Osler's Razor

Any tax policy is going to be subject to the "three-legged stool" analysis- vertical and horizontal equity, neutrality, and administrative feasibility. A progressive tax system is really the only way to effectively balance these three interests. A flat tax inevitably throws the equity analysis out of whack, not to mention the administrative feasibility of reworking an entrenched system of taxation. It's primarily the equity, though, that keeps a flat tax from being implemented on a federal level- we as a society have not yet become comfortable with the idea of shifting the tax burden from the rich to the poor. Until there is a fundamental change in America's approach to taxation, it won't happen.
 

Recall teachings on relative value given to money.

I see taxes as a civic duty; someone has to fund a civil government. And as long as that government has any claim to authority over a nation, it must in turn attempt to meet the needs of the citizenry and provide for their general welfare. Elsewise, it is little more than a group of armed thugs we hire for protection.

We may disagree about the scope of what that general welfare protection requires, or the propriety of locating the nexus of those services at a central, rather than dispersed, level, but to deny funding to that government out of some idea of "fiscal responsibility" is laughable... ultimately, money is a meaningless stand-in for real value, which is the labor-time we as workers give up. By allowing a civil government to retain some of our value as workers and put it to the common use, we free ourselves from the burden of having to act individually to attempt to meet these needs. Collective action is more efficient and fair.
 

I am inclined towards a flat tax, though I understand that making it work is not quite as simple as I'd like. In any case, $20k exemption per person ($40k MFJ) & 15% tax on everything else sounds good to me (though it actually increases the amount I'll actually pay).

More importantly, we need more Americans with some skin in the game. I've heard recently that as many as 40% of voters pay no taxes. Even if that number is exaggerated, it is a given that a large number of voters do not pay any taxes. It strikes me that with taxes being such a significant national and political issue, folks ought to expect to pay something rather than just opining on what their well-to-do neighbor is going to pay.
 

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The flat tax is tricky for a couple of reasons. First, what Justin T. said. Second, applying the rate to your taxable income is the least complex part of the tax return. The complexity arises in determining your gross income, figuring out which exemptions you qualify for and which exemptions work best for you, doing the same with deductions (above and below the line), and figuring out which credits you qualify for and which work best for you. Those handy tables made applying the rate pretty easy, but the new computer programs and websites make it even easier.

The only way to have a true flat tax would be to (a) eliminate all the rates except one (probably around 27-30 % to maintain current revenues; according to Dr. Wikipedia, anybody making less than $170k will pay more with that rate) and (b) eliminate all the exemptions and deductions, including the popular ones like the standard deduction, personal exemption, earned income credit, and the mortgage interest deduction.

Even then, you'd still have fights over things like how to tax dividends, personal injury recoveries, and alimony.

I think the system works about as best as it can (which is better than most people think), but it could stand to be substantially simpler. Maybe Congress should put together a panel of tax scholars to revise/simplify the Code and approve proposed revisions.
 

We just need less tax. It doesn't matter how you apportion it. Nothing will stimulate the economy like cutting taxes.
 

Like the robust economy we had following Bush's tax cuts?
 

FWIW, this is what I would like to see:

Three tax rates, but fewer deductions and loopholes. Everything is income and taxable, be it work, cap gains, dividends, inheritance/estate, whatever.

I'm not sure at what income point(s) the rates would increase - or what, indeed, those rates should be - but I'll throw out $60K and $200K as talking points.

Fat freaking chance, politics being what they are...
 

Apropos of this topic and the date, here's Chuck Collins at The Nation on common ground between tea partiers and the left, which echoes my own sentiments: if the goal is to help the working and middle classes, then the one group you can't trust to do that is Republicans, who will always look out for the interests of the wealthy first.
 

And because I looove links and fighting the misinformation from Sarah Palin and Co. on this day, most Americans ended up with lower taxes this year. And only those who make more than $200,000 ($250,000) per annum can expect to see tax increases over the next few years.

The taxes that are projected to actually go up are capital gains taxes, something that is inapplicable to most working-class people, but is applicable to those with significant investment assets. A supply-side economist would tell you that higher capital gains taxes stifle economic development, but outside of right-wing think tanks, that idea has little traction.
 

Despite what Lane would like you to believe, much like global warming, the consensus that higher capital gains rates, and higher tax rates on the wealthy in general, don't negatively effect growth is imaginary. What the left should really say is, "there is a consensus amongst economists that agree with us that higher tax rates are good."

And that Nation article is hilarious. "We agree" without so much as one quote from anyone associated with the "tea party" groups that makes any of the claims that he is making. Not one. Again, I think this alleged consensus is imaginary.

Also, I think he is crazy wrong. He says, "after fifty years of major "tax reform" by both political parties, the middle class pays the same percent of income in taxes today as it did in 1960."

Ummm, the highest marginal tax rate today, for those married and filing jointly and making over $370k is 35%. In 1960, someone making $20k, married filing jointly, paid 38%. A couple making $32k paid 50%. Really, no matter what you consider middle class in 1960, there is no chance they were paing the same percentage of their income to the federal government as someone in the middle class today. It just isn't true.

You can look up those tax rates here:

http://www.taxfoundation.org/publications/show/151.html

"Weak government is not the answer. If we shrink government, who will defend us against Wall Street and the corporate looters?"

Oh no, what will we do??? Chuck Collins, champion of paternalism.

"We need a constitutional amendment to limit the power of corporations to dominate our political process including elections, campaigns and lobbying."

Chuck Collins, champion of restricting freedom.

Yeah, sounds like this guy has a lot in common with the libertarians and conservatives in the "tea party."
 

So, borrowing the global warming analogy, academics, professionals and researchers in economics all agree that higher capital gains taxes have a weak negative effect with regards to economic growth, whereas right-wing funded think-tanks, policy analysis centers, and politicians think differently and consider it a controversy. Cf. also evolution.

I'm confused with you pointing out the differences in marginal tax rates, since by all lights we pay less in terms of income tax today than 40 years ago... there are just more of us. However, some economists theorize that no matter the income tax rates, income tax revenues do remain steady (and will likely do so for the future) (cf. Hauser's Law).

Also, Collins point (the one with which I strongly agree) is that populism, as a movement, is better served by the left and libertarians than it is by the establishment right (e.g., Ron Paul speaking to Tea Partiers makes sense; Sarah Palin does not). I disagree with libertarians about the propriety of taxes, the scope of permissible government programs, etc., but we agree on the point that the "little guy" needs to be equal footing with the "big guys," and the only way that is possible is through mass action via our collective arm, the government.

So what's the opposite to paternalism and freedom-hating? Letting corporations with resources that dwarf ours have exaclty the same rights and liberties as a natural person? That sounds an awful lot like inequality to me.

I for one would be glad of a democratic government that provided legal strictures restraining the ability of non-natural persons from engaging in the same political advocacy as citizens. Too bad about that one, though. Those activist judges sure saw to that.
 

Oh (and I think I'm right about this), a lot of those corporations who now have the same rights as we do don't pay ANY taxes at all, right? Gotta love offshore "subsidiaries"...

Yet their money is going to go a long way towards determining who's going to be running things (and presumably in a way that's beneficial to said corporations), right???

This is dumb.
 

Talltenor -- they pay taxes, but they have enough in offsets and credits that they do not pay any US income taxes (though they still pay other forms of US tax). They do pay income tax in the nations where they have their offshore offices, however.
 

"academics, professionals and researchers in economics all agree that higher capital gains taxes have a weak negative effect with regards to economic growth"

This is the problem Lane, that statement simply isn't true. There is no such consensus. You found one article. Yes, there are more. There are also lots of articles, studies, etc. from academics, professionals, and researchers in economics that go the other way. You will dismiss all of those as right-wing think tank pieces. I could do the same to your material as typical left-wing nonsense. The reality is there is a debate there. Disagreement. And simply saying there is such widespread consensus doesn't make it so. And it is a lazy way to dismiss a legitimate economic argument on the other side.

"since by all lights we pay less in terms of income tax today than 40 years ago..."

That was my point (and apparently you agree with it) that Collins is 100% wrong. The middle class doesn't pay the same percentage of their income in taxes today as they did in 1960. They pay less. I guess my point was you linked us to an article, and there were factual mistakes, or gross mischaracterizations, in that article.

"we agree on the point that the "little guy" needs to be equal footing with the "big guys," and the only way that is possible is through mass action via our collective arm, the government."

Uhhh, libertarians don't agree with you about that. They don't believe that government should act to equalize the playing field. They in fact believe the exact opposite. That is the problem with his whole position, it makes the assumption these people have the same goals as liberals and therefore would support the same means. They simply don't.

"That sounds an awful lot like inequality to me."

Well, equality of opportunity doesn't mean equality in results. I support everyone having the same chance. But I don't support the effort to correct perceived inequalities through redistribution of wealth, socialism, etc. Equality is a myth. There will always be winners and losers. And government efforts to change that creates a bigger group of losers and a smaller group of winners, and that doesn't help anybody, it just brings us all down.
 

I'm not appealing to a consensus among economists with regard to the capital gains tax rate. It's a matter of empirical evidence. Here's the Heritage Foundation (no one's going to accuse them of being liberal) on their projections. It uses a model that is based on the concept of lock-in, which is itself based on the 86-87 change in the law. The idea is that if capital gains are seen as assets that are more valuable to hold than to sell (if the tax rate is too high) then those assets will essentially be "frozen" and investors will keep that money out of the market. But in 2001 and 2003, President Bush created just such tax cuts as we are seeing, and look where we are now: record high unemployment, an unsustainable housing and credit market bubble that collapsed, leaving the economy in the tank and the federal debt climbing even higher and faster than it did under Reagan. The concept of lock-in is flawed, as a hypothesis.

And I'm not defending Collins' views on anything but consensus; I know the middle class pays less in taxes now than they did in the post-war period. That's the whole point: the tea party's rage is misplaced. They're not being "overly taxed" at all, and the claim by establishment Republicans that middle-class America is shouldering a terrible tax burden is really self-serving: they want lower tax burdens for the very wealthy, but those measures do not garner broad support.

Libertarians aren't anarchists; it's perfectly consonant with supporting a market economy to believe in regulation of that economy to prevent powerful players from dominating both the economic and policy-making sides of the coin. You say that there must always be winners and losers, but under your vision, the people will always be losers because any time we attempt to act together as a society, through a government, you see it as paternalistic overreaching that curtails freedom.

What about our freedom to organize into collectives, like worker's unions? Don't support that freedom? What about our freedom to democratically elect legislators to pass laws regulating business? Don't support that freedom? What about democratically-valid laws that restrict campaign contributions from lobbyists and corporations? What? Those are out too?

The economy isn't a zero-sum game; even free-market economists realize that at some point an equilibrium must be reached between consumer protection and producer profits. Neoclassical economists believe in the invisible hand of the market; leftists would rather that a democratically-elected government put regulatiosn in place to help find that balance.
 

Excuse me, I mistyped. I brought up the Collins article because I thought it showed how the populists within the tea party stood little to gain by aligning themselves with establishment Republicans, who have never stood for the "little guy."
 

So now lock in of capital gains rates are the cause of the most recent recession?? Really?? Cause I thought it was Wall Street greed, overly agressive lenders, and a law regulation of those industries. Well, at least you've sorted this one out and properly identified the problem as the capital gains tax.

"I'm not appealing to a consensus among economists with regard to the capital gains tax rate."

I guess I misunderstood you when you said:

"A supply-side economist would tell you that higher capital gains taxes stifle economic development"

or...

"academics, professionals and researchers in economics all agree that higher capital gains taxes have a weak negative effect with regards to economic growth"

I misread these as appeals to authority when you were actually relying on empiricism. My bad.

Find me the libertarian that supports government regulation of the ilk that Mr. Collins is talking about and I'll find ten others that say he isn't really a libertarian. They aren't anarchists, but they aren't big government ninnies either.

"What about our freedom to organize into collectives, like worker's unions? Don't support that freedom? What about our freedom to democratically elect legislators to pass laws regulating business? Don't support that freedom? What about democratically-valid laws that restrict campaign contributions from lobbyists and corporations? What? Those are out too?"

What does this have to do with what we're talking about. I don't want to stop people from organizing into unions, I'm down with that, I just think they're bad for the economy. Doesn't mean I don't support their right to exist.

I also support democratic elections and the passing of laws by elected officials. However, supporting the freedom to pass laws in a democratic society doesn't mean I have to support those laws, especially when their effect is to lessen our freedom.

The economy is a zero sum game. We can make the pie bigger, but when that pie gets divided some you have to take from one to give to another.

And by the way, I think most of the people in the tea party disagree with this, "leftists would rather that a democratically-elected government put regulatiosn in place to help find that balance." They don't like Washington. Don't trust the federal government. And the idea of letting the braintrust that brought us where we are today try to steer us out of the mess doesn't seem that appealing to them. They're shouting, "leave me alone!" And you're offering them more government, more intrusion, less freedom, and then telling them you all are in agreement.
 

This is so far out of any area I can pretend to have some knowledge (as per usual), but I'll throw my lot in with Lane today having read through most of this.

Practicalities aside, what the ideological argument for a flat tax that recognizes inequality as an initial reality? (Or is that not a part of the equation?)
 

The Beatles said it best:

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat,
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet.
Taxman.
 

Sept.-

That's exactly my problem with a completely flat flat-tax system.
 

RRL: But, baby, you can drive my car. - The Beatles
 

Man, that discussion between Lane and RRL brought back painful memories of my freshman econ class. The prof. was more into politics so everyone just argued fiscal policy and we all ended up missing the boat on supply and demand.

AS for the flat tax I'm in favor it. Though for the sake of clarity, I'm only referring to individual taxes and not corporate ones.

1) you can still make it progressive with a couple different levels. (though I don't think it fair) And have a starting point that would prevent most of the poor from having a tax on their earnings.
2) It would require, as others have said, that there be no deductions/credits/exceptions to function correctly and most fairly.
3) That being said, it will never happen.

For one, if Congress couldn't come up with weird loopholes and deductions, they might actually have to govern on the day-to-day stuff. And that would pretty much make Congress more worthless than it is today.

Also, you'd have to call it a tax on the TRANSFER of money rather than on income. With no deductions etc. you would be double taxing money, which I'm okay with.
If grandpa wants to give me few hundred for my bday then so be it, I should get taxed. If he dies and leaves it to me, it should get taxed, even though he paid the taxes on the money he made.

I think it would take an amendment to prevent Congress from creating a "credit" of some sort 2 minutes after the flat tax got passed.

You'd still need the IRS to chase down those hiding the fact that they got money from some source, but filling out your tax bill on a 3x5 card would be pretty cool.

Congress could just argue about the rates each year. 27.8567353% vs. 27.856760% Cantor v. Pelosi

That would be fun
 

Prof -- Thanks. That's what I thought. That fundamental problem is located in Dallas ADA's loose use of "fair" in the previous post.

It's not "fair" to tax people at different levels, but being born into financial capital, let alone cultural and social capital, let alone racial and gender capital, is perfectly "fair."