Getting a $2000 dollar refund doesn't say much. The question is "how much did they pay net in taxes and what percentage of their income was that?" With any percentage based tax structure any across the board reduction in the 'rate' will always benefit the most those who paid the most. But most 'tax cuts' are not across the board. They are in the form of 'tax-free or tax deferred savings accounts', or special taxation rates for income for special types of investments , etc, or reductions in the maximum tax rate. All these things are tax benefits heaped on the people who already have more than 'enough' money. If they didn't have more than 'enough' they wouldn't be able to have the savings account, make the investment, or be paying the top tax rate.
I fully realize that taxes are necessary. There are things we want and need as a society that are not suitable for voluntary individual investment; roads, education, emergency services, military defense, health services (an area where the US fails miserably) and others. But I can see no advantage to the ridiculously complex income tax system we currently employ. I would prefer a flat tax rate with a much higher 'start point.' Tax breaks to encourage investment are a sign of failure. Either an activity belongs as one of the 'societal needs' that I mentioned above or investment will happen because it is profitable. If the activity/product needs tax incentives to be profitable, then it does not need to be done or it needs to be recognized as a 'societal need' and fully supported.
If other taxes are to be used to guide economic development then use them to make profitable but undesireable behavior more expensive thus reducing the tax load on the general populace. For example taxes on smoking, drinking, driving gas guzzelers, etc.
Sales taxes should be abolished or at least removed from all items that one requires for day to day living. Sales taxes are a regressive tax favored by politicians because they are easy to hike, paid piecemeal, relatively unnoticed after a while by the public.And since they tax the poor at a higher rate than the wealthy they do not generate big oppostion in the ranks of the important political contributors.
I cannot believe that it would be all that hard to simplify the tax structure of this country and retain the necessary governmental income, but it would require each to pay their 'fair share' which is proabably so unpalatable a concept to the powers that be that the political willpower will never be found.
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Comments: 40
Patently false--which likely explains your lack of links in support of flat taxes.
In truth, The Economist noted flat taxes were being used in former Soviet Republics because they were "simple" and easy to implement in countries that weren't used to taxation and semi-capitalism. But The Economist also noted flat taxes failed the fairness test.
The Economist also noted there was no greater incentive to create wealth with a flat tax. And, let's be honest, how m,any folks do you know in this country who opt to turn down more revenue opportunities because of taxes?
I really don't remember The Economist saying any of what you state, and I've read almost every issue for the last 4 years.
And if Jade would look back to the 60's in England she would see exactly the result of overly progressive taxes Between the high taxes on the "wealthy" and unions England was driven to the brink of economic collapse.
Let's review Seth's assertions, shall we? Seth noted certain unnamed countries had gone to a flat tax with wondrous results: revenues were up, fraud down, nothing but great news.
What Seth conveniently omitted is the fact most of these countries were former Soviet Republics. This raises the question whether revenues in these countries went up because of the flat tax or because their economies have radically changed from the basket-case economic swamp that was the Soviet system to a more free-market capitalistic system. I thought this point would be apparent in my previous comment.
If we look at Lithuania, for example, we can see they're one of the fastest=growing economies and they have a flat tax. Yet, skilled Lithuanian workers are leaving Lithuania in droves (so much so that Lithuania's unemployment rate is very low) for western European countries. Why? Perhaps it has something to do with the extremely low wages and standard of living there.
Even the claim of cutting down on tax fraud is spurious. In Russia, tax fraud has decreased not because of the flat tax but because the government has been more aggressive in pursuing and prosecuting cheats.
I'd also add most conservative proponents of the flat tax further shift the burden onto the poor by redefining income. That is, they advocate capital income be excluded from the flat tax. This means those who receive income from investments don't pay tax on that income. Naturally, this scheme overwhelmingly favors the wealthy.
I think something is wrong with the math you used if if it shows you that a person making say (A) $25,000 per year and paying 10% of everything over 20,000 dollars for taxes is some how paying more than a person who earns (B) $250,000 and is paying 10% of everything over 20,000 dollars for taxes. Person 'A' would pay $500 in taxes or 2% o his gross income, while person 'B' would pay $23,000 in taxes or 9.2% of his income.
And there are reasons why a common tax rate is unfair and disproportionate beyond the issue of Govt. revenues. First, marginal utility. I'm fortunate to be in the top 2% of US wage earners; thus, if I lose $1000 in the stock market--my pride may be hurt but no real damage is done. For someone earning, say, $25K a year--a $100 loss may mean a diet of ramen noodles for the month.
But an even greater reason is the wealthy avail themselves of far more Govt. goods and services. Simply by owning or controlling more financial resources. Think about it. We all pay for the military; but who has the most to lose in the event our national security disappears? Being wealthy means one uses services and protections afforded by
such agencies as the SEC and DoT and DoC and others.
If we're being truthful, the fact is being wealthy creates its own informal privileges. Being wealthy means I have access to more responsive police and fire protection, access to better schools and recreation facilities, even more access to legislators.
When assessing the type and level of taxes it's important to recognize when political issues corrupt the underlying rationale for the methods and levels used. Use of each of these methods is a compromise that should be analyzed without politicizing terms.
Regressive and progressive are economic terms which relate to the slope of the associated payment curves. Regressive does not mean "conservative" or "reactionary" as has been inferred. In fact, a modified flat tax, as is under discussion here can be very progressive. The fact that a tax is flat (modified) does not make it a bad, unfair or onerous to the poor. In a two tier approach it is the rate and income qualification that will determine its progressiveness.
Deductions and credits which everyone here seems to have vilified have the purpose of directing investment/spending as well as merely establishing the fairness/unfairness of that deduction. Almost any viable fiscal policy requires these tools to direct that spending. An example of this is alternative energy. Because it is currently too expensive to compete with conventional energy sources it will not draw either investment or purchasers without some incentive. I think we can all agree that development of this industry is in the best interest of everybody, even though some wealthy investors my profit from the action.
Again, politics can corrupt these decisions, this does not make the deductions bad it means that the appropriate fiscal discipline is not being maintained.
A progressive, tiered tax system can also be badly implemented, as has been demonstrated in a number of instances. Overly progressive taxes create disincentives that ultimately lead so severe productivity losses.
Its all about balance.
Taxing "wealthy" people is fine until the wealth of wealthy people drops 30% in a given year like what was happening several years ago. States, and the federal government who were running supluses, fell suddenly into deficit.
This created a cascading effect with falling bond ratings, lay-off..etc.
As for your statement that Jade didn't really address my comments, that's true enough. What I was reacting to was her statement that:I don't recall any such statement. I genuinely would like to know what article they stated that in because I genuinely don't recall any such assertation on their part. I'm not saying it's not true, I'm saying it's something I'd like to check, because it's worth noting if they did say it.
Wasn't trying to come across as flippant.
I think the tech bubble had a lot to do with financial troubles at the start of Bush's term, and 9/11 didn't help.
They didn't become poor, they moved--most of them to Belgium. This is a rather extreme example of the capital flight I was talking about.
Story here.
All of these comments address the Tax issue with partisan junk. There are bad tiered systems and there are bad flat tax systems. A lot of it seems to be arguing for its own sake. My side is good your side is stupid because it doesn't see X.
Taxes as in many social issues is nuanced and requires a slightly more sophisticated view than is being shown here.
Estonia (implemented 1994, 26% rate — plans to reduce rate to 20%)
Lithuania (implemented 1994, 33% rate)
Latvia (implemented 1995, 25% rate)
Russia (implemented 2000, 13% rate)
Serbia (implemented 2003, 14% rate — plans to reduce rate)
Ukraine (implemented 2004, 13% rate)
Slovakia (implemented 2004, 19% rate)
Iraq (implemented 2004, 15% maximum rate — actually, not exactly a flat tax)
Georgia (implemented 2005, 12% rate)
Romania (implemented 2005, 16% rate)
In every instance the tax receipts have gone up after implementing the flat tax.
As I read the posts on redistribution of wealth I'm always amused by the lack of recognition the first law of economics "more is better than less" or in the words of Gordon Gekko "Greed is Good." While it sounds callused, this is the engine that drives productivity. I recall only one place where it didn't hold true and resulted in whats called a backward bending supply curve. Generally when its ignored problems arise.
I sure don't see how. All that needs to be done to raise revenue for the Government is to raise the across the board tax rate. In my example I used 10% but if you changed it to 11% or 12% then Government income would go up by 10% or 20%. Of course there is a point of diminishing returns. If you raise the flat rate too high the incentive to earn that next thousand of taxable income can kind of disappear, but the same problem exists with a graduated tax.
You then go on to say;
and
OK, so what?. You may have more use for some protections and services but those protections are there for me to if perchance I did need them. And you are still paying much more taxes than I under a flat rate system. As for the second part ; What? You feel guilty about better publicly supported services than I do? Well maybe you should but do you think that your paying a higher tax rate than I do somehow alleviates that guilt? Sorry, but if you do , in truth, have something to feel guilty about, the fact that you pay a higher percentage of your income in taxes than I do doesn't particularly help the situation. And then, of course, as I have shown, under a sensible 'flat tax rate' program you would be paying a much larger percentage of you income than I.
I think you missed my point Peter. I was not assigning blame for the recession, what I was doing was attempting to illustrate how states that rely on a highly progressive tax structure suffer most during recessions.
States like Minnesota experience a real rollercoaster ride with the economy and as a result get caught in a ratchet-like feed-back loop.
- When revenues drop ...they raise taxes.
- When revenues increase they increase spending.
- When reveunues drop again they raise taxes to satisfy the level of peak spending.
- When revenues rise again the peak gets higher.
Each cycle through the troughs and peaks get more extreme.
I believe in the flat tax system (or at least in a system that is "flatter" than we have) because I feel it to be fundamentally fair. Working from that view perhaps I can come across as partisan.
As for the progressive tax we have, I think that evidence indicates we're too high on the Laffer curve--the idea that there is an optimal tax rate: too high--tax receipts go down because it retards the economy, too low--tax receipts go down because of the low rate. I guess you could call it the "Goldilocks zone" of taxes.
Another good argument for a flat tax is in it's simplicity: it would be easier to adjust the rate if you think you're at the wrong place on the Laffer curve.
We can push our tax system down the Laffer curve...only to watch China and India benefit, not the United States.
Tax-cuts targeted to investment here might make more sense.
Hey, if it works for Romania--let's try it here!
Snark aside, Seth appears to be seriously asserting that the flat tax is responsible for growing economies in former Soviet states. I could just as easily state revenues increased in those countries after I purchased a new set of Ping golf clubs.
In reality, of course, revenues increased in those countries because they transitioned from the miraculous Soviet system of economic implosion to a more free-world system of capitalism.
And Iraq! Oh, my. Are we to believe Iraq's economic fortunes are the result of a flat tax.....or the tens of billions of US taxpayer funds (including Paul Bremer's missing $9B) being shoveled into that country after being looted for the past 4 decades by Saddam?
That the Laffer Curve is treated with anything but bemusement is ridiculous. There's not a credible economist who would place any faith in the LC.
And what do you base your contention that the Laffer Curve is not a credible concept? If so, why is it in so many economics text books--not as a discredited theory, I might add--and what exactly is your criteria for a "credible economist"?
As for Iraq, it is just one item on a whole list that I gave.
And economists aren't falling for your contention that there's a correlation between flat taxes and increased revenues. Unless you count Stephen Moore, of course, who isn't an economist but plays one for the Club for Growth. In fact, take the very conservative Bruce Bartlett who noted Russia's revenue gains weren't the result of tax reform but because oil and gas prices increased.
WRT the Laffer Curve, aka Supply Side Economics, let's look at what some prominent, conservative economists have to say. First up, Wm. Niskanen, who was on Reagan's Council of Economic Advisors:
Or Greg Mankiw, who was Bush's economic advisor:
AS your own quote says:
IN other words this was an existing accepted economic theory.
Because it wasn't tried there wasn't empirical evidence to judge. However see this WSJ opinion piece
Now don't get me wrong, this didn't happen overnight and it may have been attributable to altogether unrelated phenomena (the tech bubble).
Supply side economics (Reganomics) went well beyond the use of the Laffer Curve. It was merely the lightening rod. While you may question the calibration of the curve, its fundamental logic is sound.
But there is also no evidence to say "That the Laffer Curve is treated with anything but bemusement is ridiculous." Only that SSE as a whole had serious flaws.
As an aside, I was doing venture work during the late 80's and can tell you that the availability of money blossomed. That that period of investment laid the groundwork for the Technology boom that followed. That it got out of control and led to the bubble is another story.
I am curious what you all feel about changes in tax policy in light of globalization. In other words....we lower taxes here only to see the economic benefits accrue somewhere abroad.
Not exactly, Peter. First, the LC only holds true in an extremely limited set of parameters. Exceed those parameters and the theory falls apart. Second, the LC has problems in that it's difficult or next to impossible to ascertain where on the curve we are; IOW, it's far and away too abstract to use as a model.
These points were shared by David Stockman who, like Niskanen and Mankiw, realized the LC was really more symbolism than economic model.
Because it wasn't tried there wasn't empirical evidence to judge.
Nonsense. It was tried to disastrous results that we're all still paying for.
I don't have much use for Bob Dole but one thing I will credit him for is putting an end to Reagan's experiment with the LC.
Hazel you said;
I f you look closely at the article and comments after you will see that I have consistently specified that tax 'loopholes' which are generally referred to as 'incentives' for one action or another would have to be done away with. And any sales tax requires plenty of filings and employees. I suppose there might be some savings there but as much as we would like to think so the cost of processing income tax returns is not anywhere near the largest wasteful expenditure of government.
Yes indeed 'lower income' people would pay the same tax. In fact many would pay almost the same amount of dollars as many 'higher income' people. The truth is that low income people are forced to spend nearly 100% of their income and therefore pay sales tax on it all while higher income folks can save or invest much of their income and therefore pay no tax on much of it. The primary problem with a 'sales tax' is that it costs low income people a much larger percentage of their income than it does high income people.
Also it encourages buying outside the country and the out flow of capital at least as much as high graduated taxes do.
Processing of a sales tax return is quite simple especially when compared to a 1040 with all it's subsidiary schedules. Most of the states now use computers to scan income tax returns. It should be even easier to program computers to scan sale tax returns.
You must be in a much higher tax bracket than I am to think of buying outside the country. The last time I bought anything outside of the U.S. was went I went to Holland 6 years ago. Also, when you factor in shipping charges, I would not think that a feasible alternative just to avoid paying a sales tax.
As for buying out of the country, it would certainly be worth while on big purchases. It is already done in fact by buying out of state to avoid state sales taxes. Even I do that.
A 10% flat income tax on all earned income over a base and a 20% Federal value added 'consumption' tax on everything (I mean everything even food, cars, clothes, services and houses)...Only them will we have a fair system. The 'spenders' who can afford will shoulder the tax burden and the 'non-spenders' (savers and the poor) wont. This combined with the reduced bureaucracy will create some fiscal responsibility that is lacking at the State and Federal level.
I have heard this over and over again but I am sure you will find that the numbers do not support the premise that the rich would pay less with a flat tax. Very many rich people pay no tax at all due to all the tax deferment, tax break, tax free income schemes, etc. that are part of our current system. If you check this site for the rates for 2004 . It shows that a person making about 12000 gross straight wages, which you must admit would be pretty skimpy living anywhere in this country, would still pay about 715 dollars of income tax. Comes out to about 6% of his gross. Leaves the man with about 940 a month after taxes and no tax deferred savings because of course he can't really afford any savings at all. Now if that same single person made 70,350 gross over personal standard deductible and put the limit in a retirement plan they would pay 715 + 3285 + 6325 = 10325 or about 7.3% of his gross. Not much of a rate increase and still leaving him with 4000 a month after taxes and substantial savings. Now, both of these people are well below the 'wealthy' rank and while the rate on taxable income goes up as taxable income goes up so do the varieties of ways that income can be removed form taxable status. In fact if you have several millions to invest you could get literally hundreds of thousands of annual tax free income.
As I have said repeatedly a 'flat tax' is just part of what is necessary to rationalize our crazy quilt of tax programs which leave the middle clase paying by far the highest effective tax rate of all income classes in this country.