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The 15% Tax Rate

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Re: The 15% Tax Rate

#71

Post by notahacker »

drblast wrote: post #11
llambda wrote: post #3

> I've heard a number of arguments over the years against a flat tax. One is that a flat tax is regressive meaning that it penalizes lower income earners by taxing them at the same rate as higher earners. But I think we are all coming to realize that the current system may be even more regressive since most wealthy people find ways to pay lower tax rates. Let me preface this by saying, I don't necessarily disagree wi…

I can attempt that one. "Regressive" is bad only in the sense where it's disproportionately affecting the quality of life of lower-income people. So if I have a flat tax that only affects incomes over a certain income level, and that income level is set high enough so that a reasonable person's food, shelter, and clothing needs are met, it's a lot harder to argue that the tax is unfairly regressive, especially when y…

A graduated tax system where higher incomes are charged at higher marginal rates is no easier to cheat than a flat tax system. The existence of loopholes is the consequence of poor policy design rather than the tendency of taxation to be progressive.

A revenue-neutral flat tax system would ultimately require the majority of people to pay higher marginal tax rates than they do at present, and its inevitable negative effects on the quality of life of the middle classes (even if their basic needs were covered) wouldn't be balanced out by a positive impact on the quality of life of the smaller numbers of people wealthy enough to never consider budget constraints when making spending decisions.

Re: The 15% Tax Rate

#72

Post by benmmurphy »

Aloisius wrote: post #47
meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

Consumption taxes in practice are incredibly regressive. Someone who earns $20,000 must spend the majority of their money in order to live. Someone who earns $1.2 million will probably spend a small fraction of it.

i'm not convinced. if someone earns $20,000 over their lifetime and consumes $20,000 over their lifetime I would say they are richer than someone who earn $1.2 million their lifetime and consumed $10,000 over their lifetime. it is total lifetime consumption that matters. so if people are not spending all their income than it can't increase regressivenes it can only help to increase consumption equality.

Re: The 15% Tax Rate

#73

Post by rmrm »

Aloisius wrote: post #47
meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

Consumption taxes in practice are incredibly regressive. Someone who earns $20,000 must spend the majority of their money in order to live. Someone who earns $1.2 million will probably spend a small fraction of it.

that is why the "fair tax" where everyone receives an equal rebate to cover a certain base level of spending has merit.

15% tax rate applied at point of sale universally. Say $20K in spending per person is exempt. Each person receives rebate (or prebate) check for $3K.

You end up with a progressive consumption tax.

Re: The 15% Tax Rate

#74

Post by tzs »

DanielBMarkham wrote: post #9

I think the key takeaway here is that complexity is a completely different thing than policy. We've had all sorts of politicians make all kinds of great speeches about various policies to implement with the tax code. All that got us was a complex mess. Inside that mess was a lot of corruption paid for by lobbiests. You can hide a lot of cronyism in a tax code. I think no matter what you want the tax system to do, as…

A flat tax is completely independent of whether or not the tax system is complicated. There are basically two issues when designing an income tax:

1. For a given taxable income, what is the tax?

2. What is taxable income?

To make a flat tax you fiddle with item #1. This involves changing a page of the tax code.

To make a less complicated tax, you fiddle with item #2. This involves changing the other 71000 pages of the code.

Re: The 15% Tax Rate

#75

Post by orangecat »

Retric wrote: post #70
yummyfajitas wrote: post #8

Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. Mitt Romney and Fred Wilson are atypical cases. The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation…

Your ignoring 1/2 of Social Security and Medicare taxes. And also not plotting the tax rate of the top 1% or 0.1% both of which are dramatically lower due to not paying Social Security on income over 120k or Medicare on investment income. The bottom quintile pays over 20% if they have a job. Medicare alone is 15.3%. Also, corporate income taxes only apply to US investments, which is rarely 100% of any sane persons in…

Your ignoring 1/2 of Social Security and Medicare taxes.

Well, defenders of the current SS and Medicare system keep insisting that they're not really taxes, they're "contributions" for "insurance" that everybody pays into for the purpose of receiving benefits later. I'm all for abolishing those taxes and funding means-testing benefits out of general revenues, but the left hates that idea because they don't want SS and Medicare to be thought of as welfare.

The bottom quintile pays over 20% if they have a job. Medicare alone is 15.3%.

That's Social Security, Medicare is only a few percent. But the rate is correct; "your employer pays half" is a legal fiction.

Re: The 15% Tax Rate

#76

Post by Jach »

ck2 wrote: post #27

Income is income is income. If you make over six digits I don't care what the source is, no-one should get a special rate. Because once you hit that level, there is no way you could convince anyone you are "suffering" even if you decided to work 12 hours a day. At that level work is a choice, where the millions making 4 or 5 digits have no choice.

The "money alone can't buy me any more happiness" line is somewhere around $60-$70k per year in the US. I don't agree with you that working is a choice at a mere 6 figures. Okay, maybe they can work one year and take five to ten years off unlike most people, but when their sabbatical is over they still have to work again. Or maybe it's easier than I thought to set up a $20k/yr passive income source. Maybe at 8 figures working for the next 20-40 years becomes optional, but even then that depends highly on your investments.

Re: The 15% Tax Rate

#77

Post by rmrm »

cluda01 wrote: post #67
drblast wrote: post #11

Earlier quoted context omitted.

I can attempt that one. "Regressive" is bad only in the sense where it's disproportionately affecting the quality of life of lower-income people. So if I have a flat tax that only affects incomes over a certain income level, and that income level is set high enough so that a reasonable person's food, shelter, and clothing needs are met, it's a lot harder to argue that the tax is unfairly regressive, especially when y…

My personal problem with regressive policies is not that it effects peoples quality of life, rather that it affects the lives of their children. People that did not have a choice about which family they are born into. Consider my own personal story. I come from an upper-middle class family. During high school I wasn't particularly motivated to excel academically and as a consequence didn't get particularly good grade…

>Consumption taxes are regressive because they penalize the spenders. Bill Gates doesn't spend nearly as much money as he earns and as such pays a lower effective tax rate than someone who makes $30,000 a year and spends it all to support their family.

You are ignoring the part he put in about the stipend to cover tax on basic living expenses. With that included, the $30K spender will pay a much lower effective tax rate than Bill Gates.

Making a flat consumption tax progressive in practice is a very simple solved problem --- there might be other arguments against a flat consumption tax but it being regressive is not really one of them. A rebate or prebate that covers the tax up to a certain dollar amount per person solves it nicely.

Re: The 15% Tax Rate

#78

Post by orangecat »

cluda01 wrote: post #67
drblast wrote: post #11

Earlier quoted context omitted.

I can attempt that one. "Regressive" is bad only in the sense where it's disproportionately affecting the quality of life of lower-income people. So if I have a flat tax that only affects incomes over a certain income level, and that income level is set high enough so that a reasonable person's food, shelter, and clothing needs are met, it's a lot harder to argue that the tax is unfairly regressive, especially when y…

My personal problem with regressive policies is not that it effects peoples quality of life, rather that it affects the lives of their children. People that did not have a choice about which family they are born into. Consider my own personal story. I come from an upper-middle class family. During high school I wasn't particularly motivated to excel academically and as a consequence didn't get particularly good grade…

You're never going to get rid of the advantages of being born into the right family. Money is a relatively minor component; your major advantage was that your parents actually cared. If the Ministry of Equality had outlawed private tutors, your parents would have tutored you themselves, still giving you an "unfair" advantage over kids with less responsible parents.

Re: The 15% Tax Rate

#79

Post by tzs »

> And so lately I've been more and more attracted to the idea of a flat tax where everyone pays the same tax rate on income above a minimum amount

That's not a flat tax. It is a progressive tax with two brackets. People who reach the second bracket pay a variable overall percentage that rises the more they make. I have never heard anyone make a convincing argument that this is better that a progressive tax with multiple brackets.

In fact, a progressive rate with multiple brackets is what you get if you apply a two bracket "flat" tax serially. What I mean by that is suppose that for each major department or function of the government you had a separate tax specifically to fund that department or function, with a two bracket structure. You get a separate tax bill for each of these in some specified order, with the taxes on each being deductible when computing the taxes for the ones that follow.

If you take this to a limit, imagining a separate small two bracket tax for every single thing the government does that needs money, and then replace the thousands of very small brackets with a smooth marginal tax rate curve, you'd get a monotonically increasing curve.

Re: The 15% Tax Rate

#80

Post by ashconnor »

DanielBMarkham wrote: post #9

I think the key takeaway here is that complexity is a completely different thing than policy. We've had all sorts of politicians make all kinds of great speeches about various policies to implement with the tax code. All that got us was a complex mess. Inside that mess was a lot of corruption paid for by lobbiests. You can hide a lot of cronyism in a tax code. I think no matter what you want the tax system to do, as…

Then make it simple like Estonia did.

http://www.slideshare.net/rahamin/estonian-taxes-and-tax-str...

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