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Forbes' flat tax

Almo

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Almo
Joined
Aug 30, 2005
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Montreal, Quebec
So...

A long time ago, Steve Forbes ran a campaign which contained a major plank about doing a flat income tax: 10%, no deductions for anything.

At the time, my reaction was that any tax plan coming from someone as wealthy as Steve couldn't be good. Heh. Great critical thinking. :rolleyes:

Anyway, I'm wondering what sort of ramifications such a plan would have. I like the idea of no deductions; simplicity and lack of loopholes (unless they could play with the meaning of the word "income").

But does 10% make sense as a number? It seems a lot different that our current 0-40% with deductions system.
 
Flat tax is certainly simple. Some countries in Europe have a flat income tax with deductions--not as low as a 10% rate though. Consumption tax is usually flat, but I think there are always deductions or exempt goods/services. (In fact consumption tax is usually regarded as regressive despite its flat rate)

The main argument that it is unfair (relative to progressive tax) is that the marginal value of extra income is not flat (IE not the same as its nominal monetary value) but decreases as income increases, hence it is OK to tax higher brackets of marginal income more heavily.

It is obviously less re-distributive than progressive tax. That's usually seen as a good or a bad thing about it depending on one's personal vested interest in re-distribution (or occasionally depending on a purely ideological view)
 
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acuity said:
The main argument that it is unfair (relative to progressive tax) is that the marginal value of extra income is not flat (IE not the same as its nominal monetary value) but decreases as income increases, hence it is OK to tax higher brackets of marginal income more heavily.
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Ah, hadn't thought of that. Makes sense though.
 
No one ever considers reducing the order of the tax function by one. ie. F(X)=Constant, or a head tax. That is, everyone pays a constant tax amount, period. From a libertarian point of view, unless you receive a linearly increasing amount of government goods and services, then even a 'flat' tax can be perceived as unfair.

I suppose the next step would be F(X)=0, or a purely libertarian volunteer tax society.
 
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rbairos said:
No one ever considers reducing the order of the tax function by one. ie. F(X)=Constant, or a head tax. That is, everyone pays a constant tax amount, period. From a libertarian point of view, unless you receive a linearly increasing amount of government goods and services, then even a 'flat' tax can be perceived as unfair.
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Head taxes (or poll taxes) have tended not to be very popular when they have been tried...

http://en.wikipedia.org/wiki/Poll_Tax_Riots
 
rbairos said:
No one ever considers reducing the order of the tax function by one. ie. F(X)=Constant, or a head tax. That is, everyone pays a constant tax amount, period. From a libertarian point of view, unless you receive a linearly increasing amount of government goods and services, then even a 'flat' tax can be perceived as unfair.
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Well there have been such taxes attempted, though not (as far as I know) as the only form of taxation in any modern economy.

The UK's last experiment with a per-capita tax was the poll tax, briefly introduced in 1989 by then PM Thatcher, and abolished a few years later after it had been partly responsible for her ousting as leader of the British Conservatives
 
The idea sounds very appealing, but sounds like the implementation had some problems:

Protesters complained that the tax shifted from the estimated price of a house to the number of people living in it, with the perceived effect of shifting the tax burden from the rich to the poor..Owner-occupiers paid because they couldn't hide, and it cost less for them than rates had; renters didn't pay because they knew they would be long gone when the bills arrived. Councils of towns with highly mobile populations, e.g. university towns, were faced with big store rooms of un-processed "gone-aways".
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I support a voluntary system of taxation for individuals with corporate taxes and import taxes being non-volunteer. Obviously I'm also picturing a radically smaller government.
 
From what I remember, Forbes exempted capital gains, and maybe other kinds of investment income. I recall hearing that under his plan, he would pay no, or almost no tax himself.
 
rbairos said:
No one ever considers reducing the order of the tax function by one. ie. F(X)=Constant, or a head tax. That is, everyone pays a constant tax amount, period. From a libertarian point of view, unless you receive a linearly increasing amount of government goods and services, then even a 'flat' tax can be perceived as unfair.
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Well, most people do receive a linearly increasing amount of government goods and services. For example, the amount of police protection you recieve is roughtly proportional to the value of the goods protected (like almost any other form of insurance). The amount of currency protetion given to you by the Fed is proportional to the amount of weath you have (indeed, if you were bankrupt, you might actually benefit from the sort of hyperinflation the Fed prevents). The amount of services you get from the FAA depends on how much you fly -- which in turn is related to the amount of money you have. The more you drive, the more services you get from the federally-funded Interstate network. Et cetera.

They've actually done surveys of the amount of services a person typically receives from the government as a function of income. I don't have any to hand to check, but as I recall, the value of government services increased expontentially, simply because rich people used so many more services and so much more of the services they used.
 
It is interesting that, in real terms, America has a flat or slightly regressive overall tax system. People point to the progressively-scaled income tax rates, and ignore the incredibly lower rates that wealthy people pay on their main sources of income. A so-called "flat tax" would actually be incredibly regressive, and shift even more of the burden onto the middle class... which is, of course, the goal. A strong middle class is good for America, but bad for business.
 
Almo said:
But does 10% make sense as a number?
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Let me see here now... No!

You have a declining 13 trillion dollar economy and 3 trillion dollar budget.

That means you need an additional 1.7 trillion dollars from somewhere.
 
Solitaire said:
Let me see here now... No!

You have a declining 13 trillion dollar economy and 3 trillion dollar budget.

That means you need an additional 1.7 trillion dollars from somewhere.
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You're assuming that 100% of the tax revenue to the Federal government is from the income tax, whereas IIRC only about a third of it is derived from that source.
 
drkitten said:
Well, most people do receive a linearly increasing amount of government goods and services. For example, the amount of police protection you recieve is roughtly proportional to the value of the goods protected (like almost any other form of insurance). The amount of currency protetion given to you by the Fed is proportional to the amount of weath you have (indeed, if you were bankrupt, you might actually benefit from the sort of hyperinflation the Fed prevents). The amount of services you get from the FAA depends on how much you fly -- which in turn is related to the amount of money you have. The more you drive, the more services you get from the federally-funded Interstate network. Et cetera.

They've actually done surveys of the amount of services a person typically receives from the government as a function of income. I don't have any to hand to check, but as I recall, the value of government services increased expontentially, simply because rich people used so many more services and so much more of the services they used.
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These are very good points, that frankly I had not considered.
I suppose one interpretation of these results may be that privitization of previously public services would be consistent with a head tax.
 
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acuity said:
OK. I assume you will agitate for means of doing that more cheaply then, such as oppressive violence?
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Sorry, I don't follow your reasoning. I value civil liberties over cost savings, it my post was unclear.
 
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