked and we sacrificed a lot to get there, but we made it work. Without all those advantages that you say some people have. No silver spoon here and my wife is Hispanic, so apperantly she was never supposed to do anything other than flip burgers at a fast food restaurant. For those of you who don’t understand sarcasm the previous sentence is a pretty good example.
Work on getting educated ConArtist (great screen name btw) instead of just spewing back what the liberal media spins yours way.
Brandon, not sure why you’ve got some personal rage against someone you don’t know, but I will psychologically assume it’s because you are resentful of those who are too lazy or dumb to provide an adequate living for themselves (instead of directing your anger at those in power who manipulate things into their favor and who are more deserving of your wrath).
I digress. I guess my Master’s degree in public policy is really sabotaging my development as you allude to. Maybe I can educate myself so my wife and I can eclipse that illusory 100k level!
I was not responding to the ‘fair tax’ and would have to read the entire thread of comments or research it to respond to it. I was responding to Sam’s flat tax post.
Based on the information you provided, I disagree with the ‘fair tax’ (great euphemism btw. I don’t know what consumer staples/goods would be taxed at versus sports cars, etc. If you say the same sales %, than we’re back at square one then, aren’t we?
I’m glad you got your ducks in a row by working hard and making the right choices. Try not to attack people personally w/ erroneous assumptions and you may actually make some headway.
Percentages are inherently fair. They affect everyone equally, regardless of income level. Just because the price of a commodity might affect one individual more than another doesn’t speak to whether a flat tax is fair. That’s just the reality of the situation. Why does the burden of caring for those less “fortunate” need to be compulsory? Is philanthropy the law? While I agree that a VAT and national sales tax are the wrong way to go (they discourage consumption and therefore hurt the economy), I disagree with any notion that says that anyone above a certain income level ought to pay more. Even if John Doe is born with a silver spoon in his mouth, that is of no concern to anyone else. If I leave my wealth to my children, that is my business; it’s damned sure not the government’s or anyone else. If I work for something on my own, why is someone else entitled to what I have earned? I will acknowledge that everyone isn’t born with the same opportunities/abilities, but to say that somehow I owe them for their lack of talent/ability/determination is a fool’s errand. To speak to your point about a McDonald’s employee; if an adult man or woman is working at McDonald’s to try to provide a living for themselves, we have already identified the first problem. Aspiration needs to be addressed early on with everyone. Aptitude may dictate that you won’t be a surgeon or rocket scientist but it certainly doesn’t mean that you’ll be relegated to a career in fast food. Please drive your argument in a cogent manner that is relative and applicable to reality. You want a “fair” (I loathe that word) tax? Don’t tax anyone below the poverty line and everyone above the poverty line can pay a flat rate. Still not a “fair” tax, but it will probably shut liberals up since it protects the uneducated vote.
Garry – your post contradicts itself in the first few sentences. First you say percentages are fair. Then you claim it’s okay that it’s not fair. Which is it?
Yes, philanthropy is law. Just like its law that white collar criminals walk away unscathed and people in power get away w murder. It’s the least the wealthy and powerful can do to placate the masses. Watch les miserables sometime.
leave your money to whomever you want no one is stopping you.
What’s not cogent? The part that every first world nation has some version of this policy? I’m curious that all the most advanced countries are all so stupid.
I’m not as concerned about those under the poverty level I’m concerned with those right above it. The wealth in the financial industry which produces no benefit to society should be taxes more than it is. Perhaps if college was more affordable your aspiration claim could be addressed.
I am very wealthy and literally by doing nothing I can remain rich forever. Talk about encouraging bad behavior.
Unless my reading comprehension skills are severely off (and I assure you they aren’t), I’m not seeing any contradiction in my statement. I love your red herring about how the wealthy go unpunished. Perhaps you’ve not heard of Enron? And why exactly do the masses need to be placated? What the masses need is an education, a tangible skill set and a sense of personal responsibility. With those things in hand, perhaps they wouldn’t be so concerned about other people’s wealth. The fact that every first world country has some form of social welfare implemented isn’t stupid, it’s brilliant; it’s a sure fire way to garner votes from those that will always vote for whoever promises them more benefits. College is affordable. Go to a state school and get a degree in a field that is in demand. Not all degrees pay and not all schools are worth their price tag. Those ought to be very simple observations. As far as your claim about being wealthy, you’re lying (or maybe you and I have a different idea of what wealthy is). If you are wealthy, perhaps you won the lottery or inherited a check from rich uncle Joe, because you certainly didn’t get it by any sort of conventional method. Anyone with wealth knows that wealth doesn’t just sit around idly. It makes more wealth by being invested. Wealthy people invest money into companies that turn right back around and hire workers to produce more products. You are a fraud and are lacking basic sense regarding almost everything you say.
Thanks for the personal attacks Gar. You’re a real class act.
I don’t feel the need to provide you with my anecdote of why I’m wealthy. Suffice it to say you can read Thomas Picketty’s book on capital and wealth begetting wealth and learn for yourself.
My shares of T and VZ do not benefit the companies. If anything they are a burden because they have to pay me from their profits. I can literally sit and eat Cheetos all day while collecting the dividend payments each quarter. And I think the gov. Should encourage more enterprise than that type of lifestyle that I enjoy.
College is not affordable for the masses. And when you include more important education like masters and medical and law degrees it is even less affordable. I’m not talking for myself I’m saying for the people I’m concerned about that is the middle class folks.
If you think the wealthy get punished commensurately as the poor then I would like to sell you my VZ and T shares for $100 each please. Maybe you’ll also think that’s a good deal. There’s such a copious amount of evidence to the contrary that it’s laughable you’d bring up Enron (many of whom like Richard kinder) walked away completely unscathed to new more lucrative ventures.
I actually believe that you intend well and your personal responsibility comments I agree with. Now let’s start at the top, not at the bottom.
HEAR HEAR!!
ConArtist,
I have to take issue with your statement “Wealth from capital alone (which benefits basically no one)…”. First off, capital benefits the users of that capital because without it Companies cannot exist. Secondly the statement itself doesn’t really make sense. Is it the wealth from the capital or the capital that “basically benefits no one”. This is like saying capital benefits no one. How could such a statement possibly be true? You sound like a straight up Marxist.
Furthermore, taxing the proceeds from capital at a low rate facilitates investment which helps the economy and create jobs. The public sector must tax someone in order to exist after all.
I am referring to investors/shareholders. If anything you are a liability to the company because they have to pay some of their actual earnings back to those who buy the shares. As a shareholder of t and vz please tell me how my quarterly dividend checks I receive benefits either company….
It is true because let’s say I’m a brick mason and with each paycheck I collect $500, half of which I buy vz stock. After 50 years maybe I own 1000 shares. The wealth created from the 1000 shares can now forever compound indefinitely assuming vz stays profitable. I can pass it on to my daughter who does not have to work maybe bc she continues to receive dividend checks. The tangible product or good produced was my brick laying. After I’ve invested it, that future wealth that grows from it benefits only the recipient.
Please explain how me being a shareholder of a company helps that company creates jobs.
It’s the profit motive inherent in Capitalism. The profit motive is what makes capitalism the best wealth creating mechanism the world has ever known.
You see the owners as a mere annoyance and I see them as the very reason for the existence of a company.
Mike – first, that’s not how I feel. Second, how does that respond whatsoever to my post about how being a shareholder doesn’t help the company? The one you just replied to.
I think some other people addressed this, but you have a fundamental misunderstanding about capital and what stock is. Hopefully over the last year (see time difference in comments) you have endeavored to learn some more about how the capital markets work. I don’t feel like typing out a long explanation so I will just encourage you to educate yourself.
I got an email notice that there was an update to the thread, glad to see it’s still being discussed.
I know quite a bit about the capital markets having most of my net worth tied up in equities. I believe that credit and capital can help individuals and companies. What I think you’re alluding to is my comment about holding shares of a company and how that in and of itself benefits the company. Unless the company is in the midst of a secondary/IPO, etc. by and large a shareholder is not benefitting that company by trading and/or holding shares.
I am open to your reasons to explain how I’m wrong. Educate me.
In response to your first post, a flat tax past a minimum amount will do better than a progressive tax, since the very poor pay even less tax, and the middle class benefits greatly, and the rich are already using tons of tax loopholes anyways.
The government is the only one who will “suffer” from a flat tax.
The simplest answer is that the government spends way more than it should, and wastes tax dollars like crazy.
Real easy answer here… If the company wants to raise capital, it can sell shares or take on debt. Paying you dividends is much cheaper than taking out a large note. It’s all about Cost of Capital for large businesses, they want to pay you more in returns… that simply means that they have more profits and not more debt to pay off. That make sense? If not, sorry but it is the truth. Therefore, having shareholders is cost effective for the company. You aren’t the only one with a Master’s degree.
With that, I would say that the fair tax is not fair. At all. Compared to the current progressive tax, it benefits the rich more than the poor. The IRS reports that the wealthy (highest tax bracket) pays ~17% tax, not 39.6%.
Also, the argument that 20% of the poor’s pockets is more of a burden than 20% of the rich’s pockets is 10000% accurate. If you make $10,000 and pay $2,000 in taxes, you have $8,000 to live. If you have $100,000,000 and pay $20,000,000 in taxes, you have $80,000,000 to live. I’d say the $80,000,000 could go a bit further to cover living costs.
Any argument for equality is hilarious, the rich and large businesses do not play by the rules, they cheat the system every time they can. If you do not believe that, you are delusional. i.e. ENRON… they tried to cheat the system and eventually got caught. Don’t speak on things that you clearly don’t understand.
There should be more tax brackets for the wealthy, a doctor and Warren Buffet should not have the same tax rate. Also, most wealthy people don’t actually have salaried incomes like normal individuals, they get paid in capital gains and dividends, true flat taxes do not cover those items due to no double taxation. Those are taxed on businesses.
These are the facts about why the fair tax isn’t fair. I know you will still refuse to believe this and you’ll probably continue to argue, but just know that these are the facts.
Why is it fair for someone to take what I’ve earned at the barrel of a gun at all? Who says what is fair as far as tax brackets go? Who is so wise to make these decisions? I think that you’ll find there are no angels in government capable of deciding which is yet another reason a flat tax would be fairer.
why do you must compare the dirt poor to the extreme rich? if i’m making $120k and 1/3 of my paycheck goes to tax, is it fair for me to complain that i paid too much when someone making $40k only has to pay 20% on tax. Mind you that on average people who make more than $70k are usually hold a technical degree (thus lots of debts) or street smart.
When you combined student debts, loss of income opportunity for a few years because of longer education requirements, etc…tell me why i have to pay more taxes than someone who earned less? what is the merit of being excellent?
Eleven years ago I made $35,000 a year. I got laid off–I supposed I was a crappy employee and that is why I got laid off. Last year I grossed $28,000. The feds took 29% of my paycheck. I guess that’s not enough is it? So that you wealthy people can have more money the feds ought to take out 60% of my paycheck. After pay rent and tithing I have about $400 a month to live on. Go ahead and take that too! I’ll live on the streets!
Wouldn’t you rather have a flat tax and pay 20% instead of 29%? I don’t get it. I’m not arguing to create a flat tax of 60%.
I’m told I am in the 15% tax bracket that I pay 10% if the first $9000 or so and 15% of the rest. So a 20% would mean that I would lose 34% of my paycheck so I would have $108 less a month. After rent and tithing this would leave me with $300 a month to live on. It’s fair!
Using a simple 2015 1040 tax calculator and assuming you are filing Single w/o any dependents and taking standard deduction your effective tax rate is 7.83% on $28,000 or an estimated federal income tax bill of $2194. Perhaps you will be owed a large tax refund if you really are losing 29% of your gross check to taxes.
It is 10% on the first $9225 of Adjusted Gross Income, after exemption and deductions, and 15% after $9225. Technically you are in the 15% bracket but due to the generous exemptions and deductions everyone gets you only pay 7.83%
Disclaimer: Always do your own tax research and ask tax professionals.
That would still leave me with $200 less than I have now. About the amount I pay to have someone mow my lawn.
My on the paper income was $37000 and i paid 20% total on tax (Fed, SS, Medi, and CA income tax). Where do you live that you have to pay 29%?
1. Get in contact with your HR to update the W2 tax withholding.
2. Mow your own lawn.
A flat tax isn’t fair. People with more income will pay more in taxes. If taxes are the price we pay for a civilized society, then why should one person be charged more than another person to live in that society? A truly fair tax system would equally divide the total expenditures of the government by the number of people benefiting from the government.
If I invite my friends over for a pizza, we either pay for the pizza in equal proportions (i.e. if there are 4 people, we each pay for 25%) or we pay based on how much pizza we ate (i.e. if I eat 1/2 the slices, I pay for 1/2 the pizza). What we don’t do is get everyone’s most recent paystub out and have everybody pay based on a proportion of their earned income. The amount of money people earn is irrelevant to the pizza.
The flat tax would represent a decent compromise in a sane society, but that does not mean it’s fair. It taxes some people more than others, yet these people are under the protection of the same exact government.
Do you think someone making $1 million a year takes up $500,000 a year in resources? One could argue they take less resources than someone making $80,000 and pays $16,000 in taxes, as they send their kids to private school, don’t go to the library, or utilize the freebies at the park.
A person making $1,000,000 a year isn’t paying $500,000 in taxes.
If it’s all earned income in NYC, they could. If it makes you feel better, we can use a 30% – 50% effective tax rate for a $1 million income earner if you wish.
No use arguing a phantom person’s financials. Let’s focus on the big picture of consumption of gov’t resources, fairness, simplifying the tax structure, and helping people out.
My wife and I are retired. When we were both working we made a little over $ 100k per year. Our affective tax rate was 9%. About 80 % of American households earn $100k or less. With a 10 % flat tax rate, and with rising local and school taxes, 80% of American households will lose out.
In addition to federal, don’t forget to add SS/Medicare (either ~8% or 15% depending on how you calc it), state taxes (~5-6%), property taxes, sales taxes, and any local taxes (not to mention hidden taxes). Your real tax rate was probably 25-30% at over $100k/yr.
Most flat tax plans allow for some basis level of living without taxes (say $15k/adult and $5k/kid up to x kids) and then x %. One of the reason the government is so inefficient is so much of it is only paid for by the top 1/5%, that the majority of voters could care less.
Yes they are, depending on where you live. In WI, if you make a million you pay in about 475’000. There are higher states as well.
The Flat Tax is only federal tax, so individual state tax rates don’t come into play.
Boy, that system of making sure that people that use park freebies, public school, and library usage cost more and therefore should pay more, is incredibly ignorant, selfish, and downright disgusting and disgraceful.
That means that, a person in the >250k bracket using nearly no public services should pay taxes proportionate to his usage, whereas a person making 50k uses more public services, like school, the library and the park, so they pay more right?
No worse suggestion has ever been made to the position of the rich getting richer, and the poor becoming poorer.
How can a family, descended from slaves, that had no education or income advantage generations ago, generating perpetual poverty as a result, possibly catch up if they must pay more in taxes for using public services meant to foster equality? With student loans chasing anyone lucky enough to make it to college out of a garbage neighborhood, likely awful, addict parents, and the disadvantage of there being no monetary incentive for the best teachers to work in the school district, there’s no chance.
Saying it’s someone’s life choices that 100% of the time lead to their situation is ignorant, in many, many situations.
For the record, I come from a very financially secure family. My ancestors were immigrants, many of whom helped build this country, particularly where I live (grandfather was an engineer that designed some highways). When I see an infant born into this world that had no choice, born to parents and a district that are garbage, I only think to the challenges he has to overcome, compared to an upbringing like mine, and my rather cushy lifestyle growing up. To even think its a fair comparison is insanity.
I’m not arguing about social problems, structure, or history. I am simply stating that the kid in my example *needs* the public services, and just because he uses more does not mean he should pay more.
Before you say he’s an outlier, he is most certainly not. There are millions upon millions that have very similar situations with abusive parents, and totally awful lives. They never had a choice to be born into that. No one wants to, and they should not be forced to pay more in taxes for public services that may be the difference between making it out, and being stuck permanently.
Hi John,
Several points:
1) I think you’re misinterpreting the post. It’s not about getting people who use our services to pay even more. It’s about not charging people who already pay the most, even more. Let’s create more EQUALITY with the tax system. We are we pandering to tax lobbyists and creating so much inefficiency w/ a 70,000 page tax code? That is NUTS!
2) If you come from a financially secure family, of course it’s easier for you to tell wealthier people to pay more. You didn’t earn your wealth, your family did.
3) Share with us how much you pay in taxes, not your family.
4) I’m a supporter of the public libraries and have donated money to them here in San Francisco, as well as other organization to help with education. In fact, I wrote, The Best Of Financial Samurai ebook, specifically to help donate to an organization who keeps teenagers off the streets and in the classrooms. Won’t you buy a copy and help support the children?
5) Finally, what are you doing to help others? Hopefully you are taking action. Financial Samurai is full of helpful content to help people make more, and give more money and time away to help other people.
Glad you support your public libraries there. I refuse to support mine. To obtain a library card where I live they require way too much personal information to make me even marginally comfortable. I prefer places such as gutenburg.org to obtain my reading material and I don’t have to give up my SSN and DLN for the dubious benefit of checking out material from the “public” library. YMMV.
So before I go into my opinion, I think it should be noted that I’m a lawyer and while I no longer practice taxation law, I did years ago for some VERY wealthy clients and they did not pay their fair share by any means. This whole article and all the consequent comments are assuming the rich are paying these huge sums and arguing for relief via a flat tax. When in reality, they’re paying less than most middle-class citizens with their knowledge of tax shelters and ancient loopholes. A flat tax is a good idea because it puts EVERYONE on equal footing and removes the option of sidestepping Uncle Sam. Let’s walk through how this country actually works. Lobbyists petition congressmen. Who pays said lobbyists? Poor people?! Not so much. The rich. That is why every year since the late 50s, the middle class has been shrinking and the top 10% is getting richer. Look at GDP now and compare it to GDP in the late 80s. MUCH higher now (including inflation) and yet (with inflation) the middle class is making less than we were almost 30 years ago. Thank you lobbyists. Thank you to every man and woman that fought and continues to fight to keep those obscure tax laws in play. A flat tax would mean a fair deal across all classes. If it would ACTUALLY help the rich, you better believe they would’ve made it happen by now.
They definitely do not pay a lower tax rate than the middle class. 47% of the population – which includes 25% of the middle class – pay 0% taxes and another 40% have effective rates under 10%.
Even though the rich are hiding their income or have complicated tax systems to reduce taxes, the top 1% is still paying nearly 40% of total income tax collected, top 5% pay 60% and the top 10% pay 70%. The top 25% (upper middle and upper class) pay nearly 90% of income taxes collected. It’s very hard to argue that we need to tax the rich more.
Its not just choices. Its bad genetics that cause stupidity and ugly looks. I don’t feel like feeding the inferior animals.
It’s really not about the publicly available resources they actively use. By the same logic, most farmers simply shouldn’t be taxed at all, because they don’t need paved roads and can sustain on well water. Why should they be taxed to pay for these services they don’t use or don’t need?
The answer is: Because they are a part of society, and must share the societal burden. They do benefit from these services, even if they do not use them directly; and, it would be ignorant to think otherwise.
While I’m not in total disagreement with the premise of the article, that tax rates should be more flat (as long as we knock off all this exemption for the wealthiest crap), the fact is that most people who are very high earners (> 400k we’ll say) should have to pay more than the people struggling to get by.
My chief argument for this, isn’t some socialist redistribution of wealth either. We, as a society, have things we want/need to provide for our citizens. We have determined that paved roads, clean drinking water, public schools, etc…, are all services that benefit the public good. A person who makes more money, on average, has more people that would be considered employees. If that person only pays their employees a certain amount, but takes more home for themselves, that’s fine. But that person also needs to realize that they are contributing to the wage disparity that makes a flat tax no longer make a lot of sense. That business owner now profits even more off the publicly available services (those employees that are worth keeping did go to school after all, and aren’t dying of dysentery) than the average person does.
People who make their millions off of the fact that they have millions are usually even less helpful and more of a drain than those providing real jobs to the market. If you have millions invested in stock, your income is taxed at the much lower capital gains rate. Meanwhile your profits come at the cost of a large population of people. Most big businesses operate under the stance that they need to take care of their shareholders first. It’s true that many large companies wouldn’t be doing as well without that investor income, but does anyone really believe that Apple or Google would suddenly dry up if that money wasn’t there? These are vastly wealthy businesses, that pay very little in taxes themselves, where because of income disparity the investors make a larger share of the profits, but pay a smaller share of overall taxes.
I know, I know, it all balances out that the one guy making millions probably pays a little more than the combined 50 people actually doing the work, so it could easily be said that it isn’t fair; but, we have to remember that the guy making millions can only make that on the backs of those 50 little guys. He benefits just as much from the public services each of them utilize as they all do, and clearly based on his salary he actually benefits a lot more.
A flatter tax would be a shift in the right direction, but it only makes any sense if we live in a 1950s world of little income disparity, and can get rid of all the exemptions and special rates for the income of the rich. But even then, a completely flat tax rate leaves the common man paying for public services that the rich benefit more from, whether they realize they’re benefiting from it or not.
A flat percentage of income taken is fair. The logic is as follows:
1) We are all born with the same time allotted- 24 hours for each day
2) A tax is a tax on your time, not on your earnings in that time. For instance, if you take 15% of my time (15% time 8 hours of work), you are taking 72 minutes of my labor from me. If you take 40% from Jones for his 8 hours of labor, you are taking 192 minutes of his labor from him. How can that be just? Why is more of his time, under the progressive system of taxation, (of which we all have a limited amount) taken and called fair?
3) As it is not right for the majority to vote away the rights of any man or group of men, it is not right to vote (HEY Jones, the majority just sentenced you to more work- lucky you!) or sentence a man to receive less of his labor. In fact, freedom must mean that inherent rights (defense, speech, right to property) are not ever subject to a majority vote. We must all be treated under the same UNIFORM rules or as subjects in a tyranny under arbitrary rules.
4) All citizens must have a state in good governance. this stake can only be developed with each person paying a bill for the COSTS of government- good as well as bad.
And if you aren’t paid by the hour? If you inherited 5 million from your parents and investing in index funds average a 4 percent or better return? You sell your stocks once a year and you never work.
Well the 5mill would have been income so 15% = $750,000 would have been paid in taxes.
Chris $5 million as an inheritance is exempt from being taxed. You would pay 15% capitol gains on the 4% a year worth of stocks you sell off. Which is $200,000x.15=$30,000. I pay about a 5% higher marginal federal tax rate than someone who recieved an inheritance with the same yearly gross.
I think all things should be fair. Why does a poor person pay 5 dollars at burger king, while a rich person pays the same amount? Should it not be a percent of their income?
That is my fantasy. I want to own a restaurant. I will hide some undercover police in with the customers. Then I will invite Barack, and several liberals to the restaurant for lunch.
Barack will pay 3000 dollars for his club sammich, the poor guy next to him will pay nothing.
When he complains I will have the police beat him down.
When he wakes up he will realize he was only paying his fair share.
The rich don’t eat at burger king, they eat at more expensive restaurants where the burger costs 20 dollars each.
Unfortunately disagree Leroy, I would have to consider myself wealthy or rich based on terms defined in our progressive tax system and I get fast food (McDonalds, BK, Subway, etc.) up to 7 – 10 times per week…just saying. Let us try not to generalize.
u r funny. it’s more complicated then splitting a pizza go back to school
I can see the arguments coming from people wanting a flat tax rate. However, that is a bad idea. I cannot cover all the historical and statistical data that must be taken into account. I know you are for sure ignorant idiots, to answer the title of this post, but I’d need to write a long essay to show you exactly why. This is only a brief comment and I hope it just leaves you with some doubt regarding your view.
The government was created by and serves primarily the interests of the upper class. Not the 1%, but the .01%. However, when capitalism was in danger back in the days when socialism became popular, politicians from the Right started what is now called as “Welfare State”. Yes, it was an idea from the Right. It was an attempt to make capitalism more appealing to the masses, and it worked. However, to make it happen large amounts of money were necessary. The ultra-rich were willing to pay because the other option would be to lose it all in the face of socialism. This welfare structures are crumbling all around the world now because socialism has lost its appeal and is no longer a threat to the ultra-rich, so they refuse to pay for it. They whine. Why do we have to pay more than poor people? Buah! If they don’t like capitalism, well, they can go to the moon because there is no other viable option. Fair enough. However, their lack of historical knowledge and their ignorance on social matters will be their doom. Feudalism was over because the feudal lords got confident and refused to pay for the social order that kept them rich, and social order was lost. Then other people became rich instead of them. That can happen again. If you are rich, the current order benefits you more than it benefits poor people. You have roads to transport your merchandise, you have police to deter burglars who are drawn to your stuff, you have institutions that make business transactions possible, etc. Rich people ARE paying less already, social unrest IS growing, and when the State is too weak to keep the current order, it will be the Feudal gig all over again.
Now, about the eternal lie that taxing companies slows the economy down. There is one thing that accelerates economies, and that is consumption. This consumption comes from the government and from families. Companies don’t create jobs: they produce for consumers and they spend as little as possible in the production process, in jobs and materials. So, when the State reduces the corporate tax, corporations grow? not if there is no demand. (and if there is demand, companies would grow even with higher taxes). Now with lower taxes, companies invest in the market, probably lending money to the government through bonds, in short, they don’t pay taxes and now the government owes them money instead. And then the government has less money to spend, and economies slow down.
Economics is not an exact science. It is a political science, a psychological science, a historical science. It goes deeper than most people think.
In absolute terms, the rich pay a lot more than the middle/poor class in taxes, but they have all sorts of ways of reducing their overall tax rate that the middle/poor class doesn’t have the knowledge or ability to use.
The thing is, the rich are not the ones who are suffering under progressive taxes, but instead the middle/upper-middle class. The poor don’t care as much, since they pay little tax under either system, and the rich control the government through lobbyists, have lawyers to find tricks in the tax codes, and so have access to many loopholes.
Also, your argument of the social order being destroyed fails at the premise if we have a flat tax past a minimum rate, which means that the very poor pay ZERO in taxes.
The bottom line is that the rich are rich because they have financial knowledge and power. The poor/middle classes don’t have this, and they think that higher taxes (much of which is wasted by the government, which should be more financially responsible) will make the rich pay more, when in reality it’s the upper middle class, mainly professionals, who suffer the most.
Having a flat tax past a minimum income doesn’t hurt the poor, helps the middle class, and removes incentives for loopholes or the very rich.
I think there are some very good ideas on this page. I am by no means rich. I am actually very poor. I make quite a bit under 10,000 a year and I cannot claim any credits on my tax return. I am fortunate enough to be able to live with a friend who I split utilities with and his mom owns the house so we don’t have any rent. Part of the reason I make so low is because I donate my time to teach underprivileged kids in even poorer families how to play music and in a sense, and probably giving them something that could, theoretically make giant changes in their lives. I am okay with that. Am I doing something to change that because I am tired of being broke every step of the way? Yes, I am. I don’t blame anybody else but myself for making that low of money. It is entirely my own fault and I am okay with that. I don’t think that rich people should have to pay me for me doing what I wanted to do. Now, last year I made approximately 1500 dollars for the year. I had no expenses besides my phone bill which is a junk low end phone (3 years old and not a flagship phone like Iphone, galaxy, etc.), my gasoline and my food bills. I don’t get food stamps or any government assistance. The 1500 dollars I got last year, was given to me as a 1099-misc, which means I have to pay tax on that. My tax on that is ~13.9% which is the self-employment tax. Normally I wouldn’t pay taxes because of the exemptions, nor do I really care that I owe on it. I work in taxes now, actually, as a tax preparer. I deal with people on every end of the spectrum. My opinions are no more right than my coworkers, friends, family’s, or anybody else on this sites opinions. They are opinions. I agree with the idea of a flat tax, minus the exemption for what you can “survive” on. The number would have to be figured out, but I think that a “flat” tax would be good idea. I have no data to back my opinions up, but I believe that it costs quite a bit of money to get your income pushed through all the loopholes that these corporations are pushing them through. If taxes came down for them, instead of hiding their money and paying other people to save their money, don’t you think they would be more inclined to pay a bit more in taxes?
Example:
Joe is a doctor who makes 500,000 dollars a year. Say he pays 20% of this in an income tax. His tax is 100,000 dollars for the year.
In a perfect world, that would be pretty nice. But say he is being taxed at the tax brackets we have in place today. (Which isn’t just 35% of total income like some people think.) His tax for 2014 would be 155,291 with the standard deduction and using HR block’s tax estimator tool.
Joe is obviously going to be more inclined to figure out how to get his tax down either way, but with a ~30% jump in tax owed, he is going to have more incentive to figure out how to get a tax break sometimes with things becoming illegal. Why not let him keep his 50,000 dollars and figure out where to put it instead of giving it to a government that spends it how THEY want to spend it? Why not give more incentive to use the money in your communities and the downtowns which are disappearing instead of just putting money in a pool that we don’t actually get to see? Obviously that is more work than most people would be able to handle, but I don’t like big government and never have and probably never will.
If they did a flat tax, they would have to cut down on what you can get tax breaks for and all the loopholes and our whole tax code would have to be rewritten, which probably wouldn’t be a bad idea anyhow, regardless of what does happen. It couldn’t be written so that those rich people can moreorless double dip on breaks. With a lower tax rate, they would in effect, pay less. Why would they be able to get a tax break and then get another tax break on top of that because they can afford it? I do believe that our current tax situation isn’t helping anything though. If it was working, our debt would be coming down. Instead, everything is going up and our debt keeps rising. What is the reason of the taxes to begin with? Do you know what is happening with your money?
Anyway, this started as me saying that I liked some of the ideas and that was it, but I couldn’t help but express my thoughts on the subject! I work in taxes after all! =-)
Regards,
-Kenneth
The arguement you present against the flat tax is ridiculous. The rich man is benefitting from the college he paid for every day because his income is 20 times the poor mans (uneducated) income.
Why not say the poor man works harder, sweats more and abuses his body more doing blue collar work than the rich, white collar man so he deserves a break in taxes just because of his sweat equity.
We are middle class, earning 150k and we pay at the 24% tax rate. We own our home so get no break with mortgage. Kids are grown now, no dependants. And I’m guessing we are like most of the 49% not used in your numbers (50% poor, 1% rich) who pay the 50% of income taxes not covered in your arguement. The flat tax sounds good to us.
And what person making more than 500K a year isn’t able to invest and save most of it in ways that keeps it from being taxed. But if you only make 100k there isn’t much left over after living costs to invest and hide. No one making a million a year will pay taxes on a million under the current system.
a “flat” tax is not flat. It’s a percentage. So it’s a flat percentage but that means it costs more money for some and less for others. Here is why that is not “fair”. Does a rich man need to pay more for a loaf of bread when he buys it in the market for no other reason then he is rich? Do retailers price their items for sale as percentages of their customers income? No. Why not? Because it’s ludicrous that’s why. Only government can seem to get away with saying that the cost of government should be more for some then others. We certainly need bread more then we need government, imho, but somehow pricing for bread is based on reality and pricing for government “services” is based on envy politics. Not fair.
I don’t necessarily have a problem with a regressive tax system, but even then, the rich will still pay more. If everyone living under the sun made the same amount of money then yes, a single rate might do. That’s just not reality though. A flat tax (percentage) is as close to ‘fair’ as we can realistically get.
That sad thing as I’m doing a housing remodel is that ALL contractors say that they charge much more for owners of more expensive homes than owners of cheaper homes, even though the labor and cost of materials is the same!
Naturally, because the quality of work has to be higher. They know you are more discerning and expect more for your money. As you well know, people will absolutely pay for quality!
the reason the rich should pay a higher percentage is because it takes a lot of money to run the country and an equal distribution as you describe will not produce enough revenue (your example is revenue neutral) . I guess that is it plain and simple. If you look at what we currently spend, tax rates need to be raised to produce enough revenue to pay for it. Like many of you for years I believed starve the beast and it will shrink. however, this had not been proven to be true. for each spending program you or I may oppose, there is a large group of beneficiaries that support it. I understand, that i am not as smart as many of you, but until we have an open an honest discussion about what spending programs are essential to a prosperous nation and decide how much it takes to provide those services, we will always have budget deficits. This will eventually be our downfall. i do not believe that you can cut taxes and grow your way out of it. I also do not believe that by taxing the rich you will reduce revenue or cause folks to move. I have seen no factual verifiable data to support that position ( i am willing to examine your data if you have it) Just my opinion
Never mind… I just noticed the question pertained to “flat tax” as opposed to just tax.
A flat tax would be fair.. If corporations are considered people, why shouldn’t they be treated as the rest of the people? Especially when those people use up more resources and make more money than and off the people.
Everything americans fought for not to become has been used and twisted to become exactly that.. all in and for the american monarchy and aristocracy.
only this time, patriot means terrorist, as was the real reason for “the patriot act” (the anti-patriot).
That’s an excellent question if your ignorant. It’s super stupid one if your well-versed in america’s dirty business & legal history. Here’s just 1 example for the sake of simplicity…
It was supposed to be “voluntary” but is been made “mandatory”.
Of course the IRS views any questioning of their authority an illegal “protest”, just as Courts view any older bonafide laws conflicting with new agendas as frivolous “conspiracies”.
The same as any dictator would do when their authority is questioned, or criminal scam artists denying of facts in efforts to hide the true motives.
The IRS says: [“Some taxpayers assert that they are not required to file federal tax returns because the filing of a tax return is voluntary. Proponents of this contention point to the fact that the IRS tells taxpayers in the Form 1040 instruction book that the tax system is voluntary. Additionally, these taxpayers frequently quote Flora v. United States, 362 U.S. 145, 176 (1960), for the proposition that “[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint.”]
They also give their opinion of legal meanings, like “voluntary”. [“The Law: The word “voluntary,” as used in Flora and in IRS publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them from the outset.”]
Notice… “as used in Flora and IRS publications” and “refers to our system”
… kinda like, “elephants are always pink, according to me, and because I say so!”
further they state.. [“The requirement to file an income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), et seq., and 6072(a) of the Internal Revenue Code. See also Treas. Reg. § 1.6011-1(a).”]
…”and if you deny it, you are violating my own laws, that I make up and change for my own benefit, irregardless of any previous right or law, and thus, subject to my punishment.” (coincidentally always involves a fine (e.g. yes, more money is fine! or fine, whatever, just keep giving me money)).
But of course in the end.. it just is ,what it just is.. wether or not you understand it, you must accept it for what it is. That’s the american way.. “Positions of power” and the natural need to abuse and keep it, at any cost.
The irony … america’s is dubbed “the land of the free” because we fought to reject the British monarchy and aristocracy only to accept it when exchanged for our own.
I lost you at “irregardless.”
The government “made up” the laws. In fact, this is all made up. Imaginary, kind of like the tooth fairy or Santa Claus.
There’s no such thing as laws, rights, money, or even “freedom” in the sense many people think of it. We simply *agreed* to be a part of society, *agreed* to these standards to reap the benefits of its’ cooperative nature, and the security of protection by law that is agreed upon. If you want to benefit from having this collective safety net outside of natural law, then you must contribute to get it. Taxes are part of that contribution.
Otherwise we can go back to natural law. Anarchy has a tendency to play out rather badly though. And before you cry “strawman” I’m not saying you said this, but arguing that taxes that account for your benefit of living in a society is, in some or any form “dictatorial” or “tyrannical” would make the funding for the things that make a society basically impossible.
I am firmly middle class, and I am fine with a flat tax (and indeed support it for its simplicity–why does the government care if I pay for my dental expenses through my employer or more directly?) as long as Medicare and Social Security with holdings are classified as “income tax,” since that is what they are. Social Security, in my opinion is the scourge of the middle class–imagine how much more wealth the middle class would have if all of those withholdings had gone into tax-free 401ks invested in mutual funds. Instead, I am forced to put 6.2% of my post-tax income in something that, if I am very lucky (I am 32) will pay me back what I put in plus inflation–and then I’ll get to pay taxes on it, again. (And the self-employed get to do this twice, although they at least get a tax break on half of the payment).
Indeed, you are ignorant.
If my tax rate goes up while a rich person’s rate goes down, then I’m getting screwed. If I spend more of my income on necessities and get taxed, then I am paying more than my fair share.
If you let the rich make all the rules, then you’ll end up with a flat tax…but we aren’t going to do that.
Flat taxes make sense when everything is fair, but as you’ve learned growing up, life is not fair. Some are born much smarter, more athlethic, better looking, or wealthier than you. These basic factors that you cannot control will affect your pay. People think that the amount they work correlates to the income they earn and that’s juss not true. Ask an average person in china vs a bsd in america. Both could be overworked at 100 hrs per week, but one makes 20k vs billions annually. Look up the annual salaries of top hedge fund managers and you will see what I mean. It really comes down to this, when income inequality is too wide then there should be higher progressive taxes to help stem it.
I hear people constantly complain about the hours they work, how hard their work is, and the amount of taxes they pay. blah blah blah. Congrats, you are skilled, your work is in demand, do work. if you dont like to pay taxes, feel free to do something paid less. (it goes without saying that this happens a lot, but please no complaining).
Lastly, Consider Lebron James who makes $20m/year for bball, does this guy really need a flat 15% tax? If media/TV was never invented he wouldnt be worth that. progressive taxes are better than flat taxes because people who are richer derive/derived it from society so it only makes sense that they give a higher proportion of it back. this is paraphrasing Warren Buffett, the biggest bsd of them all.
So basically you agree in the curbing of hard work paying off? You think that it is perfectly fine that a doctor who works their butt off for 8-10 years in school making pennies through residency and taking out 100’s of thousands of dollars in loans should still have to pay an disproportionate amount of their income in taxes as opposed to the high school drop out who is changing tires at Jiffy Lube? It’s this kind of entitlement/lazy thinking that is killing the American way of life. Most “rich” people give back out of the goodness of their hearts. It’s called charity and it’s their choice. What the government is doing through taxing is their own form of wealth distribution which has absolutely no place in American society. Also, “….does this guy really need a flat 15% tax?” that statement right there sums up your way of thinking. IT ISN’T A MATTER OF NEED! The whole argument is about what is fair. I believe that the same taxation standards applied across the board are fair. As Lebron making 20MM per year would pay 3MM in taxes into the pool vs. someone making 20k per year would pay 3000. Now here comes the sob story about someone at 20k can’t pay for groceries…I direct you to the FAIRTAX. Look it up and get over your Robin Hood mentalities (rob the rich to feed the poor) because remember, Lebron had no father figure growing up and his mother was not rich by any means imaginable.
not my point at all. people should work hard and it should be incentivized, but a progressive tax is still sufficent to incentivize it. i am not talking communist 100% of your wealth. but a bump from 45% to 55% isnt that big a deal. taxes in the US in the 1930s for dividend income was like ~80%. so dont get all “high taxes have no place in America”, cuz learn ur history.
If we are talking about fairness, i do not care whether lebron had a tough life or an easy life. the point is he is making a ton of money is because people are fascinated putting a ball in a hoop (i say this in all sarcasm, i love bball, i play it erryday)and would pay to have television sets that someone else invesnted, that is manufactuered somewhere else, and distributed all across the world, to watch him on their down time. In essence lebron james is rich because he benefits from society. So its only right that he give a larger share back to society, arguably at a higher tax rate. since his take home is still thousands of multiples higher than the average joe even if we institute a 50% or 60% tax rate on him.
besides he isnt really who i am complaining about. most of what he makes is ordinary and not passive income. the latter is taxed more lightly. and the people who make passive income do not have to pay taxes annually.
btw i have no robin hood complexity. i’ve juss seen both sides of the fence and prolly more informed than u. i’ve worked as a fast food guy to a stock analyst. the level of work i put for both is 100% yet the pay is like a 10x multiple. i was juss as smart then as i am now, with the difference of a top 10 degree to lend me its prestige to charge a higher price for my work. i wouldnt be where i am if i didnt have the govt pay for my degree, so i am definitely biased.
Also respect on you doctors out there. I know from friends that yall grinded hard for your spot and are in a ton of debt. so juss do what it do.
Firstly, please learn how to type and stop using this ridiculous, unreadable slang. Secondly, LeBron making his millions is a perfect example of the beauty of the free market. Society demands to be entertained, just as they demand everything else in life. While you may view what he does as trivial, he is actually providing a very important service. People with skills like LeBron are a treat to watch and are extremely few and far between. As a result, fans spend hard earned money to watch him. While putting a basketball in a hoop isn’t helping to save lives or making some other altruistic contribution, he is creating a market that opens up jobs and gives people a reason to spend. LeBron possesses a skill set that is probably unique to himself. There are a few hundred basketball players in the NBA and yet there are none who can compare with him. Consequently, his very in-demand skill set is rewarded handsomely with big contracts and endorsements. He is getting paid what he is worth regardless of whether you or anyone else agrees. Lastly, whatever university you earned your degree from needs to have its accreditation removed if your post is a sincere attempt at intelligible communication.
1st of imo. apologies for not meeting your eloquent standards. for a guy who likes sports you sure sound a little uppity. if you can understand it, then it does its job. unsophisticated maybe? blame it on my youth and upbringing. my boss does. 2nd of unintelligent? impossible. i scored in the top 10% of SAT scores. <-(with that stat, very likely i am smarter than you too, stats dont lie) 3rd, you are right, i think sports is a waste of time. people need to spend more on models and bottles.
You’re opinion is of no consequence to what people spend their money on. The point is that he is getting paid for his unique skill. Why should we take away more from him because of that?
In 2013 my Gross income of 25,641. My income tax was 1859. So a flat 15% would be $3846. I have a 5% State income tax. I take home $1400 a month. My rent is $700 a month. I have $700 left over for food, phone, Internet and church contributions and groceries. Try living on that. I have six years of college. I cannot afford a car. I cannot afford cable TV. I cannot afford to go out and eat. I once made fairly good money but my skills are not obsolete and at the age of 60 I do not wish to take out a loan and return to school if were to be taxed $3856 that would leave me with 1235 a month and with my $700 a month rent I’d have $500 a month.
And that’s why you should be a proponent of the fair tax. You would get a monthly check to ensure that you had the funds necessary to buy the things you need. http://www.fairtax.org
I encourage everyone to read up on it.
I do not want a monthly check from the government. Depending on the government would reduce my freedom. I would rather keep the money I have to pay for my support.
why would she be a proponent of fair tax when we are in progressive tax system? is this sum kind of jedi mind trick?
Because she doesn’t consume much as it is so her rate would be very low relative to the 15% she is paying now.
Keep in mind Shasta, it’s not a freebie or entitlement, it’s funded by the same taxes we pay currently, but in a different and more fair way. It is spread evenly and paid into based on your consumption.
Can’t edit my comment but I see nothing wrong with being part of the 47% it’s my goal not to pay any taxes on my income, and hell I’m not even American
Opps was supposed to be in reply to my own comment which was on reply to another
Sorry
Coming from the UK we are completely fed up of being one of the highest taxed. I know things are very similar in the US.
15% of a low earner’s wage hits the earner harder than a high earner. For example, a low earner may pay 50% of their income just to keep a roof over their head. A high earner will only use around 20-30%.
Higher earners are much more likely to know how to work around taxes and have more money to invest and make their money passively grow, whilst low earners live hand to mouth.
I make 25,000 a year. My take home is $1400 a month. Half of that goes to pay my rent leaving me $700 a month to live on. If we have a flat tax rate it would double my taxes and put me out in the streets. I guess that’s fair.
“Now, for those of you arguing, well the poor man feels the 23% more than the rich man does, maybe you’re right. The 23% goes to fund what he calls the prebate, which is a monthly stipend depending on household size. So, the family that is living at the poverty level and spending at that rate will only be taxed at 23% when they purchase goods, but they will also receive the equivalent back from their prebate.”
This works only in theory until the same right wing loons advocating for this want to start cutting the prebate allowance.
I am for a flat tax— on wealth not income.
“Military spending is $687 BILLION, there are 310 million people in the US. We ALL receive equal benefits of military protection in this country. That means the cost of military protection for every man woman and child is $2200.”
Equal Benefits of military protection? Are you kidding me? Besides life which we can say is all equal, the militatry PROTECTS WEALTH!!!!! Only wealth has a real hard value. Those who benefit the MOST from military protection of their wealth should pay the most for it. Furthermore who benefits the MOST from profits generated by the defense industry? OH that would be the wealthy!!!!
I make way less than $50,000. A flat Tax rate would triple my taxes. I pay half my take home for rent. iI’d be in real trouble. I’d be paying more than 500 a month.
@Shasta
Look into the Fair Tax. Neal Boortz wrote a book about it. Talk to your Congressmen/women.
American has no income taxes for over 130 years until the The fed( The Federal reserve Bank) came to be and 1913. There should not be any income taxes,flat tax or call fair tax. Never lay the fountaination of this. Flat tax is also call a ad value tax. Like in Europe.The only people that should pay taxes are : Antiamericans,some of Democrates,some of establishment gop, U.N supporters,communist, Muslims,illegals aliens, supporters of this lot.liberals, Facebook,G.E. bill Gates, Microsoft,Bankers,IMF, unions, and presidents. Like Obama,two bushes,ford,carter,Cliton two terms,Get rid of bush forever tax. As long as you are a American you will pay heavy taxes and have your bank account taken away under 348 g frozen your bank account.Before 1913, U.S. money has real value and people can be rich.It started to get more red tape and government control.If you allow flat tax we will be back to the start. It is time to change it for good and make the evil one pay. and rest not. and there is a American exit tax if you give up your citizenship by senator shoemer. see.www.commieblaster.com
Wow…Really enjoyed reading some of the arguments here. Lots of valid points. I was really glad to see Neal Boortz’s idea (The Fair Tax) come up. The concept is pretty simple. Everything you buy is taxed at 23%…Straight up. This means that BMW the bazzillionaire just bought…taxed at 23%. The loaf of bread the poor man bought, 23%. Collected upfront at the merchant. Oh, and that hamburger that the illegal immigrant bought at McD’s…You guessed it, 23%. Now, for those of you arguing, well the poor man feels the 23% more than the rich man does, maybe you’re right. The 23% goes to fund what he calls the prebate, which is a monthly stipend depending on household size. So, the family that is living at the poverty level and spending at that rate will only be taxed at 23% when they purchase goods, but they will also receive the equivalent back from their prebate.
So here’s some math (everyone likes to use Joe/John/Carl etc. so I’ll stick with them, maybe add a couple at the end):
Joe is a married father of two: A family of four gets $7,135 from their prebate per year or $595 to make sure that if they are at the poverty level they pay $0 in taxes. Joe makes $75k per year and spends 56k. His effective tax rate is 7.66% (56k*.23=12880; 12880-7135=5745; 5745/75000=.0766)
John is a married father of two as well: His family gets the same 7135 prebate. John makes 150k per year and spends 100k. His effective tax rate is 10.6%. Same math just different figures. 100k*.23=23000; 23000-7135=15865; 15865/150000=.1058)
Now there’s Carl: He and his husband Joe live together and have adopted a child: They have a combined income of 125k and their expenses are 110k. Their prebate is lower because they have 3 people in their home so it is equal to 6210 per year. Their effective tax rate is 15.3%…Again same math.
One more example (this time the extreme’s):
You have Sarah who is a single college drop out working at a fast food establishment. She just had a baby out of wedlock. Her annual prebate is 3567/year. She make 11k/year and spends every last dime to get by. Her effective tax rate is… -9.4%. She gets more than she puts in…
Now you have Sam who is a doctor pulling in 1MM/year. He likes nice things and so he spends 750k per year on stuff…He is single and has no children. He gets 2643/year for his prebate. His effective tax rate is 16.99%.
IRS is completely eliminated. Tax code is gone. People finding loopholes…No longer an issue.
Seems like the actual FAIR way to do it (I am not opposed to a flat tax either, but there are to many complainers).
Great read Sam. I’ll be back to read more of your site.
Welcome to my site Brendan and thanks for reinvigorating an old discussion on the equality of taxes in America!
You’ll find many more posts in Ye archives/categories below and to the right. Enjoy!
The FairTax soaks the poor by taxing their rent, while home purchasers do not pay tax.
You’re going to say that the ‘prebate’ makes it fair for all, but the homeowner gets the same prebate as the renter, so the homeowner gets to enjoy more consumption than the renter while the renter pays more tax than the homeowner. When you put it that way, it’s hard to say with a straight face that it is fair.
e.g. renter A has housing consumption 75% of poverty level, plus non housing consumption 75% of poverty level, total consumption 150% of federal poverty level, after prebate pays net FairTax on spending of 50% of poverty level. Homeowner B has housing consumption (untaxed) 100% of poverty level, plus non housing consumption 100% of poverty level, total consumption 200% of poverty level, after prebate homeowner pays ZERO FairTax on consumption at 200% of poverty level.
Homeowner B enjoyed greater consumption than renter A, while paying less tax than A. Heck, homeowner B paid no tax at all. How is that fair?
Terry,
You’re failing to factor in the incentives currently included in owning a home. Those are lost with the Fairtax. That being said, home mortgage rates would fall dramatically (estimated around 25%) under the Fairtax plan. This would be shared equally across all home ownership, including rentals. That savings would then be passed on to the renter.
Hardly anyone talks about the downside of home taxation under this plan because it is basically a non issue when you factor in all the other benefits shared by all.
EVERYONE needs to carry their own weight. EVERYONE pays 20% of their income. That still is NOT fair. Why should someone who has no ambition that makes $10K a year (really wow lol OK) only have to pay $2000 but a VERY hardworking man that makes $200K have to $40,000? They both should pay the EXACT same. Let’s put that at $10,000 for each. What? You don’t think that’s fair? Why should someone that works harder have to pay more for working harder?
OK, so that’s not going to happen. So EVERYONE needs to pay 20%. If that’s not going to leave enough money for you to live then you will need to work harder. End of discussion.
How about everybody pays 20% of their income who earn above a livable wage of $30,000 a year for singles, and $50,000 a year for couples? I can dig that. IF you earn less, you get a regressive tax, and no income tax if you are in the poverty level.
FLAT TAX – 10%, OK. I can live with that. Not one cent more.
I couldn’t agree more with this article.
God’s tax code is one sentence, and I’m paraphrasing, “Give one tenth of every increase”. The God of the Jews, and Christians imposes a flat tax. Sorry I’m not familiar with other religious teachings and what they may or may not have to say on the subject.
The only way to justify a “progressive” tax system is start with the premise that those of lower income are disadvantaged compared to the wealthy. After you get over that hurdle, you can pretty much justify any level of tax. It might be necessary given our crushing debt level, but it’s not fair.
The flat tax is the only fair tax because it doesn’t discriminate. Any tax that discriminates is unfair. The only way to get around this basic truth is to start twisting the meaning of “fair” until “fair” applies to outcomes and not how we treat people. For example, suppose I make 100K and pay 20% tax or 20K. Joe makes 200K and pays 20% or 40K tax. The treatment of both Joe and myself is fair and equal. Now suppose “fair” means that Joe’s outcome needs to equal my outcome (80K after tax income). This twisted and wrong definition of fair requires Joe to pay a 60% tax rate (120K in taxes for 80K after tax income).
But the socialist says, life isn’t fair and if you have more you should not be whining. I say, then stop telling me to “pay my fair share”. Stop telling me that higher tax brackets are fair, because they aren’t. And disagreeing with an unfair system is not whining. It is a legitimate complaint.
One-tenth. I think we’re talking about 20% or more.
Hey y’all, let’s start by whittling down the 71,000 pages of tax code. Like in that cold sixer of PBR, there’s a sandwich in every can or every lobbyist in that book, W.T.F. (What the French).
And B.T.W. Middle Class (Sheople), did you check out your first paycheck of 2013? Um yes, you got that decent raise back in 2012, so now you earn more money however it appears you take home less. Hmmm, wait a minute; Obama said he “would not under any circumstances raise taxes on the Middle Class”. Well, he did! Sorry, he lied :( Perhaps the next four years of suffering will serve you right for not researching the one you voted for.
M
Saying half of people dont pay taxes is just a misleading statement.
Theres something called the payroll tax and even if you make very little money you still have to pay it. It equates to roughly 7 percent of low paid workers pay checks. If you make 40k you pay 7% if you make 400k you pay less than 2 percent and a million less than 1.
People say you get out what you put in but Id argue taking care of the elderly is just as much a public good as roads or bridges. I dont think you can argue having that program doesnt benefit society as a whole even with whatever fraud and abuse is in the system.
Then there are other taxes that add up. A sales tax on a person spending all their money each month will take a greater percentage of money than somebody who puts money into savings. Same with a gas tax, tolls, fees etc. It can be expensive just to register your car and get a license inspection etc a hundred bucks for somebody making 400k is nothing but if you make 20k 100 bucks is half a percent of your income.
I had to pay personal property tax this year of a couple hundred bucks for a 10k dollar car. If I only made 20k a year thats another 1 percent of my income. When you start to look at how the govt nickel and dimes you its pretty clear that the bottom 50 percent arent paying no tax at all. Just with the things I mentioned a low income worker is easily above 10 percent in taxes. I think a flat tax has to account for this descrepancy otherwise you end up with lower class individuals paying a higher percentage of their income to taxes as higher class people. Your whole argument is saying rates need to be the same for it to be fair. If that was actually how it worked and there was one flat tax structure for everything including capital gains I could get on board with it.
The super wealthy complain about masive taxes but in reality youre paying the highes percentage of your income to taxes around 100k before you can get past the payroll tax and where youre in all likelyhood still needing to spend a good portion of your income to make the hidden taxes add up to a decent percentage of your income and not making enough money to shelter your income. You pay 28% in federal tax depending on where you live maybe 6% in state tax at least 7% in payroll tax were already up to 41% of your income before you get to local, and property taxes plus ticky tac things like sales tax. When all added up you’re looking at half of your money going to taxes.
If youre wealthy you likely make money through a business or capital gains where you can squeeze out lower rates than normal workers or deduct more on your returns to acheive a lower rate. Plus as stated above the smaller taxes you don’t think about dont add up to as big a percentage of your income. You can prob afford to own property and claim residence in a tax free state and pay no state tax on your income. Your payroll tax rate is lower. Suddenly your 35% tax bracket is actually lower than somebody not making nearly as much income as you. A flat tax needs to be a comprehensive tax otherwise its extremely unfair to lower income people.
everybody is looking at this all wrong. why don’t we stop worrying about taxes, and start thinking about how the government could earn money? it seems to me that we do all the work but we have to pay the government for it. the government is acting like a spoiled teenager and really needs to get a job of its own.
it could rake leaves after school, or maybe see if the guy at hardware store is still looking for a cashier. the government bailed out the banks with money that didn’t really belong to it. maybe it could go work at the bank and try to earn some of it back.
T-Bone – I appreciate your perspective on this. I am wondering if you can elaborate on this statement: “I can promise you that the rich person who is paying X% is sacrificing just as much as the person that is paying X% in taxes.” How can you promise this?
I’m not saying I have the answer here at all, but lately I have been really troubled by the whole idea that anyone else can dictate what constitutes a “sacrifice” to another individual and what does not. And I think this goes both ways- for the “poor” and for the “rich.” I cannot dictate that it’s not *really* a sacrifice for a person making $26,000 a year to pay $3,900 in taxes, nor can I say it *is* a huge sacrifice for someone making $1 million to pay $150,000. It’s really not my place to judge what is a sacrifice for another person and what is not.
Ultimately, I just think it’s too subjective. For example, I’d say that it would be a sacrifice for me and my husband to not go out to eat at least once a month, but it’s not even a thought in our minds to have a maid regularly clean our home. But who am I to say that it shouldn’t be considered a sacrifice for a working class family to forgo eating out once a month if they feel this is an important part of their family time? And who am I to say that it should be considered a sacrifice for a wealthy business man with a very busy schedule to have his house cleaned once a week so that he does not have to deal with that and can enjoy his free time?
Like I said, I don’t have answers- these are questions I am honestly trying to grapple with out right now. I welcome any thoughts!
Lisa, you’re right, “sacrifice” is too subjective.
But what about this curiosity: Allowing people to vote on raising other people’s taxes without having to pay more taxes themselves? This is what I have trouble with, especially if the someone else already donate the most to charity and pay the most share as a percent of their income share already.
We need to fight for more equality, not less!
This is an old thread, but after reading through there seems to be a constant thought from those opposed to a flat tax.
It’s not fair to tax the extremely poor because they are poor and need help; fair enough. The next constant seems to be that the “rich” should be taxed more so they can feel the pain of the poor; in effect we are penalizing them for being rich. The term equal sacrifice came up during the “floor=poverty line” comments. I can relate that someone who is just getting by feels they are sacrificing because they are poor. When did the thought of paying taxes become based on levels of sacrifice? Do we pay taxes to fund public use facilities, roads, defense, government overhead, etc… or are taxes now just a way of trying to penalize the rich and attempt to level the playing field!?
I can promise you that the rich person who is paying X% is sacrificing just as much as the person that is paying X% in taxes. How can someone who isn’t paying any taxes (assuming we don’t tax the poor) or the guy paying $1,000 a year sacrificing more than the rich (making 10 times more) who is putting in $100,000? That thinking is irrational. Why aren’t the poor bettering themselves to make more money instead of rallying to punish the ones that are rich?
Take taxes out of the sacrifice argument. I work hard, save money and live below my means. I don’t live in the now, I live looking into the future and try to make good decisions. I plan my life and my time to have kids (an expense). Is that not sacrifice? I sacrifice daily by not buying what I want to save for my future needs. How many poor can say the same? Do most spend money on things they don’t need just want? Do they have a nice car, do they eat out, do they have a flat screen TV, do they drink, smoke? Where is their sacrifice? Are their single parents who’s spouse isn’t around anymore and they have kids sacrificing – sure they are. But are the ones that have kids just to receive more government money sacrificing or just milking the system?
I just haven’t heard a good argument against leveling the tax playing field with a flat tax. The upper rich would pay more (no or less loopholes), putting more into the system. I don’t think the rich are opposed to a fair tax, they just don’t want to be 200% more than the average Joe and why should they?
For the record I am not rich by any of the models, I am just a working person that believe what I work for I should keep and not give to those that didn’t earn it…
How do the poor better themselves? I graduated with $600 to my name and no debt. I worked while I was in college because I wanted to graduate debt free. Then I came out of college and had no skills. I did grunt work doing things like filing and other entry level clerical duties. I went to school at night to study word processing and medical terminology and computer technology so I could increase my earning ability. That was good for awhile but soon those skills were obsolete. I have had to learn to do things for myself rather than pay someone else to do it. I also am single so I don’t benefit on two fers or family rates. My take home is $1500 a month out of $2170 and I pay $715 for space rent for my mobile home. I also have to pay taxes on my mobile home and I have to pay for maintenance of it and I have to hire someone to mow my lawn. I do the other yard maintenance- weeding and general cleaning. That leaves me $785 to live on and now you want to take from that. I realize there are those who get help from the government and when their child is grown and they are able to return to work they just have another baby and start over. There may be 47% who don’t pay taxes at all but I am not one of them. I do not like to depend on the government for my livelihood because I fear if I do I lose freedom. $670 is taken out of my paycheck every month and you don’t think that is enough.
I realize that this is not a new thread, but I just read it and wanted to comment. I do agree that a flat tax, with an exception for people at the poverty line, is fair. I also like the idea of a flat consumption tax (Sales tax). Several states have a little higher sales tax, but no state income tax which could be modeled at the Federal level. It is not fair that 97% of the income tax is paid by 50% of the population.
The problem with this whole argument is that many seem to blend fair taxation with fair standard of living. This is the land of opportunity and anyone can improve their situation with hard work, but that does not mean we will all live equally. Everyone is delt a different hand in life based on family success. The goal should be that we improve our standard of living, which enables our children to live better than we did. If this continues over time, generations will benefit from their families hard work in the past.
The socialist mindset is infecting our society by making people think that they can be taken care of by the government and don’t have to work hard. The issue with this is that the government has no money of its own. It can only take it from its citizens and redistribute it to others. People have no problem taking handouts from the government because it is a nameless, faceless entity, and there is no incentive to change anything. Imagine, though, if you had to collect it from the individual who was supporting you. You actually had to walk up to their door, face to face, and ask for it. Do you think that might give you more incentive to improve your situation? It would definitely entice the person giving the money to help the poor improve so they wouldn’t need it any more. I think it is our duty as citizens to help those in need, but I don’t think it is the governments role to force me to do it. We need to separate this conversation into two parts. One is helping those in real need (Charity), the other is people wanting to benefit from the hard work of others (Taxes). Taxes should be viewed as something we all contribute to in order to provide services to all of us, not taking from the successful to support the unsuccessful.
Our high standard of living in this country has spoiled us (Me included). Most of us have never known hunger or homelessness. Even many of the poor in the country have cell phones, televisions, and automobiles and we tell ourselves that these are necessities, not luxuries. Hard work and sacrifice made this country great, not socialism. We need to change our mindset before we can ever find a solution to such a complex problem. History has shown that more government is not the solution. The people of this great country are the solution.
Thanks for your thoughts. The government is indeed a wealth distributor b/c income inequality has gone too far.
$250,000 is the maximum income for max happiness and government avoidance. I suggest everyone, rich or poor, strive for that income level.
S
It’s fair that 50% if the population pay 97% if the income tax if they make 97% of the income.
@James Lemire
One good thing about the FairTax is that illegal aliens, crooks, prostitutes, and international travelers would greatly give us a boost for social security and medicare.
@Brian
I should’ve mentioned that the reason for the above is because these people would not be able to receive rebates.
I am currently doing a report on flat tax, or the fair tax, and the reasons why they are good and as well as the reasons why they are bad. I have read the comments and most of them come to the conclusion that a flat tax would be fair and I believe so. Macarose did state that people would cheat, And I also believe that is true. But, cheating, and keeping money out of the government by buying from local farmers isn’t a bad thing. I say keep the government out of it as much as possible! Im for a small government, Not a huge one that controls everything. If you can get things without going through the government more power to you. Just a couple thoughts.
If anyone would like to comment and gives me the pros and cons of a flat tax that would greatly beneficial.
Send us the report when you’re done. You don’t want anybody writing the report for you!
Taking more money from those who can barely get buy is fair?
“Should I buy the domain name: “Financial Socialist Samurai of America?’ hahahahahahaha
That one made me laugh out loud. A LOT. Loved the post!!
I completely agree that a flat tax is the only fair tax. Any other system steals from one person in order to pay the share of another person! However, I don’t agree that it should be an income tax. I strongly believe a sales tax is far better. Even people who don’t report their income, or who gave illegal income, spend their money. By taxing spending, you capture the tax from those people, too. Also, I do not agree that people of any income should be allowed not to pay. ALL dollars spent, regardless of who spends them, should be taxed exactly the same. Only then will we see some restraint put on a government spending itself into destruction!
If rich people were taxed 35% of all they make that wouldn’t be fair. it doesn’t work that way. We are taxed 10% on the first $8000 we made and then 15% on the next amount of money and then there’s a higher amount. So if I make 15,000 a year and you make 250,000 a year I paid 10% on the first 8,000 and 15% on the next amount. You do to.
You don’t see the problem with that? If you aren’t ambitious and only care about making enough money to for pay rent, utilities and a bag of pot each paycheck, you’re obviously not going to care how people who make more than you are taxed. It is fundamentally punishing the desire to better oneself. It’s also counterintuitive because the people that bring in the lowest amount of tax revenue are the very same demographic that ‘need’ all the subsidies provided by people that actually pay taxes! Plus, even though we all pay the same taxes throughout every bracket, if you don’t exceed a certain level of total income, you are refunded every penny of what you pay (oftentimes more). Our tax code is one of the most pervasively fraudulent systems ever devised. And yet, socialist politicians are able to stay in a position of power by dogmatically appealing to the emotions of uneducated voters who will continue to receive more ‘assistance’ by electing those who promise them more.
I don’t know quite what you mean. I guess all of you on here are rich. I do not collect any subsidies from the government or church or anything like that. I work 40+ hours a week. I have a BA and about two years of training beyond that. About 30 or 40 percent is gone before I even receive my paycheck. If there’s a flat tax I might have 70 or 80 percent taken out of my paycheck before I see it. II do know some people who are very poor. I have a friend who worked full time with benefits and then her hours were cut as well as her benefits. I have known several people who are on disability. I do not want to be subsidized by the government. I own my home–paid for. I do not receive food stamps. I do not live in low income housing. I do my best to live below my means. I also do a lot of things by myself instead of paying someone else to do them. I am a single person living alone and I have to pay single supplement if I want to travel. The two for one deals don’t benefit me. I pay 15% to the government. I do not want that to increase to 20% or more. I am not concerned with what you pay as long as what I pay isn’t increased. I do not want my income tax tripled. I take only one deduction for myself. That’s it. I believe I pay a fair income tax.
If the only tax that existed was a Sales Tax then it would act as a strong disincentive to unnecessary/luxury consumption and would promote frugality and high rates of saving. Many might think this would be a good side-effect, helping to save the planet, and promoting earlier financial freedom.
However, the knock-on effect would be a loss of jobs due to lower consumption, resulting in higher unemployment, and then even further reductions in spending by the unemployed. This vicious downward spiral would only reach equilibrium if the reduced domestic consumption of unnecessary/luxury goods was replaced with higher rates of exporting. Similarly, as people discover they can survive adequately on lower income, there would be less demand for increases in salaries. As more people save their unspent earnings, there will be an increased demand for investments and securities and their price will decrease, unless people choose to invest their savings offshore.
Low income families will spend the large majority of their income on necessities. Richer families will have room to tighten the belt on their costs, increase their savings rate and therefore have paid a lower proportion of their income in taxes compared to the poorer family. Of course, this effect could be offset by government grants to help low-income families with the necessary costs of life and also with a zero-rate of sales tax for certain necessary goods and services.
Oops… I meant: “…there will be an increased demand for investments and securities and their price will increase…”
Every proposal I’ve seen for a national sales tax soaks the poor by taxing their rent while home purchasers are exempt. How is that fair?
Hi Sam,
I’m catching up on the last few months of posts here :)
This topic was discussed among some friends earlier this year, and one example that came up: our military and defense. Working premise: without the military, foreign hordes will come in and loot the U.S. and all this talk of who pays what and how much in taxes, really it’s concerned with property and making sure we can all hold onto as much as we can (simply human nature) So…
Could taxes be simplified? paid similar to how wealth management firms might charge their clients: as a flat % of total assets being managed (or “protected”). My quick hypothesis is that this won’t disincentivize productivity, since a) people are inherently ambitious (or greedy, if you want to be a cynic :P) and b) you’ll have to rake in money to pay the following year’s tax, unless you wish to see your net worth drop.
Hi Saad, good to hear from you. I do believe in the inherent greed and ambition of people. However, after a certain level of taxation… I say 50%, one no longer wishes to work as hard anymore since they are no longer getting the majority of their income.
I absolutely agree that a progressive tax is a right and proper approach to funding the activities that the government elects to engage in. If the framers of the constitution envisioned an income tax I’m sure it would be progressive, one more effort in their quest to avoid the development of an aristocracy this side of the pond. The devil is in the details and The sheer volume of our tax code provides too many details. I hope the effort in Washington can address this but I’m convinced it is a chore that will consume a LOT of time and co-operation…
Ask Adam Smith, who proposed progressive taxation.
It is simple math, though, randomly claiming people are socialist doesn’t benefit your argument.
Silly argument! Point #1 You can’t really tax the rich, their accountants graduated at the top of the class and work 16 hours a day for big bonuses. IRS hires from the bottom of the class and pays little and they work 8 hours a day max. Many years GE and Ford paid less in taxes than I did (I’m below the poverty line) #2 The “golden goose” hunt is doomed to fail, good friends who are very rich have had it and are building their “escape house” in Costa rica and they are not alone. #3 There is absolutely nothing wrong with high taxes…. if you get what you pay for. In Denmark tax rates can exceed 50%, but health care is free, transportation (by train) is ubiquitous and cheap, education is subsidized, so living is affordable on after tax dollars. (may be old information but the concept is still valid)
John, Now you not only want the richs money you want more of it to pay for your healthcare, your transportation, and your education. That is the socialist governments in Europe. I do not live in Europe nor want to live in Europe. If you feel compelled to give away more of your money to subsidize everyone else I would ask that you consider moving instead changing outr Constitution in this country. As you can see in the last few days Europe is imploding. They are now figuring out that they cannot give everyone everything for as long as they want it. There is no money left at the top there to tax so its the bottom of these countries that is getting destroyed with taxes now. Be careful what you ask for because soon that hand you have extended to ask for my money will one day have to work 2 or 3 jobs to sustain the type of government you desire.
I do not want a Socialist government. People in this country have to learn to fend for themselves. We are losing our backbone.
Foosfan
Let’s allow the poor to have enough of their money so they can pay for the necessities of life instead of raising their taxes so the rich can buy more cars and take more vacations.
Shasta, the poor do no pay the way for the rich, it’s quite the opposite. The greatest disadvantage the poor can have is the handout mentality where they expect to be given something instead of working for it. Paying a share of their earnings in taxes would go a long way towards getting rid of their handout mentality.
You sound like someone who really hasn’t thought this stuff out for yourself, so I’ll give you something to think about. The government found a way to tax the poor quite heavily, and the taxes are so well crafted and promoted that the poor pay these taxes more than any other income group. Do you know the taxes I’m speaking of?
Cigarette taxes and the Lottery!
Foosfan Europe is not imploding.Actually parts of Europe are doing better than we are. ex. ( Germany). You are Subsiding the rich, but you don’t know it. Break the Bubble you live in. European countries have a strong middle class, better wages, more time off, shorter work weak, better healthcare, and they live longer. All people in Europe pay taxes, the difference unlike the US is that the rich pay their fair share. They don’t pay 1 trillion dollars for BS wars, that is how they can afford it. You believe what republicans say that the poor are hurtin are economy when actually its the rich.
The difference there is that the “rich” are ceasing to exist. Why would you stay in a country that aggressively taxes your success in order to finance people that have not worked as hard as you?
The parasite class is running out of people to leech off of.
I only wish my tax dollars were being spent that way! Instead, we are financing TRILLIONS for a foreign religious war, just to cram “democracy” down another culture’s throat. Nevermind if they actually want to be democratic. (Democracy can only be By The People, For The People) We need to get real about our war coffers (“defense budget”) I don’t mind spending money on medicare, roads, education- whatever since the money benefits US and stays in the US instead of paving a road through a war zone. Laissez Faire!
Advocating for the destruction of the state, one tax deduction at a time.
It’s too bad that I don’t have the time to read everyone’s comments, but there seems to be many advocates for the poor.
Maybe less money will be a greater incentive to do more, or make people really think about their decisions to have children.
This is going to get me a lot of bad publicity. Deductions should be allowed for two children. I don’t think it is fair that I, being childless has to subsidized a family with seven children.
You Shasta, talk out of both sides of your mouth. In one comment you cry foul at the current tax system and subsidizing multiple children, yet you argue that because you don’t make as much and have less for food that the rich man should have subsidize your poorer lifestyle. It’s no one’s fault but your own so stop arguing it’s fair for someone wealthier than you to pay a higher portion of taxes. That’s idiotic.
Where have I talked about subsidizing extra children? People can have as many children as they want but I believe it should be limited to two children. I guess I confused people when I wrote about work that a homemaker does and doesn’t get paid for because he or she doesn’t want to pay to have it done. Earlier some posters were talking about working 60 hours a week FOR PAY. I could pay someone to make my bread and cook my meals or watch my children(if I had any) while I go to work to earn money that I am taxed on or I could do those things myself and not get paid for them but I save money by because I am not paying anyone to do those this. If I choose to stay home and take care of children do I expect to receive pay for it? Do I expect the government to give me money to do this? Of course not? If I cook my meals do I expect to receive pay for it? No. I already received my pay have by not having to pay someone else to do it. These are two different points I am making and I guess I confused everyone. Sorry. First, just because we don’t receive a paycheck that doesn’t mean it’s not work. Second I believe that dependents should be limited to husband and wife and two children.
On the whole, I agree with you. Some version of the flat tax is the way to go. As you pointed out, taxing people who are below the poverty level are barely supporting themselves so there’s no point taxing them. So, I propose one correction to make it more equitable to everyone. Flat tax with a standard deduction that actually represents roughly what it costs just to survive in this country. Let’s say $20k for arguments sake and I’ll stick with your 15% tax rate though I think it would have to be a bit higher than that.
So:
Person A makes $20k
20k-20k=0x15%=0 taxes
Person B makes $50k
50k-20k=30kx15%=$4,500 taxes
Person C makes $100k
100k-20k=80kx15%=$12,000 taxes
No deductions for anything that has it’s own value (home, school, etc) but leave deductions for charitable contributions (but not political contributions) because America benefits from a healthy non-profit sector. All income (wages, capital gains, inheritance, etc) taxed the same.
It’s simple and equitable. Everyone could do their taxes on a 1040EZ. You could probably cut IRS staff and still double enforcement. The reasonable standard deduction is what turns a flat tax into a fair tax.
Sounds good to me! The tax sector would have a fit though because this system would be way too easy!
HA! No kidding. Unfortunately it would put a lot of tax preparers out of work. I’m sure they’d find something else to do though. The great thing is that you can sell it to conservatives as a flat tax and you can sell it to liberals by pointing out that the poor are paying a far lower effective tax rate. In my previous examples person A pays 0% effective rate, person B has a 9% effective tax rate and person C has a 12% effective tax rate. All while everyone has the same actual rate and gets the same standard deduction. I still think you’d need a rate somewhere in the upper 20 to lower 30% range but that sort of detail can be handled by policy people with far more info at their fingertips and far better math skills than I have.
Even better, you tax a huge amount of money that’s currently being hidden through all sorts of loopholes and tricks. I think you could probably apply this same system to businesses too and just have everyone on the same system but there may be good reasons I’m not aware of that it wouldn’t work for business.
The problem is that in case you didn’t realize it, You just made it a progressive tax system which is what we already have. Not to mention with a true flat tax, it would not produce enough revenue a lone to come close to funding our government or reduce our deficit. So along with that flat tax (which would work for businesses also) they would also impose a value added tax of the same amount. And with that value added tax it would cost those in the lower and middle class even more, further hurting the majority of people because they would not limit it which would put it on neccessities. And if you leave standard deductions for charity, you leave one of the largest loop holes or the upper class and top 1%. But you are right, the tax would have to be much much higher like more in the 30-40% range. I know it sounds good and all. But back to the drawing board fellas.
It’s not a progressive tax system they are proposing. It’s a flat tax with a standard deduction. Meaning everyone has a tax liability 20k less than their income of 15%.
Like Sam, I like your idea, and would have no problem with it, and on first blush most would also agree.
That is until people start thinking about things and others start talking.
Current taxes are, that a couple making $40k using standard deduction of $5950 each or $11,900, and basic exemptions of $3,800 each or $7,600= $19,500 in deduction and write offs.
They currently pay 10% on the first $17,400
and will pay 15% on the remaining $13,100
Again, their highest tax rate is 15% the same as your scenario describes.
The problem is, that the upper income earners are paying tax rates as high as 35%
AND YET others want them to pay MORE.
People want double standards (when it benefits them).
They look at actual or SUPPOSED tax breaks for the rich, and yet refuse to see their own.
Example, most anti-rich will talk about tax deductions the rich have. They claim the rich hide half of their income. And yet refuse to see their own.
A family with 2 kids earning $51K (the average income) have 2 standard deductions of $5,950 each, or $11,900 and then 4 personal exemptions of $3800 each, or $15,200 for a total of $27,100.
Just using the basic deduction and personal exemptions, thats over a 50% write off.
Now lets look at the rich person who makes $1 million. If he uses the same deductions, $27,100, thats 2.7% of his income.
The average person who writes off his home mortgage interest, writes off all his interest. The average person buys a house 3 times his income. If the average family income is $51K, the house is $150k.
Lets look at the rich man who makes $1M.
If he buys a house 3x his income, thats $3M
The problem is there is a limit of interest write offs on home mortgages of $1M. So even though the rich man makes 20x as much, he’s limited to a mortgage write off of less than 7x what the average person makes.
According to IRS stats.
The top 1% make 20% of the AGI, and yet pay 38% of all the federal income tax.
The bottom 50% make 12.26% of the AGI and yet pay 2.89% of all the income tax.
The top 1% pay an average tax rate of23.27%
The bottom 50% pay an average of 2.99%
And yet the poor claim the rich don’t pay enough.
When capital gains tax is discussed, 15% is always mentioned. And the poor or average always claim the rich don’t pay their fair share…though the average or poor NEVER pay a tax higher than 15%
Also, whats never mentioned is that capital gains earned in less than a years time are taxed as income at current income tax rates (as high as 35%)
Here’s the real issue. People want what THEY WANT, no matter the cost to someone else.
The government spends on average of almost $11k per student in public education.
According to IRS stats, the break off point for the top 25% is $67,280 AGI and they pay an average tax rate of 15.68%.
If we multiply $67,280 x 15.68% = $10,549.50
In other words, unless a family is making $67,280 after tax deductions, they aren’t paying enough in taxes to even cover the cost for one of their own childrens education.
But not everybody has a child in public schools.
Military spending is $687 BILLION, there are 310 million people in the US.
We ALL receive equal benefits of military protection in this country.
That means the cost of military protection for every man woman and child is $2200.
Simple numbers show that those in the bottom 50% don’t pay enough to pay their share of military protection.
As a society, we are demanding certain benefits from society. The problem is, the MAJORITY of society is demanding these benefits that they can’t afford for themselves, and so demand, that the minority pay for for being part of that society.
The majority of society claims they pay too much in taxes, or claim they pay their FAIR SHARE. And yet they demand that society should do more.
The problem is, this part of society is using a disproportionate amount of government spending, for their own giving.
If the taxes on the rich are so unfair to the rich, then why/how do the rich keep getting richer while the poor are getting poorer?
For the rich to complain about a system that is totally skewed to their benefit, is ridiculous.
Look at the facts, not the propaganda.
Are you really so obtuse???
Lets look at facts.
First fact-There isn’t a money fairy fluttering around, waiving a magic wand and money suddenly appears.
First comes the work, then comes the money.
The average person works 40 hours a week.
I work 50-60 usually, sometimes 72-84, and a few times more. I’ve worked 5 days at 16 hour days. I’ve worked 24+ hour days.
If I got paid hourly what the average person does, I’d make more because I work more. Thats HOW rich get richer. Or in my case, the average get rich.
Since the work comes first, then the money.
I started working at 12 years old, in the 6th grade, with a paper route. I got up at 5:30 in the morning, 6 days a week to deliver papers. I did this for 4 years.
When I was a sophmore in HS I got a job at a local restaurant, as a busboy. Working that Friday and Saturday nights. I worked that job 2 years.
Then I got another busboy job my senior year of HS, and worked that 3-4 nights a week.
After HS I got a job working in a hotdog joint, while going to a community college 35 miles away. I worked that usually 30-40 hours a week WHILE going to school full time. During the summer or breaks I’d load up on hours, usually 50-60 hours a week. The summer after my freshmen year, I got a job at a log home building company. Between hotdogs and log homes, I was working 70 hours a week.
My parents were divorced after my freshmen year of HS and my dad wasn’t involved in my life. My dad didn’t pay child support, and my mom did the best she could working in factories. Because of that, there was NO money to send me to school, so I PAID my own way to school. That includes tuition, the commute back and forth and books.
My first job outside of restaurants, was working in a factory. I was still going to school, but finishing up for the most part. I still had 3 months left. I worked 6 days a week 10 hour days and went to school 3 nights a week.
My education, though nothing great, allowed me to enter a factory with a skill. A skill that allowed me to make a little more than the average person entering a factory.
Over the next 5 years I worked in a handful of factories and developed my skills further. I also continued to take courses at the community college.
My last factory job, I was 1 or 54 welders. 1 of 3 with Heliarc experience, and the only one who could weld aluminum and stainless.
I also had machine shop experience. Which allowed the company to transfer me into the machine shop when that department got backed up.
Everything was time studied, so every job had a tame frame to be done. In the welding department I was constantly either #1 or #2 for rate. I ALWAYS had the lowest rework.
Because of my knowledge and skills, I had the position of Master Welder. 5 Master Welders, and I was the youngest by 10 years.
I left factory work and got into construction. The pay is MUCH BETTER. I have been doing that for 23 years now.
About 6 years ago, things were slow, where I went back to find a welding job, just to make ends meet. I was hired because of my resume and my interview. NO welding test to see if I could back up my claims.
After 1 week of working there, the owner wanted to buy my contract out from the temp agency. It would have been an instant $2 an hour raise. I turned it down because I knew work in my construction field was going to break soon, which it did.
My point is, I was REAL good at my skills when I left factory work for construction. Over the years my skills have increased IMMENSELY. I am well beyond where I was 23 years ago. And I get paid for it.
Also, my job requirements today are vastly beyond anything I did in factories. The conditions I might have to work in might be 200 ft up in the air, with winds blowing 30-40 mph and temperatures just above zero (without the wind chill). Or I might be working in a steel mill, in the summer, with temps around 120 and having to wear fire retardent clothes over work clothes.
For all that they pay me a decent hourly wage.
When one job gets done I might get transfered to another job, while others get laid off, or I’ll get a call from a former employer or I’ll call a former employer, and get a job because of not just my skills, but my reputation as a worker.
Its all those things that add up to how much you make.
Because of what I did years ago, it trained me to work hard. I learned numerous skills. I get up real early and work real late. I work off hours. While others complain “how hard” their average job is, I just do my MUCH HARDER than average job, without complaining. When others complain about getting up at 5:30 or 6 am, I get up at 3:30 to 4:30, because thats what has to be done to get the job done.
I don’t have time for whinning and complaining or those who do. The VAST MAJORITY of people in this country or where they are at because of the decisions and choices they have made (or lack there of). Lifes hard. Deal with it.
Complaining ain’t dealing with it.
Now here’s some simple math. If you and I both make $10 an hour, but you work the average 40 hours and I work 60 hours. You’ll gross $400 in a week and I’ll gross $700.
If I go and develop skills that will pay me an extra $5 an hour, while you’re still making $400, I’m making $1050.
I then take those advanced skills to a harder and more knowledge andskill required job, where they pay me even more $$$.
While you’re complaining how your job sucks, I’m dealing with mine and getting it done. Because of my work ethic, I’m put in a position over other workers, making me more money.
Outside of work, you take your paycheck and live to the very limits of what it affords. I take mine and live below your lifestyle while I make the same as you. As my income increases, my lifestyle barely changes. (In fact I live in the same house I lived in 25 years ago. I buy and drive used cars)
I’ve educated myself on finance and investing. Making MANY mistakes along the way.
I take a portion of the income I earn and invest it. Planning for the future.
And that is how the rich get richer and the poor poorer. While the poor COMPLAIN about life, there are those of us who don’t want to stay poor, and do something about it. The rich live below their means and then invest the rest. The returns on their investments they reinvest and get more returns. Thats how you become rich and how you become richer.
You advocate a progressive tax system, because though you and I might have at one time made the same hourly, I work more hours, thereby getting more pay. And that pisses you off. If you make $400 and the government taxes you 20%, thats $80. If the government taxes me the same 20% but I make $2000 dollars, thats $400. Same percentage, different amounts.
I have often found that those who think that all work is equal are often the ones who do little on the job. Or little out of the job to improve themselves.
I am now approaching 50, and still I take classes or read to learn new things or improve what I do.
Lifes hard. That don’t bother me, I’ve always worked hard. I know its hard and accept it.
But…
Like John Wayne said: Lifes hard. Its even harder if you’re stupid.
No need making life any harder.
Me thinks that was more a Tea Parry rant against those who are different, besides that my impression is you need to learn to work smarter not harder. My Wife, senior manager Fortune 500 company took a day and a half off as we needed to travel and one of her co-workers asked if she would be reachable (phone/email) No was her answer. She is NEVER reachable on holidays, and rarely on weekends and it hasn’t hindered her career.
Besides that I fail to see how a flat tax would be any different or easier, the US has only 3 tax bands anyways, what would change if it was one
Not much.
So a loaf of bread is cheaper for someone who is low income.
actually yes, the same taxes we’ve talked about go to farmers to make your bread cheaper. Food subsidies, also paid mostly by the rich.
I easily put in 60 hours a week of work. I only get paid for 40 hours. I rarely go to a fast good restaurant. I made my bread. I make my pizza. I grow a garden. I work for free so that I don’t have to pay someone to do the work for me. Well at least I don’t get taxed on that…yet. I supposed since I”m not in the work force working that I’m not really working. What about people with children who choose to stay home and take care of their children instead of paying someone big bucks to do that. I guess that isn’t work either–sitting on the couch watching soaps–right? That’s what they do–Ha!
I say HA to your comment. Is it my fault or anyone else’s that you choose to be a stay at home parent, let alone our fault you decided to have children? The answer to that is simply NO, so why would you expect me to help you knowing full well the financial impact of having kids in the first place.
I would turn this around and say if you feel stressed financially as a stay at home parent then you should’ve thought about that before having kids. Your trying to make your life choices mine and other peoples problem, when they’re in fact YOUR choices. Try and rebut that!
So I am worthless since I make less than 50K. I lack ambition. At the age of 49 it took me more than a year to find a low pay job, even though I had six years of college and a BA. I am worthless and don’t deserve to put food on my table and have a roof over my head. How plentiful do you think jobs are? I have friends that can’t find enough work to keep them working 40 hours a week. People like us ought to be shot–but then you wouldn’t get our taxes.
That is a result of one of your life choices. Let me tell you a story. I am a tenured Computer Science professor at a reasonable university in the United States. Over my 20+ years of teaching, I can count on one hand the amount of people that have not been able to get a job or that I have not been able to suggest one to. That is out of around 10 thousand students. Now, one of my coworkers that teaches Philosophy, frequently has students beg him for job opportunities and say they are working at McDonalds for years after they graduate. Guess what? He says sorry, I can’t really help you. If you cannot get a job after you get out of college, it is YOUR fault for picking a major that does not make you marketable. It is YOUR fault for not doing internships and networking during your time in college as to secure your life afterwards. No one is forcing you to take “Art History” or “Women’s Studies”.
The purpose of college is to make yourself marketable and secure the rest of your life financially. Not to “learn something I like to do in my spare time” (At least for most people). If you reply to this, you may say “Oh LOL my friend that has a degree in Transgender African American Art History of South Eastern African Liberal Arts Students and she makes 100k! Take that!”, or “My Engineer friend can’t find a job after 2 years and still works as a waiter… Are you saying that it is his fault??? How dare you???”. I instruct you to read “https://en.wikipedia.org/wiki/Outlier” thoroughly.
Have a nice day.
Bryan, I don’t quite get your point or you don’t get my point. I am commenting on Mountain Man’s. If someone has a child and chooses to remain at home at take care of the child it isn’t the government’s responsibility to pay for that child. In fact I think there should be a two or three child limit for dependents. What I am saying is that there is work that doesn’t bring in a pay check. If I have a baby I can go to work, get a paycheck and use some of that paycheck to hire someone to care for my baby. Chances are if I were to get a job I would need to buy a car and clothes. If I were to stay home and care for the baby I wouldn’t be earning a paycheck but I would be spending a lot less too. Even if I don’t get a paycheck I work the hours and I get the pay in other ways. I shouldn’t be on this board because I notice most posters are men and things women do are not work. Stay at home mothers do nothing but sit in front of the TV and eat and get fat.
I think the ‘fairest’ income tax is a flat rate on discretionary income; I have a huge problem with taxing nondiscretionary income, partly because people without discretionary income often must pay more for a market basket of basic necessities than people with discretionary income pay for their basic necessities.
e.g. if you have no discretionary income and can’t buy a home, you will find it increasingly more costly over time to rent than you’d pay if you had bought.
Ben Carson’s 14.9 flat rate income tax is the first flat rate proposal I support; it kicks in at 150 percent of federal poverty level, which is just about where I think it should start. It punishes neither the rich nor the poor.
It’s pretty much that way. EVERYONE pays 10% of the first level which would be 10% of the first $9075. EVERYONE who makes more than $9075 pays 15% of income between $9076 and $36,900. EVERYONE who makes more than $36,900 pays 25% of income from $36,901 to $89.350 and so on. The highest is 39.6% but that is only on income ABOVE $406,751. Maybe I pay 15% of my income which is way less than 50K and a rich making a million pays 15% but I am paying a higher percentage of my income for food and and rent and commuting. I have a smaller percentage of income left over for saving and entertainment.
The problem is not that we need a flat tax on income, it’s taxing income in general. Typically, those who are richer, intelligently know that income taxes in their tax bracket are higher than capital gains taxes. That is why they decide to generate passive income that is taxed at the lower rates. Those who make 200k income pay more than those who generate 200k passive income from what I understand.
So the real problem that needs to be solved is education. Let’s teach every one how to legally avoid taxes and vote with our ‘absent’ tax dollars in order to change the tax code.
(This would be a great #yakchat by the way. I love talking about taxes.)
Captial gains are lower to account for the fact that the owner of the property has not really experienced a gain. Only inflation. My house rose in value but so did all comparable homes.
What, if anything can be done to facilitate earning passive income by the non-rich?
Are the non-rich inherently excluded from enjoying passive income by being outbid by the richer and wealthier for assets which generate passive income?
The ‘assets’ available to the poor (e.g. vending machines are often pitched as such) generally turn out to be bad deals or worse.
47% already avoid Federal Income Taxes. A family of 6 (2 parents/4kids) making 62,000 a year will receive a tax refund equal to or greater than what they paid in taxes throughout the year. When 53% (many of whom are not “Rich”) are paying the Federal Taxes for the other 47%…isn’t the debate about “poor/lower middle class” folks getting the IRS Shaft completely moot?
It’s not as if they pay not taxes at all; they pay payroll tax, state tax, sales tax, etc.
Also, did you know the current income tax for the “richest Americans” is actually historically quite low? Up until the Regan tax cuts in 1986, the income tax rate for the highest bracket was around 70%. And it was at this rate since the 1940’s (it was 90% in the 40’s!). This is based off the ability-to-pay principle and it’s how this country has been running things since the ’20s.
It’s hysterical to me that people seem to think the richest Americans are only just now getting taxed more. If anything, they are being given a HUGE break, because for 46 years, they were taxed at rates as high as 70%… And guess what? Our economy was never better then.
I’m an 89 year old WWII vet, and I find the comments here to be DISGRACEFUL. Americans used to be PROUD to pay their fair share. Now, everyone just wants MORE MONEY for themselves. Greed will be the death of this once wondrous country…
Well Roy, you are all over the board with your comments, so let’s go line by line:
1) you say they pay other taxes such as payroll, state, etc.
Answer: #1 technically Social Security and Medicare are not taxes at all, that has always been the Dems argument. We get Social Security back after all, I’m sure at 89 you are no doubt a recipient of SS money getting back perhaps more than you paid in. #3 This is a moot point and red herring argument because the payment of other taxes is irrelevant to the payment of income taxes.
2) you are correct that the highest tax rate used to be higher. #1 It was lowered by that Democrat Demi God JFK! #2 loopholes made the effective top marginal rate much lower than the advertised 70% or even 90%
3) You set up a straw man “…the richest Americans are just now getting taxed more” #1 This claim was never made! #2
4) I actually agree with your last comment, but not for the reasons you stated. The Greed of politicians who feed the Pork Barrel, the Social Safety Hammock and endless giveaways for the lazy will be the death of this Country. As for proud to pay taxes, give me a break will you? Who in the history of the world has ever asked to pay more taxes? Why is a discussion about a flat tax disgraceful? We the People would be Proud to pay a Fair Share. A Fair share being an Equal Percentage or a Flat Tax. That’s Fair, not someone pay 70% and someone else gets a refund of money they never paid!
1)The payment of other taxes is not moot. How is that even remotely moot? When nearly all taxes except income tax are regressive, it is precisely the point, and absolutely relevant that income taxes are and should be progressive.
Sales taxes, fees, and all the other forms of taxation, regardless of what they’re called, take a FAR LARGER share of a poor persons income than it does a wealthy persons. How you say that is moot is astounding and absurd.
2) Yes, Kennedy started the lowering of the marginal rate. But that is almost meaningless. Someone can suggest taxes should be much higher than they are today and still not be suggesting that they should be what they were when Kennedy lowered them. For instance, I would argue that taxes should be much higher, and that it should be a steep increase once you reach massive amounts of income. Maybe the current rates up to 1 mil per year. Above 1 mil is 50%. Maybe above 10 mil is 60%. And above 100 mil is 75%. And if you understand marginal rates, you would understand that that doesn’t mean that the person who makes 100 million pays 75 million in taxes. I suspect you understand that, but just making sure because far too many people don’t. — However, even those rates I suggest are below what even Kennedy lowered them to.
4) I may be wrong, but I don’t think Roy was suggesting that a discussion about the flat tax is disgraceful. I think he was suggesting that when you say that people who are poor are lazy is disgraceful. When you make statements like “social safety hammock”, it’s disgraceful. When make statements like “endless giveaways for the lazy”, it’s disgraceful.
And when you misrepresent his words it’s disgraceful. There is a difference between being proud to pay taxes and wanting to pay more taxes. I am proud to pay my taxes. I’m firmly in the middle class, but had to work hard to get there. I need every penny I can get to work my way out of debt from when I wasn’t in the middle class. However, I am PROUD to pay my taxes. And even though I don’t want to pay more taxes, I’m more than willing to pay more taxes to help strive towards that goal of a more perfect union.
Sadly, it feels like those on the right care nothing about a more perfect union. And only care about demonizing the poor, taking what they can, paying as little as possible. I can’t tell you how often I’ve heard those on the right claim that taxes are taken by force. Or how the IRS should be abolished.
The Republican cuts to the IRS are absurd, because the cuts themselves are more expensive than they cost. Because the money that was cut was directly taken from areas of the IRS that search out and find income tax evaders and fraud. It blows me away the lack of forethought of the modern right-wing.
Our infrastructure is disturbingly outdated. And yet the right wants to cut taxes, not fix the infrastructure and somehow spend more on the military despite the fact that we spend more than the next eight nations combined or something like that. Seriously, it’s absurd.
Anyway, now that I’ve turned what I intended to be a quick paragraph into a rant, I’ll go.
Conservatives love to avoid talking about what has actually worked and what hasn’t. The decades during which the top tax rates were the highest were our most prosperous and innovative, when the middle class was built, when large portions of this country as we know it today were built through the thoughtful investment of those taxes, and when our economy was nearly as strong as the rest of the world combined. This fantasy that high taxes on the wealthy kills jobs and innovation and reduces the incentive to create new businesses is something that just can’t be defended with facts.
And what has happened while we’ve been slashing top rates (and regulations) over the past 30+ years? Hmmm, falling wages, higher unemployment, rising poverty, an unstable economy, a crumbling infrastructure, income inequality we haven’t seen since the gilded age, and America losing ground as the world’s economic superpower and builder of the world’s best products. The jury is no longer out. You’re nucking futs if you think trickle-down tax cuts does anything but hurt this country.
You should look at the fairtax proposal (www.fairtax.org). It’s a consumption tax rather than an income tax and there is a pre-bate which means that the poor don’t end up paying taxes. Used items are not taxed so if you want to buy everything used, you can certainly lower the amount of tax you pay. That’s a good thing because it reduces the amount of stuff that ends up in landfills. It’s not a perfect tax system but it’s better than what we have now.
Doesn’t the economy need us to buy as much stuff as our balance sheet affords to improve profits and get the economy rolling though?
Yes. Which is exactly why a consumption tax will never happen. Unless we go back to the gold system. Our economy is inflated with air and spending and our fiat money only means something if consumers are spending, and hopefully with money they borrowed that was used to create more fiat money.
What about FICA? A flat tax might work in a vacuum, but not in reality. Not for poor and lower middle class people. A good chunk of their paychecks go already to payroll taxes and insurance premiums (for those fortunate enough to have coverage), which are not refunded at the end of the year like federal taxes. Is this system going to cover heath care and retirement, then? If so, I might think about it. Otherwise, no thanks.
How about a compromise. Families making under 20,000 per year pay no tax. Those at 20-25,000 pay 5%. Those making 25-30,000 pay 10%. Those at 30-35,000 pay 15%. Those at 35-40,000 pay 20%. Everybody making over 40,000 pays 25%. The only deduction allowed is on home Mortgage interest and charity.
Sounds like a good compromise to me!
OK – here is the thing . Imagine a place where everyone worked as hard as they could, and achieved as much as they could, based on their own potential. And they went into the job market, and only the best were hired. Aren’t there still going to be winners and losers? And you assume that people who make more money “work harder” in school and that is a “choice” that they made. Do you realize that the people you are talking about are maybe 14, 15, 16 years old when they make that choice? . And maybe they are not in the best of shape because of their upbringing. I know many “trust fund babies” who made terrible “choices” and still are
living the good life, and many very hard working people who started from nothing and are just hanging on.
Yes, there is a super strong correlation with hard work, work ethic and developing wealth if you want it. You are saying 16 year olds don’t understand the importance of hard work and educatiOn? I find that very hard to believe. What about their parents? Failure at school often leads to failure at life. You do not see this correlation all around you?
Believe in people and their ability to think rationally. We are smarter than you think. Just because one slacks off or does t make it with whatever endeavor doesnt give them a right to not contribute, tax wise. Equality is always the best avenue.
The Tax inequality has created jobs, careers, businesses,etc. The Publishing industries as well as Logging, Paper, Computer Programing, etc all depend on Tax In-equality. All those finance related positions from Accountants, Lawyers, to companies that “Help” us complete our tax forms and file depend upon it. Am I wrong? No.
I am totally in favor of equal taxation because I believe there are opportunities that I am being robbed of because of the complexity of the rules and my inability to pay someone to point them out to me.
So, the question is this. Do we collapse many, many employment opportunities and have equal taxation or remain the same in “business as usual”?
I don’t like being taken advantage of because of my ignorance! However, I don’t have the strength to affect the livelyhood of many, many, many people. Am I weak and wrong I don’t know and I don’t mind being wrong, if I am. Can anyone other than God decide? People with the money will decide.
We’re in agreement about the need for education & training. No one will fight harder than I for education and training!
Think, though, about your comment regarding the fact that the wealthy pay a higher percentage to taxes in relation to the budgets I sent earlier. Yes, the wealthy pay a higher percentage of income for taxes. But, that’s the ONLY area that they pay a higher percentage! (With the exception of Social Security, where their contriburtion is capped at $106,800, therefore paying a smaller percentage than anyone making less.)
The poor/middle class, though, pay MUCH higher percentages (in relation to their incomes) for BASIC NECESSITIES–and for much less in return.
They pay a HIGHER percentage of income for gasoline, housing, food, clothing, and insurance–all necessities for survival! That leaves them with precious little expendable income.
One of your questions I didn’t answer earlier–why did I change party affiliations at age 55? Sounds silly, but I read a bumper sticker that stated, “If you’re not appalled, you’re not paying attention.”
I started paying attention; doing my own personal research; studying history, etc.
Then came Katrina. I worked closely with some who were sent to my community and found some lifelong friends–actually hired one to work for me. He was a former chemistry teacher who is brilliant and a wonderful role model for youth! He’s still a dear friend.
I was there the day after they arrived until the day the last one left–almost eight months later. I met and grew to love people who would previously have scared me. I got to know their families and helped them find jobs, homes, furnishings, and clothing. We talked, laughed and cried together. Several spent Thanksgiving and Christmas with my family and friends at my home that first year.
On Social Security. They pay up to $106,800, and therefore get the amount of Social Security returns up to what a $106,800 is paying. If they make a million, they aren’t getting $1,000,000 worth of SS income, they are getting $106,800 of SS income.
Do you not believe people can make more money if they want to? If not, what is inhibiting them in this great country of ours?
Not everyone has the same opportunities.
Let’s use two kids as examples: John has rich parents. He struggles in school, but his parents can afford after-school tutors and extra study materials, so he catches up, and learns ways to compensate for his learning diability.
Joe’s parents are struggling. His dad is a construction worker who was disabled in a work accident, and now lives off of disability payments (not much income there). Mom works also, but in a dead-end clerical job that doesn’t pay much, but it has health benefits the family needs, so she stays. Joe also has a learning disability. The school in his neighborhood has a poverty rate of 62% (62% of students qualify for free or reduced-fee lunch), and is overcrowded because the governor doesn’t think small class sizes are important. This community is especially hard hit, because the local factories (which had family-supporting jobs) closed and re-opened in China and Mexico. Sound familiar? The people who lost those factory jobs would like to work, but their skills aren’t easily transferrable to the other jobs that are available. (This is “structural unemployment” where the situation changes, and the available skills don’t fit the available jobs.)
Joe’s teacher is in her first year, and overloaded. There is no teacher mentoring program, and she has to be teacher, social worker, therapist, and more to meet the needs of her students.
She doesn’t have the experience, yet, to recognize that Joe has a learning disability, so he doesn’t get the help he needs. In spite of his hard work, his grades and test scores are below average. No college scholarships for Joe, so he goes to work out of high school. His future is not bright.
He did not have the same chances as John did. Don’t call him lazy because when he’s an adult, he earns less than John. Shame on you!
Who is calling anybody lazy? What is your situation instead of making up fictitious examples?
Just curious–why was my last post re: comparison between two different income families regarding flat tax implications not posted?
A Flat Tax is not ‘fair’ because it’s simply not flat. Taxpayers don’t come anywhere close to paying the same percentage. Every Flat Tax proposal that i’ve ever seen is nothing more than a progressive tax which shadows income redistribution. It’s a good idea in theory, but when you get right down to it, it’s almost absurd. You get a ton of new tax brackets and very few deductions. So let’s say a family of four only makes 30K a year and they end up paying no taxes at all (with the new tax bracket they have been placed in). Well they still get a child credit and EIC which entitles them to a refund, so now, they’ve actually ended up making money on this flat tax. (hence my income redistribution statement) Although i’m definitely not a fan of it, the only TRUE flat tax is Medicare. Every single dollar you earn is taxed, no exemptions/exceptions period. Why isn’t everyone jumping up and down to implement that?
A family making approximately $40,000 annually (median income in America) will pay about 33% of their income for minimum housing expenses and another 17% for transportation, calculated at $3/gallon prices). Those two items alone capture 50% of their total income.
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A family making $1,000,000 annually can pay $85,000/year for housing and $57,000 for transportation. They will pay only 14.2% of their income for the same two items.
Add 15% tax rate for each family and the first family has exhausted 65% of their income, while the wealthier family has used only 29.2% of theirs.
Let’s say the wealthy family pays $33,600 (high estimate) for medical insurance, while the average family pays $6,600. That reduces the wealthy family’s income by 3.36%, but the median income family’s is lowered by 15.84%.
Let’s assume the $1 M income family spends $73,000 on food each year. That’s only 7.3% of their income. The average income family $4656 per year (a little over $1 per day for a family of four) on food. They’ll spend 11.18% of income on food.
Assume that the family of 4 making $1 M spends $12,000/year on clothing–still only 1.2% of their income. The median income family shops at garage sales and at thrift shops and manages to get by spending $600 annually on clothes for four. They’ll spend 1.44% on clothing.
At this point, the average American family has spent 94.9% of their income on NECESSITIES! They have exactly $2124.41 left of expendable income for emergencies, medical co-pays, savings, investments, college tuition savings, etc.
The wealthy family has spent only 56.46% of their income, leaving them with 43.54% left. The amount they have left to “play with” is a whopping $435,400.
I’M NOT SAYING THEY SHOULD . . . BUT, they could finance necessities for over 10,000 families who are making median income.
That’s why percentages don’t work! Costs are the same for everyone. Rising gasoline and food prices won’t appreciably affect the wealthy family, but could devastate an average family! One missed paycheck–due to layoffs, illness, etc.–could bankrupt an average family.
Assume the wealthy family invests $100,000 of their $435,400 expendable income and made only a measly 5%. They INCREASED their expendable income by another $5,000.
PS–to FlatTaxNotFlat: Medicare is a true flat tax. But, as you can see from above 1.45% for one family is far different than it is for another.
You make valid points, but you they are all assumptions. What about the assumption that the wealthier family studied hard in school, didn’t screw around, went to graduate school, and has debt? Why should they get punished more than a family who did not try as hard? The top 25% of income earners pay 88% of all taxes, while 45% of Americans pay zero federal taxes… how about everybody pitch in since everybody benefits from gov’t services?
It is a CHOICE that a couple who only makes $40,000 a year have a kid or kids. Are the rest of us supposed to subsidize them if they are finding it harder to make ends meet by paying a progressive tax, which we have NO CHOICE but to pay but to go to jail? I think not.
We need to fight for EQUALITY every single day and so NO to discrimination.
Yes, they are all assumptions, but they were well-researched assumptions.
I’m looking around my community and I can tell you that many people who make average salaries of just over $40 K (high for where I live) have been hard workers all their lives. Some have graduate degrees. You can’t flagrantly put all people into categories that don’t necessarily apply.
I used local figures to calculate the average salary family’s budget. It would be next to impossible to find decent rental property for the amount I allocated. One dollar per person daily for food? Try it sometime. $600/year for clothing a family of four? Even using almost ridiculously low figures, their income was almost depleted after paying only for necessities. Please tell me what you think they should cut in order to have enough to save or even pay for emergencies? Let me know what you come up with. I’d really like to know.
I guess I don’t understand the concept of “punishing” families who have succeeded. Personally, I am more than willing to pay more taxes and I don’t make anywhere near the salaries I’m talking about. I think it may boil down to the fact that I have worked closely with families far under the income for the average family–some of whom are extremely bright and hard working, but entered life into poverty. I know them. Their aspirations are as high as yours and mine. And, their aspirations for their children are also high. They just don’t have the financial capabilities to make it happen.
Thomas Jefferson addressed income inequality when he wrote, “Taxes should be proportioned to what may be annually spared by the individual.” It makes sense, doesn’t it? I totally concur. He also added, “Another means of silently lessening the inequality of property is to exampt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”
What can middle class citizens (those making the median income of $41,644) annually be able to SPARE? The answer is not much when necessities capture close to 95% of their annual income.
When programs are being cut that benefit the poor and the savings is transferred to benefit the rich, that’s not EQUALITY. There has to be middle ground.
Interesting that you’d mention that people have a CHOICE about whether to have children or not. In the future, maybe not. Both families I outlined in my example has two children–about average, so I kept the comparison as even as possible.
Punishing is referred to the fact that the more one makes, the higher percentage of their income goes to taxes. That’s not equality, that’s discrimination.
Do you not believe in America, we have the power to make more money and lead better lives if we want to? If you are born into poverty, yes things may be more difficult. But, you won’t be paying more taxes with a lower income, you will be paying less.
Think about being born into poverty…….. you know what the solution is? To prevent poverty stricken people from having kids who are born into poverty. Instead, let’s help lift them out of poverty by providing more education and training.
Everybody has a choice to study hard and work hard. For those in high school who I noticed didn’t, well… they aren’t doing that great. But, that was their choice.
Except in Wisconsin. The teaching profession is going to take a big hit and when it does I hardly believe it will be choice profession.
A big piece of what taxes are designed to do is provide services back to the taxpayer. If I’m working for minimum wage, and send my child to public school, paid for by my tax dollars, that’s a good use of the resources that I’m already paying for. If I’m uber-wealthy, and decide to send my child to private school, why should I be paying taxes for education that I’m not using? A low-income worker driving to work puts the same wear and tear on public roads as a rich worker, so why should the rich worker pay more. It costs the same to defend one American as it does another, so why should wealthy Americans pay more for these services?
The tax system is complicated, and, as rightly pointed out, there’s no one good answer that will please everyone. The flat tax system, however, penalizes on certain areas (like utility).
As a case in point, the article demonstrates that owing to our current tax system, a minimum-wage earner has more disposable income than someone working for 60k/year. They even demonstrate someone working one week out of the month at minimum wage still has about 80% of the disposable income of someone working the full month. 25% effort for 80% payoff? Sounds good to me. And why does this happen? Because our current system (and indeed, a flat tax system) uses the wealthy to subsidize the non-wealthy. It’s a shame that those with the greatest need of tax-funded services tend to be those with the least means to pay for it, but that’s a problem that neither a progressive nor flat tax will solve.
I’ll just chime in about education taxes. The reason everyone pays taxes for public education is because everyone benefits from it. The poor benefit by getting educated children and hopefully some opportunities that the parents have neither the time or energy to provide because they are working 2 or 3 jobs to get by.
The wealthy pay for public education because they want people working for them that can read and write. It would not be beneficial to hire someone who is illiterate even to mop floors and dust lamps. Everyone benefits from a public education system.
I firmly believe that education is the key to wealth and a happy life!
I wish that were true. I’m a 61 year old with a master’s degree in curriculum and instruction with elementary and secondary school administrator certification. I have also taught at the junior college level. I cannot find a job and have been applying and looking for almost a year. My 94 year old father is living with us, and our 30 year old daughter is, also.
I now work PART TIME for $10/hour. I’m not old enough to qualify for Soc. Security (didn’t want to retire until much, much later!) but not young enough to be hired again.
Education IS the key and I’m a huge proponent of education, but it does not solve all problems!
Hi ProudDem, are you a Democrat by any chance? What would you suggest we do to help people like you?
Also, may I ask after 30 years of work, whether or not your savings and investments have compounded to make you relatively well off and not in dire need of a job? Just trying to get perspective. Thanks
Actually, I was born and raised Republican! That is, until I was about 55.
I’m also not asking for help. I realize it may have sounded like I was. I just want to shed some light on those who think that the ones who aren’t currently employed are just lazy or not trying. I have applied for jobs for which I was immensely qualified, but younger people were hired while I didn’t even get an interview. I’m just stating facts that exist. It’s not always possible to get jobs in this economy, even if highly qualified.
I also started a non-profit company to assist youth and dislocated workers and oversaw several million dollar budgets and staffs as Executive Director. With the economy what it is, we plunged approximately $75,000 of our personal savings into it and can no longer support that endeavor.
My 94 year old father was the first in his family to attend college, earned two five year degrees in four years (total for both). He was self-employed in an occupation that brought in good money when he completed a project, but never had even a monthly salary to count on. My mother worked to pay for everyday expenses, but died when I was 18 and my sister was 17.
They both taught me my work ethic and my love for work! For that, I’m grateful.
You raised some other good questions and I’m glad to answer. Yes, we saved and invested, but lost a huge amount of money on our investments over the past several years.
My father was just placed in a nursing home this past week due to a stroke, after living with us for three years. His bill is just under $3000/month. His Social Security income is far from enough to pay for that.
Our daughter moved in with us while between jobs (one month) after having worked from age 14, including three jobs while at one time before completing college. During the time period prior to her insurance policy kicking in on her new job, she was hospitalized three times–to the tune of over $50,000. The last hospitalization was for a dislocated ankle and a trimalleor (sp?) fracture of the fibia. She is just now getting back to work–no income in the meantime–after almost three months following her surgery. It has taken her a while to get back on her feet (no pun intended).
No complaints–these things happen in life!
I dedicated my educational career working with low income families and continued working with low income groups in my non-profit venture (even when I was a Republican). I’ve met some exceptional people in my careers who will succeed because of the efforts of teachers and administrators and case workers who believed in them and exerted the extraordinary efforts to help them make it happen!
Thanks for sharing your thoughts and experiences! Life does indeed happen, and it seems like health insurance is TANTAMOUNT to protect us from financial ruin. Long term disability as well.
At age 55, why did you change to being a Democrat? My theory is that we are all democrats up to college, turn republican when we start working, and then turn back to democrats when we retire. Thoughts?
Conceptually, I actually don’t have a problem with the flat tax at all. The main limitation is it tends to be regressive, which is why your concession is so important. It makes sense although it would probably be combined with other taxes too if someone actually had the guts and popularity to implement it.
Sam, you have to remember that our economy is built on consumer spending. So, the government encourages spending by giving you tax breaks on debt (i.e. mortgage interest deduction, student loan interest deduction), but they tax you for savings (i.e. capital gains, interest income, etc.)
A flat tax would make rich people pay a higher dollar amount than poor people, when rich people should spend that extra dollar at a store, which in turn creates a job!
Just trying to play devil’s advocate here, I actually think a flat tax makes a lot of sense.
I think we should tax tall people more since they take up more space. Ever sit next to someone over 6 feet tall on an airplane? All arms and legs!
Anyone listen to Neal Bortz on the radio? He’s got the right idea with the Fair Tax. It’s a national sales tax that does away with the income tax altogether. No more IRS and no more hours spent maximizing your deductions.
Don’t get me started on real estate ransom, er, I mean taxes. I dislike real estate taxes more than I do our crazy income tax system. I purposefully bought a smaller house to keep my real estate taxes from being outrageous.
Sounds good Norman. So, what are your thoughts on my proposal for a Renter Tax? https://www.financialsamurai.com/2010/09/22/renters-should-pay-more-taxes/
Sam, here’s my “Why you’re stupid” (just kidding!):
First, let’s agree there is a “floor” to economic life in America. That floor is somewhere around $20,000 per person, per year. That will give you about $1,700/month to pay for EVERYTHING in your life: car, rent, heat, food, some fun, surprise expenses, some savings. For much of the country, one can swing that, though living frugally. (Adjust the number accordingly if you like…but it’s somewhere around this and I’m going with it).
That’s the floor. ~$20,000/yr.
Now, the point is, that floor is roughly the same for any healthy adult with a heartbeat. Let’s compare two cases.
Case 1: Let’s say Abe is earning exactly “floor”. Now Abe gets taxed at 15%. Abe is left with $20,000 – $3,000 = $17,000. Now Abe is under the floor and NOT making enough to live on without some serious stress. Maybe he can tighten his belt, but it is felt as hardship. He is eking out a life $3k under the floor. His tax sacrifice has ganked him.
Case 2: Bob is making $1,000,000/year. Bob gets taxed at 15%, too. Bob is left with $1,000,000 – $150,000 = $850,000. After taxes, Bob is now $830,000 *over* floor. In fact, he can fit 41.5 “floors” into every year of his life; that is, he could support 41 and a half people at the same level that Abe *wishes* he had.
Both men were taxed at the same rate. But because of the floor effect, Abe “feels” a much bigger sacrifice; Bob a much smaller one. Bob can still buy a nice home in Boston and a BMW in the driveway *every single year after taxes*, while Abe is dumpster diving behind Albertson’s.
Therefore, the idea of progressive taxation is to increase the rate to try to bring everyone’s “felt sacrifice” into some semblance of fairness. In reality, the current 39.8% highest marginal tax rate (plus all sorts of tax sheltering) does not achieve this, but it is a symbolic attempt at it. In the 1950s, the highest marginal rate was 91%!
How’s this grab you?
@CM – What a great response. I agree that the flat tax doesn’t work for those that are eeking out an existence. It’s much too easy to complain about taxes when you have an expendable income to complain about.
Fair point, and I understand that point, which is why I wrote in the very beginning this:
“Gee whiz, last I checked, we live in America not North Korea. Why people believe it’s fair to tax one class of citizen a higher percentage than another confuses us. Is this not a pure form of discrimination? Fine, let’s agree that anybody below the poverty line of $25,000 for a family of four ($10,000 for a single person) are exempt from all income taxation.”
See the last line? I’m in agreement. We can call the “floor” $20,000/yr for a single person if you want. I’m fine with ZERO taxation on them. Everyone else, and hopefully zipcode adjusted aswell, let’s shoot for EQUALITY.
I saw your poverty concession but wanted to lay out my case with those extreme points. But it doesn’t change my argument–because we then we begin a slope. Should we tax the person making $20,500 at 15% then? No, because that would put them under floor.
So that means we start taxing at 15% for those making $23,529, right? Call him Carl. Because that would leave Carl with just exactly “floor”. But now we have Carl living right on the edge, not building in much robust future security…and Bob with an enormous post-tax surplus. Carl wanted to get a bit ahead in life, maybe strive for a bit more, but the 15% has knocked him back to just getting by; while Bob is rolling in dough. They have not made an equal sacrifice.
Let’s try again with less extreme numbers. Dave makes $40,000 year, and Ed makes $400,000 year. If they are each taxed at 15%, Dave takes home $34,000 and Ed takes home $340,000. Dave is left just $14k away from Carl’s on-the-edge life, and knows it. Ed is $320k away from it, and knows it, too.
Though Dave isn’t hurting, the taxing smarts. It means he will retire later, always have his guard up about spending, possibly worry about the future. Ed, though, is so massively buffered that the taxing is not felt in the same way as Dave–it might be barely felt at all. They haven’t made an equal felt sacrifice to the society.
That’s arguably unfair. It’s like two people are asked to share the job of loading stones. Each man has to load 10 heavy stones. But one of the guys is strongman Magnus ver Magnusson and the other guy is Prince. It’s the same “flat tax” of 10 stones, and Prince isn’t physically at the “poverty line”, but Prince will be wiped out and Magnus will just be warming up.
By creating a sloped progressive tax, in which as you make more you pay, percentage-wise, that much more, we attempt to make the felt sacrifice about the same (though, as I said, it doesn’t come close to it in a world with billionaires and capped marginal rates).
Why is the same 10 stones? If the amount of stones is based on the strength or weight of Magnus and Magnusson, say 20%, then Maguns at 100lbs would carry 2 stones, and Magnusson at 200lbs would carry 4 stones. Pretty equal.
The $40,000 a year and $400,000 a year example is a win for both. And, if Dave at $40,000/yr wants more money and is unhappy, he will simply work longer hours and find new ways to make money. Do you not believe in the human spirit?
Let’s change the system only slightly from the original post: every dollar below $25,000 is not subject to tax. That way, like the current system we live in, no one ever pays tax on the first $25,000 they earn, ever. Then, there would be an incentive for someone making $24,000 to go ahead and work harder to make $26,000.
Moreover, the idea that everyone should feel the bite, to me, is a bit misdirected/misleading. To me, taxes are all about revenue for the government so that the government can perform certain tasks that otherwise wouldn’t be performed by private entities (or at least not as well). So the question should not be “how can we make everyone feel the bite of taxes?” but instead, should be “how can we make the government as much money as is needed, as fairly as possible?”
So let’s take millionaire Bob. Millionaire Bob makes $1,000,000 per year. Now, let’s assume that Bob is in a position in which, if he works a few more hours, he makes more money each year. Suppose he is taxed on a flat rate system. Bob now has an incentive to work even harder each year, because he receives the same amount per hour for his efforts. This is good for him, and it’s good for the government, because each hour he works harder, the government gets more money.
Now, switch to a progressive tax system without a cap. For each hour that Bob works extra, Bob receives less for his efforts. So at some point, the tax burden becomes so much that Bob throws up his hands and says, “Screw it, I’m going on vacation and I’m done working this year.” This hurts not only Bob, because he doesn’t get the money he could have earned by working, but it hurts all of us, because the government doesn’t get their cut of what Bob would have otherwise earned and distributed via taxes. This is exactly the opposite of what we want–we want people like Bob to work harder to give more revenue to the government. Let’s encourage him to keep working by not imposing a road block that ultimately causes Bob to throw up his hands and quit (or even worse, tax shelter his income in overseas accounts).
My last reply to you didn’t post. Lame. Maybe it’s tied up in review?
While I’m waiting for it to appear, the point of EQUALITY is about EQUAL SACRIFICE> 15% on a millionaire is nothing like the sacrifice of 15% on a guy making $45k, who is left a lot closer to the “floor”. That’s unequal. That’s the point of progressive tax slopes: creating an “more equal” sacrifice using proportionality.
Ed and Samurai Guy,
1. I know the federal government considers income above $25,000 for a family of 4, or $10,000 for an individual to be adequate, but really…. have you thought about that, or every tried to live on that amount? My annual expenses as a single person include about $3,000 for food (and I’m not talking fancy food here), $2,000 for gas, $0 for car payments (I have an old beater), $3,000 approx for utilities (electricity, water, sewer, trash pick-up, and phone), $6,000 for rent. So far, no money for clothing, health care, dental care, eyeglasses or contact lenses, vacation, emergency savings, or retirement savings. And I’ve already spent $13,000 ($3,000 over income of $10,000). If you added in car payments for a modest car, it could easily be $16,000 or more, and that’s living a poverty lifestyle with no chance to save or get ahead.
Triple the poverty income, and tax those who earn above $75,000 for a family of 4, or $30,000 for an individual, and you would make more sense.
2. There are lots of things on my tax bill that I don’t actually use either, but they matter. For example, assessments for schools, including community college. It benefits all of us, indirectly, if we have an educated and employable citizenry. We need to educate our children, that is a collective responsibility. And community college is a great start for those looking to go on to a 4-year program (without accumulating tens of thousands in debt), and also for those looking for specific job training.
3. Yes, captitalism has its good points (and its bad points). The nation whose people consistently rank as the happiest on earth is not a capitalist country though. It’s socialist. Denmark has a higher standard of living for the average citizen than we do, and much more of a safety net. Don’t knock it if you don’t know what you are talking about.
If someone or a couple only makes $25,000 a year, why would they have 2 kids? That doesn’t make sense, even if each kid does provide a $1,000 tax credit.
Socialism might be a solution to a brighter future. https://www.financialsamurai.com/2011/08/01/socialism-as-a-means-to-a-brighter-future/
Still with a flat tax without loopholes (many rich people and corporations pay little or no taxes) I believe the money coming in would be greater than it is now.
@macarose
I think I love you?
FYI –
https://www.businessinsider.com/america-take-example-on-hong-kongs-simple-and-efficient-flat-tax-2010-7
Flat tax systems do more than just apply one flat rate to everyone, they eliminate deductions, many exemptions, and tax credits. So, instead of a system like what we have now that taxes disposable income, you’re taxing everything. Tell me how its fair that the poor should have to pay taxes on the money they need for food and housing while the rich get a rate cut. Also, flat tax systems don’t tax investment income, so for many rich people this is cutting out a sizable chunk of their income….helping them out even more while the middle class carry the burden for them.
No, our current tax system isn’t perfect, but the flat tax is a carefully marketed and packaged deal for the rich. They make it sound very fair and simple to get you on board, while they get a tax break.
The “rich” are the ones with the most deductions, so how does that help them if deductions are removed?
What money the poor need for food and housing money are you talking about?
Let’s keep the investment income flat tax of 15 or 20%. That’s fine too.
Thats a good post!!
Your version of the ‘poor man’ is … pardon the pun… inflated.
Family of Poverty level if below…
1 $ 903
2 1,215
3 1,526
4 1,838
A ‘poor’ single person in the USA earns no more than $10.800 a year if they’re single. 15% of that is $1,620. That leaves $9,180… or $765 a month to pay for all their expenses.
A ‘poor’ family of four would end up with no more than $22,056 before the ‘fair tax’. Remove 15% from that tally and you end up with $3308 less. $18,748 annually or $1562 a month to cover all their expenses.
Keep in mind these are the absolute top ‘poor’ (aka ‘Poverty’) earners. The 98+% of them who don’t even attain this level would earn even less. Right now that amounts to 40 million Americans.
Now let’s throw a guy like me into the equation. I’ve been fortunate enough to be in the six figure income level for the last five years. I went to excellent schools, got a top notch education at two private schools, and earned two graduate degrees that cost me almost nothing due to scholarships. I’m a genuine winner in this system and yes, I have earned it.
I’m also fortunate enough to have no addictions, no medical conditions, and a tightwad tendency that is more than likely genetic. My family of four has comfortably lived in the confines of a $30,000 to $40,000 annual income without wanting for more. I also graduated college with no debt and was given supplements by my own family when I was first getting established. Though I never used that money, it did enable me to qualify for a home which I only paid a small fraction of during my first few years in the real world. I rented out the two other bedrooms and subsisted on $3 a day in meal expenses. So I’m definitely a frugal fellow.
But on the flip side I also got a free ride through college, a new car, and a healthy stipend during my college years. I had an easy life before pursuing the more challenging life… and when it came time to be an entrepreneur I had a lot of support I could depend on.
So have I earned it? Perhaps… perhaps not. I went through other hardships in life and only God can eventually make that determination.
Have I had a ‘fair’ opportunity? No. I would consider my life’s journey to be far more than fair as far as education and income are concerned. I was a mediocre high school student. Only SAT scores and my parent’s ability to pay full tuition got me into a top tier school. I earned my way after that but my entire teenage years were mediocre as far as academics were concerned. I also received a wonderful income boost after college as well that made debt a non-issue.
If a wealthy upper-middle class suburban kid like me benefits from the current system, which already taxed my parents about half their gross income, what of the ‘poor’ folks when yours truly has his net income boosted by the mid-five figures. On a ‘FAIR TAX’ platform aren’t they and the folks living paycheck to paycheck going to pay more?
Have they receive a ‘fair’ education compared with me? How about their kids?
Did they have access to the same quality of teachers? The same private schools? The same supplements to get them through the challenging times in life?
How about the same level of health? The same sleepaway camps that gave me thousands of hours in athletic and extracurricular activities? The same opportunity to pursue drama, music, finance, history, economics, and all the self-guided subjects I pursued in my childhood simply by ‘buying’ whatever I wanted?
I had all these things that those 40+ million didn’t for one simple reason. Money. Money gave my parents the means to offer me opportunity. If I had been one of the 40 million instead of one of the 1%, none of that would have happened.
There are elements of the ‘FAIR TAX’ I like. Paying the same percentage for big ticket items. Adjusting the percentage so that we can have a balanced budget and a pay as you go system (okay, I can dream here). Destroying the current tax system for one that is simple and pursues the idea of fairness. I like all of those things except for one little thing between the lines…
People cheat… and as a well established member of the wealthy, I can tell you unequivocally that the wealthy cheat more than anyone else.
Disagree? Consider the tax code… and then consider this..
You want me to pay for the Mercedes? Screw that. I’ll get a dealer’s license which will end up costing far less than the taxes on one luxury car under a ‘FAIR TAX’ system. The title will never be in my name and my dealer tax will cost about $20. Not bad, eh.
You want me to pay for the addition on my home? Screw that. I’ll pay the contractor in cash.
That goes double for the food that I buy. Why the hell should I pay an extra twenty percent on my produce when the farmer a few miles from here will give me 20% more for free?
Come to think of it… I’m going to just start buying home related items at garage sales, friends houses, and barter for the rest. Hell, I’m saving 20%+ just off the top and I’m not even poor. I’m sure the ones who barely scrape by will find other new and exciting ways to avoid paying their fair share. Let’s face it. 20% of your pennies saved equal 20% of your pennies earned. Not to mention that the seller of all these wares will also keep an extra 20%.
We can do it either through one big ‘easy to avoid’ FAIR tax… or develop dozens of smaller taxes that largely reduce the incentive to be a compulsive tax avoider. I agree the tax system sucks. But anointing a fair tax will only benefit the financially parsimonious. Those who can pinch the most nickels are those that simply have the most nickels.
But better yet, I can help out other American citizens by simply paying a greater part of their burden so that they can more easily make ends meet and pursue a better life.
After all, it’s the American citizen (and foreign debtholder) who has enabled me to enjoy this great life. The teachers, firefighters, soldiers, musicians, artists, college professors, journalists, road pavers, ditch diggers, day care folks, and millions of other professionals may not make as much money as this auctioneer.
But they gave my father freedom from the tyrants of Germany and Russia… and a better life.
They gave my mother a college degree at a time when women weren’t supposed to be educated in that way.
They gave me, a completely hopeless kid with learning disabilities, the opportunity to become educated without having to worry about so much ‘competition’ when it came time for college.
They carried the burdens that gave me an easy life when it came to the $ sign. I may not be willing to donate directly to their cause voluntarily. I am a stingy bastard overall who enjoys working the system. But if you create taxes that are simple, small, and several, chances are I’ll be too focused on my family and my business to cheat my fellow citizens out of the opportunities they deserve.
Think about it… thanks for your inspirational write-up and I wish you all the best…
“I can tell you unequivocally that the wealthy cheat more than anyone else.”
And you have proof of this….where?
I know “poor” people who take cash for odd jobs, NEVER report income, and all the while collect government assistance. I would also go so far as to say that anyone who is unwilling to get a job (despite being perfectly capable) and chooses to live on the government dole is a cheater.
Wealthy or not, there’s cheaters in every dimension of society.
Jerret, wealthy people are evil. Come on now!
I enjoyed reading your comment, however, do you mind distilling your thesis into one or two lines to help me and other readers out?
What exactly are you advocating? I’ve suggested an exception for a family of four making $25,000 or less to pay ZERO taxes. How come nobody sees that? Do people choose what they want to see?
People making less than 25,000 don’t pay income taxes now and most receive EITC
(earned income tax credits) the EITC in most cases exceeds the payroll (FICA & FUTA)
taxes paid by low income earners.
So really your idea is already in place for not taxing the low earners. In fact the bottom
50% of earners don’t pay income taxes and a substantial portion don’t pay any taxes right
now.
So really the debate is how much should those in the 50th – 100% percentile pay?
Liberals think the top 5-10% should pay even more because its “fair”. I think most people
don’t think “fair” is paying a far higher proportion of the taxes than your income represents.
To wit, the top 5% of earners pay 59% of all income taxes while earning 32% of all income!
Personally I think a flat tax that covers both current income and payroll taxes for the top 50% of earners is the most “fair” and with removal of ALL income tax breaks (even sacred cows like the home tax breaks) the tax code would dramatically reduce all sort s of economic inefficiencies while increasing growth as capital can flow more easily to investment in growth. Now as a political realist (perhaps cynic) I know this won’t happen as BOTH parties would be against this as too many interest groups would lose their current subsidies.
What will happen? Probably not much as there is gridlock. Deficits will climb growth will remain low. D’s will want to spend more and raise taxes on the top 3-5% – not a recipe for capital formation and growth. R’s will want to keep the Bush tax cuts in place while still keeping the corporate subsidies in place that create tax inefficiencies (see Medicare drug program, ethanol etc). I don’t see a Reagan on the horizon that can and will really push through a more efficient tax code any time soon.
It’s not even a debate. All people should pay the same %. All people must have “skin in the game”. All people must hold their government accountable for where and how their tax $$ are being spent. Regardless of whether you pay $900 a year in tax because you earn $9,000 dollars a year, or $90 million dollars a year in tax because you earn $900 million. There is no difference. I dont apologize or regret that we live in an unequal world. I am not for communism or worldwide equalization of income any more than I believe we should disfigure attractive people to make them equal to unatratcive people. Its a sham argument that would exempt the “poor guy” from having to pay his fair share ($900). That poor guy giving up his 10% needs to be just as indignant about his tax rate and he needs to hold his elected officials responsible and accountable.
First off. . .here’s what happens if we go to a flat tax of 20% (for instance). . .the wealthy, now supposedly paying 35% in taxes (tell that to Mitt Romney who only pays 14%) will get a tax cut of 15%. A low income earner, now paying 5% or less, will see an increase of 15% or more. So, the flat tax is a blatant attempt by the wealthy to lower their taxes. . .not to achieve taxation parity.
What really needs to be kept in mind in these discussions about taxing and spending are four very important factors. . .
1), we currently have a national debt to the tune of $17.5 TRILLION!! This national debt costs us $500 billion per year IN INTEREST ALONE! PER YEAR!!! And that money goes to ??? . . .yes, predominantly the wealthy who have enough disposable income to invest in debt. Further, that $500 billion per year constitutes roughly 15% of the budget. Eliminating the national debt will give us ALL a 15% tax cut. The only problem is that, instead of paying down the debt, they’re adding roughly $1 TRILLION PER YEAR to it with budget overruns which means Wall St gets more and more money every year we fail to spend down the debt. Cutting programs at this point in our economic malaise generally isn’t a good idea. And, raising taxes isn’t the greatest of ideas either but. . .it makes more sense to increase tax revenues than cutting programs which stimulate our economy. The most daunting problem is that, right now, we need almost $1 TRILLION per year just to BALANCE the budget. I\n order to pay off the debt, we need even MORE tax revenue. So, let’s say we can achieve increasing the revenues by $1.5 TRILLION. . .that would give us a $500 billion surplus to put toward paying down the debt. . .we would have to keep that up for the next 18 YEARS in order to pay off the debt (it would actually be a couple of years less than that because the interest amount would decrease as the principal is paid). So, let’s say 15 years. . .15 years of austerity. . .serious austerity!!! Not gonna happen! Further, Wall St will never let this happen either. . . .
Most of this debt is due to our historical military spending which brings me to important Item #2. Our military spending predominantly benefits the wealthy in two ways. . .by A), giving them billions and billions of dollars in business (case in point, Dick Chaney and his company, Halliburton, made $39 billion from the Iraq war, alone) and B), we use our military to enforce our geo-political influence to sell our goods overseas. . .goods that USED to be manufactured in the US but not so much any more. . .which, in turn, makes our wealthy elite even more money. Also, the infrastructure in place in our country makes it possible to achieve the success that has made our wealthy as wealthy as they are. So, Item #2 to keep in mind, military spending and infrastructure that allows our wealthy to make more money.
Item #3. .the discussion really shouldn’t be about Adjusted Gross Income levels. It should be about DISPOSABLE income levels. If a family has no disposable income to spend on “luxury” items but only enough for the bare necessities, they’re barely participating in the economy which doesn’t do much for the capitalist model of profit generation. So, taxing these people is counter-intuitive from a capitalist’s point of view. The more disposable income a family has, therefore, the more ability they have to pay taxes AND participate actively in the economy by buying “luxury” goods. In these economic times the wealthy OWE IT TO THEMSELVES to pay as much in taxes as possible in order to pay down our national debt and to help others participate in our economy more fully. The more people that can participate in the economy, the more money the wealthy will earn.
And finally, #3 leads to #4. . .giving people a living wage for the work that they do. Right now people need Food Stamps just to get by. To me this is solely because they can’t make enough at their jobs to cover their basic costs. . .so, if companies aren’t paying their workers enough but those very companies are doling out profits and earnings distributions and those workers receive government assistance. . .by the property of commutative assistance, these companies are receiving government assistance to issue profits to their owners and shareholders who are ???. . .yes, again, predominantly the wealthy. And the same goes to those who can’t afford health insurance or a pension and wind up receiving Medicaid or Medicare and Food Stamps and/or Welfare. . .this is, again, corporate welfare via the commutative property of assistance.
So, hopefully, these points that I make will give you food for thought and pop some holes in the thin veil of how “fair” our system is. There is nothing fair about it. . .the wealthy/power elite have stacked the deck in their favor and actively promote the lies that make the rest of us fight amongst ourselves, at our own peril/to our own demise.
Until such time as the national debt is paid off, the top tax bracket should go back to 70% for those earning greater than $3 million per year and the lower income brackets should see tax cuts in order to give them disposable income in order to participate in the economy and kick start the economic engine on a broad scale. Further, companies that out source work outside of the US borders should be tariffed and taxed to discourage this practice. We need to re-coup our manufacturing base! And these new manufacturing jobs need to pay living wages that will get people off the government programs. . .this not only creates tax paying citizens but enables these assistance programs to be phased-out. And, if it takes a few years of these companies breaking even, instead of making 20+% profits for a few years then, so be it!! We need a strong base in order for capitalism to really work. Without that base, we will be left with the oligopoly that we almost have, today.
One last thing. . .right now the interest rates are low. Should that change and interest go up, we will ALL be in a financial world of hurt. But, at that point, the system would implode and we’ll have violence and civil war. . .so, we’d better get to work on fixing this lousy system before it’s too late. . .and we’re thisclose. . . .
Under our current Tax system there is no doubt the Govt. is practicing discrimination. Our constitution is supposed to protect us from that. “All Men Are Created Equal” not All Men are Created Equal except in the case that they earn more money than their neighbors. I don’t believe it is my responsibility to support my neighbors kids nor theirs to support mine. Nor for a single person to have to pay more just because they are single. Nor a divorced person who is supporting kids still to have to pay more because they are divorced (single). Heavily taxing corporations is an indirect tax on individuals since the cost is just passed on in the price of their products. A flat tax on EVERYONE with no minimum income, deductions, loopholes, nothing, is not only the only fair way of doing it and also would dramatically reduct the cost of administering the system. Get the Govt. out of the way and the economy will thrive and people who are willing to work hard not just go to work to collect a paycheck will prosper. This is supposed to be the land of opportunity not entitlement.
However, without other changes to the system a flat tax will not fix the broken mess we call our Govt. To start, a balanced budget amendment to the constitution would prevent the people in our Govt. from overspending to buy votes. Additionally, term limits to prevent these people to become career political elitists with no sense of reality. A complete ban on lobbyist and an outright ban on any political contributions from ANYONE to ANY candidate would stop the buying of favors. Every candidate should receive the same FLAT amount from the Govt. for their political campaign. That would show the voter how they manage money and also allow a broader field of candidates since you would not have to have big money backing to run for office. Once you serve your one or 2 terms max, you go back to your former life and work until you collect the same social security and Medicare benefits as the rest of the population. All pretty fair or “Equitable” to me.
Additionally, the levy of property tax is equally against the founding principles of our country. How can anyone justify the Govt. being allowed to step in and take property YOU worked and paid for if you don’t pay taxes. You NEVER own your property, the Govt. owns it and charges you to use it and even more for the right to spend your money to develop it. Then, when you die, the Govt. takes another big chunk of what you left behind, and were by the way already taxed on. Is this what our founding fathers envisioned? The Revolutionary War was fought for much less.
How can anyone think the current system is fair. The United States was founded on the principal of Democratic Capitalism. It is what made us the most prosperous nation ever known. Socialism has caused many world leading nations of past to loose their dominant position and is doing the same to us. The Tax system is one of the root causes.
Ed – Bravo! Well said and I appreciate your thoughts! I never thought about the ridiculousness of property taxes and the gov’t taking away your property if you don’t pay it. What a shame. I look at my property bill, and there are like 10 things some of the taxes go to pay towards, which I don’t use. Hmmm.
The only thing I disagree with you on is taxing people below the poverty line, even if that line was created by the gov’t. I think they’ve got it hard enough already no?
“The only thing I disagree with you on is taxing people below the poverty line, even if that line was created by the gov’t. I think they’ve got it hard enough already no?”
There is a fix called the FairTax. There is a “prebate” for everybody:
Speaking as an individual who works at a National Grocery Chain and makes
minimum wage. I will happily pay my fair share provided everyone else does
the same. Exceptions in the tax law are exactly what individuals who would
prefer not to pay use to do so. No Exceptions. As too Mr. Barndt’s
suggestions, I mostly agree. However, I also believe that Health Care is a basic
right of every American Citizen and should be treated as such, so any Income
and sales tax code should also include a Health Care tax (again at a flat rate
for all Americans). Everyone needs it, so everyone should pay.
The best justification of the current tax system is that Americans who earn higher incomes typically enjoy greater benefit from infrastructure, education, and judicial protections that the government provides. Farhad Manjoo writes a great piece on this at https://pandodaily.com/2012/05/12/what-eduardo-saverin-owes-america-hint-nearly-everything/ – in which he argues that Facebook cofounder Saverin genuinely owed the taxes that he was trying to avoid by renouncing US citizenship. For example, Saverin went to Harvard, which receives almost as much government funding as it receives in tuition – i.e. Saverin received more educational resources than he actually paid for. Then there’s the internet itself, which exists because of government investments but is free for all of us to use. A Silicon Valley entrepreneur can create a billion dollar corporation without paying for any of the underlying internet infrastructure. I’m a physician and I grew up in a middle class background; I believe it’s entirely fair that I should pay a higher tax rate than my parents did. The government helped me go to college and medical school – that’s thousands of dollars in financial aid. Yes, I’m paying it back, but at a lower rate than I’d have received without student loans. Although many wealthy people complain that the poor and underprivileged receive government assistance like welfare and food stamps, they forget that the government has helped us out a lot more than we care to remember.
Think of it this way: if you tax a billionaire at a higher rate than a janitor, the billionaire has to skip the Rolls Royce but the janitor gets to feed his family. Would we rather have it the other way?
Why are we talking about billionaires and the very poor?
Let’s talk about the majority of people, you know, the ones who make $20,000-$750,000 a year. Be realistic, and don’t talk in extremes.
I believe everybody should contribute after a minimum income level SOME federal income tax and pitch in.
You’re making emotional and thoughtful points, but they are not valid. Please tell me how this is not discrimination. It all equals out in the end for what rich people and poor people use at handouts from the gov’t. They get food stamps, the richer fly more, use more water. The poor get low income housing. The point here is what are the poor doing to justify the rich paying for their free ticket. The POOR AREN’T paying into the tax system, while the middle class, and rich people are.
The poor people who get more aid like welfare need to get off their ass (not all, but at least 50% of them are bogus) and contribute to society whether it’s picking up the trash to beautify cities, etc. The problem here is spending on welfare is so high just like other programs, but the actual benefit to society is almost 0. When I fly, yes I use some form of gov’t handout indirectly, but I am also supporting the employees working at the airports and airlines who by the way are also paying taxes into the system cause they have a job, maybe not a glamorous one, but they contribute.
What about 50% of the welfare people that don’t deserve welfare. I walked in a grocery store a few days ago. A women with 5 kids pulls out food stamps for what appears to be around $300 in groceries. I then noticed the African American women in front of me had a fresh high end haircut, hair just colored, nice manicure, IPhone 5s ($399), IPad in other hand, Louis Vuitton purse, fancy designer shoes. I am not discriminating, but she was the definition of ghetto fabulous in a bad way. She was arguing with the clerk why some grocery items couldn’t be bought with her “Link” card. The item she was arguing about was a video game (Meyers store). Then to my astonishment, the same issue came up when she asked him to scan dvds, and some type of hair products. This all took place for 20 minuets, I stayed to humor myself.
This women in on welfare, has 5 kids, and I phone, Ipad, nice purse, shoes, etc and she is trying to use here Link card which is food stamps to purchase items not allowed, then she tried to argue with the clerk as to why she couldn’t like it was his fault. Why in the hell would I want to support her and her kids, I’ll help support her kids if they are taken away from her. She is unfit as a mother, let alone the Dad if he is around is just as guilty. They deserve to be poor, they are manipulators of the system. Rich people do the same things as well so I am far from naïve.
Long story short, where are all the government checks and balances to weed these people out, and there are a lot of them. I’d rather the government tell me I need to donate 20% of my income to charitable organizations of my choosing so the taxpayer tax reasonability for helping out less privileged people who deserve it and take the needs of their family over personal needs cause the government is broke either way you look at it. If you’re on welfare because you lost your job, then do something for society that supports your ass. Pick up garbage around the city, do community service. Why should I support you cause you lost your job and are know sitting on your ass doing nothing, time will settle you’ll get lazy and not want to work again (not all). Regardless government should require people that get a “free ride” to contribute back to the society that helped them.
@Jana
You’re right when you say that 100% of Americans benefit from the services provided by government,” however, it seems that you are saying they all benefit equally? Just asking, because that is definitely not the case.
very interesting argument, I’m in favor of a flat tax for all, zero deductions, so we’re all essentially paying the same – according to how much we make. 100% of Americans benefit from the services provided by government, so we should all pay in.
That said, the idea of a ‘flat’ tax for the more thick headed seems to assume that this is really a ‘head tax’. The British impose head taxes on items such as television ownership. Our federal government does the same on cell phone taxes, and the states do it with car tabs. These are not sliding scale taxes, based on annual income, but lump sum fees.
If nothing else, we need a ‘flatter’ tax, and eliminate most – if not all – of the line item deductions. Just pay and get on with your life as you see fit. Enough of the government social engineering trying to get you to donate to charity, buy a house, buy a car, etc. But most of the deductions are just pandering to voter groups.
Jana – Well said! Too much complication, too much pandering by politicians. Let’s just keep things simple, wipe away the deductions and have everybody pay their flat tax! Looking forward to hearing more from you in future posts! FS
comparing USA to HK? HK doesn’t have a space program, or an army. Also, HK has compressed infrastructure, while USA has alot of roads to nowhere. There are alot of reasons why a 15% tax won’t be enough at all, to keep USA stay as a global superpower.
Jon – You’re right. And that’s one of the key, focusing on the OTHER side of the equation. The US gov’t has a spending problem!
@ApprenticeOfLife
The system works because the government earns much of its revenue on two “hidden taxes.” The HK Jockey Club is the only legal gambling in town and contributes a huge chunk of change to the HK budget (and charity funds too – about 1B HKD per year).
Meanwhile, the property cartel imposes its own unofficial tax by restricting available land and jacking up rents on shoebox apartments with net floor space routinely around 70% of stated area.
AoL – Hmmmm, very good to know! I had no idea the HK Jockey Club was that big of a contributor to the HK budget!! Don’t know if that’s good to encourage so much legal gambling on the ponies.
I hear you on the land. I wonder what is the year when all the developable runs out in HK. FS
Do what Hong Kong did for 99 years uder the British rule and is still doing under Chinese governance which allowed it to prosper – 15% flat tax above certain level (whatever the gov’t’s annual determination of poverty level is), and no deductions. Somehow the system works.
Apprenticeoflife – It works well indeed, and HK has a nice balanced budget because they aren’t overspending. Good to see you back from your travels!
I agree Flat tax would be more FAIR Rich people do not pay their fair share A flat tax puts everyone on an equal footing as middle class as we can,t afford to pay tax lawyers Lobbyiasses acct. tax shelters and the Loopholes they have..If it helped the rich they would have made it happen now ..What side are you on
What I’m trying to point out is that what you’re proposing is a progressive tax system–albeit one that’s less progressive than the current system.
Gotcha Mike. Yes, we’ll never have a perfect system, but I’m definitely a proponent of more equality/less progressive. :)
All I’m pointing out is that what you’re arguing for is in fact a progressive tax–albeit one that’s less progressive than the current system.
Once you say that it only applies to those above the poverty line, what you have is now a progressive tax system. It’s no longer a truly flat tax. It seems to me that you only want a “less progressive” system, not a flat system.
Also, how would you define poverty line? Should it be adjusted by geographical location? (NYC obviously requires more income than rural Iowa.) What about by age? (Older taxpayers have higher health care costs.) Should it account for whether a person has kids?
In short, once you start accounting for these things, you have a progressive system. It’s just a disagreement on how progressive the system should be.
By putting in an exclusion for income below the poverty line, you’re discriminating. You’re discriminating on the basis of ability to pay (which, admittedly, I think is entirely fair…which is why I support a progressive tax system).
And as to fighting against all discrimination, would you say that price discrimination (generic brands, for example) is a bad thing?
Hi Mike – Thanks for bringing up some points.
First, a progressive tax by definition is higher tax on progressively higher amounts of income. This is what we have now in America as evidenced by the higher marginal tax brackets, so I’m not sure whether you used your argument properly when you write “Once you say that it only applies to those above the poverty line, what you have is now a progressive tax system.” We’re already here, and that’s the point of this post, to debate against the progressive tax. The poverty line definition is in the link to the post.
Second, thanks for bringing up geographical location, because this DEFINITELY should be included in the debate on top of the poverty line determination. It is punishment that a Manhattan residence has to pay the same amount of taxes as a Des Moines residence if they have the same income because Manhattan is so much more expensive. I think you are inadvertently fighting for a flat tax system, which punishes the Manhattan residence LESS. Higher incomes are usually more concentrated in more expensive cities (NYC, SF, LA etc), yet they people the same as the higher income person who lives in Austin. That is egregious and there needs to be a geographic adjustment.
Finally, I don’t understand your generic brands argument as a bad thing. We consumers have the ability to CHOOSE whether to buy generic or brand name goods. Whereas we tax payers DON’T have the ability to choose how much taxes to pay. If we did try and “choose” we’d go to jail eventually.
Things should never come to “HOW” progressive a system should be. We should fight for equality every single day of our lives.
Thanks for the debate. I really enjoy it!
Best, FS
I’ve never been much of a fan of the flat tax from a fairness standpoint. Clearly there’s more to “fair” than just mathematical equality.
Now, from an efficiency standpoint, a flat tax would beat the heck out of our current system (so long as it was kept simple–no deductions, exemptions, credits, etc).
As to the legality of discrimination, there are all sorts of legal discrimination that occur. Price discrimination, for example, is both legal and (generally) beneficial economically.
Hi Mike – Good to hear from you man, and thanks for your thoughts. Fairness is subjective, but once you use math, everything becomes objective. Again, I’m suggesting a flat tax for those above the poverty line.
Efficiency is better with a flat tax (how easy it is to just multiply by 15% and weed out all exclusions?).
I will fight discrimintion and perceived discrimation forever, whether I’m poor or rich. Nobody should be discriminated against in this day and age.
Best, FS
Here’s why I would argue against a flat tax.
Let’s say I earn 25,000 a year, and 15% is the rate of the flat tax.
That 25000 breaks down to 2083 dollars a month. Of this lets estimate a low 500 for housing, 200 for food, 350 for student loans, and 150 for auto insurance and gas. That leaves me with 833. 312 a month would go towards taxes. That leaves 521 dollars of not accounted for income. All other expenses would come out of that 521, including health expenses, electricity, water, and all kinds of fun. That’s also assuming I am making any contributions to a savings account or 401k.
Now assuming all other expenses stay the same, lets increase my income to 35,000. 2916 becomes my monthly income. Instead of 833 left over after my expenses, I have 1666. 437 would go towards taxes. This leaves me with 1229 left over for all other expenses.
My point is that a higher percentage of my monthly usable income would go toward taxes. The cost of living is a set amount (in my example), the only changing variable is the amount of income. Why should I have more than double the amount of spendable income if I am not doubling my income? What I am trying to show is that a flat tax has a larger impact on a lower income, as a higher percent of that income is already spent on necessities.
I don’t know in what kind of world some people think they live but 50k a year is NOT a poor man’s income.
50k a year is at least middle class, a poor man’s income is $10k-20k a year. This is what alot of people make who work at retailers, and they don’t make a penny more. P
Poor people are disadvantaged in many ways. Poor people who earn don’t have money for car repairs or car optimization or access to good transportation. A flat-tax doesn’t take in account that when you have more money, it’s much easier to cut back on your expenses. If you make $10k a year you won’t even be able to afford a car and would need to spend 3 hours a day on the bus versus 1 hour in the car. This is another 2 hours lost in productivity for the poor, which a poor person could have used to make another $15 a day.
Without a car, how big is the chance you can save money going to walmart or other discount retailers without wasting huge amount s of time walking or taking the bus? If a car was not a luxury, I would all be for a flat tax. In nowadays america is car is very much like a necesity, and the people on minimum wage can barely afford one.
@The Genius
If Stephanie has $100k in loans, with no assets, she would have a negative networth and hence pay $0 in taxes under a flat-networth tax.
@Kevin: As for calculating the business’s networth, you set the price you think it is worth — and if you set it too low, then the state should call you on it, and buy the business for the amount you state. How you like them apples?
Should work both ways, by the way. If the state appraises your property too high (in your mind), you should be able to force the state to purchase your property for that amount.
@Kevin,
Many good points regarding the flaws in the flat net-worth system, many of which I was not considering beforehand. That said, I think you’re going to have a hard time finding too many people who believe that absolutely everyone, from a minimum wage earning family of four to Bill Gates, should be paying taxes. All the plans we’ve been discussing, from the current income tax to a flat tax to the flat net worth tax, include some sort of exemption for low income earners. (Well, my ‘$10,000 from everyone’ tax didn’t, but that was admittedly a straw man to attack the idea that making a tax fair is the best policy.)
The best you’re likely going to get is a welfare system that attempts to link benefits to work, at least for able-bodied, sound-minded adults. While it’s impractical to expect everyone to be able to pay into the system (at least, pay in more than they get out in the form of benefits), it is possible to at least nudge people toward being productive members of society.
@The Genius,
I think you’re confusing the simpleness of the flat tax plan itself (at least, one with no deductions) with difficulty in getting Congress to pass it. Yes, the plan itself could make it very easy to calculate your taxes (was it Forbes who quiped about doing it on the back of a post card?), but Congress is unlikely to go along with it. Besides the opposition most liberals would have to a flat tax in principle, there’s also the problem fredct brings up: you’d have to convince people to give up all the ‘loopholes’ in the tax code they currently enjoy. To give you an idea of just how many loopholes there are, go back and read fredct’s post #3 again; that’s not describing any proposal from him, that’s describing the current US tax code! Unless you get people to willingly give up ALL deductions in a flat tax plan, you’re going to run into the same problems of complexity all over again. And if you can get rid of all the deductions, why do you need to go to a flat tax, anyway?
@fredct
Good comments on disposable income and that. I was sort of hinting at that with my own comments about ‘utility’, but you helped to spell it out pretty succintly. Also, you mentioned my personal favorite idea for tax system simplification: cut out all the specialized deductions, leave a single large deduction (tied to say, how many people are in the household) and then use the resulting number to figure out the owed tax in a progressive tax table. I would just add cutting down the number of tax brackets for simplification and possibly adding a ‘cost of living’ adjustment to make things a bit fairer for those in expensive areas, and you’d have a perfect system.
The Genius, but that’s only true if the *only* deduction you get is the standard deduction. If you still allow deductions for charitable giving and home costs and college costs and kids and retirement plans, etc, etc, etc… then it’s just as complicated.
And, by the way, you could do the same thing with a non-flat tax! Take the 6 or so brackets we have no, drop all the specialized deductions and replace them with a large standard deduction, and you have just as simple of a result!
It has *nothing* to do with how many brackets there are!
@fredct You mention that a flat tax is not easy to implement, yet it is so simple. Gross Income above a cerain poverty level X Flat Tax = tax!
Your 10 paragraph explanation, while appreciate, just goes to show what you are proposing is too complicated!!
Actually, let’s take a real example. These numbers are not exact, but are done to get an order-of-magnitude estimate. Someone making $400K for a family of 4, for starters, has 4 personal exemptions of $3650, for a total of $14,600. Taxable income is now down to ~$385K
They’re likely also living in a house with a payment of around $5000*12 = $60,000 (that’s 15% of income, housing costs are typically up to 30%). Lets further say that % of that is deductible (i.e. not principal), so that’s $45,000. Lets add back on at least $10K of property taxes (it’s probably a lot more in many high-cost areas), so back to $55,000. Taking that deduction, their taxable income is now ~$330K.
Assuming their state tax is, oh, say, 3% (it’s probably higher), then they get another $9K or so of state tax deductions. Now we’re down to $321K of taxable income.
At that income level, they’re probably maxing out their 401K. Actually, they’re likely doing it for two jobs. Let’s say $30K total. We’re now down to $291K.
Finally, lets say they’re real cheap and only give $1K to charity. That gives us $290K of taxable income.
They are now in the 2009 33% *marginal* tax bracket. Their formula for that bracket is “$41,754 plus 33% of the income between $171,550 and $372,950”.
So that’s 41,754 + 33%*(290K-171K) = $81024, for an overall average tax rate of 81/400 = 20.25% . Turns out it’s not that far off afterall, is it??
Actually, we’re forgotten their $1000/child tax credit, for a new tax total $79,024!
I think most flat tax numbers I’ve heard tend to be 22 or 23%, which would be pretty darn close to the same, if not a little bit higher!
It’s actually remarkably similar to the numbers I had in my last post. Granted, it’s a heck of a lot more complicated way to get there, but that’s not an issue of the tax brackets. Tax brackets only came into play in one line. Rather, it’s an issue of all the deductions, credits, exclusions, etc. So while I would probably be on your side if you suggested eliminating a lot of those deductions & replacing them with a large standard deudction to simplify things… I can’t pretend I think it’d ever happen. Deductions for homeownership, charible giving, etc. are far far too popular.
> Ok, ok, I’ll do it for you because you aren’t catching my drift. $40,000 X 15% = $6,000. …
> You think the person making $400,000 should pay… 37X that, or $220,000 (55% of their
> gross)
No, no, I’m not being clear.
Let’s say a flat tax percentage would need to be about 20% (I think most numbers are around that, usually a bit higher I think).
Let’s further stipulate that $30K is the required income for a family of four. That would be the ‘standard deduction’ So the guy making $40K would pay ($40K-$30K)*.2 = $2000. And the guy making $400K would pay ($400K-30K)*.2 = $74K, which is 37 times more. Not $220K or $280K.
Fredct – I’m fine with that proposal. $2,000 is a 5% tax on $40,000 gross income. $74,000 is 18.5% of $400,000 gross income.
Currently, someone making $400,000 is paying an effective tax rate of 28% (federal only). Win win. Thnx for clarifying and sharing.
FS
A flat tax actually isn’t easier to implement. It’s not a tax brackets that makes things complicated… it’s deductions & credits & exclusions, etc.
And if you literally mean a flat tax with from the first dollar (which is *NOT* what most flat tax proposals are, by the way – they all include at least a significant standard deduction) – one with no deductions & credits (not even home interest deductions or charitable deductions or college deductions, etc), then we may as well be discussing what type of pig would fly more efficiently. In other words, it’s a completely intellectual debate with no basis in reality.
Disposable income could be determined the same way that ‘cost of living’ is. To be truly fair, yes, it would have to vary per state or even metro area. It would depend on cost of food & shelter & energy & other core needs.
But the question wasn’t what’s easiest. The question was why isn’t it the most ‘fair’. And if you’re telling me it’s ‘more fair’ to tax away money that one person needs to eat, in order to tax less of someone else’s entirely disposable income, I think it’s not difficult to say why that doesn’t meet some people definition of ‘fair’.
@fredct Who are you to determine what constitues “disposable income”? Like FS says, the higher income earners are generally in higher expense areas. You can’t even buy a reasonable 2 bedroom condo in Manhattan for less than $850,000.
Flat tax is a flat tax. There’s no way around it. You can’t slice it up to say this or that. It’s the easiest system to understand and implement, and it’s too bad you don’t feel that way, b/c you’d be saving more too.
Looks like it was a small typo… I meant 37… as I posted earlier (with typo fixed)
If we were to assume that ‘required income’ is something like $30K in a particular area for a family of four, then the $40K guy really has $10K in disposable income, while the $400K guy has $370K left in disposable income. So the $400K guy shouldn’t pay 400/40 = 10x more… he should pay 370/10 = 37x more.
Fredct –
First, check my post for the link with regards to what the poverty line is for a family of 4. $40,000 is not too far off, and I am against taxing those at/near/below the poverty line. Something else needs to happen.
Second, if you can provide actual tax figures on how much two sides would pay in your example, using say a 15% flat tax assumption, pls do so. Your ratios are one thing, but the actual figures are MUCH DIFFERENT.
Ok, ok, I’ll do it for you because you aren’t catching my drift. $40,000 X 15% = $6,000. You think the person making $400,000 should pay first 47X that or $282,000 (70% of their gross), and now 37X that, or $220,000 (55% of their gross)??? Come on now. You’re going to punish the doctor who is saving lives in NYC, where the cost of living is at least 5X higher, 37-47X more than a family making $40,000 in Des Moines? Please.
If someone making 400K has 47 times the disposable income of someone making 40K… they they absolutely should be taxed 47x as much… at least.
While I agree with you that if you’re not financially secure that having kids isn’t the wisest idea… it’s not a choice I would make… are we really supposed to have the government enforce that? That, to me, is completely inappropriate and very scary. You were talking on the other board about people being ‘discriminated’ against because they can’t contribute to a Roth… but telling people they can’t have kids because their income isn’t high enough? That’s okay? That’s not discrimination?
Besides, what about people who, for religious reasons, are opposed to birth control. You’re now regulating what goes on in their bedroom, and there’s no way I can’t see that being way too far.
Unless you enforce it in a China-like way (thinking of their one-kid policy), people are going to do what they want to do anyway. And then your only choice is to allow the children to suffer afterward. And for what gain? To allow someone making $500K to contribute to a Roth and having a “feeling” that the system is more fair?? I’m sorry, while I would like to see lower taxes at the higher end of the spectrum, I don’t think a society that willingly allows children to suffer for it is a ‘fair’ society.
(and I’m talking actually suffer, not ‘suffering’ by not being able to contribute to a Roth as you argued elsewhere)
Fredct – I never said we should implement a kid policy based on your income. I’ve just questioned the validity of having multiple kids when it’s hard for parents alone to get by.
China’s one child policy interesting. I wrote an entire thesis paper on it, which maybe I’ll post here one day, but not now.
Please feel free to do the math and share with us what someone who makes 10X more in absolute dollars over someone above the poverty line would have to pay in taxes if they paid 47X more b/c their disposable income was 47X more. Thnx.
As has been pointed out on this thread, the tax system (due to the FICA cutoff & lower tax rate for investments) is not particular progressive past the middle class.
However, one thing that has not been mentioned at all is the concept of ‘disposable income’. That is, the amount you make above what is required to feed & shelter yourself & provide for basic living expenses. The goal of the tax system should be – and basically is, IMHO – tax your *disposable* income.
That is, the reason it’s unfair for a person making $40K to be taxed 1/10th the amount of someone making $400K… is because (lets say we’re talking about a family of 4) the person making $40K probably has around $10K in *disposable income*. If you tax him at the ~20% or so rate that a flat tax would require, he has little to nothing left in disposable income…. little to nothing left beyond the bare minimum to live.
If we were to assume that ‘required income’ is something like $30K in a particular area for a family of four, then the $40K guy really has $10K in disposable income, while the $400K guy has $370K left in disposable income. So the $400K guy shouldn’t pay 400/40 = 10x more… he should pay 470/10 = 47x more.
And what about a guy earning the $30K needed to raise his family? Living paycheck to paycheck to support a family of 4. Are we really going to tax him ~$6000 and leave him short what he needs? That’s “fair”?
Now, the current tax system is somewhat more progressive than I’ve outlined here, so I guess I wouldn’t call it entirely ‘fair’… but that’s the point, fair is in the eye of the beholder. One thing I can’t sign up to is taxing someone non-disposable income needed to feed their children the same as the disposal money that someone is raking in.
Fredct – Thanks for your thoughts, and I hear where you are coming from. That is why in my post, I highlight agreeing on ZERO tax for anybody at or below the poverty line. There are different income limits for a different amount of people.
My question to you is, if you’re only making a substandard amount of money, and can barely take care of yourself, why have kids? Yes, sometimes it’s unavoidable, so one is fine. But 2, 3, 4, 5? Seems irrational.
No, I do not think the 400K/yr guy, who makes 10X more than the 40K/yr guy should pay 47X more! That is absolutely ridiculous!
FS
@BG:
OK, I’m strongly opposed to this “flat-networth” tax idea, for several reasons.
First of all, as others pointed out, individuals with negative net worths wouldn’t pay any tax at all. Personally, I don’t believe ANYBODY should escape paying at least a little tax. If you want to live in this society and take advantage of all the government-provided services (caging up the criminals, policing the streets, defending the borders, ensuring food and drugs are safe, keeping the traffic lights lit, making sure someone answers when you call 9-1-1, and everything else), then I think you should HAVE to have a little skin in the game. Even if you’re a woe-is-me student, with a pile of loans. You’re still a voting citizen, and you should be required to help pay for the system that allows you to live the highest quality of life in the world.
Secondly, again as noted by others, there are many, many problems with establishing someone’s “net worth.” I own a small business. What’s my net worth? How do I value the business? Is it worth the aggregate value of all the assets in the business? Do you include future contracts with clients that haven’t yet paid but have agreed to hire my services? Do you shop it around to interested buyers and see what they’d pay for it? And that’s just one problem with it. Do you count tax debt as liabilities? How do you value real estate? Debt in collections? Timeshare contracts? It would be utterly impossible to calculate this in a way that everyone would consider “fair.”
Thirdly, there’s the blatant socialistic wealth-redistribution element of it. You and I both earn $50,000 this year. I wisely set some aside to save for my retirement, while you blow yours on vacations and big screen TVs, all the while expecting to live off Social Security when you get old. Yet *I’m* the one who gets punished for being prudent and being a saver? This just smacks of the jealous grasshopper confiscating assets from the ant.
And finally, the biggest problem of all. Say I scrimp and save, and manage to amass $500,000 for my retirement. At a 4% SWR, it yields $20,000 in income, supplementing my meager Social Security. However, your greedy socialist administration confiscates 3% of it as a tax. That means I must earn 7% on my capital, just to break even – and that’s BEFORE keeping up with inflation! Fine, so I pay you your 3% ($15,000). Then next year, you come back, demanding 3% more. And the next year, 3% more. Until what? Until you’ve taken it all? Meanwhile, my bankrupt, spendthrift neighbor happily collects Social Security, oblivious to the tax burden I’m shouldering on his behalf? Don’t you see how incredibly unfair this is?
Bravo Kevin! Great summary of your thoughts. I do believe those at or under the poverty line shouldn’t have to pay taxes though. We are a rich enough nation to help our downtrodden brothers and sisters out, whether it is through their own fault or not. FS
@BG
Umm, what are you talking about? It all depends on what you’re taking the loan out for. If the loan is for a depreciating asset such as a car, gold watch, or whatever, your equation doesn’t make any sense at all.
Stephanie is in debt and has a negative net worth b/c of her school loans. Are you going to tell Stephanie she really doesn’t have debt or a negative net worth b/c of her asset of her education? The tax man and computers don’t see that and I agree with FS.
Trust me BG, I’m the Genius!
@admin
Loading up with debt would not help anyone’s tax situation. Taking out a loan does not increase nor decrease your networth — it stays flat:
Assume you have $100k networth, you then take out a $50k loan. You now have $150k in assets, and also $50 in liabilities == $100k networth (no change).
Simple stuff…
BG – It’s not that simple. Let’s say you take out $100,000 in loans for school to pay for tuition when your assets are 0. You’re saying suddenly your assets are worth $100,000, and your loan of $100,000 is a liability hence your net worth is still zero? That might be the case i the ideal world, but your diploma isn’t worth $100,000 immediately and you need to work at paying it off.
Hence, for all intensive purposes, this person’s net worth is now negative $100,000, and it will depend on her strea of cash flow to climb back above zero.
FS
In this case yes, the person’s net worth would be -$100K, assuming all of the $100K loan was spent. So the person would pay no tax.
But this wouldn’t work as a tactic to avoid taxation. You would have to take out loans AND get rid of any assets you had, including whatever the loan got you (in the case of a student loan, you’d get rid of the $100K by paying for your schooling). That would be ACTUALLY reducing your net worth, not just hiding it behind debt. It’s only in special cases like education, where what you’re buying is not technically considered an asset but is an investment in your ability to generate future earnings, that this situation would make financial sense.
@Stephanie PTY
Stephanie: Good post, let me try to answer your qustions:
For the flat-networth tax, It would use both assets and liabilities to calculate networth: If you have $100k in assets, and $100k in liabilities: then you have $0 networth (hence $0 in taxes due). As for someone loading up on debt to avoid the tax, it doesn’t work that way. If you have $100k in assets, then take out a $50k loan, you situations is now: $150k assets ($100k assets plus $50k cash) with $50k in liabilities ($50k loan), which is still exactly $100k networth. Taking out a loan does not change the situation one iota.
You are correct that a large part of the population actually has a _negative_ networth, and hence would not be taxed a single penny under the flat-networth tax.
The chance of getting a flat-networth tax implemented is pretty low, but whatever changes we make to our tax system should be to shift taxation towards the people who own/control the wealth. That is why a flat-income tax is a step in the wrong direction. A progressive income-tax is a much better idea, because the people with the large incomes are more likely to be the same people with the high networths (but not always).
Whoa, a lot to respond to! Let me take this one chunk at a time:
I am generally of the opinion that the Fair Tax would be the best, but for the reasons Roger listed, it wouldn’t work – mostly because of the international concerns. We can’t just jump on this bandwagon unless most other countries do, too… and that just ain’t gonna happen!
So yeah, I’m seeing the Flat Tax as the best idea [plausible] idea right now. I do agree also that it should be 17% (or whatever) of income over $xx,xxx, where $xx,xxx is determined based on filing status and number of dependents.
For the net worth tax, I’m sorry I’m not a rich person to chime in (actually, I’m the exact opposite!), but I have several reservations about it. First, you haven’t adequately explained how net worth will be calculated. The most common definition of “Net Worth” is Assets minus Liabilities. My liabilities right now faaaaar exceed my assets, so would I pay nothing? Get a rebate? And I don’t like your suggestion of using “renters or home insurance” to value the items in a person’s residence. First of all, plenty of people go without renters insurance. Secondly, renters insurance often has a minimum coverage. The company I use offers a minimum coverage of $20,000, which is what I have, but I have nowhere near $20,000 worth of stuff. Should my not-$20,000-worth of stuff count against my networth $20,000-worth?
And if we are including debts (as they are almost always counted in net worth calculations), won’t people commit tax evasion just by taking out huge amounts of unnecessary debt? And how would you prevent that without hurting people who just have the plain vanilla house+mortgage+student loans situation?
Hey Steph! Thanks for your thoughts. I’m assuming some of your assumptions are towards Roger, BG, and Larry.
If you have negative net worth, yup, you won’t have to pay any taxes! That’s quite a beautiful thing. You bring up a great point regarding loading yourself with debt to reduce your net worth and avoid tax.
So, yes, you are absolutely right, there are way too many corners to cut if we have a “Net Worth Tax”, hence I think it’s a bad idea.
The flat tax is the EASIEST system to implement. Anybody can figure it out, and hours upon hours of wasted time doing your taxes will be no more.
Thnx for sharing your thoughts and stopping by!
FS
@BG
I can’t speak for anyone else, but I haven’t been attacking the flat net worth tax as I think it sounds pretty fair. My objections would have more to do with the lengths some might go to cut their taxes under such a system; selling stocks in droves right before tax season, giving gifts out to family and friends (perhaps with the intent to take them back after the tax man leaves), and of course, owning more assets outside of America. Attempting to include and tax every Italian villa and every French winery the rich might purchase to escape US taxes will add to the enforcement bill.
And that’d be nothing compared to the sorts of legal trickery that could occur with trusts and corporations, among other nonhuman ‘entities’ created to hold money and other assets. If they aren’t included, it becomes an easy task for a wealthy individual to stash some (or a goodly chunk) of his money in one, in an attempt to make it ‘invisible’ to the IRS (or its equivalent under this new system, which I guess would be the Internal Net Worth Service.
Now, bear in mind that I haven’t actually done any reading on that sort of a tax, so I can’t say for certain that these would be problems (who knows, perhaps the writers of these proposals have thought of these issues and created solutions already), but those are some issues I would want to see considered before switching to an all Net Worth tax system.
@admin
Aren’t you buddies with Steve Forbes? Heh — anyhow, like your original article asking why the “flat-income tax” in not fair — which I think I have made a good case, I’d like to ask the same question about why the “flat-networth tax” is not fair: please someone educate me.
Thanks.
Nah BG, Steve just sends me a Happy Holidays card now every December with pictures of his entire family. No more presents!
Feel free to e-mail me your Flat-Networth Tax argument and I’ll put it up!
Nobody has yet countered the flat-networth tax idea from a fairness perspective. As far as I’m concerned, the utopian / fairest tax system would be the flat-networth tax.
I especially want to hear from a “rich” person try to explain why a flat-networth tax is not fair.
Whether we can get it implemented is very questionable: but if it _is_ the fairest system, any tax changes should always move us one step closer to the ideal. A flat-tax on income is a step in the opposite direction, and shouldn’t even be considered.
BG – Let me see if I can get Bill Gates and Sergey over to provide their thoughts! Stay tuned! :)
You can’t tax wealth since the income that produced wealth has already been taxes. Why would you tax it twice? Please don’t tell me because people should not hoard money! Its none of your business what people do with their money. This is free country. We don’t live in North Korea
The flat tax on net worth would be instead of an income tax, not in addition to it.
@admin
I don’t think believing that cigarettes should be heavily taxed AND that marijuana should be legalized is inconsistent. It’s what I believe, for example. My logic is simple: the current system cuts down on consumer choices (often leaving a single, gang-protected provider in a neighborhood), prevents regulation of available product, leads to insane mark-ups, AND sends all the profits overseas. If even ONE of these conditions happened with a product that didn’t happen to make people high, there’d be a hue and cry like you couldn’t believe from all quarters to change the policy, and pronto.
To my mind, it seems much better to legalize all the currently illegal drugs and allow them to be sold openly. You can still regulate where and how they are sold (as is currently done with alcohol and tobacco products), as well as slapping taxes on them to discourage their use/increase tax revenues. But now the profits will go to law abiding citizens (and the government through taxes) rather than to Columbian cartels and other criminal organizations. (I would suggest dividing the drugs into tiers, with the increasingly dangerous drugs (heroin, crack, etc.) requiring higher ages/heavier taxes/a thorough physical before being used, to attempt to limit the number of unprepared youths who end up partaking and perhaps dying needlessly.) For the record, I’m neither a smoker, nor have I ever used any recreational drugs; I’m simply making a few policy suggestions.
Also, the most prominent example of a national sales tax (the one which I believe CC Chaser is alluding to, is the Fair Tax. You can read up on their pitch at fairtax [dot] org, although they are various criticisms of the plan which, as you might guess, are not included on the official site. It’s worth taking a gander before you read the rest of my post, as most of it is directed toward some shortcomings of said Fair Tax.
@Credit Card Chaser
I’m somewhat neutral on the Fair Tax (and related all-sales tax pitches). It’s not perfect (if nothing else, this discussion should highlight that every tax plan, no matter how logical or well thought out, has its flaws), but it has potential. My biggest reservations with it would be that (a) people who earn less have to spend a larger portion of their income to supply food, shelter, heat and light to themselves and their families, so it would tend to be a recessive tax*, (b) it provides even greater incentive for people to go to the black market for their purchases, to avoid the sales tax on items they want, (c) it’s harder to target government incentives, particularly to specific types of income-generating activities (like investing) without an income tax that varies according to how the income is earned, and (d) the plan to not tax business expenses and used goods strikes me as ripe for abuse. (For example, I use my computer to type in my blog, pulling in a small, but real, income. Can I buy my next computer (and all the assorted accessories) tax-free as a result? How do you determine what is and isn’t a business? How do you prevent businesses from buying goods and then selling them to private citizens as used, avoiding taxes altogether? For a plan that promises to decrease the amount of paperwork we need to do at tax time, they’re certainly setting up quite a few promises that will need to be watched carefully.)
Furthermore, the Fair Tax also creates the incentive for persons and corporations to earn money in the US, but then transfer it overseas to spend it, avoiding taxation. (Heck, one of their selling points is that it will make all products, foreign and domestic made, more expensive in the US, but US products will be cheaper elsewhere.) How that would not lead to executives and other high income earners drawing their income from American based companies but live abroad to avoid paying any US taxes (decreasing the tax base and requiring higher taxes if we’re shooting for a revenue neutral plan), I just don’t know. And that’s before we even get into the fact that most other countries aren’t going to be happy if we tax the hell out their products here but expect them to sell our goods at the MSRP without adding their own taxes.
Are these enough to completely overwhelm the advantages of the Fair Tax or another national sales tax? Maybe not, but I’ve yet to hear any suggestions on how to minimize them that I could really get behind. A modified version of the Fair Tax might get my support, but until these issues are resolved, it remains more a curiousity to me than a real alternative to the current income tax system.
(*Yes, yes, the Fair Tax, in particular, includes a ‘prebate’, wherein an amount of money equal to the tax on the current poverty line is sent out to everyone in the country. If you earn twenty-thousand a year and spend it all under a Fair Tax system, you would have spent 23% of your money on taxes (as the Fair Tax people calculate it, which gets a bit funky), so about $4600. However, you would also get money to cover the Fair Tax equivalent to what would be paid on a poverty-level income. So, if the poverty line is at $10,000, you would get $2300 in prebate money from the government, bringing your real tax burden down to 11.5% of your income. Since the prebate amount is the same, no matter how much you make, the Fair Taxers argue that it will make the whole thing progressive.
There is a flaw with this argument, though. Because the tax is decoupled from earnings, there’s no way to ensure that it will be progressive in practice. If high earners are able to spend a lower percentage of their incomes than low earners (a very real possibility, as my comments on utility will testify), the progressiveness of the tax disappears, and it becomes regressive. And that’s before you add in the fact that, as mentioned above, some (or all) of the higher earners’ spending could be moved offshore, decreasing the real percentage that is paid by them. If you want to ensure that a tax is progressive, or even flat, it has to be fixed in some meaningful way to the amount of income earned, not the amount spent.)
Alright, that’s enough of me; I’ve already set the record for longest post here, I don’t want to top it already. Hopefully, my tangent on a point that you didn’t even mention in your post wasn’t too annoying.
Hi Roger – Actually, I think taxing the hell out of cigarettes and legalizing marijuana is perfectly consistent from a tax generation point of view. This will be a good new topic to debate shortly! It’s in the que! :) FS
I am with you in that I am for a flat tax for the most part (I actually am a bigger fan of a national sales tax along with an abolishment of the Federal income tax ala Mike Huckabee but let’s not get started opening that can of worms lol).
However, I do have to say that I can certainly see the merit in the Government doing certain things (aka tax breaks) to incentivize certain types of behavior. Some of these current tax incentives include the deduction for mortgage interest (to encourage home ownership), lower rates for long term capital gains (to encourage people investing for the long term – which by the way is what skews Warren Buffet’s overall tax % so low), etc. etc.
All of these types of tax break incentives serve to put out what is in effect the opposite of a flax tax though so I am somewhat torn (although one thing that has always seemed ridiculous to me is when people advocate a progressive tax system so that the rich business owner that makes a lot of money but is the one that creates new jobs for everyone else should be taxed more than the person that makes less money but does little to contribute to the economy except for purchasing a new car every 5 years and a new TV every couple years – i.e. give a business owner a tax break and they use the money to hire more workers and help create wealth for everyone – give a lower income worker a tax break and theybuy a new flat screen TV…)
CC Chaser – Well said! Give small business owners tax cuts so they can hiring more people and allow all to prosper!
I actually would reall like to learn more about the national sales tax argument concomitant with the abolishment of the Feder Income tax! I love learning about new stuff and read new arguments for things.
Without new perspectives, we grow stale and boring!
Thnx for stopping by. FS
@Matt Jabs Awesome! Thanks for the support. You’re right, it’s a lot of smoke and mirrors. The more complicated and convoluted the tax system, the better! It keeps lobbyists and the tax industry gainfully employed.
Who’s Kate Gosselin and MJ? Jk.
Thanks for stopping by Matt!
This makes way too much sense to come to fruition without intense and continual war against the current gov’t system.
Arguing that it’s commonsensical to the gov’t doesn’t matter because in doing so you are assuming they care if it makes common sense. They don’t care. Quite the opposite actually, they are doing everything in their power to take as much of our money as they can without us knowing what is really going on.
In the meantime the general American public is concerned with Michael Jackson and Kate Gosselin – and this is no accident either.
Keep uncovering the layers…
You did great explaining the Flat Tax situation. Thank You for that!
Your welcome John. Now if there would only be more people to join me and fight tax discrimination! Equality for all!
@admin
You may want to tax the hell out of “early death causing products”, but then you better have a _real_good_ plan for fixing Social Security and Medicare since people will start living longer (presumably in your mind).
I wonder how many smokers, eventually end up _not_ dieing of a smoking related illness… My guess is the vast majority of smokers die of something unrelated to smoking anyway. Anyhow, smoking is taboo, so of course it is already taxed into oblivion.
Hey BG – Good point. Yeah, that’s a financially bad unintended consequence if we tax the heck out of “early death causing products.” How ironic causing longer lives leads to greater financial problems for the system!
Smoking is a great topic. Thanks for reminding me of this post. To give you a preview, I think smokers are the strongest people on earth! Whuh? Stay tuned. FS
Oh btw BG – Did you know the greatest savers in America are those between ages 24-34? It’s because this age group doesn’t believe Social Security will exist when they retire, hence, aren’t counting on it! FS
Only 33% of smokers die from something other than a smoking-related illness: https://www.washingtonpost.com/news/wonk/wp/2015/02/26/the-terrifying-rate-at-which-smokers-die-from-smoking/
Applying disincentives broadly to death-causing products opens up a can of worms, however: what about alcohol? Sugary food? Guns?
@BG The marijuana argument is just a thought! But taxing the heck out of early death causing products sound like a good idea to me! FS
@admin
What!?! You want to tax tobacco products out of existence @ $20 a pack, and in the same breath you want to legalize marijuana? You do realize that the price of cigarettes has grown faster than gold — solely due to taxation. In the past 20 years gold has doubled, yet the price per pack of smokes has increased nearly 8 fold.
I say we start slapping huge taxes on people who attend golf tournaments…
:)
What you ask has been touched on by many over the years. Steve Forbes has been pushing this as well. A flat tax was calculated to require about 17% rate or so to replace the current revenue. But the questions are opened up, any deductions? Mortgage interest? What do you do with capital gain rates?
Another consideration – VAT tax or a consumption tax. I think there’s an untaxed economy that can be a source of revenue. Illegal activities go untaxed, right. But the drug dealer or prostitute spend like any of us. A consumption tax add revenue right when the money is spent. I don’t know the right percent for this to work and eliminate income tax, but it sure simplifies the system. People who earn under $X can apply for a credit to offset a portion of this tax. Anyone over that level or who just doesn’t want to fill the form out has no return at all.
Savings is tax free, going in and coming out until spent.
Of course, there are problems with this as well. No doubt.
Hi JoeTaxpayer – Thnx for your thoughts. Funny story. I sat right next to Steve Forbes on Dragon Air from Shanghai to Hong Kong about 5 years ago. We talked a little bit about the Flat Tax, and he’s the main guy to get me thinking about the plan.
It’ll be interesting to see how the VAT tax evolves, as I saw the recent news headlines. I’m a big proponent of mega taxation on the Big Tobacco company’s corporate earnings, as well as the end products they produce. Since demand is relatively inelastic, instead of a $5 pack of Marlboro’s, why not slap on a $15 tax to make it $20? Save lives and reduce polution.
Legalizing marijuana is another thought, and is a whole blog post debate on itself.
thnx for stopping by!
FS
@admin
Thanks for the compliments; sometimes I just get inspired and write until I run out of things to say. This was one of those times, I guess. And just to clarify, I wasn’t accusing you or anyone else here of advocating a per capita tax to fund the national economy; as you mentioned, it would be horribly, horribly regressive, and almost nobody would support it. I was merely attempting to make a point about fairness: it’s in the eye of the beholder.
Although, it’s worth mentioning that per capita taxes are used, albeit in much smaller sums, and that’s one reason why lower income earners can end up paying a larger percentage of their income toward taxes. A $100 per capita tax represents 1% of a $10,000 a year income, but only 0.1% of $100,000 and 0.01% of $1,000,000. A few taxes like that, and suddenly the bottom wage earner is paying out a sizable portion of his income while higher earners, even if said higher earners are paying a higher marginal tax rate. Add in the fact that higher income people usually derive a larger portion of their income from investments (which tend to have associated tax benefits), and it’s easy to see how the percentage paid out in taxes is almost the same for all income brackets over $40,000, as MLR notes.
Flat tax only works in the USA if you can magically get every state & municipality to revoke their income taxes and – more importantly – their sales taxes!
Oh, and let’s not forget the dividend & capital gains concessions for the rich…
No offense taken. I am currently in the “fourth 20%” bracket and have been in each lower bracket. My parents are in the “next 5%” bracket so I see how their numbers work out, too.
And what do you mean you can’t just “average” people out? That is the only way to make an argument when you are talking about 300 million people. Some will pay less, some will pay more, but in the end.. the average gives us a decent picture of what the -average- person in that bracket is paying.
There really is no disputing the fact that when you look at federal, state, and local taxes… the rich are not being taxed into oblivion. They are being taxed at the same rate as the middle class. You will always have your outliers in every bracket.
When you say uglier picture, I imagine you are talking in absolute terms? Or maybe you are an outlier and are paying a higher tax burden than the average person in your bracket is?
Keep in mind, the tax rate above is taking into account pretty much everything: Federal income taxes, payroll taxes, state income taxes, sales taxes, property taxes, etc.
@MLR
We can’t just average people out because we all pay a different effective tax rate.
I have to venture to guess the reason why you don’t see a progressive tax rate is because you don’t make over $200,000, let alone $137,000 where you really start feeling the pain of higher taxes. Please correct me if I’m wrong, as I mean no offense.
I have gone through every single tax bracket in my career, from $15,000/yr to over $500,000/yr and I can tell you straight up from experience that it isn’t a much uglier picture when it was time to pay taxes at the higher end of the income spectrum.
Federal, State, and Local Taxes in 2008
Income Percentile / Avg Income / Effective Tax Rate
Lowest 20% / $12,000 / 18.7%
Second 20% / $24,500 / 22.3%
Middle 20% / $40,000 / 27%
Fourth 20% / $66,100 / 30%
Next 10% / $101,000 / 31.5%
Next 5% / $144,000 / 32.2%
Next 4% / $253,000 / 32.1%
Next 1% / $1,445,000 / 30.9%
If you average out all of the bottom 99%:
Average income is $56,500 and effective tax rate is 29.4%
People make it seem like our tax system is progressive. I just don’t see it once you get past the $40,000 mark.
@admin
You can disagree, but the data speaks for itself. Once you get above the $40-50,000 per year I mentioned, the effective tax rates are all between 28% and 31%. That is counting local, state, and fed taxes as I said.
I don’t really find a way to dispute that.
The lower income group goes as low as I think a 20% effective tax rate. Not sure… the data isn’t in front of me.
Good discussion.
@MLR
MLR: excellent point on the effective tax rates for the “ultra-rich”. You can thank good ‘ol George Bush Jr. for that one — through his $600 billion tax break for the rich in 2003. The “ultra-rich” get the vast majority of their income as dividends, which are taxed only at 15%, hence the effective tax rates for the “ultra-rich” is less than the effective tax rates for people who earn incomes.
https://www.washingtonpost.com/wp-dyn/content/article/2007/06/27/AR2007062700097.html
@MLR
Good to hear from you man! I agree, it’s all about protecting big bad corporate interest groups, and therefore the wealthy may very well benefit the most from our tax dollars. The big guys at Citigroup, for example surely are!
I’m going to have to disagree with you on your last statement regarding after $50,000, effective tax rates are virtually flat. Maybe in massive aggregate, they are, but not for individuals and real life examples such as myself.
I’ve made $3.30/hr, and I’ve made a lot more than that, and at least from my standpoint, I am paying a lot more in absolute dollars and as a percentage of my income. When I was working for $3.30/hr, I remember thinking it wasn’t fair that million dollar incomes were being taxed at 50%+ all in (fed/state), b/c I wanted to make a million dollars a year one day myself.
It’s great you’ve stopped by. Good stuff!
Financial Samurai
@Roger
Wow, what a great comment and response! Roger, you win the award for longest comment at Financial Samurai! :) I honestly don’t think anybody will be able to beat your post for a while.
First, thanks for pointing out the difference between effective tax rate and marginal tax rate. I agree, too many folks probably think that the highest marginal tax rate pertains to ALL their income, instead of just the income above a certain level. Effective tax rates are often much lower.
Second, clearly, I disagree with having everybody pay a fixed tax bill of $10,000 as you mentioned b/c that seriously isn’t fair to lower income earners.
Third, your utility argument is spot on, and why I mentioned in the beginning that we should definitely agree to ELIMINATE any taxes below the poverty line ($25,000 for family of 4, $10,000 for a single person etc).
Thanks for stopping by, and we really appreciate your thoughts and input!
Financial Samurai
Oh, and to give a little more data:
When you account for federal, state, and local taxes, in 2008:
The bottom 99% paid: 29.4%
The top 1% paid: 30.9%
Once you get above $40-50,000 in income, the effective tax rates are virtually flat.
The first problem is that people, for some reason, think that the rich pay excessive taxes. I pay a higher percentage of my income to federal income taxes then the richest Americans.
400 Richest Americans (2006 data):
Adjusted Gross Income $105,300,000,000 — Average/pp $263,306,000
Capital Gains taxed at Lower Rate $67,600,000,000 — Average/pp $169,020,000
Income Taxes Paid $18,100,000 — Average/pp $45,216,000
That is an effective tax rate of 17.2% (45/263)
This is the lowest it has been since 1992.
The next question is: Who derives the most value from what we spend taxes on? For example:
-Military — Largely a protector of corporate interests, someone with a net worth of $5 billion has a lot more to lose than me
-Roads — People with higher net worths most likely depend on good infrastructure so that commerce can thrive and they can make money. I rely on it so I can get to work and make those people more money.
You can pretty much go line by line and show that the wealthy have a vested interest and more to lose. There are some cases where that isn’t true… and they make sure to vocalize their opinions when that happens.
Alright, in the name of advancing a good conversation, I’ll attempt to play devil’s advocate (or at least, try to punch a few holes in the flat tax is the best system idea). First, attempting to make a tax system fair is tricky, as ‘fair’ is such a subjective word. Rather than being something you can easily measure, it’s a moral judgment, which will depend on an individual’s sense of right and wrong. Depending on your moral feelings and beliefs, what is ‘fair’ to someone else might be completely ‘unfair’ to you.
Let’s look at an example of another ‘fair’ tax system to get a feel for this. Let’s say the government decides to replace all federal taxes with a single per capita tax, set at about $10,000 (what the government would need from each of us to meet its annual budget, by my back of envelope calculations). It’s ‘fair’ in that everyone in the country will have to pay the same amount, including you, me, Donald Trump, and poor man on the end of the block. But, obviously our ability to pay will be very different. Someone making one million dollars a year will barely notice the ten thousand missing, someone making $50,000 will feel the loss but still have plenty of money remaining, and someone making $10,000 will watch as the government quite literally takes his whole paycheck. Even though this system would be fair (by the standard of taking an equal amount from each person), it doesn’t mean it would be an ideal tax system.
Which brings me to my next point: mathematical even-handedness isn’t the only concern when designing a tax system. If it was, I’d gladly concede that it’s hard to make a ‘fairer’ tax system than a flat tax on income from all sources (although, that net worth tax BG keeps mentioning sounds promising, as well). Instead, the designers of the tax system also attempt to: promote desirable behavior (which is why mortgage interest is tax deductible and why IRA accounts exist), drive financial investment (hence the lower long term capital gains tax) and maximize taxpayer utility (the ability of the income to satisfy the [taxpayer’s] needs).
This last point, utility, is a major reason that liberals (and for the record, I definitely lean that way, even if I don’t go so far as to call myself a liberal in many areas) support a progressive rather than a flat tax. Taking 15% of the income from a family of four earning $30,000 a year will have a much bigger negative impact on their standard of living than taking the same percentage from someone earning one million each year. Indeed, because the difference in utility between $25,500 and $28,500 is so much greater than the utility between say, $850,000 and $750,000, it makes sense to create a tax system where someone grossing $30,000 each year only pays 5% and someone earning one million pays out 25%.
This utility issue (or perhaps their own sense of ‘fairness’) is one reason why most flat tax plans include a healthy exemption or ‘negative income tax’ that offsets the tax paid by lower income taxpayers. A typical set up is having the tax set at a particular rate (let’s say 15%, to stay consistent) but only applying that tax to income above a set amount (say, $20,000). A family of four grossing $30,000, for example, would pay only $1500 (15%*$10,000) or 5% of their income in this scheme, while a family earning $100,000 would pay $12,000 ($80,000*15%), 12% of their gross income. Thus, most flat tax plans are actually progressive in nature. (Yours is not, since everyone earning above the minimums you set will pay the full 15% in taxes. However, this means that everyone earning just below your minimum for full taxation has no incentive to earn more, unless they can earn enough to offset the now applicable taxes and still have more income than they had before. That’s another of those goals of a good tax system: not creating disincentives to more work.)
Finally, a brief (no, really) note on discrimination and income. There seems to be a lot of misunderstanding of how tax brackets actually work, and I think that might be the source of some confusion. The tax bracket you are in represents the tax you pay on the LAST dollar of taxable income, not the percentage you pay on all your taxable income. The ER doctor and teacher given in your example both pay the EXACT same amount in taxes on their first $50,000 in taxable income. It’s only on the first dollar he earns more than the teacher that increases the amount he owes in taxes above how much she owes, which would occur regardless of whether we have a flat tax system or the current progressive tax. If he really wants to pay the same amount in taxes as her, there are ways he can reduce his income to match hers (such as giving $950,000 away each year to qualified charities), all of which are within his power. (Apologies to those who already understood tax brackets; but this seems to be a sticking point in most people’s minds.)
You might argue that it is not FAIR that the doctor pays a higher percentage of his taxes than the teacher. You might further claim that both teacher and doctor SHOULD pay exactly the percentage in taxes (although, as already noted, no flat tax plan currently in consideration, save for the Financial Samurai’s, would actually cause them to do so). But that goes back to the first point I made; what’s fair is subjective, and it depends on who is doing the judging. I think a progressive tax (a genuinely progressive tax, without all the loopholes and tax dodges inherent in our current system) would be very fair; you are certainly entitled to disagree, and maintain that a completely flat tax is the best system. Hopefully, I’ve at least made a thought-provoking point or two about fairness and taxes (and resisted the urge to call anyone an idiot in the process).
Until the government dares to spend less on Military, Medicaire, and Education… our taxes will NEVER go lower than they are now (we’re close to all time lows actually), and the rich will always pay a greater % of their income to taxes. The beast is already in motion, and is impossible to stop.
I agree, changing our tax-code to be a purely “flat-networth tax” will never happen. But guess what, having property taxes, “progressive” income taxes, and a positive inflation rate is pretty darn close to the “flat-networth tax”, so I don’t mind the current system at all.
:)
@BG
Ah, I’m back. Nice to see “The Genius” chime in too. Ok, i think we’re good. A net worth tax sounds quite reasonable, and I would much prefer this over the current progressive tax system. too bad implementing such a system has only a slightly better snowball’s chance in hell to get implemented! :)
Thanks for sharing your thoughts BG. I appreciate the insight. As I strongly believe, education is key, and reverting back to the title of this post, I feel LESS like an idiot at the end of the day, compared to the beginning of the day!
Financial Samurai
@The Genius
The Genius: If someone makes as income $350k and has ZERO networth, then they would pay ZERO in taxes under a flat-networth tax.
If someone else has $2 billion in networth (from an inheritance for example), but ZERO in income, they would still pay $60mill a year in taxes (3% of $2bill).
The principle is simple, just like property taxes: if you are hoarding wealth and can’t “grow” it at least 3%, then it will go to somebody else who can. If you own property and can’t afford to pay 3% taxes on it, then the property _will_ go to somebody else who can make better use of the property.
Flat-tax on wealth is taxation that punishes “inefficient hoarders”, and rewards the people who are hard workers or otherwise make better use of the resources — it is pure capitalism.
BG, I don’t know if you’re still around, but thanks for mentioning and explaining the flat-tax on net-worth idea. Is this an idea that has been implemented somewhere or just theoretical at this point? Has it been around in economics for a while?
If you’re taxing people by net worth then no one will be able to save anything for retirement and no one will be able to pass on wealth to their family. This seems unfair to me. For example. If you have a retired widow living off her husbands investments and technically she’s worth 3 million dollars but she has no income and son who’s a single dad, he works 12 hours a day and still can’t afford daycare for his daughter so she helps him out. Now you want to take 3% of that money away but she has no income to put back into her worth. So slowly she’ll become worth nothing after using the money to pay bills, taxes and other things for her family. That or she’ll have to take everything out and file it as income so it won’t be taxed. Maybe I’m not understanding it correctly though. Let me know if I am wrong.
@BG
This is absolutely TOTALLY wrong BG. Believe it or not, many people who make $250,000-$350,000 in America are just middle class. They’re struggling to get by just like the rest of us b/c it’s most likely they are living in high tax states, and America’s most expensive cities like New York and San Francisco. They’ve got school debt, a mortgage, and their kids education to pay for.
I totally agree with FS that taxing one income level greater than another as a percentage is discrimination. Your $2 billion net worth example for the “rich man” is totally off. I know you’re trying to make a point, but it fails. Even a multi-millionaire i
We should encourage hard work and freedom, not malaise and sloth. I’m assuming you don’t make much more than $250,000, which drives your points of view. If you ever do make more, I’m absolutely sure your view will change b/c you’ll realize the more you make the more you feel like you’re going backwards.
BG – Who knows what people’s net worth is? Some could be 31 years old, 3 yrs out of business school making $500,000 / year at a private equity shop but has minimal net worth due to age and debt. The guy shouldn’t be paying a higher percentage. Progressive tax makes people not want to get more education, work harder, and do more.
A net worth tax is not feasible even though it’s awesome for a high income earner with minimum net worth. A flat tax on income is the best way to go.
@admin
I’m not seeing it the way you are. A flat-tax on networth is not taxing anyone more or less than anyone else — everybody would pay the exact same tax rate based on their wealth (3%).
Now, a flat-tax on income will tax people differently / unfairly, when put into the light of the wealth/networth of the people. Of course, if you ignore the networth, then it is hard to see, but with my example, it should be pretty clear methinks. A 15% income-tax on someone earning $1mill with a networth of $2bil is only taxing them 0.0075%, while the poor guy is paying taxes at 7.5%. That is a HUGE difference. What do you mean it is not fair to tax people with higher incomes (like our current system). The people with higher incomes have higher networths, so they are not really paying more if you look at their networths.
I am not saying any group should be discriminated against — nobody should pay more or less _relative_ to their networth: looking at just their income only muddies the waters — income means nothing, however networth/wealth means everything.
If we go with your argument (pro flat-income tax), then the poor person who only has 0.005% of the wealth should pay about 5% of the taxes — that is _not_fair_.
BG – Typo on my part on whether net worth tax is regressive since I just proved my point the very next paragraph.
Ill have to disagree with ur argument here. We can keep taxes the same for the “poor”, but I don’t think it’s fair to tax people who make more, a higher percentage. You’re making an argument about that taxes on the poor will go up under a flat tax system. That is simply not the case as math will show. It is not fair to tax the higher income people more bc that is discrimination. It seems like you don’t think so, and it’s really about arguing against equality.
I did the networth tax calculation and I will be paying way less in taxes than simply a flat tax calculation. Hence, I’m a proponent of course!
Ciao
@admin
“…So you are saying the flat tax on NET WORTH is regressive….”
no, the flat-tax on income is regressive, the flat-tax on networth is fair.
“So, in this net worth calculation, if the rich person who owns 99.995% of the wealth is paying 99.995% of the taxes, that sounds pretty darn fair in this two man country, which is exactly your point right?”
absolutely, it is fair for the person who has the majority of the wealth to pay the majority of the taxes — every man pays the exact same rate of taxes based on their personal wealth. How is this not fair? I love to see a rich person try to rationalize / justify this one, though my comment is not directly aimed at you (admin) cause I don’t know if you are rich or not.
“But, what about just simple a flat tax on gross income regardless of your net worth?”
because that is highly regressive: poor man is paying taxes of 7.5% of his networth, while richman gets off with only paying taxes of 0.0075% taxes of his networth. Person least able to pay is paying more == regressive taxation by definition.
“but at least a flat tax on gross income is a step in the right direction…… no?”
No!, a flat-tax on income is a step in the _wrong_ direction. All it will do is increase taxes on poor, while decreasing it on the rich. If anything, we should stick with our current system because it is more “fair” than the flat-tax on income idea.
Good debate, and have fun on the trip!
@BG
Ah, sounds good. So you are saying the flat tax on NET WORTH is regressive. I can see that from your example. So, in this net worth calculation, if the rich person who owns 99.995% of the wealth is paying 99.995% of the taxes, that sounds pretty darn fair in this two man country, which is exactly your point right?
But, what about just simple a flat tax on gross income regardless of your net worth? This is where I don’t fully understand why a flat tax isn’t totally fair. Yes, a person with a billion in gold bars and a $20,000 a yr income may pay less taxes than a $1mil/yr income earner with only $500,000 in net worth, but at least a flat tax on gross income is a step in the right direction…… no?
BTW, gotta go to a client event at Harding Park and watch the President’s Cup now… so I’ll be awol for the day as they don’t allow cell phones. But, I will get back to you when I return! You bring up some excellent points. Shoot me an e-mail sometime. Perhaps u want to do a guest post! ciao
@admin
Let me try with adding a little more information with your example:
Poor Man: $50k income, with networth of $100k
Rich Man: $1mill income, with networth of $2 billion.
Poor man under flat-income tax is paying taxes equal to 7.5% of his networth.
Rich man under flat-income tax is paying taxes equal to 0.0075% of his networth.
A flat-income tax is highly regressive in that people who are least-able to pay, are paying more.
With a flat-wealth tax @ 3%, we would get:
Poor man pays $3k in taxes instead of $7.5k in taxes
Rich man pays $60million in taxes instead of (laughable) $150k in taxes
If the government only needed $157.5k in tax money, then of course the flat-networth tax rate should be reduced down to accommodate that. The basic idea though is that the rich person who has 99.995% of the wealth in our two-man country, would be paying 99.995% of the taxes.
@BG
Nothing is entirely fair in world, but as I was trying to point out in my article, if there’s a flat tax on a guy making $50k/yr, and $1mil a yr, they are paying the same percentage of their income to tax, and the guy making $1mil a year is paying 20X more. Mathematically, it’s totally fair… a truism if you will.
That said, please help me understand how a flat-income-tax structure is regressive. I have a feeling it’s b/c someone making less, even though they are paying less in absolute income to tax, have it tougher b/c there are basic necessities to spend on, but I’d still love to hear your point. I’m just trying to get educated as much as possible before we move on to another post.
For the net worth tax, there are just too many variables to calculate. Let’s just stick with one variable, people’s gross incomes. Part of the reason for a flat tax is to extricate the waste (time and money) spent to do one’s taxes. I have a feeling the tax coompanies have mega lobbyists.
I found this (old!!) post browsing on your site. Looks like nobody ever responded to your question about how a flat-income-tax could be regressive. With all the coverage the inequality issue has gotten in the ensuing years, you’ve probably learned the answer, but here it is: because FICA is capped, lower income people would pay a higher percentage of their income in (federal) tax than higher income people — if the tax brackets were flat. Of course, related to this is the observation that even people in the “zero tax” bracket, if they have a wage-paying job, are paying tax. Speaking as a fortunate member of the highest possible tax bracket naturally I love your flat tax idea! But let’s be real about how the world works, in our lifetimes there isn’t going to be a “clean” flat tax bill that simultaneously eliminates all distortions (charitable contributions, mortgage interest, corporate R&D, not to mention carried interest, pass-thru, etc.). Just looking at the difficulty congress had making small progress on these issues like eliminating the personal exemption and changing the caps on mortgage interest (and the failure to do anything about carried interest) in the recent tax bill, we can see the task is either Herculean (if you’re an optimist) or Sisyphean (if a pessimist).
@admin
Not too hard to calculate Networths. For property taxes we already have appraisal boards, no big deal there. Most other wealth is in 401ks, or other investment accounts at financial institutions, so those accounts are calculated daily already. For autos or other items of any real value: go by the insurance-coverage amounts. For all the other little stuff (furniture/etc), it might not even be worth trying to tax it, but again, we can go by home-insurance/renter coverages for those items that are included in each policy.
The big issue would be trying to tax people who physically own gold or other similar things, ie; people specifically purchasing gold to avoid the tax. If they don’t “insure” their physical gold, then too bad for them if they get robbed.
Anyhow, if you like the idea of the “fair-wealth tax” idea, then your eyes should be opened to see how “fair” our current system actually is, and how horrible an idea it would be for a flat-income-tax (which would be highly regressive: taxing low-wealth people more).
how would you suggest offshore accounts used by almost all rich people and corporate america to hide their “net worth”? you would need to penalize this practice very very heavily (say 50% of what is being hidden) to stop this practice. FYI there are also a lot of conservatives whom make massive amounts of money whom pay way less than 15% currently, many many rich people and much of corporate america take advantage of the many loopholes to pay almost nothing in taxes.
@stephen
Sounds good man. Gross income pre any deducations X the Flat Tax Rate = Your annual tax bill! No exceptions!
I’m for flat tax rate as long as there are no loopholes, and I mean absolutely zero loopholes.
Morning World! I find it interesting there are at least 4 thumbs downs for this post yet I still haven’t seen a rational comment as to why the flat tax system is bad or unfair. Negative comments welcome!
Also, anybody know what’s up with the Tweet thing? Still says zero, even though the have been a number of tweets and retweets. Ahhhh, technology.
@Greg I’m just talking about the Federal Income tax here, and 15% was just a number I threw out there since Hong Kong has a 15% flat tax, and their economy is doing quite well.
Hard to govern individual states and what they do with their budgets, and all the other tax stuff well, I think that’s more a problem of spending. If we can spend less and more efficiently, taxes should go down.
Best, FS
I don’t think the flat tax system is bad or unfair, but I do think that the real issue is not a flat tax vs progressive tax, but rather how does the IRS define income? How does Hong Kong define income? Is their tax system any less complicated?
You words are music to my ears! But I think you need to clarify your position a little more. Is the 15% the only federal tax we will pay? Or are we still stuck with FICA, excise taxes and corporate taxes (interest, dividends, capital gains and rents). Unless these are included everyone’s total tax rate will be much higher than it is today!
Only to be a devils advocate, there are too many liberals that believe it would be unfair to the lower income population. Relatively speaking (relative to their tax burden today) this may be the case. While you have excluded the “impoverished” in your example there are still thousands above this line that pay a lot less than 15% in taxes.
However, if you can benefit from the system you should have to pay into the system, period! A person at or near the poverty line will receive benefits of much greater value than they ever pay into the system, I don’t see how that can’t be fair.
BG – just doing the prelim calculation for myself, I love that idea! However, it may be too complicated to calculate one’s “net worth” as I think the entire calculation is a bunch of baloney :)
It’s harder to fake ur income than it is to fake ur net worth too.
The only fair “flat tax” is a “flat wealth tax” — tax 3% of everyone’s net-worth, and do away with income taxes completely.
I’ve always thought a flat tax was inherently fair! What’s not fair about somebody who nets 10x what you net paying 10x the tax?
Part of me wonders if the voting public is just so bad at math they think taxing people at the same rate doesn’t reflect that.
Hi Dar – Cool, glad to have you on board. The voting public may very well be that bad at math, it is a good theory! I know I couldn’t and wouldn’t do math after pre-calculus. I felt there was no point! What am I gonna do, differential equations while buying groceries?! :) FS
Honestly heres the thing you are proposing to tax income at 15% and i do feel bad for high income earners because usually they are professionals that worked really hard for their money. The problem is that if you start charging the middle class 15% in income tax on top of payroll tax, gas tax, property tax, and sales tax then you will have so many people that are considered middle class now have to sign up for food stamps and section 8 vouchers because the majority of their income would go to taxes. Think about it your rich do you pay more in payroll taxes, gas tax? than a poor person by percentage of income. What about sales tax do you spend all your money you make on goods or investments? which means the middle class pay more in sales tax than you do. Thats whats wrong with a flat tax its regressive and it hurts the poor. You as the 1% pay the most in income tax that is about 10% of GDP on average the the bottom 90% pay more in sales tax payroll tax and gas tax which together is about another 10% of GDP. So in reality your crying because they take your money so why don’t you grow up and do what every american does which is pay your taxes because contrary to popular belief everybody pays taxes
There’s a very good reason why flat tax is not fair: rent seeking. Money = Influence. If money can buy wealth without generating value through production, then it is possible to steal wealth from the overall economy in that every dollar is then worth less. It is incredibly difficult to police this behavior, both pragmatically and as matter of will, so to compensate, we impose more taxes on those people merely for having the ability that lower income people do not have.
If you really wanted fairness in taxes, first you have to eliminate lobbying, donating to political campaigns, purchasing competing companies, collusion between companies, vertical monopolies of any height… pretty much anti-competitive behavior of any kind. That’s a pretty difficult thing to do, and each has clear benefits. So instead, just tax them.
And by the way, the 1% pay a huge proportion of the tax revenue, that’s because they’re the ones who are doing this stuff. The $100k-400k earners aren’t those people. That’s why there are people in Congress who care about the estate tax even though it affects almost nobody. It’s because those people are paying those Congress members to care.