do you think the u.s. should do a flat tax?

[markio26]

i just reading my investing forum, and Greece is set to become the next european nation to introduce a flat rate of income tax.
Hong Kong has had a flat tax for years too, they said.
anyway, everyone would be taxed the same, no difference, no loopholes.
it would put alot of cpa's out of jobs.
it would give a single rate and have a high personal allowance.

[poundwise]

There was a lot of flat tax talk some years ago. I think a more standardized, simpler tax code is in order, but I am not in favor of a flat tax. In fact, I happen to think one truth to any tax system installed (flat tax, national sales tax, etc.) is that it will always require too much from the citizens and the government will always be wasteful and irresponsible with it. It's a lose-lose situation. Best bet is to accept whatever system and learn to live under it.

Despite my feelings on government and taxes, it should not go unsaid that I am glad to be an American and appreciate the blessings I have.

[PrincessPerky]

I think that while it will be abused no matter what, the simpler it is the harder to abuse.

I am in favor of a flat tax, though I am not looking forward to paying what would be more in taxes if it ever passes (which I doubt)

[VJW]

As I posted in another thread, the situation with the flat tax in Estonia does not bode well for the concept. They’ve had to raise the rate to 24%, and it applies to ALL FORMS OF INCOME. That would be a MASSIVE tax increase for the vast majority of Americans. Of course, it would be a MASSIVE tax cut for the wealthy as well, but that then is the entire thrust of a flat tax to begin with.

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[veronak]

You know I have thought about and thought good idean but then again I am one not for changes I guess if it's not broken then don't fix it

[boefixepa]

GGRRRR...no real answer here

[PrincessPerky]

Originally Posted by veronak

You know I have thought about and thought good idean but then again I am one not for changes I guess if it's not broken then don't fix it

err not broken? its broke honey, way broke!

[getforfree]

I wouldn't want to pay 24 % tax. But when I will become wealthy, then maybe I would agree to a flat tax.

[Crystallas]

Flat Tax = Terrible Idea that markets well too those who dont understand the tax system.

[Fern]

A flat tax would be great in terms of simplifying what has got to be the most complicated tax system in the world.

However, i think a single flat tax would either unfairly overburden lower income people, or be too easy for more affluent people. Maybe the alternative is a 3-tiered flat tax, still a great deal simpler than what we have now, but a bit more sensitive to the diverse range of income Americans have.

[Fern]

So maybe the lowest, or 1st tier, could be for households making less than $30,000 a year.
The middle tier would be where the vast majority of middle income people fell, while the upper tier would be for those making over $100,000 a year.

[weiwentg]

Originally Posted by Fern

So maybe the lowest, or 1st tier, could be for households making less than $30,000 a year.
The middle tier would be where the vast majority of middle income people fell, while the upper tier would be for those making over $100,000 a year.

if you allowed an exemption of say $30,000 and taxed everything above that at 40%, then that would automatically be a progressive tax - if you made $40,000 you'd pay $4,000 in taxes (effective rate 10%), if you made $100,000 you'd pay $28,000 (effective rate 28%), and if you made $1,000,000 you'd pay $388,000 (effective rate 38.8%). I'm not suggesting those rates are what people should pay. however, if one worked things right, you could make a flat tax progressive (ie rich pay more), as well as reduce bureaucracy. someone brighter than I would have to crunch the numbers to see how it could be done.

what I think is a good article on the subject was published in Forbes Magazine (of all places): http://www.forbes.com/finance/free_f.../1017/042.html

[Ima saver]

I certainly think we need something simplier than what we have now.[Automated by GetSmile]

[Ima saver]

What do you think about a national sales tax? We frugal people could probably handle that??

[VJW]

A national sales tax would be horribly regressive.

Even with exemptions for food, medical care, prescription drugs, and housing, the Middle-class would pay almost THREE TIMES as much of their income, proportionally, as the wealthy, and the Poor would pay FIVE TIMES as much of their income, proportionally, as the wealthy.

Then there is the massive problem of collection enforcement. The easiest way to comprehend the problems involved is to rent the Japanese film “A Taxing Woman” (it is essentially a comedy and has subtitles).

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There would be no reason you couldn’t have a multi-rate progressive flat tax. Many folks confuse “flat” with “single rate”.

As to the complexity, the vast majority of the code has no bearing on individuals unless you’re involved in purchasing railroad cars and leasing them back, or storing grain in silos, or depreciating $100 million machinery.

Let’s not forget that most people COULD file a single sheet return called a 1040-EZ if this were really all about seeking simplicity.

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[tgavin71]

I wish we had a flat tax rate. Many times when overtime is done the dreaded bracket creep kicks in. It is ridiculous that people who work hard get penalised. As long as it is the same for all it won't matter how much you earn. If it was say 20% those on $20,000 would pay $4000 and those on $200,000 would pay $40,000. I'd even tax people on welfare as well.

[sweeps]

Well, look at the bright side. In a bracketed structure, any tax break you can find comes off your highest bracket.

[Bruce Wayne]

What is the tax free personal allowance in places such as Hong Kong and Estonia?

Did some research and the amount of basic tax-exempt income (personal allowance) is 20400 Estonian kroons (approx. 1302 euros). Parents with children under 17 years have an additional personal allowance per third and every following child and certain state pensions and pensions from compulsory pension schemes are subject to an additional personal allowance of 36000 Estonian kroons per year (2298 euros).

Estonia's economy has grown impressively since its 1994 reform. Growth reached double digits in 1997, and has since settled at around 6% annually, after a slump at the turn of the century. Repealing its high tax rate on the rich did not erode the country's tax base as some might have feared. In 1993, general government revenues were 39.4% of GDP; in 2002, they were 39.6%. Estonia now plans to cut its flat tax from 26% to 20% by 2007.

But how much do Estonia's robust revenues owe to its flat income tax? Perhaps less than is frequently advertised. In 1993, the year before its reform, Estonia's multiple personal income taxes raised revenues amounting to 8.2% of GDP. In 2002, its flat income tax raised revenues worth just 7.2%. Indeed, the flat income tax that generated so much excitement abroad seems to be carrying less weight than Estonia's old-fashioned VAT, which raised 9.4% of GDP in revenues in 2002.

The most remarkable turnaround in government revenues was recorded in Russia. Prior to its 2001 tax overhaul, the federal government's tax-raising powers were rapidly deserting it. Clifford Gaddy and William Gale of the Brookings Institution report that tax arrears amounted to 34% of collections in 1997. By 1998, federal revenues had fallen to just 12.4% of GDP, leaving the government unable to pay its creditors. Investigators appointed by the president revealed that Russia's biggest enterprises ignored 29% of their taxes and paid another 63% in kind, with goods and services the government might or might not want. In lieu of $80,000 in taxes, one company reportedly offered the government ten tonnes of toxic chemicals.

On January 1st 2001, Russia flattened and broadened its personal income taxes, collapsing 12%, 20% and 30% bands into a single, uniform 13% rate. The state also withheld taxes at source, identified taxpayers by number, and audited suspected tax-dodgers. Messrs Gaddy and Gale note that no tax system could hope to bring in much revenue without these rudimentary instruments of tax enforcement.

How did revenues respond? A year after the reform, the personal income tax was raising almost 26% more revenue in real terms. Some of this was due to the rebound in the economy: real wages grew by 12% that year, and the take from all taxes, flat or otherwise, consequently improved. But the surge of rubles encouraged by the flat tax was more sustained.

A careful study by two IMF economists, Anna Ivanova and Michael Keen, together with Alexander Klemm, of the Institute of Fiscal Studies in London, tries to unearth the causes of this pleasant fiscal surprise. They find little evidence that Russians, freed from the yoke of progressive taxation, suddenly started working much harder. This is perhaps not surprising, as Russia's reform actually raised personal income taxes for the many households that previously fell into the 12% bracket.

They did discover a conspicuous increase in compliance with the tax authorities, however. In the year before the flat tax, Russians in the two higher tax brackets reported only 52% of their income to the taxman. In 2001, after falling into the new, all-encompassing 13% bracket, these same households reported 68%.

[VJW]

Originally Posted by tgavin71

I wish we had a flat tax rate. Many times when overtime is done the dreaded bracket creep kicks in. It is ridiculous that people who work hard get penalised.

This perspective indicates a fundamental misunderstanding of the tax system. We have a progressive income tax not to 'penalize' the wealthier incomes, but to prevent the lower incomes from being penalized. A single-rate flat tax would have to be 35% to 40% to be revenue neutral to where we were in 2000. That level of taxation would bankrupt the Middle-class and worse for the Working-Poor. Therefore, the only manner in which to provide realistic tax rate levels for the lower incomes is to raise them on the higher incomes, which by the way is where the bulk of the income exists.

A simple solution to your "dreaded bracket creep" would be lots of incremental brackets as they used to have instead of just a few large jumps in rates.

Again, "flat" is not limited by a single rate.

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[VJW]

Originally Posted by Bruce Wayne

A careful study by two IMF economists, Anna Ivanova and Michael Keen, together with Alexander Klemm, of the Institute of Fiscal Studies in London, tries to unearth the causes of this pleasant fiscal surprise. They find little evidence that Russians, freed from the yoke of progressive taxation, suddenly started working much harder.

That’s what I was telling you previously. You have to make sure that you’re not attributing a result to what is more likely one side or another of a cyclical economic curve. Not to mention, once again, not attempting to compare emerging economies with industrialized economies.

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