Forbes' flat tax

[Francesca R]

As one source of income, not much (except that it is strongly regressive).

OK.

There's actually a substantial difference in many cases between a GST and a sales tax; the GST covers services as well as sales. In many US jurisdictions, it costs money to purchase goods, but not services (and there is a lot of legal ink defining the difference). The examples I like to use is that I can hire someone to paint my house and not pay tax, but I can't simply buy the paint and do it myself without paying the tax. (Heck, in many jurisdictions, the wholesaler does not pay tax, either, so the house painter gets his paint tax-free.) This ends up being another example of regressiveness in the tax system --- those who can afford to hire services pay less tax than those who must do the work themselves.

Well for info, VAT in the UK is most certainly chargeable to someone who paints your house (unless they do it for free)

 

[Redisca]

Two things:

1) The whole fairness angle is completely wrong when applied to the subject of taxes. There can be no such thing as a fair system of taxation. No tax is fair. It is fundamentally UNfair to have to give up a chunk of your hard-earned money just because you've earned it, or because you've chosen to purchase diapers for your kid. Taxes that punish consumption and taxes that punish production are equally unfair, regardless of how low they are, or how they are distributed. But we need taxes to maintain our infrastructure and services, and to govern our community. And hence, taxes have absolutely nothing to do with fairness, and absolutely everything to do with the ability to pay. Rich people pay more taxes (at least in theory) because the CAN, and poor people pay less taxes because they CAN'T pay more; and that's all there is to it. The cornerstone of any sound tax system (and a sound tax system isn't necessarily a simple one) is a sober cost-benefit analysis based on utilitarian factors, not "fairness".

2) The flat-tax system with no deductions would never work for several reasons, one of which is outlined above. Another reason is that creating deductions is one of the few ways in which the federal government, which lacks general police power, can get people to do what it wants without running afoul of the Constitution. Tax breaks are an important form of social and economic engineering, and if Forbes' system were enacted, it would not be long before it got bells and whistles attached to it designed to encourage some activities and discourage others. In other words, it would not be a simple system at all.

Moreover, "fairness" is an illusion in more ways than one. Even if we all paid a flat tax with no deductions, we would all still be using governmental services and infrastructure to different degrees. The outlandish "pay-per-use" model has made its appearance recently, but while it addresses fairness, it is practically unfeasable. (Who "uses" the military more -- Dick Cheney or Joe Sixpack from Coney Island?)

 

[JoeEllison]

Two things:

1) The whole fairness angle is completely wrong when applied to the subject of taxes. There can be no such thing as a fair system of taxation. No tax is fair. It is fundamentally UNfair to have to give up a chunk of your hard-earned money just because you've earned it, or because you've chosen to purchase diapers for your kid. Taxes that punish consumption and taxes that punish production are equally unfair, regardless of how low they are, or how they are distributed. But we need taxes to maintain our infrastructure and services, and to govern our community. And hence, taxes have absolutely nothing to do with fairness, and absolutely everything to do with the ability to pay. Rich people pay more taxes (at least in theory) because the CAN, and poor people pay less taxes because they CAN'T pay more; and that's all there is to it. The cornerstone of any sound tax system (and a sound tax system isn't necessarily a simple one) is a sober cost-benefit analysis based on utilitarian factors, not "fairness".

2) The flat-tax system with no deductions would never work for several reasons, one of which is outlined above. Another reason is that creating deductions is one of the few ways in which the federal government, which lacks general police power, can get people to do what it wants without running afoul of the Constitution. Tax breaks are an important form of social and economic engineering, and if Forbes' system were enacted, it would not be long before it got bells and whistles attached to it designed to encourage some activities and discourage others. In other words, it would not be a simple system at all.

Moreover, "fairness" is an illusion in more ways than one. Even if we all paid a flat tax with no deductions, we would all still be using governmental services and infrastructure to different degrees. The outlandish "pay-per-use" model has made its appearance recently, but while it addresses fairness, it is practically unfeasable. (Who "uses" the military more -- Dick Cheney or Joe Sixpack from Coney Island?)

Ahhh... you've decided to at least partially represent the "stupid viewpoint." You left out "taxation is violence," you need to step up your game a bit!

 

[drkitten]

There can be no such thing as a fair system of taxation.

This is simply wrong. Not only wrong, but stupidly so.

No tax is fair. It is fundamentally UNfair to have to give up a chunk of your hard-earned money just because you've earned it, or because you've chosen to purchase diapers for your kid.

But that's not why taxes are imposed. Taxes are imposed because the government provides services that you take advantage of, services that have very real costs, and the costs have to be covered somewhere.

The question, then, is how to distribute the costs of providing the services "fairly."

Taxes that punish consumption and taxes that punish production are equally unfair, regardless of how low they are, or how they are distributed.

Good. Since neither type actually exists, I'll not worry about it.

But we need taxes to maintain our infrastructure and services,

Yup. And hence, it is "fair" to impose a portion of the maintenance costs on the people who use the infrastructure.

Do you drive? Good. The roads aren't free.
Do you have police protection? Good. The police aren't free.
Do you drink water? Good. Preventing raw sewage from being dumped into your watershed isn't free.
Do you buy stuff? Good. Providing a stable financial infrastructure isn't free.

And so forth.

Rich people pay more taxes (at least in theory) because the CAN, and poor people pay less taxes because they CAN'T pay more; and that's all there is to it.

That's simply untrue. Rich people also demand more services from the government and infrastructure, and therefore SHOULD pay more of the costs. For example, if I drive, I use the roads more than a non-driver (although even a non-driver uses the roads, for example, to deliver the police to his door when needed) and should pay more. If I have lots of money in the bank, I use more FDIC insurance.

 

[Just thinking]

Rich people also demand more services from the government and infrastructure, and therefore SHOULD pay more of the costs. For example, if I drive, I use the roads more than a non-driver (although even a non-driver uses the roads, for example, to deliver the police to his door when needed) and should pay more. If I have lots of money in the bank, I use more FDIC insurance.

But they already do .... the problem arises when it becomes excessive. Take for example your case for drivers having to pay more taxes vs. non-drivers. OK, they pay more when they buy more gas at the pump, buy tires for their cars (not to mention the sales tax on said tires and car) when they pay highway tolls, register their vehicles, have their vehicles repaired/maintained .... the list goes on and on. As for having more money in the bank, this helps increase wealth not just for themselves but for the banking industry as well (which pays taxes) and helps increase funds for loans to help others buy items which are in turn taxed (cars, household items, etc.). Having more money in the bank helps increase funds for increased revenue --- to tax it more is simply putting a damper on that growth.

 

[Redisca]

JoeEllison & DrKitten: I take from your remarks that you did not bother to read the entirety of my post. Rather, you read the first couple of sentences and immediately resorted to personal insults and name-calling. How very persuasive of you. Well, I have a different idea of "stupid". Stupid is making a sweeping generalization of another's viewpoint, without bothering to familiarize yourselves with it. As for attributing to a person ideas that she clearly does not espouse, just so that you could have your fight; or taking phrases out of context for that very same purpose -- while that may not be stupid, it's certainly dishonest.

Nowhere do I advocate against taxes. I just take a utilitarian approach to taxes. Yes, most of us use roads, bridges, the military, and other government-created infrastructure and institutions -- but we all use these things to a different extent and it is impossible to quantify how much of this or that service each person uses. Therefore, the most sound basis for taxation is not payment for use of government services, but one's ability to contribute to funding the public fisc.

But what of that? I am "stupid", and you are "brilliant", so any further discussion is pointless. Accordingly, feel free to add me to your ignore-list if you have not already done so.

 

[JoeEllison]

You need to realize that we can call your position stupid without calling you stupid... and I did.

 

[Redisca]

Oh yeah, that changes everything -- except for the fact, of course, that you didn't bother to read.

 

[Francesca R]

JoeEllison & DrKitten: I take from your remarks that you did not bother to read the entirety of my post. Rather, you read the first couple of sentences and immediately resorted to personal insults and name-calling.

Redisca they did not--in my view, and I think the view of many (yes that is an appeal to popularity) and I wager the view of the forum management (an appeal to authority)--call "you" stupid.

In respect of emotive terms being used to make points, you do that too when you describe tax as "punishment". It's equivalent to saying that Starbucks "punishes" you by penalising you $2.75 (or whatever) just because you want a coffee.

I would urge you--this early in your activity--to dial back your defensive reaction. Just my suggestion though

 

[Redisca]

Acuity: Thank you for your suggestion, and I apologize for not putting "punishment" in quotes, it was clearly an omission on my part. It seems to get lost in the shuffle, however, that my original post did not -- I repeat, did not -- advocate the abolition of taxes. Perhaps I should have put a disclaimer at the beginning. Also, just so there is no confusion -- while I took exception to JoeEllison's and DrKitten's language, I did not and do not claim a violation of the forum's rules, and I neither attempted, nor threatened, to involve "the forum management".

 

[Francesca R]

On to your post itself:

There can be no such thing as a fair system of taxation. No tax is fair.

I would understand where you were coming from (but not agree) if your argument was based on the fact that tax is compulsory and not voluntary. But you don't say this:

It is fundamentally UNfair to have to give up a chunk of your hard-earned money just because you've earned it, or because you've chosen to purchase diapers for your kid.

It is not being "given up". It is being exchanged. Yes the exchange is compulsory, but your description is somewhat misleading.

And hence, taxes have absolutely nothing to do with fairness, and absolutely everything to do with the ability to pay. Rich people pay more taxes (at least in theory) because the CAN, and poor people pay less taxes because they CAN'T pay more; and that's all there is to it.

drkitten has responded to this the way I would so I have nothing to add to that.

The cornerstone of any sound tax system (and a sound tax system isn't necessarily a simple one) is a sober cost-benefit analysis based on utilitarian factors, not "fairness".

What utilitarian factors? You mean a tax system that makes the greatest number of people the happiest?

 

[drkitten]

J Yes, most of us use roads, bridges, the military, and other government-created infrastructure and institutions -- but we all use these things to a different extent and it is impossible to quantify how much of this or that service each person uses.

.... which is why taxes are set on the basis of political discussion informed by what numbers we have available. It is precisely because no one has numbers, but everyone has an intuitive feel, and the political process achieves a compromise that everyone except for Libertarian theologians generally accepts as "fair."

For example, I have no children. I argue, therefore, that I shoudln't have to pay to educate other people's children. Someone else points out that an educated public is still a benefit to me; I personally have newspapers to read only because other people's children are educated (if I were the only literate person in my county, there would be no newspapers at all).

Okay, yeah, that's a point, I admit that. But I shouldn't have to pay as much money as someone with four kids to educate.

Yeah, they'll accept that. How about we do school taxation on the basis of the size of the property you occupy, then? Someone will a lot of kids will live in a large house --- you live in a relatively smaller one, so you will pay less. Reasonable?

Yeah, but I'm wealthy -- so I live in a large house anyway. Why should I pay more just because I make more money than a Wal-Mart clerk?

Well, you derive more benefit from public education than she does.

What do you mean?

How often does she read the newspaper?

Oh. Good point. Okay, we'll fund education through property tax, not through a direct income tax.

And thus the property tax rate is set to cover education. Or not, depending upon what the local discussion ends up being.

But the idea that something isn't fair just because it was arrived at through a compromise that all parties involved accepted is.... well, there's no other word for it. That idea is stupid.

 

[Francesca R]

Acuity: Thank you for your suggestion, and I apologize for not putting "punishment" in quotes, it was clearly an omission on my part.

Even as a euphemism it seems fundamentally inaccurate. Punishment is some action taken to correct or deter wrongdoing. Sales tax is not intended to prevent you buying stuff, or to stop you buying stuff again. Income tax is not intended to prevent you earning money or to stop you continuing to earn money.

It seems to get lost in the shuffle, however, that my original post did not -- I repeat, did not -- advocate the abolition of taxes.

I don't think anyone has attributed that position to you have they? You must be mis-reading if you think that they have.

Perhaps I should have put a disclaimer at the beginning. Also, just so there is no confusion -- while I took exception to JoeEllison's and DrKitten's language, I did not and do not claim a violation of the forum's rules, and I neither attempted, nor threatened, to involve "the forum management".

Sure, I'm not confused about that

 

[Redisca]

Disclaimer: When I say later on that a certain justification for taxation makes no sense to me, this is NOT to be interpreted as advocacy of non-taxation, or an idea that taxation in and of itself makes no sense to me. Thank you. [/end disclaimer]

Acuity, where am I "coming from"? I also stated that taxes are necessary, and it's that necessity that drives taxation. And, while I understand your objection to my description of taxes as money "given up", I don't believe the idea of "exchange" is entirely accurate, either -- simply because it is either impossible or extremely difficult to tell how much of the tax you've paid goes to which government program, and how the amount of the tax compares to the value of the services you receive. Even if it was possible to quantify these things, we would never agree on definitions. For example, what should be the "value" of a service received -- should the "value" be whatever it cost the government to provide it to me, or should it be what I would have paid for it privately?

The driver/non-driver example is also problematic. (I realize it's not your example, but inasmuch as you've effectively adopted it, let me point out the problem.) A non-driver too, derives use from highways and other transportation infrastructure -- but using public transportation, for example, or by depending on "drivers" to deliver goods and services to where he lives. Some of the costs generated by driving will doubtless be incorporated into the prices, but it would be an unfounded assumption that this would include the full costs of governmental maintenance and development. Drivers also are not all identical -- some drive 2-3 hours every day, others only occasionally. So the idea of taxation as an "exchange", where you pay, say $100 in taxes and get back that same amount in the value of infrastructure and services, makes very little sense to me, and the consideration of all relevant factors inevitably leads to a morass.

 

[Francesca R]

Acuity, where am I "coming from"?

That's for you to tell (as you are doing). I said that if you had argued that all tax in unfair because the payer has no choice to pay it (other than by not working or not investing or not consuming) then I would see where you were coming from--namely a libertarian viewpoint. I also said I would not agree with your argument. That's all bye-the-bye.

I don't believe the idea of "exchange" is entirely accurate, either -- simply because it is either impossible or extremely difficult to tell how much of the tax you've paid goes to which government program, and how the amount of the tax compares to the value of the services you receive. Even if it was possible to quantify these things, we would never agree on definitions. For example, what should be the "value" of a service received -- should the "value" be whatever it cost the government to provide it to me, or should it be what I would have paid for it privately?

But it's an exchange even if the specifics of one side of the transaction cannot be disaggregated and attributed to moneys taxed. You pay tax, and you receive goods and services provided by the state.

 

[Redisca]

DrKitten: Wow, I actually agree with almost everything you said. I believe that the budget, and the taxes it necessitates, and the distribution of those taxes should be worked out through a political compromise.

The only major residual disagreement, it seems, is over the definition of "fair", and whether an obligation imposed on an individual -- granted, by a majority, and in the context of a political compromise -- is always "fair" from that individual's standpoint.

 

[Francesca R]

Well what's your definition of "fair", Redisca?

 

[Redisca]

But it's an exchange even if the specifics of one side of the transaction cannot be disaggregated and attributed to moneys taxed.

And what exactly, in your opinion, would make it a fair "exchange"? In your opinion, is it even possible for such an "exchange" to ever be unfair as long as the tax laws are democratically enacted?

 

[Redisca]

Well what's your definition of "fair", Redisca?

Well, in this context, "fair" would be, at the very least, people not having to pay different amounts for the same quality and quantity of services received. As I said before, however, I don't believe this consideration provides a sound basis for a system of taxation, and implementing such "fairness" in practice would be unfeasable.

 

[Francesca R]

You have claimed "no tax is fair". It's for you to define fair I think. I haven't invoked fairness myself. I have said:

--It is not punishment
--It is an exchange
--It is compulsory