FLAT TAX*** TIME HAS COME???

4/15/02 | ANAGM

[Chesner]

"Really screw the poor, and greatly help the rich" "The bottom 50% pay an average of 4.4%. Flat tax will only help the $100,000 grand and up crowd. Most of you would pay more!" Those statements do not sound overly supportive of lowering the tax burden on high income earners. Forgive me. I guess I read too much into the above sentences. I get a little P O'ed and testy each year around this time.

[John Jamieson]

My point was the flat tax would not help the people who seem to support it. The same amount of money would be raised, only the distribution would change, and NOT to the advantage of the poor or middle class. I think the present distribution is about right. And I wouldn't even insist on changing the total amount, if it was being spent to defend the country (in the broadest terms) instead of "social" programs, pork, etc.

[heleny]

While I admit that a flat rate tax would be better than what we have now, it is still a tax on productivity that, by it's very nature, and this applies to all income taxes, discourages saving and responsible money management by individuals. Far better a national sales tax that a citizen can mitigate by simply spending less.

A national sales tax in lieu of a flat income tax would be very nice for the reasons you stated. Every taxpayer will be reminded of the tax every time he makes a purchase; it's a good reminder for him to vote for small government. It would also encourage families to teach their children to be industrious and to save money.

But, it seems almost impossible because:
1. the advocates for the poor will cry foul over the regressive tax causing some poor to go hungry
2. the tax rate would be far above the magic 10% (you quoted from the Federalist), above which tax evasion will occur. Sales tax is already 7.25% in California state (which has "progressive" income tax around 10%), plus up to 1% county tax. Assuming the federal tax costs much more than state tax, the total sales tax on goods might come out to 40-70%.
I assumed that the government maintain the current revenues, all income taxes were abolished (supposing 10% for CA and 21% for federal income tax), and most people did not spend their entire incomes only on purchasing goods)
3. double taxation is nearly inevitable on finished goods, if some of the supplies used were already taxed.
4. tax-and-spend politicians in Congress would never allow it because it might ultimately reduce the amount of revenue they get to spend. There's no initiative/referendum process for citizens to change the IRS system, so the only way would be to elect supporters of abolishment of income tax. (and that's hard)

[Chesner]

Thanks for the clarification. I happen to disagree with the current distribution, as I believe it penalizes the highest income earners.

IMHO, most here would agree, regardless of their respective income brackets.

[Demosthenes]

Good, they NEED to pay more, or they need to work more, like I did. And FYI, John, I paid 22% of my 25k last year, and not only do I manage my money well, but I use a CPA too. To suggest that the rest of us are at fault is just crap. Perhaps you should look over your own math?

This year, I made almost 80k, and will pay about 10%, because now I know the game, and I know where the loopholes are. Do you think I feel guilty? Hell no, it's STILL too much.

Every bit of food you buy, every item of clothing, every gallon of gas, every phone call you make, every watt of electricity you use, every candy bar, every movie ticket, everything you do or buy is TAXED, JOHN, you can not spend a single f--ing dime anywhere in this country without the damned government STEALING some portion of it, and you can usually count on the state piggybacking a few nickels for itself along the way.

Everybody do your math, how many paying over 15% of gross income now?

I am, John, ME. Now, you wonder how that can be since I just told you I'm paying about 10% this year, right? Well, that's because my 10% raping is done by the Federal Govt, and when I claim to pay more than that, you better believe I do, because I spent a lot of money this year on food, gasoline, and everything else I need to survive. When it's all added up, it still lands just north of 25%. Don't take this to mean that I am being harsh with you, by the way, I just get hot when I think about the money I lose to the government every year.

[southland]

I agree on flat tax---- max rate 14%

[mlmr]

Me, I would like a flat tax. 5% on every source of income,and investments paid to everyone. I think if everyone had to pay on all monies coming in to their checkbooks, it would never go higher than five. Paid quarterly and for those with payroll deducions, they have to go sign the check to the government on their behalf, personally every quarter. With a taxes to date form to sign the Monday before the first Tuesday in November.

[TheCPA]

A flat tax would not eliminate the needs for the services of a CPA. A flat tax is an income tax. Determining business income is inherently complex. For the average wage earner, taxes are much simpler than many realize. The complexity occurs for businesses and investors. While I favor reducing tax rates and the size of government, a flattening of the rates would do little to simplify the code. If you really want to eliminate a lot of complex code sections, lower the rates, make capital gains equally taxable as ordinary income, and make capital losses fully deductible (currently limited to $3,000) per year. If we did that we could get rid of Sections 1245, 1250, 1231, 341, 751, 1244, and a bunch of others that do not come to mind. Why do the politicians always refer to journalists and economists when discussing tax policy? The CPAs who cocentrate in tax are the ones who really understand the nuts and bolts of the Internal Revenue Code. A national sales tax would be far simpler than a flat tax.

[Will]

I'll chime in for a National Sales Tax also.

Some major benefits:

The same amount of simplification as other alternatives. Sales tax is already collected - this is just an adjunct.

We save a lot in tax preparation costs. It is estimated that we currently spend the equivalent of the Gross Domestic Product of the State of Wisconsin EVERY YEAR in tax preparation and tax for preparation.

A tax based on consumption is controlled by the individual. AND, MOST IMPORTANTLY

The huge black market, both illicit AND "grey" WOULD THEN BE TAXED AS THE PARTICIPANTS PARTAKE IN CONSUMPTION.

The benefits are too overwhelming to ignore. A national Sales Tax would have to be around 20 to 25%, and food, housing, utilities, and basic clothing would have to be exempt from the tax. The freedom, REAL PERSONAL FREEDOM, would be vurtually limitless. ALL socioeconomic levels would benefit - EXCEPT for the Black marketeers...

[Will]

"the advocates for the poor will cry foul over the regressive tax causing some poor to go hungry"

Food, utilities, basic clothing would be exempt. The poor would benefit greatly with a National Sales Tax - the bulk of their consumption is for these basic, exempted items...

[John Jamieson]

Well, I glad you caught on. I thought the subject was current income tax vs. some new vague, percentage undetermined "flat tax". Sounds like a 15% "flat tax" would increase your overall tax burden like I said. All those other taxes, you're talking about aren't income taxes. But I agree they don't need to be as high as they are. Government spending is really a different issue.

[Frohickey]

So what it puts some CPAs out of business? By that logic, we should not have moved to electric lights and refrigeration. Thing of all the people that were put out of work lighting the street lights at dusk, and the milkman delivering milk?

No automobiles either. All of those stable-owners that were put out because horse-drawn carriages are not used anymore.

[max61]

I for one think the flat tax is a great idea.

The method of taxation is less relevant than the rate of taxation. Just what makes you think that a different method of taxation will reduce the load imposed by the tax?. The rate is the problem, the methodology of taxation is a secondary issue. The other consideration with a tax of a different feather is who pays, of course, this will generate the most discourse.

My only issue with it is that it would likely put thousands of CPA's out of a job, but it would also do away with the majority of the IRS.

So what's a few less CPA's?. However, the idea that the IRS will go away is basically ridiculous. Nothing less than wishful thinking.

I myself, am self-employed so the flat tax is very appealing. I currently set aside about 30% of what I make to meet my tax "obligations".

So again, what exactly is the problem?, the 30% set aside or it's method of imposition?.

---max

[Chuckster]

"4. tax-and-spend politicians in Congress would never allow it because it might ultimately reduce the amount of revenue they get to spend. There's no initiative/referendum process for citizens to change the IRS system, so the only way would be to elect supporters of abolishment of income tax. (and that's hard)"

Your #4 (above) says it all. Government is just too big and will not get any smaller unless drastic action is taken which is highly unlikely. But we can still dream, can't we?

[heleny]

food, housing, utilities, and basic clothing would have to be exempt from the tax

That's a good idea; exempting basic needs from taxation would avoid the problem of "hurting the poor," but it might become difficult to define, and must be very limited. The tax rate might also be too high, assuming the idea were even considered.
Housing and utilities already don't have sales taxes, but there are property taxes and all sort of fees/taxes on utility bills.

Groceries aren't taxed (Calif), but restaurant food is taxed because they sell "service." A national sales tax exemption for food could be crafted similar to state sales tax laws.

Basic clothes will be difficult to define, unless you mean fabric/cloth, needles and thread, and "basic" sewing notions. It would be nice to make those unfinished items tax-free in the same way that groceries are tax-free, (and might put a dent in our reliance on boring clothes manufactured in third-world countries), but it seems that not many people know how to sew nowadays.

What about gas and cars?

[heleny]

Government is just too big and will not get any smaller unless drastic action is taken

Move election day to April 16th, when heavy tax burdens are still fresh in many minds?
Perhaps bond measures (which rely on taxes to be repaid) might get defeated more easily.

[John Jamieson]

Great idea! I love it!

[lewislynn]

We need to impliment the flat tax, as well as eliminate all of these "special taxes" such as what appears on phone bills and the like.

Funny you should mention phone bills and taxes. On more than one occasion I used my phone bill to illustrate what a "national sales tax" would do. The NST proposals are nothing of the sort. They are a tax "of the gross payment" including itself. A 23% sales tax would increase the final (after all other taxes etc.) price by 30%.

When I calculated what my phone bill would be with a phony 23% NST, it worked out to be a 40+% tax on the actual service....

My telephone "service" is $14.26, the present taxes are $5.92 the total due is $20.18. After an NST the total due would be $26.21 or $6.03 tax on a $14.26 service...or 42% tax on the actual "service".In other words the NST isn't a tax on the item, it's a tax "of the gross payment" that taxes other taxes, fees excises, etc..

$26.21 (gross payment) minus 23% (tax) equals $20.18....

BTW, you might notice the 23% NST is more than all the other taxes combined.

So I would agree, the flat tax would be at least more honest in it's approach than a phony sales tax that not only can't be honest with it's rate but also can't be honest with it's title.

[disclaimer]

My only issue with it is that it would likely put thousands of CPA's out of a job

...and what exactly did those CPAs who would lose their jobs produce besides overhead?

[lewislynn]

A national Sales Tax would have to be around 20 to 25%, and food, housing, utilities, and basic clothing would have to be exempt from the tax.

You lost taxman on that one...he'll have to disagree with your "exemptions".