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This is basically a supply-side vs. demand side economics debate. But, I see many people here advocating for a "flat tax." While I believe it sounds good on paper, fairness wise, I believe it hurts the economy more than a progressive tax and that we should bring economic policy in line with "demand side" economics.
Say you have three people in an economy with a 15% flat tax.
Person 1 makes $10,000/year, for an after-tax take home of $8500.00
Person 2 makes $100,000/year, for an after-tax take home of $85000.00
Person 3 makes $1,000,000/year, for an after-tax take home of $850,000.00
For person 1, that $1500/year is a serious tax burden at his income level and standard of living. It could mean the difference between "getting by" and "drowning." Person 2, and especially person 3, however, realize almost no "change in lifestyle" if their tax burden is upped by 5-10% to accommodate a lower tax for those who need it.
And lets all recognize that not "everyone" can be rich, and we will ALWAYS need lower income and lower skilled workers, so it's useless to say they can "get educated."
Since there is only a finite amount of "luxury goods" and Mercedes that can be sold, doesn't it make more sense to let lower income and middle earners keep more of their money, since they make up the bulk of the economy, and unlike the rich, are more apt to pump everything they earn back into the economy.... rather than to sit around and wait for "trickle down" from the top? (Which, by the way, since most "luxury goods" in America are foreign imports, it's not exactly "good" for America.")
A flat tax is going nowhere. There are too many Americans who understand that the rich already have it going their way in the economy (structural advantages, cronyism, nepotism, weak SEC enforcements, etc.) and in the tax breaks and lowered tax rates passed in recent decades.
Another problem with a flat tax in regards to fairness is that as you go further up the wealth ladder, a smaller part of your financial well-being is determined by income (amassed wealth, savings, profits, etc. take up a greater part) than if you're middle/lower middle class. So the tax becomes effectively regressive when measured against total assets/financial security/whatever. "Economic efficiency" is a different matter that I can't comment on because I'm not an economist, and would sound stupid. But large concentrations of wealth can encourage not-so-nice things like monopolization, huge campaign contributions/subversion of democracy (this could be partially solved by campaign finance/lobbying reform), corporate globalization and outsourcing, things like that...
I think a flat tax will work fine if you take away some of the exemptions that are most taken advantage of by the rich. Then the actual tax rate might be lowered to 10% which would in turn do just what you are suggesting as far as not taking too much from the low income person.
I don't know about any of you, but every rich person I've ever known very well is very keen of numerous ways to write off tax burdens and hold onto more money. I'm sure the super rich would still find ways to offshore money and shelter it, but I'm not sure of any good way to prevent that. However, usually people in the under 250K per year range do not take part in tax sheltering.
When donald trump is against the flat tax, you know something is wrong about it..
Quote:
"I object to the flat tax:
It is unfair to the poor; eliminating the Earned Income Tax Credit [hurts] taxpayers at the lowest rungs of the ladder.
It is unfair to workers by taxing them for health insurance and other benefits.
Only the wealthy would reap a windfall, because a flat tax would allow them to cash in interest payments and capital gains without paying personal income taxes.
I don’t believe that a flat tax could raise enough revenue to keep the government operating. "
Source: The America We Deserve, by Donald Trump, p.186 Jul 2, 2000
Your flat tax assumptions are generally incorrect. All of the flat tax proposals that I've seen surfaced by both parties (remember Wyden and Bradley?) have a basic exemption amount, so the lower salaries pay less of an overall percentage than show in the OP listing.
The exemption spares the poor and the lower middle class but becomes gradually more regressive (with regards to ability to pay, not income) the higher up the ladder you get. Moderately successful people will have to pay a lot more than they do now to keep the same revenues coming in, while the top 1% or so get a huge tax break. The exemption becomes more irrelevant as income increases, so that you gradually have a smaller degree of burden, or "tax pain," as wealth increases above the upper-middle class level.
Or maybe not! Maybe I'm just talking out of (or I guess typing with) my ass. Who knows?
If the top 1% get much of their income via capital gain schemes, then the flat tax could be somewhat higher than they are paying now. I don't have the specifics at the moment, but I know capital gains gets to be a bigger % of income as you climb the economic ladder.
But most flat tax proposals don't tax capital gains, do they? I thought it was only earned income... most of the proponents I've heard have argued against taxing any form of unearned wealth as "double taxation..." But if you taxed all capital gains at the same rate as earned income you might be right that it would be more progressive than the current system, although I still think that the billionaire would end up having a lighter burden than the millionaire, or the 500,000 aire.
AAAAAAAAAAANNNND once again, maybe I'm wrong, you know? I haven't really researched it that much.
I propose taxing all income from all sources on a five year running average with a basic exemption of three times the mean income. Thus anyone earning under about $150,000 in today’s money would pay no Federal income tax at all. I would also suggest that at least half of the taxes collected by the Federal government be sent to state and local governments on a per capita basis and half of what is left be applied to the deficit. The remaining 25% would pay for current Federal expenses and be used to set the tax rate.
The result would be a vast expansion of investment and consumption by most of the population while the wealth would have some of their wealth redistributed to pay for the vast protection they receive from the government. It would also serve as a deterrent to useless wars as they would have to be paid for out of current revenues of taxes raised to cover the cost.
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