Flat Tax - please to esplain?

[Iormlund]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

You don't need a single rate to get rid of the zillion of deductions available, which is where the complexity lies.

[Martinus]

I think the part that I'm confused on is that if Warren Buffet is correct and he is indeed paying less of a percentage of his income than his secretary, then how do the arguments of a flat tax being hardest on the poor pan out?

Buffet is talking about the totality of taxes, which are indeed regressive, which is worse than flat.  The flat tax advocates talk about just income taxes, which is the only progressive tax out of all the taxes people pay.  Therefore, flat income tax, if enacted, would make the totality of taxes even more regressive than they are now.

Well, unless you make flat tax equal to CIT and capital gains tax, but then it would make no sense.

[crazy canuck]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

You don't need a single rate to get rid of the zillion of deductions available, which is where the complexity lies.

Yes, that could be done.  But the rates would have to be adjusted accordingly - a tax policy nightmare -  or overnight you would make the US the most tax unfriendly jurisdiction in the world.

[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.

Well you wouldn't get deductions for your children, and we would be more like Russia.

[Sheilbh]

I think the part that I'm confused on is that if Warren Buffet is correct and he is indeed paying less of a percentage of his income than his secretary, then how do the arguments of a flat tax being hardest on the poor pan out?

In addition to the nature of his income, which is different to employment income a lot of that will be due to loopholes and credits and deductions.  The problem - regardless of your system - with having an extremely complex tax code is that it's going to end up being of more use to someone who can afford an accountant than the single mum going to school it's trying to help.  That's why I favour a simpler tax system. 

[viper37]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

A Flat tax like this is essentially a progressive tax with only 2 levels.
You don't need a flat tax to remove the distortions, you need a tax code reform.
Capital is theoritically taxed at the same level as labour, but then, you got 50% exemption on your gains, wich in practice will lower your tax rate.
You could very well keep the same scale and remove that 50% exemption and you'd get no distortion.

[Razgovory]

My tax policy involves giving the IRS the power to beat you.  In case anyone cared.

[MadImmortalMan]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

You don't need a single rate to get rid of the zillion of deductions available, which is where the complexity lies.

That's true, and we probably should do that--but if we did only that, we'd wind up with an awfully high tax burden.

[Barrister]

I think the part that I'm confused on is that if Warren Buffet is correct and he is indeed paying less of a percentage of his income than his secretary, then how do the arguments of a flat tax being hardest on the poor pan out?

Because Warren Buffet's "income" is pretty minimal. He makes his money off of capital gains, which is not "income" per se.

A flat tax would make this problem worse. A lot worse. Much, much, much, MUCH worse. Unless you build in exemptions for lower incomes, in which case it is no longer all that flat anymore, by definition.

I am all for simplofying the tax code, but a flat tax would just be a reset of the problem, not a solution. It would become complex again quickly because nobody is really willing to create such a regressive tax that a true flat, simple tax would represent, nor should they.

A flat tax is an income tax.  What does discussing a flat tax have to do with capital gains tax rates?

Is someone seriously proposing to introduce a flat tax and simultaneously eliminate the capital gains tax?

Alberta has a provincial flat tax.  It's a straight 10%, with basic personal exemption of $16k.  So, after your first $16k, you pay 10% of every dollar you earn to the province.   

[Razgovory]

Is someone seriously proposing to introduce a flat tax and simultaneously eliminate the capital gains tax?

In the US, yes.

[Malthus]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

You don't need a single rate to get rid of the zillion of deductions available, which is where the complexity lies.

That's true, and we probably should do that--but if we did only that, we'd wind up with an awfully high tax burden.

The idea would surely be to adjust the rates so the actual overall intake is exactly the same no matter what system is adopted - all that would change is (a) overall complexity of the system, and (b) who pays what part of that overall intake.

I don't see why a progressive tax rate curve is really all that more complex than a flat tax (where, as would be necessary, the flat tax has a built-in exemption for poor folks). For the vast majority of people, we are really only talking about employment income - where troubles start, is with other types of income such as capital gains.

[DGuller]

A flat tax is an income tax.  What does discussing a flat tax have to do with capital gains tax rates?

A lot, actually, when the income tax is bypassed by creative use of capital gains tax.

[Barrister]

That is why all realistic flat tax proposals exempt a significant base amount from low tax earners.  The aim of the flat tax is not to prevent people from living like "a king".  That is socialism.  The goal of the flat tax is to remove needless disortions and complexity from the tax systems so that the rich end up paying less than their cleaning lady.

A Flat tax like this is essentially a progressive tax with only 2 levels.
You don't need a flat tax to remove the distortions, you need a tax code reform.
Capital is theoritically taxed at the same level as labour, but then, you got 50% exemption on your gains, wich in practice will lower your tax rate.
You could very well keep the same scale and remove that 50% exemption and you'd get no distortion.

It's been 14 years since I studied Tax Law, but IIRC that 50% exemption is to prevent double taxation.  Whatever yoru asset is, you're already likely paying taxes on it (property tax on real estate, income tax on a business, etc.)

[Sheilbh]

That's true, and we probably should do that--but if we did only that, we'd wind up with an awfully high tax burden.

Not necessarily.  Again I'd say look at the Kiwi approach.  Their tax rates go from 10.5% (on income up to $14k) to 33% (on income over $70k) and, I think the top rate's to fall to 30% soon.  They've still got some credits for people on low incomes.  But I think that sort of low, broad, simple system is probably best.

They're also trying to equalise tax on capital and on corporate income to remove economic distortions.  The theory is that if Buffet's paying the same rate whether he has his income as employment, corporate or capital income he won't be worrying about the respective tax schemes but will put it where it's most likely to benefit him and be economically effective.  So, basically, there's no tax encouragements by the state that distort investments.

[fhdz]

Not necessarily.  Again I'd say look at the Kiwi approach.  Their tax rates go from 10.5% (on income up to $14k) to 33% (on income over $70k) and, I think the top rate's to fall to 30% soon.  They've still got some credits for people on low incomes.  But I think that sort of low, broad, simple system is probably best.

Not to agree nor disagree with the merits of the New Zealand system, but on what planet is 33% income tax "low"?