Flat Tax Pros & Cons

[VJW]

Re: Flat Tax Positives & Negatives

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.

You believe wrong.

Perhaps you would like to take a space here and explain how you calculated your conclusions.

Neither the calculations or the conclusions are mine. You need to take it up with the Treasury Department and the Congressional Budget Office, as well as Professor Robert Hall and Professor Alvin Rabushka.

If everyone is paying 20 cents on every dollar they earn, how can the so-called wealthy be paying less?

Because the wealthy spend a tiny fraction of their income on necessities, while having large amounts of discretionary income, whereas the Middle-class spends far more, PROPORTIONALLY, of it’s income on necessities, while a fraction of their income is discretionary. The Working Poor spend practically ALL their income on necessities and have almost no discretionary income.

It’s Economics 101.

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[VJW]

Re: Flat Tax Positives & Negatives

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

Flat tax, National Sales Tax, Value Added Tax, Fair Tax, are all versions of a consumption tax, and consumption taxes are inherently regressive, which greatly favors the wealthy, while badly hurting the Middle-class and Working Poor.

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[Bruce Wayne]

Re: Flat Tax Pros & Cons

Its an interesting point about the tax situation in Hong Kong. For those not familiar with taxation there here is a summary:

Hong Kong has no payroll tax for Social Security, no general sales or value-added tax, no tariffs on imports and no personal tax on income from financial assets. What Hong Kong has is called a "Dual Tax" -- progressive tax rates on labor income but a flat tax of 17.5 percent on corporate profits, 16 percent on property owners and unincorporated enterprises.

The low tax on profits brings in substantially more revenue than the tax on salaries, in marked contrast to the United States, which collects little from profits taxes that are nominally twice as high. Corporations in Hong Kong pay the profits tax before distributing dividends to shareholders, so there is no extra tax on dividends to be collected from individuals. Reinvested profits result in more business income to tax in the future, so there is no extra tax on capital gains to be collected from individuals.

Companies in Hong Kong deduct interest payments, however, so it would be theoretically appropriate to tax individuals on income they receive from local corporate bonds. This exemplifies the key tax principle of symmetry: Whatever is a deductible expense for those making any payment ought to be taxable income for those receiving that payment. But there would still be no need for individuals to report interest income, because a flat tax can easily be collected at the source, before the check goes out.

Personal income (salary) is taxed thus:

15% of "assessable income" after the deduction of allowances (raised to 16% in the 2003/2004 budget); or

A progressive rate levied on "assessable income" after the deduction of allowances. These progressive rates are:
Nil to HK$35,000 - 2%
HK$35,000 to HK$70,000 – 7% (8% from 2004)
HK$70,000 to HK$105,000 – 12% (14% from 2004)
HK$105,000 upwards – 17% (20% from 2004)

You can also get deducations from your taxable salary of the following:

Charitable contributions representing up to 10% of an individual's income;
A residential care allowance in respect of a parent or grandparent of up to US$7,700 per annum.
Home loan interest deductions of up to US$12,800 per annum, for 5 years (extended to 7 years in 2004).
A current pension allowance of up to US$1,550 per annum conditional on the monies being invested in a recognized pension fund.
Depreciation allowances on all plant and machinery essential to the production of income subject to salaries tax.
A single person's allowance of US$13,850 (reduced by about 8% in the 2003/2004 budget)
A married persons' allowance of US$27,700 (reduced by about 8% in the 2003/2004 budget)
Child allowances of US$3,850 on the first and second child and US$1,925 thereafter.
Dependent parent, grandparent,sister, brother sibling (to include more than one where necessary) - allowances US$3,850 each.
Dependent disabled person's allowance of US$7,700
Education allowance of US$3,850 for any course which educates or assists an employee in his profession.

So you can see that people have a choice over whether they are taxed progressively or via a flat rate. With either system the tax rate is incredibly low, yet the tax revenue is approximately 1% of GDP less than in America, despite the US having much higher general taxes.

I would like to think VJW that even you can see that such a system of flat tax with high personal allowance certainly would not harm low earners as they would probably get to keep large chunks, if not all, of their salary as personal allowance. They also would not be taxed on purchases, savings or investments.

[PrincessPerky]

Re: Flat Tax Positives & Negatives

Because the wealthy spend a tiny fraction of their income on necessities, while having large amounts of discretionary income, whereas the Middle-class spends far more, PROPORTIONALLY, of it’s income on necessities, while a fraction of their income is discretionary. The Working Poor spend practically ALL their income on necessities and have almost no discretionary income.

It’s Economics 101.

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So I suppose you would like to punish people who earn more/spend less? I should be taxed higher than my firend who lives above her means every month? I have a higher percentace of 'discrecionary income' after all. The fact that it is due to my own hard work means nothing I suppose, I should pay more in taxes becaue I use my money wisely?

Sorry while I will agree that the richer you are the easier it is to 'hide' money I will not agree that rich people should be taxed higher than me, just becasue they have more spare change. 20 cents on the dollar is still 20 cents on the dollar (and truthfully since our money is taxed in out, during 'storage' and every other way concevable I doubt it is as low as 20cents right now.)

[Roger]

Re: Flat Tax Positives & Negatives

[QUOTE=VJW]You believe wrong.
[QUOTE=VJW]
Can you prove it?



[QUOTE=VJW]
Neither the calculations or the conclusions are mine. You need to take it up with the Treasury Department and the Congressional Budget Office, as well as Professor Robert Hall and Professor Alvin Rabushka.
[QUOTE=VJW]

The Treasury Department has a vested interest in keeping the current system. If it was a Flat Tax, there wouldn't be a need for most of the people who work at the Treasury Department.

[QUOTE=VJW]
Because the wealthy spend a tiny fraction of their income on necessities, while having large amounts of discretionary income, whereas the Middle-class spends far more, PROPORTIONALLY, of it’s income on necessities, while a fraction of their income is discretionary. The Working Poor spend practically ALL their income on necessities and have almost no discretionary income.
[QUOTE=VJW]

You are right about the amount of income spent on necessities by the classes. That does not mean the tax is proportional, the tax would still be a flat percentage.


I think this discussion is going no where between us, so until you can produce something more to talk about, besides our beliefs, I am done.

[jmjj215]

Re: Flat Tax Pros & Cons

I like the idea of a simplified taxing system. That's as much of an opinion as my knowledge of the issues permits me to have at this time.

[VJW]

Re: Flat Tax Pros & Cons

I would like to think VJW that even you can see that such a system of flat tax with high personal allowance certainly would not harm low earners as they would probably get to keep large chunks, if not all, of their salary as personal allowance.

But the “flat Tax” only benefits the wealthy, which is why 98.5% of the citizens of Hong Kong avoid it.

As should we.

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[VJW]

Re: Flat Tax Positives & Negatives

So I suppose you would like to punish people who earn more/spend less?

Care to explain how wanting people to pay their fair share of the tax burden is construed as an effort to “punish” them ?

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[VJW]

Re: Flat Tax Positives & Negatives

Can you prove it?

Actually, I was referencing the results of the U.S. Treasury study, and you responded that:

“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.”

Can YOU “prove” it ?

The Treasury Department has a vested interest in keeping the current system.

A) But it is not limited to the Treasury Department.

B) It was the Reagan administration’s Treasury Department, so I seriously doubt they would have a “vested interest in keeping the current system”, since after they abandoned the 'Flat Tax', they then went on to implement a radically different tax scheme that failed rather dramatically.

If it was a Flat Tax, there wouldn't be a need for most of the people who work at the Treasury Department.

Untrue.

The complexities of the current system, of deciding what is and what is not income – what is and what is not exempt, would remain with a ‘Flat Tax’.

You are right about the amount of income spent on necessities by the classes. That does not mean the tax is proportional, the tax would still be a flat percentage.

Never claimed the "tax is proportional", but what people PAY in taxes would be proportional to their income. Hence, horribly unfair.

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[PrincessPerky]

Re: Flat Tax Positives & Negatives

Care to explain how wanting people to pay their fair share of the tax burden is construed as an effort to “punish” them ?

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You are not suggesting 'fair' you are suggesting those with more loot to toss around should pay more.

Like I said, I have higher discrecionary income, yet I am right at the poverty level, you are sugesting that higher discretionary income means higher burden of taxes, sorry I do not feel that way, I have 'spare' loot (meaning truthfully I do not ask the govt for money) because I sacrifice and work hard, not because I am 'rich' and or lucky.

I do not think saying people with more money to spare should pay more for taxes makes any sense in a just way. It sounds more like jelousy. "you have lots so I want to take it away." Actually sounds a bit communist, and I for one prefer to earn what I recieve.

[VJW]

Re: Flat Tax Positives & Negatives

You are not suggesting 'fair' you are suggesting those with more loot to toss around should pay more.

Actually, no.

A progressive income tax does not have “those with more loot to toss around” paying more, but ‘those with less loot to toss around’ paying less. It would take a high single-rate to be revenue neutral, so the rates have to be lowered for lower-income taxpayers so they can afford to pay it without being bankrupted.

Like I said, I have higher discrecionary income, yet I am right at the poverty level, you are sugesting that higher discretionary income means higher burden of taxes

No, you have that backwards.

The point was not that those with higher discretionary income should pay higher taxes, but that under a ‘Flat Tax’, those with lower discretionary income pay a much higher PERCENTAGE of their income in taxes, and those with higher discretionary income would pay a much lower PERCENTAGE of their income in taxes.

Just the opposite.

I do not think saying people with more money to spare should pay more for taxes makes any sense in a just way.

If one enjoys the benefits provided by government, one must pay for that government. Having everyone pay the same would not provide the revenue required to provide for those services.

It could not be any simpler.

Actually sounds a bit communist

Actually, having everyone pay the same is much closer to Communism. You might want to check a dictionary.

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[PrincessPerky]

Re: Flat Tax Positives & Negatives

income pay a much higher PERCENTAGE of their income in taxes, and those with higher discretionary income would pay a much lower PERCENTAGE of their income in taxes.#

Apparently all those math classes I took failed me, last I checked 20%of 30,000 and 20% of 300,000 or 3milion was the same PERCENTAGE. IE 20%.

Thats why it is a flat tax, everyone pays the same PERCENTAGE.

And since 20% of 30,000 is only 6,000, whereas 20% of 300,000 is 60,000 It doesn't look like the same amount to me. Guess I have a different opinion of PERCENT and SAME than you though.

[VJW]

Re: Flat Tax Pros & Cons

Once again, you’re confused.

You’re conflating the ‘percentage rate’ with the ‘percentage of income’. Yes the percentage rate is the same. However, the percentage paid of one’s income is different.

I wrote:

“those with lower discretionary income pay a much higher PERCENTAGE of their income in taxes, and those with higher discretionary income would pay a much lower PERCENTAGE of their income in taxes.”

BTW, looks like you did fine in your math classes. It’s those reading classes where you must have been napping.

:]

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[PrincessPerky]

Re: Flat Tax Pros & Cons

ah so I am missing the flat tax being only of income not of particular parts of income, see I thought it would be 20% of income, regardless of 'outcome'

[Bruce Wayne]

Re: Flat Tax Pros & Cons

Its interesting to read your arguments VJW.

If you study society and systems in general you'll find that there are two kinds of system, man made and spontaneous.

Spontaneous systems provide inhabitants with clear rules and then let them operate within those rules however they please. This type of management works very well when the system is so large and complex that it is impossible for single men or groups of men to successfully govern each of the systems constituents. Examples include nature.

Man made systems on the other hand try to manipulate the operation of that system by managing the activities of its' inhabitants. Examples of man made systems include companies and families where the manager could be seen to know best and the system has a clear goal and outcome to aspire to, typically only possible in small systems.

It seems to me that you believe that society can be managed wheras I believe that such attempts are doomed to failure because society is simply too large and too complex to even begin to make decisions for each of the individuals within it, each with their own unique circumstances and dreams. Instead I believe that society would flourish if simple rules were enforced and the individuals allowed to live how they please as long as they follow the simple rules. It is in the enforcement of these rules that government should be active, not the provision of any service.

If you believe this system is doomed for failure I ask you to consider nature and how it flourishes without having any one thing manage it in the billions of years it has been in existence.