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I know quite a few people who support the flat tax, and those folks all have one thing in common: They think a flat tax will make their own taxes lower. That's why the flat tax is bullshit. It can never live up to its imagined promise of lowering taxes for every individual while keeping tax revenues neutral or higher.

I think most people like the idea of a simpler tax code. No argument there. But I've never met a person who would volunteer to pay higher taxes in exchange for simplicity.

The flat tax idea is a brilliant bit of psychological class warfare. At least I hope that's what it is. I'd hate to think the people in the highest tax brackets, i.e. my peeps, are as dumb as the people they hope to screw with promises of unicorns and flat taxes.

The flat tax diversion is a deliciously cynical way to maintain the status quo while appearing to be in favor of change.  The diversion works because the middle class has been duped by the media into thinking high income people pay a lower tax rate than the general public, so maybe a flat tax will set things right. That's the power of anecdotes. If you hear a few stories about Warren Buffett paying a lower tax rate than his secretary, you assume your dentist is beating the system too. He probably isn't.

Another brilliant aspect of the flat tax argument is that it's simple to explain, and our brains are wired to perceive simple solutions as better than complicated ones. In reality, the simplest solution is usually the one that comes from someone who is either trying to screw you or who isn't capable of understanding the full situation.

The flat tax diversion is weasel-clever because it shines a light on the absurd "fairness" argument coming from the folks who want to raise taxes on the rich. Fairness is an illusion our parents taught us as kids to make us stop fighting with our siblings over the appropriate division of candy. Fairness isn't an objective quality of the real world. The reality is that the rich willingly pay higher taxes for the same reason that the British monarchy willingly converted from a dictator model to a symbolic role: If you want to avoid being beheaded, sometimes you need to be flexible.

Personally, I'm quite comfortable paying taxes at the highest rate. It's like paying protection money to the Mafia, and I mean that in the best possible way. High taxes reduce the odds that jealous mobs will kill me for succeeding in my chosen field. Oh, and my taxes are also helping fund national defense, education, social program, and other good stuff. That's a win-win. But please don't insult me with arguments of fairness. Save the fairy tales for your kids.

I know some of you will leave comments about your own fairy tales of Laffer Curve economics, in which lower tax rates stimulate the economy and fill the treasury with free money. And then someone will point out that economic growth in the Unites States has often coincided with higher tax rates. Can we agree that the Laffer Curve has been debunked everywhere but on Fox News?

 
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Oct 21, 2011
Interesting... your friends are all in that 49% the media was ignoring this summer.

I, however, fall squarely in the 51% that was entitled to a full refund of my taxes (except Social Security, which is also a tax, but that's a different discussion). So for me and my "peeps", a 10% flat tax would generate revenue for the government.

So, before we go off !$%*!$%*!$% talking about 'fairness' or being insulted, perhaps we should consider what a flat tax, or entry-level tax (everything after your first $40k gets taxed) would do to and/or for the majority of wage earners in the country.

Then again.....
Maybe the real discussion is, or should be, whether our government should be allowed to run in deficit mode at all? And if not, what are we willing to give up to make that happen - services, wealth, or freedom?
 
 
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Oct 21, 2011
Kiefler:
The problem with estate taxes is that you're taxing money that has already been taxed. The person who earned that income to buy that stuff already paid income tax AND likely sales tax as well. So now you want to tax it again simply because the guy who earned it had the financial sense to have enough money to outlast him?
That's like taxing used goods...oh wait, they do that too, with the excuse that the change of ownership has to be registered. That argument works for real estate, motor vehicles, and stocks, except those are already subject to registration fees for that very reason. Who cares who owns cash, or jewellery, or furniture?

I don't dispute that Buffett's children may not deserve his wealth (or they may, I don't know), but how much less does the government deserve it?
 
 
Oct 21, 2011
For those commenters saying "We should be able to choose how our tax money is spent", I would suggest thinking ahead a couple more steps. What happens when everyone allocates money to warm and fuzzy causes like cancer research, and nobody thinks to fund the coast guard?

Regarding the flat tax, the primary benefit would be eliminating the ability for lobbyists to influence the tax code with favored loopholes, which is precisely the reason that any flat tax would not stay flat for very long.
 
 
Oct 21, 2011
I'm with others in saying - Just tell me how much to pay. It doesn't have to be flat. I can handle the sticker shock. I appreciate the defense, the education, the good stuff. But I'd rather be bit by a bear than a school of piranha. Take your pound of flesh and good day, Sir. I SAID GOOD DAY!
 
 
+7 Rank Up Rank Down
Oct 21, 2011
There is a fair and moral flat tax rate: 0% on labor. If you are playing by the rules and you do work, the product of your labor should be yours to do with as you wish.

This eliminates no other taxes. For example, the gas tax represents your consumption of a limited resource. I'm fine with that being higher AS LONG as I don't have to pay any income tax.

Once the income tax is 0% on labor, then the argument that dividends and capital gains and sales taxes are "double taxation" goes away, since the money is only taxed once. Low capital gains taxes aren't spurring investment, except in wild speculation. The most practical approach to capital gains taxes would probably be to make them time-sensitive. For example, a 99% rate on profits earned in one minute, 90% in one day, etc., down to a low rate for long-term holdings. That seems like it would cut back on a lot of the wild stuff that causes commodity prices to spike for regular people whiling lining the pockets of investment bankers.

The rules should change, too. Six corporate media companies control almost all of the news in the country, or something like that. CEO pay is inflated because they're all cross-pollinating each others' boards of directors with a "you scratch my back, I'll scratch yours" self-perpetuating cycle. 401(K) shares don't vote, so corporations are largely controlled by (a) the wealthy (b) other corporations and (c) a lobbyist-government relationship that advantages a few large companies through regulations and inflation, all causing distortions that hurt the rest of us disproportionately.

The two last paragraphs address MUCH bigger systemic problems than a bunch of dirty hippies whining that the rich make too much money. I don't care if someone makes more money or not and they don't owe me or society a damn thing for it... UNLESS the rules are tilted in their favor, which they currently are. But arguing over their tax rate is a stupid way of dealing with that because it does NOT address the actual problem. All jacking up their taxes does is piss them off, make them close their doors, stop hiring, and offshore their wealth which is exactly what we DON'T want right now. You wanna say F**k You to the rich? OK, but their response is mostly gonna be: F**k you too.
 
 
+3 Rank Up Rank Down
Oct 21, 2011
I don't think the Laffer curve has definitely been debunked but I'm not sure the US is at a point where lowering taxes will increase yield. You can believe in the Laffer curve but not want to lower taxes!
 
 
+5 Rank Up Rank Down
Oct 21, 2011
I an expat living in Europe, and the taxes here are incredibly simple: VAT on everything but food, and three tax rates. My tax form here is one A4 letter than I basically check a box saying "yes, these numbers are correct." My US taxes take about an hour to file because I have to fill out box 3 and subtract that from 4a unless the value from 2 is less than what is in 5b, all so that I can eventually pay no income tax (because I live in a tax-treaty country). In other words, the system here is much closer to a flat tax or a sales flat-income tax.

What people have to realize is that things like the VAT and the 0, 40, or 50% tax systems in many European countries work only because the income distribution is basically flat. In Germany, for example, CEO pay cannot exceed a certain multiple of the lowest-paid employee. In Holland no one can theoretically be paid more than the Prime Minister. In the US, flat taxes and consumption taxes (VAT, national sales tax, etc.) are regressive. As are tariffs on Chinese imports, because the income distribution in this country looks like a delta function and the less you make, the higher the percentage of your income you use to buy stuff.

Scott's post is right-on about dentists not beating the system, and probably not Scott himself either. The difference is between investment income (capital gains) and basically all other forms of income. If you own commercial real estate and earn your income from rent payments, then you will pay significantly more in tax than someone who earns the exact same amount managing a hedge fund (or a CEO being compensated with stock options). So when we talk about 'The Richest 0.1%' that is misleading; what we should be talking about is 'People Who Earn Most of their Income in Capital Gains' (who also happen to be predominantly in the richest 1%).

And for all of you "let's simplify the tax code" people: what do you plan to do about LLCs? Should we not shield people from personal ruin if they want to start a business, all in the name of simplification?
 
 
Oct 20, 2011
I found it funny that so many people saw Bird Watchers post and gave it a thumbs up (me included), because it took a simple idea (flat tax), and married it to another simple idea (first $40,000 is exempt, to make the flat tax more progressive). Our brains must really be wired to like two simple ideas together for a multiplier effect.

One of the real reasons the current tax code is so dense and suspicious to those of us assuming we are getting uniquely screwed, is that the tax code has become a way to make policy rather than collect revenue. Instead of trying to get logical ideas through a screwed up congress, just amend the tax code to give breaks for buying a Prius. As long as it is a cut, the Republicans will go for it, even if it is suspiciously good for the environment. Tax "incentives" to influence behavior could be written as laws, but it is so much easier to tack on an "incentive for buying homes" (helps developers, home depot, and construction, when there is a mortgage interest deduction) onto the tax code. It's a policy decision without the brutal policy debate. But it's like pushing rocks with a rope, the rocks will move some, but you have a tangled mess at the end. just like our current tax code.
 
 
+2 Rank Up Rank Down
Oct 20, 2011
Economics political science and sociology are not sciences as there is no control group
 
 
+1 Rank Up Rank Down
Oct 20, 2011
"I know some of you will leave comments about your own fairy tales of Laffer Curve economics, in which lower tax rates stimulate the economy and fill the treasury with free money. And then someone will point out that economic growth in the Unites States has often coincided with higher tax rates. Can we agree that the Laffer Curve has been debunked everywhere but on Fox News?"

I was right with you up to this. Yes, the economy has grown when taxes were higher, but we've also collected more taxes after tax rate decreases. Thing of it is, the rates and the actual percentage of GDP taxed have little to do with each other, since it all depends on how money is divided. People keep claiming that tax rates have been lowered, even though the amount of taxes paid as a percentage of GDP has doubled or even tripled over a fifty year period. I think that we need a more sophisticated analysis of the affect of taxes that doesn't merely look at the rates.
 
 
Oct 20, 2011
Here's a link to have a look at the proposal.
http://www.gmi.co.nz/bigkahuna/
 
 
Oct 20, 2011
A group of economists in New Zealand suggested having a flat tax of 30%, but everyone gets $11,000 a year paid to them. So the poor get more money, and everyone else pays a little more tax. Little administration is required, so it is cheap to run. Children get a smaller payout, which the parents use to feed and clothe them (we hope). There is also currently a 15% Goods and Services Tax on everything, (like a VAT), which is essentially flat tax, but of course rich people buy more expensive things, so pay more.
Here's the really different bit: They propose that the 30% tax applies on a assumed rate of return on capital, including your home. The idea is that people living in big houses would be forced to sell up to get cash to invest to pay the tax, although there were suggestions that payment could be deferred until people die.
An interesting idea, but hasn't been discussed in the media.
 
 
+1 Rank Up Rank Down
Oct 20, 2011
I think a value-added tax (VAT) as used in Europe is the best solution. The more you spend, the more you pay. The VAT is unavoidable and easily changed to represent the needs of the Government. It is so simple that our useless representatives will never adopt any simple system that the wealthy don't like.

I guess we need to get used to the fact that our representatives are puppets of big business -- and lobbyists write the laws.

How much longer before we take back our Government from Corporations?
 
 
-1 Rank Up Rank Down
Oct 20, 2011
I'm for a progressive flat tax. Closes loopholes while still providing a stepped rate. Also, in my plan, poor people pay taxes too. Sure they can get it all back at the end of the year, but there is something about supporting your country that is nice, especially when your countrymen are paying for your house, heat, and food.
 
 
Oct 20, 2011
>Can we agree that the Laffer Curve has been debunked everywhere but on Fox News?

No, but that's an argument for a different post.

I agree with 80% of what you said in today's post. I think most flat tax advocates would really be happier with a *flatter* tax, not necessarily flat. A huge portion of the American people are earning so little as to pay no federal tax at all. Can we agree that all Americans should be paying some income tax (assuming they earn income)? Having a huge percentage that pay no tax creates a moral hazard situation.
 
 
+3 Rank Up Rank Down
Oct 20, 2011
I'm a staunch supporter of the Fat Tax. Get on the scale on April 15th, add a zero to whatever number it says and write the government a check for that amount.
 
 
+5 Rank Up Rank Down
Oct 20, 2011
It was not that long ago that you made the argument that your success was due to hard work. Than, some time later you wrote blogs saying it was about trying different careers, not giving up, and working smarter, not harder. And then didn't you write fairly recently that there was also an element of luck involved as well? Watching you grow makes me proud.

As your sense of why your a success has evolved, so too has your sense of what is appropriate to pay in taxes. Today, the only difference between a bleeding heart liberally like myself and you is the attitude about the money you pay in taxes. We both agree the tax should be paid. Its a small leap to change the reason it should be paid from one filled with negative connotations to positive ones. It costs you nothing. It would make me even prouder. And it’s a happier place over here.

You know how to reprogram yourself better than I do, but perhaps you could start with your basic believe there is no free will, therefore you where fated to be successful. You can’t change what has happened or will happen, but maybe you can change how you feel. Be happy.
 
 
Oct 20, 2011
[I think most people like the idea of a simpler tax code. No argument there. But I've never met a person who would volunteer to pay higher taxes in exchange for simplicity.]

I'd be OK with this as long as I didn't pay too much more. Like no more than 5-10%

 
 
Oct 20, 2011
I found this part of your post the most interesting:

"The flat tax diversion is a deliciously cynical way to maintain the status quo while appearing to be in favor of change. The diversion works because the middle class has been duped by the media into thinking high income people pay a lower tax rate than the general public, so maybe a flat tax will set things right."

Does this perception apply to the US as a whole, or just the state/area you live?
In New Zealand, a "flat tax" is universally accepted as something that rich people want, and that the middle class might want -- but only out of principle, not as a way to "fix the rich"...
 
 
+2 Rank Up Rank Down
Oct 20, 2011
Have you ever heard this quote, "The Lottery is a tax on folks who are bad at math"? The lotteries run up to $100's of millions sometimes. Is there any wonder that folks find a simpler tax code appealing? And they can't debunk the "fairness" of a flat tax rate?
 
 
 
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