Flat Tax Pros & Cons

[genchan]

Can someone please explain to me the positive and negative aspects of a flat tax replacing the current income tax?

[cercis]

Re: Flat Tax Positives & Negatives

The major negative is that no one can agree about the amount that should be exempted.

Most people agree that some should be exempted, but no one agrees what it should be.

The thought on the exemption is that it takes a certain amount to live, poverty level as it were. Now, most of us know the poverty level is pretty much a joke in that no family could actually live on poverty level wages (unless they are getting major welfare, etc). The thought is that you should be taxed on your "disposable income". Well, then you have the people who claim that as your income increases your expenses must also increase (I guess they think they HAVE to have that 5 bedroom mcmansion and the lexus).

The positive is that it is easier to figure out. You state your income, deduct the living expense allotment and then multiply by the percentage.

Another negative is that no one is sure what the percentage should be. And a lot of charities are afraid (probably rightfully so) that they will see a major decrease in contributions when the tax deduction incentive is removed.

There's also the negative of what constitutes income. Does interest earned on inherited investments count as income? If not, then you can have someone who has never worked a day in their life but who collects in excess of $100k/year and not owe anything in taxes.

[Roger]

Re: Flat Tax Positives & Negatives

Flat tax positives - easy to calculate, everyone is taxed at the same rate and pays the same amount per dollar of income, i.e. earn 1 buck pay .20, earn 1,000,000 pay 200,000
Negatives - politics, special interests, ignorance and fear of change

For your information, I could (but won't due to privacy issues) name you a dozen families who live on less than the official poverty level, they do not have a large, air conditioned house, cell phones, internet access, cable television or a car from this decade, but neither do they receive welfare, fight with their children about $100 a month allowances being puny, worry about what the kids are doing when both parents are at work (they all live on one income) and nobody can claim they are dirty, lazy or untrustworthy

[crosses]

Re: Flat Tax Positives & Negatives

How much is the official poverty level?

[Bruce Wayne]

Re: Flat Tax Positives & Negatives

Positives: Easy to understand, potentially producing greater income (due to less avoidance of tax + less wastage on collection), greater incentive to earn your own money, larger personal allowance

Negatives: (had to think hard for some) nope, can't think of any.

Alot of countries have tried flat tax and it has worked very well for them with both national income and government income rising. Have a look at Russia for an example.

[PrincessPerky]

Re: Flat Tax Positives & Negatives

.. Now, most of us know the poverty level is pretty much a joke in that no family could actually live on poverty level wages (unless they are getting major welfare, etc). .

Some one forgot to tell my family that, we live on a couple of thousand over the poverty level in our area. Somehow we are doing just fine. (no welfare, no charity)

[VJW]

Re: Flat Tax Positives & Negatives

Flat tax positives - ... everyone is taxed at the same rate and pays the same amount per dollar of income

That’s actually a 'Negative', as having everyone pay "the same amount per dollar of income" means that even with exemptions for food, medical care, drugs, and housing, the Middle-class would pay almost 3 times as much of their income, proportionally, as the wealthy, and the poor would pay 5 times as much of their income, proportionally, as the wealthy.

#

[VJW]

Re: Flat Tax Positives & Negatives

How much is the official poverty level?

$19,350 for a family of four.

#

[VJW]

Re: Flat Tax Positives & Negatives

Positives: ... potentially producing greater income

It’s been well documented by the U.S. Treasury that it would garner far LESS revenue, not to mention that the two professors who were the ORIGINATORS of the so-called “Flat Tax” have stated from the getgo that it would garner far LESS revenue.

You’re falling for the hype.

greater incentive to earn your own money

What incentive ?

Alot of countries have tried flat tax and it has worked very well for them with both national income and government income rising. Have a look at Russia for an example.

Non-industrialized countries.

#

[jmjj215]

Re: Flat Tax Positives & Negatives

due to less avoidance of tax

You really think people would not avoid a flat tax at 20% (or whatever %) - but would avoid it now? I think you'd see avoidance - evasion is probably a better word - either way.

[Bruce Wayne]

Re: Flat Tax Positives & Negatives

It’s been well documented by the U.S. Treasury that it would garner far LESS revenue, not to mention that the two professors who were the ORIGINATORS of the so-called “Flat Tax” have stated from the getgo that it would garner far LESS revenue.

I'm using real life examples. In 2001 Russia adopted a 13% flat tax. Russia’s economy has expanded by about 10 percent since it adopted a flat tax. That may not be spectacular, but it’s better than the United States, and it’s very impressive compared to the anemic growth rates we see elsewhere in Europe.

Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent. Why? Because people are willing to produce more and pay their taxes when the system if fair and tax rates are low.

There are other industrialised nations using flat taxes very successfully. Hong Kong has had a flat tax for a long time, and it’s been the world’s fastest-growing economy over some 50 years.

[Roger]

Re: Flat Tax Positives & Negatives

That’s actually a 'Negative', as having everyone pay "the same amount per dollar of income" means that even with exemptions for food, medical care, drugs, and housing, the Middle-class would pay almost 3 times as much of their income, proportionally, as the wealthy, and the poor would pay 5 times as much of their income, proportionally, as the wealthy.

#

I thought we were talking about a Flat Tax, not a "tax the rich because they can afford it" scheme. I believe if you look at the math, you will see that you are wrong when you say the poor and middle class would pay more proportionally. Perhaps you would like to take a space here and explain how you calculated your conclusions.
If everyone is paying 20 cents on every dollar they earn, how can the so-called wealthy be paying less? That is what happens with the system we have today. Under a flat tax, if you earn a dollar, you pay a flat percentage of it to the government. Hence the name - flat tax.

[cercis]

Re: Flat Tax Positives & Negatives

http://www.atdn.org/access/poverty.html

In my area, you can't buy a house for less than $40k (I've looked and kept looking, that includes 2 bedrooms). That's a house payment of $400/month (with property taxes and insurance). So $4,800. To rent an apartment is considerably more - for a family of 4 you are required by law to have a 3 bedroom apartment (unless both kids are the same gender). A 3 bedroom apt is $500/month, plus you need to buy renters' insurance and it doesn't include utilities. But we'll stick with $4,800.

Plus there is SS tax on the income (the poverty levels are pretax dollars) so for the family of 4 that's $1,175.

Then you have health insurance (since most jobs paying poverty level don't pay health insurance or only pay a little). For a family of 4 the cheapest health insurance I could find was $489/month. We'll assume that I just couldn't find the best insurance and cut that to $400/month - another $4,800.

Then you have utilities. The minimum payment for electric is $25 (that's the absolute minimum they will charge). The lowest electric bill I've ever had (840sqft home, no AC) was $40/month - $480. Trash and water is $25/month minimum (and you have no choice but to have garbage service in most cities) - $300. Phone of some sort (you need some sort of phone for emergencies because you can't rely on your neighbors or payphones - assuming you can find a payphone) minimum $25 - $300.

That leaves $7,495 for food, doctor visits, transportation costs, clothes, school supplies, etc. $625/month sounds like enough for that, but that's if all your expenses were kept to the absolute minimum, which never seems to happen as much as you try your hardest.

Most people making poverty wage collect WIC and medicaid insurance for their kids. That's a form of welfare.

[PRICEPLUS]

Re: Flat Tax Positives & Negatives

How about a value added tax instead of a flat tax?

[VJW]

Re: Flat Tax Positives & Negatives

I'm using real life examples.

Too bad they’re not relative.

In 2001 Russia adopted a 13% flat tax. Russia’s economy has expanded by about 10 percent since it adopted a flat tax.

And who says it wouldn’t have if it hadn’t adopted a flat tax ? Geez, China is growing far faster than that under Communism !

Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent. Why? Because people are willing to produce more and pay their taxes when the system if fair and tax rates are low.

You’re claiming that the rooster crowing causes the sun to rise every morning.

There are other industrialised nations using flat taxes very successfully.

Like ?

Hong Kong has had a flat tax for a long time

You’re making my case for me:

A) Only the top 1.5% of income earners are subject to the single-rate ‘flat tax’ in Hong Kong.

B) The other 98.5% of taxpayers in Hong Kong pay a graduated income tax which consists of four separate tax brackets and allows for sizable personal and dependent deductions.

and it’s been the world’s fastest-growing economy over some 50 years.

More evidence favoring a progressive income tax.

#