Flat Tax - please to esplain?

[Baron von Schtinkenbutt]

I thought dividends were taxed as income.

Depends on whether they are qualified or unqualified.  Unqualified dividends get taxed at your normal income tax rate.  Qualified dividends get taxed at the capital gains rate.

[merithyn]

What is the capital gains rate? I mean, what is the percentage, not what is it?

[HVC]

What is the capital gains rate? I mean, what is the percentage, not what is it?

in canada it's taxed as 50% income. ie if you make 100,000 you only get taxed on the 50,000 (and if it's you're only income then at whatever bracket the 50,000 falls into). There are some other things like 500,000 tax free.

dividends are weird here. there are two rates. one for eligibile and one fr non-eligible. both lower then the normal bracket. But you have to mark up the value of your dividend income to to get the taxable value, and then you get a credit for it.

[Ideologue]

With all of the noise going on about the budget, taxing the rich, taking from the poor, etc., I'm once again trying to wrap my brain around how a flat tax is a bad thing. Can someone please explain to me the arguments against a flat tax?

Thank you mucho in advance.

Flat taxers are bad people, and you should feel bad for not knowing why.

I'm sure someone explained the finer points.

[jimmy olsen]

Meri's gone full Mexican!

[Razgovory]

With all of the noise going on about the budget, taxing the rich, taking from the poor, etc., I'm once again trying to wrap my brain around how a flat tax is a bad thing. Can someone please explain to me the arguments against a flat tax?

Thank you mucho in advance.

Flat taxers are bad people, and you should feel bad for not knowing why.

I'm sure someone explained the finer points.

Flat tax is what they do in Eastern Europe.  You support the flat tax, you support Putin.

[Sheilbh]

A flat tax also implies that the tax is not tiered of course. When we say that the top bracket in 33%, that doesn't mean that you are taxed 33% on all your income if you are over a certain income, that means you are taxed 33% only on the income that is over the bracket. Which does make it kind of complex, since it means you are taxed at a variety of different rates for a given income. Although I suppose that if the tax system was simple enough, for a given highest bracket, the amount you would be taxed at the lower rates would effectively be fixed, right?

IE, if the brackets look like this:

0-50k: 10%
50-75k: 15%
75k+: 20%

then everyone in the 75k+ braket will always pay the same amount and rate on the first 75k -  8750.

That's exactly right. 

I thought dividends were taxed as income.

Could be, but income's split into different categories.  Income from emloyment will be different from income from director's fees (in some countries) or from, say, rental properties.  Dividends are normally treated differently from employment income.

[Martinus]

You have to also remember that "simplifying the tax code" is not as easy if you want to keep competitive for foreign (or local) investors. It makes sense to keep corporate income tax low (or eliminate it in certain transactions/set-ups) as otherwise a number of corporate entities you have in your group structure would affect the amount of tax you pay - which would make no sense.

But this means that the same system can be used by the rich to avoid paying the same level of taxes as everybody else.

[Malthus]

A flat tax also implies that the tax is not tiered of course. When we say that the top bracket in 33%, that doesn't mean that you are taxed 33% on all your income if you are over a certain income, that means you are taxed 33% only on the income that is over the bracket. Which does make it kind of complex, since it means you are taxed at a variety of different rates for a given income. Although I suppose that if the tax system was simple enough, for a given highest bracket, the amount you would be taxed at the lower rates would effectively be fixed, right?

IE, if the brackets look like this:

0-50k: 10%
50-75k: 15%
75k+: 20%

then everyone in the 75k+ braket will always pay the same amount and rate on the first 75k -  8750.

Yup. Makes it pretty simple.

Of course most (sensible) flat tax plans work sort of like this, only with a single bracket - there is a deduction for X amount earned.

So (say) 0-20K = no tax;

20K + = taxed at 10% (or whatever).

[Barrister]

A flat tax also implies that the tax is not tiered of course. When we say that the top bracket in 33%, that doesn't mean that you are taxed 33% on all your income if you are over a certain income, that means you are taxed 33% only on the income that is over the bracket. Which does make it kind of complex, since it means you are taxed at a variety of different rates for a given income. Although I suppose that if the tax system was simple enough, for a given highest bracket, the amount you would be taxed at the lower rates would effectively be fixed, right?

IE, if the brackets look like this:

0-50k: 10%
50-75k: 15%
75k+: 20%

then everyone in the 75k+ braket will always pay the same amount and rate on the first 75k -  8750.

Yup. Makes it pretty simple.

Of course most (sensible) flat tax plans work sort of like this, only with a single bracket - there is a deduction for X amount earned.

So (say) 0-20K = no tax;

20K + = taxed at 10% (or whatever).

I'm glad to see you approve of Alberta's flat tax.

[HVC]

Taxes will always become burdensome and complicated. There will always be loop holes. Tax codes  start off much simpler (and smaller. Canadian one is like a phone book printed on rice paper). But people find work around and so either things become illegal or compromises occur (which adds complexity to calculate). Even where things are illegal there are ways around that so more laws are passed. There are reasons the tax accountants and lawyers are handsomely paid.

And that's ignoring other stuff like business incentives that muck the system up.

So changing laws for simplicities sake is, I think, flawed. That's not to say changes shouldn't be made for fairness. I believe capital gains and dividends taxes should be higher, for example. Especially in the current climate.

[HVC]

I'm glad to see you approve of Alberta's flat tax.

damn oil barons!

[Malthus]

I'm glad to see you approve of Alberta's flat tax.

I don't see any particular social advantage to it. Progressive strikes me as better.

[Zanza]

You have to also remember that "simplifying the tax code" is not as easy if you want to keep competitive for foreign (or local) investors. It makes sense to keep corporate income tax low (or eliminate it in certain transactions/set-ups) as otherwise a number of corporate entities you have in your group structure would affect the amount of tax you pay - which would make no sense.

But this means that the same system can be used by the rich to avoid paying the same level of taxes as everybody else.

I think most people think about personal income taxes when talking about simplifying the tax code.
Designing corporate taxes in a way that money that is taken out of the company as personal income is considered just that and taxed accordingly should be feasible, no?

[Martinus]

You have to also remember that "simplifying the tax code" is not as easy if you want to keep competitive for foreign (or local) investors. It makes sense to keep corporate income tax low (or eliminate it in certain transactions/set-ups) as otherwise a number of corporate entities you have in your group structure would affect the amount of tax you pay - which would make no sense.

But this means that the same system can be used by the rich to avoid paying the same level of taxes as everybody else.

I think most people think about personal income taxes when talking about simplifying the tax code.
Designing corporate taxes in a way that money that is taken out of the company as personal income is considered just that and taxed accordingly should be feasible, no?

Not really. There is a host of reasons/things at work here.

You could spend company money of your 100% owned company for personal stuff (e.g. companies can buy houses, cars, food etc.) and noone can do a shit.

Self-employed people need to be as competitive as companies, and thus cannot be taxed more. So you just go into self-employment and sell services to your former employer, as opposed to be an employee - voila, you pay a corporate income tax rate!

Capital gains tax is the same for everyone and can be used to circumvent personal income tax.

You could source your income through a Cypriot or a Jersey structure and pay hardly any taxes.

Etc.

Etc.