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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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0 Rank Up Rank Down
Oct 20, 2011
I don't agree with trying to solve our problems by just raising taxes on the rich, but here is an argument on that side of things.

Let's raise taxes to the same flat 99% for everyone. Most people would no longer be able to support themselves, but some of the very rich would still be able to live a reasonable lifestyle.

Of course then I see the poor idiots drinking Starbucks coffee all the time and waiting 45 minutes to eat a $18 meal at Olive Garden and I no longer feel sorry for them.
 
 
+1 Rank Up Rank Down
Oct 20, 2011
Flat tax reduces the number of lawyers and accountants. Enough said.
 
 
+6 Rank Up Rank Down
Oct 20, 2011
The real issue with "fairness" that everybody misunderstands is that fairness is not about the rate you are paying, it's about the maginal utility of a person's income that's important. Yes, 49% of the population does not pay any income taxes (they still pay tax on sales, certain products such as gasoline, and various employment taxes). The reason they don't pay income tax is because the government supposedly thinks its more important for them to use that money to buy things like food and shelter. For a hypothetical income earner, taking 9% of one's income impacts person A who makes $20,000 a lot more than person B who makes $100,000. It impacts them more because the marginal utility of that money to person A is far higher than person B.

What the current progressive tax structure attempts to do is even out those marginal utility disparities. A flat tax would increase the marginal utility disparities. I think it's only possible to dispute this if you don't understand basic economic principles. One may still choose to assert the flat tax is "fair", but that argument is not grounded in economics.
 
 
Oct 20, 2011
"If you hear a few stories about Warren Buffett paying a lower tax rate than his secretary..."

What do you mean, "if we hear stories"? Are you saying Warren Buffett is making !$%* up when he says he pays a lower tax rate than his secretary?

If you agree that Warren is telling the truth, then obviously some people DO pay a lower tax rate...which negates a pretty big chunk of your post.

And a flat tax could work (from a pure math standpoint) because *more* people would be paying taxes than under the current system. But it's a so-called "regressive tax", so lower income people would feel the pain far more than higher income peeps.
 
 
Oct 20, 2011
I have been an advocate of the Flat Tax for nearly 30 years. I, for one, would gladly pay MORE taxes if I knew that everyone, including Scott Adams, were paying at the same rate.

Every year I do my own taxes, and figure out exactly what my federal effective rate is. In 2004, when John Kerry was running for President, he released his tax returns which showed he paid an effective federal rate of 14%. I paid 19% that year, on a helluva lot less income. That is clearly wrong. I'm sure I pay a higher rate than Warren Buffet, too.

The Flat Tax is pretty progressive when applied correctly. Give everyone the first $40,000 as their personal exemption, then apply the 20% Flat Tax on top of that. So a guy who makes $50k pays zero tax on the first 40k and 20% on the remaining 10k. His effective rate is 4%. John Kerry pays zero on his first 40k, then 20% on the remaining millions he gets from his Heinz Ketchup stock, and his effective rate is close to 19.9999%
 
 
+2 Rank Up Rank Down
Oct 20, 2011
The problem with having such a complex tax code is the inequities it creates in people and businesses with similar incomes and expenses. For instance, this past year New Corp was paid $4b by the US whereas the New York Times paid a 70% tax rate (I believe it was the Times, I heard this on NPR a few months ago so I may be confusing which company it actually was). They are two competing organizations so should have similar taxes applied to them, but News Corp is able to take advantage of tax loop holes while the Times purchased a failing newspaper and had to pay income taxes for both companies off of its single revenue stream from the Times. This is absurd.

Similarly a family of 4 can have close to 0 tax liability if they make the right purchases/deductions, while a similar family with a similar income next door may not because there spending habits are different. The benefit of a flat tax is that these inequities will be erased. Of course, they can also be erased with a progressive tax, but people don't talk about that as much.
 
 
+15 Rank Up Rank Down
Oct 20, 2011
I would willingly pay higher taxes in exchange for simplicity.

Scott, I live in the Bay Area if you would like to meet me.

Taxes are an incredible nuisance, and extremely stressful. I shouldn't need an accountant or a computer program to pay my taxes. I shouldn't have to consider tax consequences of my investments, or selling my home. It destroys value, and wastes the valuable time of people who make money. Poor people, whose time is worth nothing (not a value judgement, just the market speaking) don't have to fill out tax returns.

Stupid.

And one hopes that getting rid of all the tax enforcers and tax preparers and tax advisors, etc, would actually save some money.
 
 
+6 Rank Up Rank Down
Oct 20, 2011
I guess I'm in the minority in that I'd happily pay a flat tax even though it might mean I contribute more money to the government. Reasons include to enable savings by nearly eliminating the tax code, enforcement, and administrivia that goes along with it; no longer having to worry about how much to withhold throughout the year and pay/receive on April 15; and knowing that, while making more money means I pay more taxes, no longer having to worry about moving into a higher bracket! It would be nice to get a raise and actually take home more money, and for the past three raises that hasn't happened.
 
 
+1 Rank Up Rank Down
Oct 20, 2011
The Laffer Curve hasn't been debunked - its just thrown around in ways that are highly inaccurate. There is a point where raising marginal rates will result in less tax revenue and decreasing them will increase revenue. It just isn't very plausible that we are anywhere near that point.

It would be hard to find an economist that claimed that the Laffer Curve doesn't exist.
http://www.qando.net/details.aspx?Entry=7083
 
 
Oct 20, 2011
Income tax vs consumption tax.

http://www.youtube.com/watch?v=v4KfVM5Ed3c

Not sure if this is exactly the video I was thinking of (I don't have sound at work), but I'm pretty sure it is.
 
 
Oct 20, 2011
I'm for a much simplified progressive tax system. Get rid of all deductions, credits, penalties, etc, but keep a tiered structure. I think this would have the effect of higher revenues, a "fairer" distribution of the tax burden, higher participation, etc.

To the commenter who said that they can't tell where their taxes are going, how about this...Every year on you tax return, you get to choose where a part of your tax dollars go? You do your taxes, but at the end you get to choose where a certain percentage of that money goes. Example: I think education is the extremely important, so I want 5% of my taxes to go directly to education funding (This is over and above what is already allocated out of your original tax bill). I'm voting with my dollars. In a perfect world, this would mean that education gets the most money, which allows us to return to the top of world rankings in education. Once that problem is solved, maybe I want to address health care. Once we are the healthiest nation on earth, I want to focus on...whatever, and so on and so forth.
 
 
+12 Rank Up Rank Down
Oct 20, 2011
I think you are missing the most important psychological impact of the 'flat tax'. There is a perception in the lower classes (i.e. the middle class and the poor) that the rich don't pay their fair share. They believe that, even though the rich pay a higher tax rate, they are paying it on a much, much lower percentage of their income. There is probably a lot of truth to that.

On the other side, we have 49% of the people (i.e. the lower middle class and the poor) that don't pay any taxes (that's a fact). So, they have no skin in the game.

A flat tax would probably hit the lower middle classes and the poor the hardest, but it would hit the rich as well as they couldn't shelter their income from tax.

I think the pyschological effect on the country would be the biggest benefit. No one could say that someone else wasn't paying their fair share and the class warfare you see now would melt away. That is the single biggest reason it will never happen. The politicians, on both sides of the aisle, need a bad guy to rally followers against. They need 'a cause'.

Another benefit to companies (small and large) and the rich is that they would likely recoup any losses due to paying higher taxes by not needing to pay lawyers and CPAs millions of dollars to 'find the loopholes' in the tax code or to just understand the tax code. They could also fire most of their lobbyists. Of course, that would mean we would have lots of lawyers out of jobs (maybe that's a good thing). Another reason it will never happen since most politicians are lawyers.
 
 
Oct 20, 2011
Aside from MSNBC, where has the Laffer curve been "debunked"? While there are many factors involved in economic conditions, it is indisputable that lowering tax rates has resulted in greater collections, when tried. It is the same principle as a store putting items on sale. With the exception of a loss leader, when you put an item on sale, it is with the expectation that you will sell enough more units to more than cover the loss in list price. Why would taxed be any different? When taxes are at a punitive level (as they are in the US today) the "customers" do whatever is necessary to save their earnings. When you put the government "on sale" people stop doing activities to hide their money from the IRS (I mean legally), and start doing whatever will earn them the best return. This results in greater returns for the Treasury.

I'm a teacher, so I'm under no illusion that I would pay less under a flat tax system, but I recognize that it is what is best for our economy. Nevertheless, I also recognize that it will never happen because a massive, complicated, unintelligible tax code serves the purpose of control. Control, not revenue, is the purpose of the income tax in America today. This tax code allows the government to get people to buy solar panels, carry a mortgage, and whatever else K Street wants us to do.

[Can you give one example where lower taxes increased collections? -- Scott]
 
 
+2 Rank Up Rank Down
Oct 20, 2011
Scott,

In politics, complexity is often seen as an attempt to deceive. I feel that's why some prefer simplicity.

Taxes are paid by citizens to their government to provide defense, law & order and a justice system.

It is called protection money in an ad hoc society where the governments is also a nanny.

I think changing the social contract, when the nation is vulnerable, is not good for the US or the rest of the world.

 
 
Oct 20, 2011
I agree we don't need a fair tax structure, but corporations need to pay taxes period. The argument that that making GE pay taxes will limit job creation is short-sighted.

Government doesn't save money in their mattress. The government has a pretty good track record of spending every last dime and then some. G-man spending is one of the strongest economic drivers in the country. Reno wouldn't be more then a gas stop on your way to Tahoe without the government spending from being Nevada's capital.

Our nation isn't poor. Yes, we have pockets of poverty, but there are lots of social programs to put more money in these people's hands. The best part is they spend every dime they are given. Eliminating the loopholes that allow some corporations to shift their profits to tax havens will also increase the nation's cash flow.

The simple solution is to create an Alternative Minimum Tax for corporations. I'll let the real economists figure the number out, but unless we create a system where there aren't holes in the fence, the nation will continue to teeter on the brink of anarchy.
 
 
Oct 20, 2011
What is fair? It depends on who you ask. You find fairness by taxing the rich more to be absurd, other mights argue your wealth as a result of drawing comics to be absurd compared to people doing backbreaking work and starving. But I guess in modern market thinking, those people are just losers. Commodities.
 
 
+12 Rank Up Rank Down
Oct 20, 2011
I would take higher initial taxes for a flat tax because of two things:

First, it would put the vast majority of the 49% of the voters who pay no taxes on the tax roll, which is likely to shift their voting habits in a direction I like, and

Second, it would mean that they only way for someone else to lower their own taxes would be to lower mine too.
 
 
+22 Rank Up Rank Down
Oct 20, 2011
"Can we agree that the Laffer Curve has been debunked everywhere but on Fox News?"

Them's fightin' words. :P

Truth is increases and decreases in economic activity depends on a lot of factors independent of the tax rates, whereas the Laffer Curve as a thought experiment exists only in an imaginary world where all other factors are held steady. In fact economic growth has happened during times of both recent tax increases and recent tax cuts. All the Laffer curve states is that you have zero revenue at 0% tax rate and 100% tax rate, so the revenue maximum must occur somewhere in between. It's pretty difficult to dispute this, where the disagreements really come in is whether we are to the left or the right of that maximum.
 
 
-6 Rank Up Rank Down
Oct 20, 2011
I think a flat tax rate would be great. Confiscate all the wealth of anybody with a fortune over 10 million, unless they can present some compelling evidence that it's going toward a good cause. That's a good flat tax. The top 1% are economic black holes. More likely to have inert money which does nothing short of padding their bank accounts; more likely to take their wealth abroad. There's hardly any "innovation" nowadays, so the usual capitalist arguments don't apply. We already have enough entertainment, enough tasty food, enough everything provided you can afford it, and continued "innovation" is more about exploiting human shallowness than offering something new.
 
 
-2 Rank Up Rank Down
Oct 20, 2011
I guess you can say the Laffer curve is laffable....

If I was on a stage, I just got booed off it.
 
 
 
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