Why do so many Americans (DU'ers) not understand Progressive Taxation?

Really, why? What's so hard to grasp? Is it possible that many simply don't recognize how Regressive Taxation does proportionally the opposite of it?

I believe that Democrats need a better way of explaining these concepts...Frankly Clark is one of the few "front runners" that I've seen do so, on MTP a few months ago, he understands the concept and can relay it to the public in understandable terms. I'm certain that some others have done so as well, I just haven't seen it. I'm not endorsing Clark here I just wanted to focus on this one issue that he seems to "get".

Try this site, I've posted this before, maybe it can help you explain the difference between Progressive and Regressive taxation, maybe not.

http://www.psnw.com/~bashford/taxation.html

See? It's really not that difficult:-)

Pay to play?

EDIT: Some definitions http://www.bized.ac.uk/virtual/economy/policy/tools/income/inctaxth2.htm

I am one of the few Progressives I know who support the idea of a flat tax. Briefly, here's why:

1) A progressive tax pits one section of society against another.

2) Because of reason #1, the tax system becomes more complex over time as different groups vie to create exceptions for themselves. Ultimately, these loopholes primarily benefit those who can afford accountants to decipher complicated tax code.

Please don't tell me that: "Well we can fix the system by closing the loopholes." I don't buy it. You can't repair a system that inherently encourages the powerful to divide-and-conquer away their tax-burden.

For the record...I am only talking about taxes for individuals. I still support progressive taxes for corporations because tax incentives are an effective way to make businesses behave.

Our tax system is regressive as it is. The payroll tax is the major tax most Americans pay, without realizing it.

esp. if it covers both of the current income taxes - SS payroll and the FIT.

Even just replacing FIT by itself it would - if investment income has no special treatment - make the tax much fairer and the rich pay more.

Problem is that the scraps the middle class gets - a tiny piece of the over all capital gains or IRA , etc special benefit or tax break - the middle class wants to keep - they are sexy compared to a bland lower tax burden.

But what you see proposed by the rich is a flat tax on wages with investment income - which is 90% of the income the rich takes down each year - being made tax free.

That's like calling a four-sided geometrical shape a triangle.

I would certainly support some sort of tax on investment income, as long as it's unifom throughout the system. (i.e. all investment income would be taxed 20%)

the deductible.

It has progressivity at exaclty one point on the income scale and presumes that everyone over that level of income are in one boat and all people below that point are in another boat.

That is an incredibly irrational presumption.

There aren't only two tiers of wealth in America. There's actually an infinite number of tiers. And there's no reason that, with computers, you couldn't have every dollar taxed at a marginally higher rate.

investment earnings as worth only 20 cents on a dollar.

And based on this true definition of flat tax - investment and wages treated the same and taxed at the same rate - the rich pay much more.

Which is why when it was proposed in 94 and after Orin Hatch's early "yes, I like it" - it was shot down.

Indeed Bush wants "investment incentives" - meaning the rich pay no tax via a zero rate tax on investment income.

The only

economically justified "investment incentives" is a higher rate of return - but that would not make the money in the hands of the rich "special" "job producing" income that should not be taxed.

The Gop takes a truth - that more investment means more growth - and twists it into something that can not be achieved by higher rates of return being on offer - and which therefore needs Bush's "no or lower" tax status.

What bull!

:-)

But I don't think you would need to have a very high level of taxation to fund everything. Why? Because with a simple tax system, you would be able to account for more money. There woud be no loopholes to hide everything.
Better to have 20% of a $1000 pot, then 50% of $500 pot. (The "progressive" tax system is givning us the later.)

Edwards is proposing a second tier of 25% for capitaly gains income over 500,000. That's something...and it's more than I've heard other candidates propose.

is the logical step after flat taxes, the argument being people have the "right" NOT to pay for "non-essential" services if they do not want to.

Under flat taxes, the wealth of the nation wouldn't change, with everyone working the same amount of hours. How the wealth is concentrated among various social demographics would change.

between a flat tax and pay-per-use. Just because you don't need to pay for accountants and spend hours ripping your hair out on tax-day doesn't mean the government will starve.

The flat-tax should be enough to pay for all services we currently enjoy. There are many studies that show that a flat-tax would provide far more money then we collect right now. (I want to see Universal Healthcare just as much as everyone else in DU)

Taxes are not the only way to re-distribute wealth...we could have decent living-wage laws. And remember, I specifically said that corporations would still have to pay the progressive taxes.

It charges everyone the same price, regardless of their economic situation.

A flat tax of 23% charges everyone 230 bucks for an additional 1000 bucks in income, regardless of whether 230 bucks is the equivalent of an hour of work, a week of work, or no work at all.

pay per use...a concept I am generally against has nothing in common with a flat tax.

If I use a service, I pay a fixed fee...regardless of income.

If I pay a flat tax, the ammount I pay goes up depending on my income.

Plus, I would have a chice to use a service. I don't have a choice to pay my taxes.

everyone.

Whether you make 300K or 10K you pay the government the same amount of money for the benefit of receiving that income.

Why should a single mom making 20K pay the same amount in taxes for an addition 2,000 in income (which shed have to work 10% harder to earn, if it were even possible) that a doctor pays on an extra 2,000 in income, which would only require working 2 hours more (or .05 percent harder)?

They pay the same amount in tax for the same amount of additional income, but the poorer person works 2000 times harder to get that money. Even if you factor out, say, that the doctor worked hard to get to that point, and it's hard work to be a doctor, you might be able to get the differential down to 3 times harder for the poor person to make that income. So don't you think it'd be fair to give them a little break? Like maybe let them pay half the rate of taxation on an additional dollar?

If you don't you're just going to discourage the work of people at the bottom, and stagnate the economy. Of course, Bush want's to make that choice of working for the poor person a life or death issue, so that they'll work harder for less, but that doesn't make regressive taxation right. We still need to give people who work hard a break so that they can work harder without breaking their backs with the tax burden.


Heart of stone there?

because your not reading anything I'm posting.

1) The people living below the poverty line would pay NOTHING. So your single mom would pay nothing.

2) The current system you enjoy protecting is doing more to destroy the middle-class than the imaginary harm a flat-tax would do.
True, under a flat tax, the rich would feel less pain on tax-day than the working-class...but under the current system the ubber-rich pay almost nothing proportionate to their income.

I am beginning to think that the real reason you like the current system is that you don't like the idea of people making more money than you and you want to punish them for being rich.
This fails on two fronts:
1) The rich LOVE this system. They consistently pay less in proportion to their income than the poor.
2) It doesn't help re-distribute the wealth as effectively as a living wage, tariffs or social spending.

Admit it, I'm making hay out of your arguments.

Progressive taxation is an economic thing...its best for the economy...if the rich love this system so much why are they always the ones complaining about it? Where do you get that the current progressive system is more harmful than a flat tax?

You want to maximize Propensity to consume, hence the progressive nature of it...as well as keeping the crazy amounts in check (20 years ago CEOs made approx. 40% more than the average employee, now they make 400% more...I think the change has something-not all, of course- to do with the tax policy changes of the last 20 years)...

I think a flat tax would be regressive, would hurt the economy, and would not increase the middle class...but would increase the super rich...

Though I agree that a living wage would be a huge help for our economy...

In my first post, I said if you don't like the single mom-doctor scenario, and you propose a dedcutible, then you have the doctor-nyse president scneario. It's the same issues transferred to a higher income level.

You have to put that deductible limit somewhere, and you're making an arbitrary decision which lumps very disparate ecoomic experiences into one of two groups. (I've addressed this a dozen times, and you ignore it.)

I don't like the current system. It gets less progressive all the time. The rich got 10% richer this year, but taxes paid by the rich went DOWN! The poor get poorer, but their tax burdens are going UP! The effective rate of taxation on individuals in the five quintiles ranges from like 12 to 16%, in a way that isn't even progressive (the fourth quintile pays the most, and the second the least, and the rich and poor have the same effective tax rate (if I remember correctly)).

We have a progressive tax code in name only. It's not even flat. It's worse than flat. It's irrational. Making it flat doesnt' fix it.

And your hypothesis is insane!

Progressive taxation creates a wealthier society. You just have to work to get the wealth (and work creates wealth, which is why it creates a wealthier society). The only reason anyone would like a regressive code is because they want to reward laziness. Is that what you want? Do you want to protect the already wealthy from having to work to keep their wealth? Do you want to shut out other people from getting wealthy through hard work?

You know, you really have no idea what you're talking about. It's clear that you don't understand how taxes work.

God forbid the next thing you know people will
be appealing to class warfare.

Face it if there was a flat tax it would only
last until the first loophole was bought and
payed for by the greedy rich.

Not the non-greedy rich who support progressive
taxes as well as the estate tax.

Politics is the piting of the intrests of one section
of society against another. In our county the side that
represents the average person has left the field.

Class Warfare!
Because that is exactly what is happening with our "progressive" tax system. The poor & middle class pay the tax burden, yet rich individuals & corporations are pay almost nothing in proportion to their income.

I do agree whole-heartedly with you that:

Face it if there was a flat tax it would only
last until the first loophole was bought and
payed for by the greedy rich.

So to make sure that doesn't happen we would need a constitutional amendment.

If the system was dead simple with no loopholes
it would be fairer than much of what we have now.

I don't see the political will to create a fair flat
system. First of all midle class tax breaks like
home intrest deduction, child credits, ect. will
make the creation of such a system a nonstarter.

The rich will always throw a bone to the middle class
to keep them on board well they feast of the rest of
the cow.

The top bracket for income starts at about 300k for corporations and individuals. That might only be about 1% of individuals, it's probably over 50% of corporations. And some corporations make way more thank 300K. So what do you get:

Well, The IRS, I believe breaks it down like this:

Companies making 0-1mil pay an effective rate of taxation of about 2%. Corporations making 1-5mil pay an effective rate of about 2.5%. Corps making 5-50 mil pay about 2.8%. Corps making 50mil-infinity pay about 3%.

So we have, essentially, a flat tax on corporate income of about 2-3%. And what do you get for your flat tax? Well, just what you'd predict. Increasing wealth and political power in the hands of fewer and fewer people.

So, you want a flat tax? WE HAVE ONE!!! And you want to extend this down to personal income too. Right. Bad idea.

I don't want a flat tax.

I think you are confusing me with brainsnub.

the effective rate of taxation on corporate and individula income.

It's so funny because the individual income scale is in increments of, like, 50K up to 350K, maybe. Then you go over to the corporate income graph and it's increments that are astronomically different from the other scale.

Yet we tax corp and individual income at the same tax bands roughly (the top rates start at the same point -- about 300K).

So, we have a de facto flat tax on corporate income in America.

If we taxed individual income the way we tax corporate income, we'd have three bands starting at $10, $75 and $150 dollars.

are 15% on the first 50K of taxable income,
and 25% on the next 25K
and 34% on the next 25K,
and the it's 39% until it has taxed enough of the lower brackets
to phase them out, and then it reverts back to 34%. Really big
corps are supposed to pay 35% under a similar phaseout formula.

Then you have the alternative minimum tax which is supposed to make it so no corporation pays less than 20% tax in any one year. Some deductions are not allowed for amt.

Operating losses and overseas tax shelters make it so the big big corps don't pay any taxes for years. But most small businesses that don't have access to these gimmicks pay according to the rates above.

exemptions -- as a percentage of their gross income is about 2%-3%

In other words they end up paying those rates only on a small portion of their income, and then they get a ton of deduction from that too.

whatever deductions have been taken by the business generally correspond to cash that has gone out the door. So it's not like the "owner" of the business gets all of the gross income, not by a long shot. If I work for you, you only get to keep whatever profit you have left after paying me and your suppliers and other vendors.

If we made it a gross income tax, then corporations would find a way to reduce their gross income and push it off onto the employees/suppliers. Everyone would become an independent contractor, paying their own taxes. Which actually might not be too bad.

can both deduct the costs of making money from their taxes. Since companies are in the business, almost all their expenses are deductilbe. People aren't, so few of their expenses are deductible.

In one respect this is fair and makes sense. In another respect, should it be the case that 90% of corporate activity is deductible, while most individuals have nothing more than the standard dedcution (which might be the equivalent of 10% or less of their income)?

It's not like individuals aren't out there living in the service of the market place and making sure companies get rich. They play an important role in creating social wealth, mostly through labor, so they should get a damn break.

Instead, we work the hell out of people, tax the hell out of them, and give that money to corporations in the form of, for eg, subsidies which make it even easier for them to transfer wealth created by labor up the wealth ladder.

What we need to do is make rates for everyone (individs and corps) more progressive, and give individuals more deductions which create positive economic incentives (eg, home ownership, savings, education, small business ownership).

since where would corporations be without us? In theory, it shouldn't make a difference, because dividends historically have been non deductible, and taxed to the recipient based on his or her bracket. So the net profits/retained earnings would be equivalent to take-home pay. But just look at how that has been manipulated in favor of the wealthy.



forgive me, I'm running on and on.

It explains the Bush tax-cut well.

the indians don't seem to be too interested in what the chiefs are doing these days...

off to the re-education camp with you then!!! :)

everytime it circulates. No money is entitled to getting permanent tax free status (as it would if the inheritance tax disappeared and people married to consolidate wealth and them, say, invested in municipal bonds).

As for dividends...yes...and there were a thousand things to do which would stimulate the economy way more...and now lots of income will be passed through dividends which are taxed at a flat wealth-insensitive rate, which just shifts more of the tax burdent to people who don't have a choice about how they get their incomes (ie, workers taxed at the highest rates).

it's in there somewhere. Let me know when you find it.

You find it. I'm to busy blowing your arguements away.

you're perpetuating.

No time to search through IRS site.

You don't have to trust me, but it's there.

A true flat tax would be where ALL companies, regardless of size, would pay a uniform ammount.

As I've said over and over again, corporations should pay a true progressive tax. Individuals should pay a flat tax.

large enough that they pay in the top tax band. it's like saying that the tax bands on personal income tax are at $10, $75, and $150 bucks. You can call that progressive, but the fact is, for everyone from $150 to 100 million, it's a flat tax.

That they all get to wittle this down to 10% of the tax rate doesn't mean it isn't flat. It is flat, and it makes it easier for big corporations to make more money, because the more money you have, the easier it is to make more money with less risk -- and by charging everyone the same amount of money for additional increments, you're shifting the tax burden to the lower income companies, and shifting it off the higher income corporations.

It forces people who spend a higher percentage of their income just to live with a minume level of dignity to pay a higher percentage of their total income on taxes than a person who has income which exceeds expenses by a lot (ie, the definition of rich).

Furhtermore, say you charge a person who makes 3 million dollars a year 230 bucks on an additional 1000 dollars in income, and that person is making that income from some passive source (risk free bond, or even savings account interest). Now, if you charge a person wo makes 12,000 dollars a year 230 bucks on another 1,000 bucks in income, and that person has to work their ass off for that money, and that 230 bucks is the equivalent of a full week of work, how in the world is that fair?

How is that NOT pitting one class against another?

If you don't like that example, and you say, OK, lets exempt the first 50,000 in income, then lets try another example.

Take the chairman of the NYSE who makes 150million a year, and say he can make an extra 50,000 dollars just from buying some low risk corporate bonds on some insider information. Compare him to a doctor who goes out and performs surgery on someone (bringing value to society, and taking the risk of a negligence suit). Say that a doctor earning 300K per year makes another 50,000 bucks by giving up all her weekends for a month performing risky surgeries. Why do you want to charge both the doctor and the NYSE president 12,500 bucks in taxes on that added income. The doctor worked hard for that money and took risks. The NYSE president barely lifted a finger, literally, and took now risk at all. Why make the doctor's life harder and the NYSE president's life easier.

Also, even that highly regressive situation is more fair than what happens in reality. Dividend income is actually taxed at about half the rate that that earned income is taxed at.

That's what we do in America. We tax regressively and reward wealth more than work. If you want a poorer society in which people are discouraged from doing socially valuable work with a higher concentration of wealth in the hands of a few, keep taxing the people the way we do. If you want to have a society which encourages people to do socially valuable work, then start taxing wealth progressively, and tax labor at the lowest rates, not the highest.

It really is amazing that more people don't realize that this is how the world works.

I don't have the time to keep checking.

there are many flavors of chocolate. And there are many ways to install a flat tax. For example...people who earn under the poverty level would not be required to pay anything. (So all people would be able to have a minimal level of dignity.)

I fail to see how a progressive tax remedies the straw-men you have given as examples. How do you know the entrepreneur didn't work harder & risk more building her business than the doctor who went to medical school. Do you want to judge each persons income on a case-by-case basis?

I'm not saying that a flat tax is perfect. But it's got to be better than what we've got now.

"A Flat Tax with a deductible is not a Flat Tax"

Yet here you are, proposing a flat tax with a deductible.

Will the real "brainshrub" please step forward?

I am very carefully re-reading everything I have posted. And I don't see where I am contradicting myself. In post #7 I wrote:

7. A flat tax w/ a deductible is NOT a flat tax
That's like calling a four-sided geometrical shape a triangle.
I would certainly support some sort of tax on investment income, as long as it's uniform throughout the system. (i.e. all investment income would be taxed 20%)

Are you saying that by proposing that people who earn less than the poverty level would not have to pay anything under a flat tax is contradicting myself?

Explain.

You have some answers you need to provide before you can go off on tangents.

Your world view has just taken a serious blow to the head here. It's on the canvas ane we're about to count you out.

Since you just reread everything here, you'll know right now what you need to address.

I'm not going on a tangent...just show me where I'm contradicting myself.

!

I don't think you are.

:)

S/He damn well better be serious about reading the answers, too.

brainshrub is unclear on the meaning of "regressive". Sometimes the only way to change these things is by asking questions.

To me, it means any tax-structure where the people who need the system the most, pay the least to support it.

I feel the rich depend on the system more than the middle class. The entrepreneur needs access to the courts, the police, and infrastructure FAR more than a working-class person. You can't create & amass wealth without a strong central government.

If a strong central government primarily benefits the rich, why should the working class support it? Because while the working class do not depend on the system as much as the wealthy, we ALL benefit in the form of mutual protection, a social safety-net and (someday) universal healthcare.

The current "progressive" tax on individuals* places the burden of the system squarely on the working class. A flat tax would lead to a more honest accounting system, and lead to lower taxes for the vast majority of people while not starving the government of much-needed revenue.

*I feel that corporations, not individuals, should have a progressive tax system.

Progressive means that the tax rates you pay on an additional dollar go up as you have more income behind you. Regressive is when that doesn't happen.

The point is to equalize tax burdens accorss all levels of wealth. If you don't do this, it makes life unreasonably hard for the poor and unreasonably easy for the wealthy puresly from a tax perspective. It may be fine for the marketplace to allocate burdens and benefits inequitably, but it certainly isn't the business of the government to compound competitve disadvantages by giving you a relatively higher tax burden then some you're trying to compete with for money and political attention.

The tax code should have a neutral impact.

What progressive taxation recognizes is that getting a dollar isn't a measure of wealth. Wealth is a product of how much money you already have.

Flat taxes treat each additional dollar of income exactly the same. Your first dollar is taxed at the same rate as your millionth dollar or your 30 millionth dollar. Its totally wealth-insensitive.

I liked your answer.

I think you are using the proper definition of Progressive Tax and I am not.

From my perspective it is better to get more money from the system even if it means that the system is regressive.

My logic stems from the belief that no Perfect system of Progressive taxation can exist, due to it's inherent tenancy to create loopholes. Whereas a flat-regressive system, while initially looks unfair, is more honestly reflects the wealth available to be taxed.

Tax day will always sting harder for the lower classes, so why not at least get as much money from the upper-strata as possible? A flat-tax will do this and lower taxes overall for everyone.

I will now grab a bit to eat and ponder what you have written. This has been a fun conversation. Have you seen post #64. I like it.

Like I said, the pinch you feel is a product of how much money you already have, and not the next dollar you're getting. So you have to make sure that people who don't have a lot of dollars already aren't having to pay more, or even the same as someone who has a lot of dollars.

So, you squeeze the pips with your flat system, but the ones who squeak first are going to be the ones on the bottom. In one sense, the rich won't complain because the wealthier you are in America, the more political power you have. So, squeezing the pips at the bottom works to your political advantage, even if it means the size of the economic pie is shrinking.

It's also wrong to have a hyper progressive system, because you don't want the pips at the top to squeak either. Wealth is the reward that makes people want to work in the first place. If all your work amounts to you getting squeezed, you're not going to work hard to get up there.

However, we're a long way from being anywhere close to squeezing the pips at the top.

Bottom line: allocate that burden accross the entire spectrum of income in a way that makes taxes have a neutral effect on everyone. Inevitably, that's going to be a progressive distribution, because the more you have, the easier it is to make another dollar.

Your proposal to let those earning less than "poverty level" off the hook is the equivalent of having a ZERO TAX RATE for the first X dollars. Or rather, it better be equivalent, otherwise you open up the scenario where you flat-tax a just-above-poverty-level payer INTO THE POVERTY LEVEL.

You need to think this shit through, carefully, brainshrub.

Good point. But even if your right, I don't see why it would discredit the idea of a flat tax for individuals.

not want a progressive tax. Just by saying that there's ONE point where people on one side have a different economic experiene than the people on the other side, you are admitting to the basic underlying principle of progressive taxation -- that you should tax people at different wealth levels. Why do you think there's only one point where there's a difference? Why does the tax code today think there are only three or four? Why aren't there ten?

Why do we think a person making 310K is in the same boat as someone making 150 million if we accept that there's a difference between 35K and 80K?

Also, you can call it a "straw man" but it isn't. The people I described are all people who exist.

As for your other statement:

Even an entrepreneur earning 100 mill, taking a risk should pay less than the 130 million earner not taking any risk.

A 100 million earner taking a risk should pay a lower marginal rate on the next 1 million than an 130 million earner makes on addtional dollar taking a risk, merely becaue the 130 million earner is 30 percent richer, and is therefore in a different economic boat (the risk is lower for that person).

not want a progressive tax. Just by saying that there's ONE point where people on one side have a different economic experiene than the people on the other side, you are admitting to the basic underlying principle of progressive taxation -- that you should tax people at different wealth levels. Why do you think there's only one point where there's a difference? Why does the tax code today think there are only three or four? Why aren't there ten?

Why do we think a person making 310K is in the same boat as someone making 150 million if we accept that there's a difference between 35K and 80K?

Also, you can call it a "straw man" but it isn't. The people I described are all people who exist.

As for your other statement:

Even an entrepreneur earning 100 mill, taking a risk should pay less than the 130 million earner not taking any risk.

A 100 million earner taking a risk should pay a lower marginal rate on the next 1 million than an 130 million earner makes on addtional dollar taking a risk, merely becaue the 130 million earner is 30 percent richer, and is therefore in a different economic boat (the risk is lower for that person).

the main problem i see with a flat tax, is that every proposal includes a VAT tax of an equal amount. this is done to equal out the money taken in by the government with out the capital gains taxes
(investments, capital gains, interest) which would not be taxed

a VAT tax would hurt the poor and middle class the most because it is extremely regressive. all income levels would pay the same tax on an item, but the percentage of income it takes from the poor is much higher than the rich.

peace
david
:hippie:

What other regressive ideas have you incorporated into this

new progressivism

but I don't see anything regressive about a flat tax.
The current system is a wolf in sheeps' clothing: A regressive tax disguised as a progressive one.

I'm a Yellow-dog Liberal Democrat on most other issues.

what you'd predict: it's concentrating wealth and power and it's damaging the economy.

I've run businesses before, we don't have a flat tax. It's progressive. Furthermore, I am not proposing we do away with the progressive tax system for corporations.

I'm going to guess that you haven't run a business that big. And if you're not running it now, it's probably because you got pushed out of business by a much larger corporation because it had a lower relative income tax burden and was able to burry you.

Am I right?

They had an easier time competing with you on price, or because you didn't see the value in expanding when you had to pay more in tax for an additional dollar of income as measured by the effort it took for you to make the money to pay the tax.

Am I right?

Okay, well yes on one point...it wasn't a huge company. But PLEASE re-read what I wrote CORPORATIONS SHOULD STILL PAY PROGRESSIVE TAXES!!!!

I can't help it that at the upper-levels of income these mega-corps are not paying their fair share. But that's not an example of a flat tax. IF it was a true flat tax, then ALL companies, big & small, would pay the same rate. But again, I'm not advocateing a flat tax for business.

that's pretty flat.

And you can see what it gives you: concentration of power and wealth among the wealthy, thanks to a huge competitive advantage over small corps.

Why do you want to do that for an individuals in a way that's even worse than it is already?

anything I'm posting.

questions, and not making any sense.

If my world view were crumbling around me, I'd brobaly behave the same way.

You've ignored the explanation the first time it's come up, but it's about time you figured it out.

First, keep in mind that the median AGI in the USA ca 2000 was less than $30,000. The median. Not the average. MOST TAXPAYERS IN AMERICA MAKE LESS THAN $30,000. Got it? Good.

The most regressive tax would be a constant tax. This is the "country club membership" idea, where you pay a fixed sum to join in the fun and games. Let's say in our Country Club Nation you pay $5000/year to be a citizen. It's fair, right? It's flat. No one gets a free ride, everyone pays the same amount for the same services.

Suppose we have taxpayer A, grossing $15k, and taxpayer B, grossing $15M. That $5000 means a helluva lot more to taxpayer A (fully 1/3 of the income!) than it does to taxpayer B (less than 0.1% of the income!). It's a regressive tax.

So then you say, let's have a flat percentage, instead. Everyone will pay the same proportional amount, regardless of income. That amount will be 20%. Well, gee, that should be a great improvement for taxpayer A, right? Everything's all nice and fair, right?

It isn't. That $3000 means basic food and housing to Taxpayer A. Taxpayer B will be paying $3M, which is all essentially disposable income. The difference in lifestyle between $12M and $15M just isn't much compared to the difference between $12k and $15k. It's regressive even to tax a low-earner at the same rate as a high earner!

And now, if you can read, you can see the problem with calling a flat tax "progressive". It may be mathematically neutral, but it's socially regressive.

Only by increasing the marginal rate at higher incomes does a system become progressive.

1) There was no living wage law.

2) There was no minimum ammount you need to earn before you start paying taxes.

If #1 & 2 were true in this hypothetical tax system, no one would have to carry a heavy tax burden. Would the rich fell it less than the middle-class? Yes. But they pay almost nothing now thanks to this "progressive" system we have now.

My point is that the ubber-rich are makeing out like banits because they hide behind tax loop-holes the rest of us don't have access to. With a flat tax, the pot would be MUCH bigger. Therefore, we would not need to tax the middle-class & poor as much as we do now.

Here's a point I hadn't thought of before: If your right and most americans earn less than $30,000 (And I have no reason to think your wrong.) then I wonder what the effect would be if we set the minimum ammount of money you would need to start paying taxes at around $50k?
I wonder if that would be doable? Just a thought.

50K the same?

What do all these people have in common, in an economic sense, which means they should be charged the same marginal rate on an addtional dollar?

I don't get it at all.

If you think there's a difference between 50,000 and 50,000.01, then why isn't there a difference between 55k and 1 million?

To abstract your previous statement:
1) There is no living wage law
2) There is no minimum earned income amount that is untaxed
If hypotheses statements {1 and 2} are true, then a flat tax is regressive.

Well, brainshrub, you've just conceded the point as far as I'm concerned. And you still haven't grokked the problem with a flat-tax in the converse of circumstance #2. Let me spell out an example.

Let's say poverty income is $15000, and the flat tax rate is 20%. Joe Blow earns $16000, and Mary Canary earns $14999. Joe Blow pays $3200 in taxes, which leaves him with $12800. Mary Canary pays no taxes, and now has more than Joe Blow as a result. Now this is probably not the result you hoped to achieve. So what to do?

Well, the obvious solution is to make all moneys under $15000 have a zero tax rate for Joe Blow, as well. Then he only pays taxes on $1000 of his $16000, and ends up with $15800 post-tax. Only problem? It's a deductible. Remember, you said it yourself, deductibles are antithetical to flat taxes.

Your other points, concerning tax loopholes, are essentially a non-sequiter as far as a flat tax solution goes. Your complaint about progressive taxation is not that it is inherently regressive, but rather that it has been legislatively compromised. What prevents such loopholes occurring in your flat tax system, then? You already want to make a loophole for "poverty level", so who sets the poverty level?

I propose to you that the current system is quite close to what you imagine. There IS a nominal poverty level recognized, where those earning less pay no FIT. Beyond that, there are only about 3 marginal rates IIRC, only two more than what you propose. The sad fact is, loopholes and deductions for the wealthy were intended (i.e. sold to the voters as) to encourage certain types of investments. That the capitalists have abused the current system is no surprise, and they'll do their level best to make the same things happen no matter what system is in place.

Let's leave that aside for now. Instead I'll answer your final question. The effect on the total tax return by 2000 standards would amount to a net loss of under 10% in FIT revenues. And no, it is not doable, in the current climate of unbridled corporate lobbying.

But just because something is regressive, doesn't mean it won't do a great job raiseing revenue and be less of a burden on EVERYONE.
I suggest you read Post 76.

competitive advantages and disadvantages become allocated along the wealth spectrum.

because flat tax does evenly distribute the income tax burden along the wealth spectrum, people who have money will have an easier time making more money, people at the bottom will have a harder time. Next step is that accumulation of wealth creates more wealth, rather than work. Next step is that the economy shrinks. You then find your flat tax collecting less revenue. What do you do? raise taxes. It's a flat tax, so you'll be raising taxes on people who are WORSE off than in the previous year.

It simply doesn't work.

Everything except, say, $50K goes into the tax pot.

That's flat, and has the advantage of being more fair, too. How about that?

It's funny to think how regressive the neo-cons have gotten. NIXON was progressive compared to their bullshit ways!

is considered a left-wing wacko these days.

And under a progressive tax system taken to it's logical extreme, the person who "earned" the most money would make zero dollars at the end of the year.

Does that sound better more fair?

Are you just testing out propaganda here?

There's nothing inherent in progressive tax logic that means it has to move to 100%.

What makes you think it does.

You just need a certain amount of money to run the goverment. You already have a rough guess of how much money people make from the previoius year. You just have to make sure you collect what you need in a way that matches marginal valuations of an additional dollar, and which matches the ease of making money at different income levels (those things are related). Then you spread out the burden fairly.

No big deal. No 100% rates. In fact, you could probably have lower rates for everyone jut be rasing the effective rates of taxatio on corporate income so that they're progressive.

An amusing but rather socialist proposal. Let's just take all of the incentive out of the system. After all, the other places that have tried something like this are stunning economic successes, have equal rights, and care for the environment. (note the hint of sarcasm)

If you are saying this just to trash the flat tax idea, good, I couldn't agree more.

Flat-taxers and flat-earthers are named for ideas that are equally well considered.

At least the few times I've seen him. For example, he talked about how "we need to put our money where it will do us the most good," which is a nice way of saying we need to repeal portions of the Bush tax cuts.

On the other hand, our explanations themselves may be why the message isn't getting through. It is possible saying "we need to get rid of the Bush tax cuts because they are bad for the economy" would resonate more with independent voters.

In short, it is difficult to tell if we need to simply our message or make it more detailed.

It's why I like him the most.

oh I'm Just KIDDING! ;-)

Funny

This is a little bit roughed out right now, but I have thought about this for many years, because as a payroll bookkeeper I have often thought there had to be a better way.

One of the reasons many poor people vote Republican is because they have been convinced by the right wing propaganda machine that they will pay fewer or no taxes if they vote Republican. I used to do payroll and many workers especially those new ones right out of school always got sticker shock looking at the deductions out of their paychecks. When they questioned me about it, there was always a busybody Repuke around to say that the Republican Party believed in lower taxes and they should vote Repbulican to vote the "tax and spend Democrats" out of office.

How about if we took the aggregate payrolls, every quarter for each corporation or company and have the company pay a percentage for each progressive wage group? This is essentially the same as deducting wages, but it wouldn’t show up on the payroll check. A quarterly tax return could look something like:

Wage earners between $min.wage and $*****.
15 employees total earnings for the quarter is $****** times 12% equals tax due.

Wages earners between $****** and $*******
10 employees total earnings for the quarter is $******** times 14% equals tax due.

This could go up to the best paid CEO
1 employee earning $********** times (I hope) 50% equals tax due.

But, but, but you say, “What about dependents?”

Okay lets say you get all the dependents of all the employees together and you deduct the deduction, which let’s say could be $600 for each dependent. You deduct it from the tax form and then distribute it to each employee for each dependent sort of like a quarterly bonus.

My system shouldn’t change the revenue received by the IRS and it should actually be more because it would eliminate tax credits and other loopholes.

So it kind of shifts the burden to the employer, who has to file the quarterly forms anyway for the money they deduct for FIT. They would just be adding it instead, which means they probably would be paying lower wages, but the net result would be the same without the items listed on each payroll stub. Also, I would eliminate any filing of tax forms at the end of the year for wages unless there is other types of income involved like interest, dividend and rent income. I don’t think any additional forms need to be filed for straight wages.

So all you economists and accountants out there flame me because I really am interested in what I may have missed here.

You wouldn't inherit 1 million bucks from your rich aunt. When she was on her deathbed, you'd mow her lawn for a million bucks. Not tax.

Instead of getting stock dividends, all shareholders would become board members and you get paid to show up for the board meeting. There'd be no capital gains. Everyone whould become employees of the companies they invested in.

If you picked any single avenue of wealth transfer, all wealth would transfer down that avenue tax free, and tax reciepts would drop dramatically.

The only people who would pay taxes would be people who didn't have the political power to determine how they got paid. You know who would get paid in stock options if work wasnt taxed? Your cleaning lady and the migrant farmer.

Not inheritance or any other ways of acquiring income. Wages would still be wages and employees, employees. I can't imagine any employer wanting to pay more for a clerk than he has to, so I don't think anyone would be mowing lawns for a million dollars or other creative scams, because that million dollars would have to matched and sent to the IRS. So I think the inheritance tax on two million dollars would be less, so it would be best to do it through the traditional ways.

Each employer would be responsible for paying the aggregate taxes for each group of employees in their tax group. If it was a cooperative and the employees share in the profits as well as make wages, then in this case I think they should file taxes on all extra income made whether trough profit or other ways of getting income. When someone gets into the extra income group and having to file individual taxes for income other than wages, then they are already on the way to being well off.

I am not eliminating income tax altogether, I am doing something different with wages, really rearranging the chairs in the lounge. Nothing has changed. Does this make more sense now? Or am I still way out in left field in your thinking?

but it sounds like a great idea!

because all income over about $9000 is taxed at the same rate.

This has the effect of being heavenly for the rich, who then demagogue the poor and middle class by telling them that taxes are too high. And the tax rate is indeed steep for low-income people, with a personal deduction of only $1800.

But nobody seems to make the obvious suggestion: lower the percentage for low-income people and raise it for high-income people.

Instead, the voters passed an initiative that raised the amount of federal income tax that's deductible, a step that doesn't help anyone who makes under $40,000 as a single person.

The effective tax rate on CAians (considering all state taxes) ranges from 9% on the bottom quintile to 6% on the top quintile.

which has been a sawbuck ($10) here since the Great Depression. In 2002, this allowed Enron subdiary PGE (among countless others) to pay $10 on after tax earnings (PGE's were ATE's $66 million- though we're still not sure whether they actually paid any of their purported taxes to the Feds at all). All we know is that we dutifully paid money into PGE's accounts for that purpose. Money that coud have still been circulating in local communities.

Some of the smoke and mirrors accounting that leads to anomalyies like this are federal and exacerbated by Bush administartion policies. But not all are and the idea that an unemployed person pays substantially more in raw dollars to the Department of Revenue, while highly profitable, often out of state entities get off for the price of bento and a latte, just F*#@ing enfuriates me.

I guess it bothered some other people too, because under 2003 legislation small corporations will now have to fork over $250 (the price of a meal for two and some modest wine at Genoa) and the larger corporations, such as PGE/Enron, get to scrounge $5,000 from their "mad money" for their share of minimum tax.

Of course, even that meager contribution is too much of a "sacrifice" for the today's Republicans- they're putting together yet another ballot initiative to be massively financed by out of state money and distorted ceaselessly by out of state media interests like Newhouse Publishing (that owns the Oregonian & the Business Journal) and by the Clear Channel and Entercom radio networks.

is neccesary because as a capitalist society, the rich will get a vast percent of the money and the poor will end up essentially slaves. The only way to counterract this is to tax the rich highly, provide services to the poor, and require minimum wages.

Why not put a positive spin on it: "In a progressive tax, the less you earn, the lower your tax rate." It's mathematically equivalent, but it emphasizes what I think is the real rationale: A flat tax wouldn't be fair because, the less you earn, the more your basic standard of living will be affected by paying any given tax rate. That's because the minimum cost of living is not a percentage of income, and incremental improvements in standard of living have a fixed cost, not a fixed percentage of income.

If the price that you have to pay for food, clothing, housing, and transportation could be made a flat percentage of your income, then a flat tax would be fair. Otherwise, the least among us are hurt the most by a flat tax.

It would take away some of the ammunition that the rich cranks use to win over the working class.

The marginal rate on all income less than the previous year's reported median income will be ZERO, effectively letting half the population go tax free. How much will this affect government finances?

Going by 2000 IRS return statistics, about 5%

Because the lower half of income earners only pay that much of the total returns on FIT.

The rest of the rates are determined by having a linearly increasing marginal rate, rather than the current stepwise function. The top marginal rate will be set to kick in according to the top 1% of earners from previous year's filings. The top rate will be set just high enough to net revenue sufficient for ALL of the previous year's expenses, including any budget deficits, plus inflation.

Social Security would be replaced by a need-based welfare program drawn from the general fund. The regressive payroll tax on American employees and employers would thus be eliminated.

That's a much better idea. I will have to think about it. Very interesting.
Have you read my Post #60?

from working at the threshold.

It's like the stampl tax in the UK. It forces sale price to accumulate just below that threshold.


Say someone got paid in proportion to how hard they worked, and there were a 25% tax beginning at 50K.

Well. If you made 45K, and you could work 10 hrs more to make 47.5K, you might do it. Then say it takes anothe 12 hours to get up to 50K, well you'd do that. Now, anything you make over that, you get a return on your time investment that gets 1/4 cut lopped off.

So, would you work another 10 hours to get 2,000 bucks more that will be taxed and leave you with only 1500 bucks. Well, you're used to getting a better return on your investment than that, so you might not be inclined to do that work.

People who are poor shouldn't have to pay taxes, but for everyone else, across the entire range of income, it's better to have gently sloppig, progressive rates. It's the best way to promote hard work.

If you try to buy off people buy giving a majority a 0% income tax burden on labor, in exchange for a flat tax, you're going to find that you create some pretty dumb economic incentives.

I'm proposing a linearly increasing marginal rate, from 0 up to the maximum needed to cover prior expenses. That's exceedingly un-flat.

In fact, I think you'd agree it meshes quite well with your "borderline" concerns. There's a lot of "gaming" the system done to avoid the lower end of the top rate, so having that rate kick in only on the top 1% based on prior filings pretty well washes that out.

Did you mean to reply to brainshrub? S/He did propose a flat tax with a poverty deductible of $50k.

I fear we talk too esoterically for most people. Plus, some people freak over straight up numbers- no matter the logic.

Trying to explain is really hard for me, and I would guess you, too.

But this is your beautiful baby- run with it.

The main problem I have in going further with this idea is a lack of data. The IRS has the numbers I'm looking for, but they don't publish as far as I can tell. In particular, what is needed is a breakdown of the top AGI recipients, i.e. the upper 1%. Even an average would help. Otherwise, I can only speculate about the TMR needed to generate the necessary revenue.

If people understood the simple concept of diminishing marginal utility, they would realize that each dollar is worth more to those in the lower tax brackets than it is to those in the higher tax brackets. The $5.00 gratuity that a middle class diner leaves to the single mother might feed her kids breakfast the next morning. In economics, having breakfast for you kids reflects high utility, whereas leaving a tip reflects lower utility for most people. Similarly, the 40,000 down-payment may mean a first home for a working family (high utility). Bill Bennet blows $40,000 on a roulette spin (low utility).

As people amass enough money, eventually the upward slope of their wealth utility curve flattens out. Each additional dollar or thousand dollars no longer has much use to them. A progressive tax system recognizes this fact, and taxes such additional sums at higher rates- reflecting the fact that this money could and should be put to much more useful purposes, such as improving the public health systems so we can deal with the inevitable epidemics or emergencies.

A flat tax, by contrast, fails to take this fundamental principle into account, which is why it not only tends to place the tax burden on those who can least afford to pay it, but at the same time it creates inefficiencies by failing to increase the usefulness of the money itself.

"And regressive taxes: (mostly local sales taxes and fees) go for Poor Boy toys: local roads, hospitals, schools, local parks, libraries, cops, city/county councils, fire fighting, etc.

<snip>

To oversimplify a bit, a carpenter does not require the Rich Boy toys, and the CEO of GM does not require the Poor Boy toys. And progressive (mostly federal income) taxes soak the rich, regressive (mostly local sales) taxes soak the poor."


____________

Everyone wants/needs/benefits from good roads, hospitals, schools, cops, fire fighting... at least. And city/county councils can benefit the business community - and rich people - as well.

<warm fuzzy icon>