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Is a Flat Tax Regressive?

No, the reason for making capital investments is to make money. More money than you already have. The problem is that an investment entails the non-trivial risk of loss of the initial capital, those gains have generally already been taxed once as corporate income taxes, and taxes on capital gains are not indexed to inflation. Investment of capital is so important to economic growth that tax policy (pretty much of necessity) needs to promote it, or at least not provide too large of a disincentive. In a system where all capital gains are treated as normal income but capital losses are ignored, there would essentially be no investment of capital. If you invest in 20 different companies, and half of them were losses and the other half were gainers so that you broke even, under that system you would have to pay full tax rates on all of the gains even though you actually made no money.

Personally, I think if capital gains (net gains) were indexed to inflation, they could be treated as standard income for tax purposes without much economic impact.

Sound fair but I think also of the people who bought Xerox stock and then just waited thrity years. I think they should pay on the profit they make when they sell it, I think the point of sale is the determinant of income.

You bought it for X you get payed Y, that if positive is profit.

But the loss thing, really?

I buy a house and I overpay for it, I sell it at a loss, why should I get to say that compensates for my income and pay less tax?
 
I think you have to incorporate, and make sure you have a good accountant. You can reduce your income tax considerably.

Meals are only a 50% deduction on income tax.

I pay payroll taxes for all employees.

I pay 1.5% of GROSS with no deductions to the state.

There are no special tax breaks available to me that I or my accountant is aware of (CPA, tax CPA and controller).
 
Sound fair but I think also of the people who bought Xerox stock and then just waited thrity years. I think they should pay on the profit they make when they sell it, I think the point of sale is the determinant of income.

You bought it for X you get payed Y, that if positive is profit.

But the loss thing, really?

I buy a house and I overpay for it, I sell it at a loss, why should I get to say that compensates for my income and pay less tax?

The point of sale is indeed the determinant of income. If you buy a house and sit on it for 30 years, and it sells for the same amount in inflation adjusted dollars, you have made a nominal profit, but have made no real profit at all. Your purchasing power did not increase. Now, in the context of the Xerox stock, investing that money in Xerox carries risk that you will lose your initial investment.

As far as counting losses is concerned, why do gains count but not losses? If losses don't count as far as income is concerned, why should gains?
 
I'm just picking a bone with where the rates are set. The top marginal rate should be set so that it hits most of the population.

Why?

Eat your own dogfood people.

That's hardly a reason.

There is a clear economic divide, for example, between the people that "need' income and people that merely "want" it. In the first group are the people that actually need the income from their current job and would suffer serious financial hardship if they lost it (this would also include self-employed who lost the ability to practice their chosen profession). In the other group are people who have enough wealth stored (whether from previous earnings, inheritance, what have you) to generate enough income for day-to-day expenses irrespective of a job.

There's a clear difference in marginal utility, as exemplified by the old song "take this job and shove it" -- the first group can't typically do this without having confidence of being able to replace their old job (and relatively quickly), because the paycheck is more valuable than personal satisfaction.

I can even put an approximate number on this specific transition. Average household income in the USA is approximately $50,000. Assuming an 8% return on invested money (which is about what current bond funds return, and is high, but is low for the historic return from equity investments), you can earn this from approximately $600,000 of investable worth. Add in a housing allowance of $200,000 (a little more than the median value of a single-family home), and you see that if you have $800,000 in the bank, you can buy a house for cash, never work a day in your life, and still have a better than average lifestyle. (Better because most families earning $50,000 have to make house payments out of that as well.)

The idea that the people in this select group don't have substantially less marginal utility for money than the average is ridiculous. But equally so is the idea that somehow they should be taxed as though they had the same marginal utility for money as the average.
 
I buy a house and I overpay for it, I sell it at a loss, why should I get to say that compensates for my income and pay less tax?

Because otherwise it discourages investment, and investment is generally seen as a good thing from a macro-economic standpoint.

Let's say that I have two risky equity investments in mind, and one not-so-risky one.
The risky ones have an equal chance of losing 8% or gaining 10%; the not-so-risky one is a CD that pays a guaranteed 1%.

Portfolio theory says that I should split my money equally between the two risky ones; the most likely outcome is that I'll win one, lose the other, and earn 2% on my money -- whereas I'll only make 1% on the bank investment.

But if I'm taxed at, say, the 20% bracket -- I will actually lose money making the investment unless I can offset my losses. I earn 10% less 20% of 10% after taxes on the winner, lose 8% straight up, and therefore break even.

If I'm taxed in the 25% bracket, I actually lose money in the equities; I pay more in taxes on the winner than I made after allowing for the loser.

The effect is to underfund risky investments as people flock to CDs, which cuts into the ability of new businesses to find investors.
 
Meals are only a 50% deduction on income tax.

I pay payroll taxes for all employees.

I pay 1.5% of GROSS with no deductions to the state.

There are no special tax breaks available to me that I or my accountant is aware of (CPA, tax CPA and controller).

Get a better accountant.
 
Get a better accountant.

So do you have any concrete ideas on these taxes can be avoided? Or are you being your usual blowhard self?

I suppose I could avoid payroll taxes if I made everyone a contractor.

I guess I could file a fraudulent tax return to avoid the 1.5% state tax.
 
How is that rich? I think we have hugely different ideas of what rich is.

How is that rich? How is that not rich? That's the top 5% of incomes. That's enough money to buy a nice house, a nice car, send your kids to nice schools, and have enough left over to enjoy yourself.

I think you have a seriously skewed definition of rich going on. The CEO of my (admittedly small) company isn't in that income bracket.
 
How is that rich? How is that not rich? That's the top 5% of incomes. That's enough money to buy a nice house, a nice car, send your kids to nice schools, and have enough left over to enjoy yourself.

I think you have a seriously skewed definition of rich going on.

Rich = smashing your ferrari and abandoning it on the side of the road.

Seriously though, there is a huge gulf between someone making a few $100K a year and someone that has $20M+ in assets. The first I would consider upper middle class, the latter is *rich*.
 
Rich = smashing your ferrari and abandoning it on the side of the road.

Seriously though, there is a huge gulf between someone making a few $100K a year and someone that has $20M+ in assets. The first I would consider upper middle class, the latter is *rich*.

Uh, okay, we have a semantic problem. I absolutely define rich as having all of what you could possibly need and more.

You define it as being able to use up Ferarri's like toilet paper.

I guess that's what makes capitalism great, and endless treadmill where there's always someone richer. But seriously, at 200,000 a year (which is where you need to be, given decent deductions and a competent accountant) , you're making all that you could ever want and will retire wealthy with all your kids through college in the house you want on the land you want, doing what you want. And certainly our taxation rate isn't enough to change that.
 
Uh, okay, we have a semantic problem. I absolutely define rich as having all of what you could possibly need and more.

Then essentially everyone in the United States is "rich".

The things someone needs:

1) food
2) shelter
3) water
4) cowbell
 
Then essentially everyone in the United States is "rich".

The things someone needs:

1) food
2) shelter
3) water
4) cowbell

Uh huh.

I know there's a segment of America that has had a fetish for the concept that if something isn't so simple a lobotomized monkey could understand it, it's clearly nonsense, but I hope we here on the forums can at least try to move past that. You failed to get past tier 1 of the deficient needs. I clearly was talking about leaving tier 2 in the dust, at the very least.

You seem to have something against the very thread topic, and have been nothing but obstructionist, obstinate, and deliberately non-responsive to other people and the OP. Is there a reason you're this defensive?
 
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Uh huh.

I know there's a segment of America that has had a fetish for the concept that if something isn't so simple a lobotomized monkey could understand it, it's clearly nonsense, but I hope we here on the forums can at least try to move past that. You failed to get past tier 1 of the deficient needs. I clearly was talking about leaving tier 2 in the dust, at the very least.

I just wanted to note that the link is to a theory of psychology, not biology.

You seem to have something against the very thread topic, and have been nothing but obstructionist, obstinate, and deliberately non-responsive to other people and the OP. Is there a reason you're this defensive?

I'm assuming you are mistaking me for someone else.
 
I just wanted to note that the link is to a theory of psychology, not biology.
Because the discussion we're having is clearly a discussion of biology and the operations of cells and organs. There's no chance that its a discussion of human behavior, governmental philosophy, and economic issues. So obviously it's so appropriate to use the biological definition that not only should you do it, you should post snotty worthless posts criticizing others for not doing it.


I'm assuming you are mistaking me for someone else.
Unless you just hijacked Mike's account, no.
 
Flat taxes are regressive, unless you think that money has a constant marginal utility. Since that view is nonsense, flat taxes are regressive.
Probably every tax scale in existence is regressive with respect to an individual's utility. Since that renders the definition unuseful, it is not the one that applies. With respect to the amount taxed, flat tax is not regressive (it's . . . flat)
 

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