Is a Flat Tax Regressive?

[Cain]

A flat tax is not technically regressive for the reasons mentioned above. Who cares? The tax is either a good or bad idea independent of connotation.

 

[NewtonTrino]

It's a price that I think can be borne.

Are you in the top tax bracket though? It's very easy to be cavalier about other peoples money.

Anyway beating a dead horse here. Public opinion is not in my favor here.

 

[GreyICE]

Are you in the top tax bracket though? It's very easy to be cavalier about other peoples money.

Anyway beating a dead horse here. Public opinion is not in my favor here.

I'm not in the lowest tax bracket. I'm in a bracket where I'd probably benefit from any flat tax, depending on how it was implemented. Am I in the highest? Like most Americans (as in the vast, enormous, incredibly majority) no.

I really, really, really think you'll have to work to convince me about the pain and suffering in the 'can buy a small country' tax bracket.

 

[NewtonTrino]

I'm not in the lowest tax bracket. I'm in a bracket where I'd probably benefit from any flat tax, depending on how it was implemented. Am I in the highest? Like most Americans (as in the vast, enormous, incredibly majority) no.

I really, really, really think you'll have to work to convince me about the pain and suffering in the 'can buy a small country' tax bracket.

It's not a question of pain and suffering. It's a question of fairness. It's a question of me being a minority partner in my own life's work. It's a question of the rest of the population who knows they won't have to pay so they shrug their shoulders and assume that the rich can and should pay for everything.

Besides the top tax bracket stops far short of "buy a small country" money. If you want to tax those people you need to tax property, not income. I'm the guy stuck in the middle between the rich and the middle class yet because I actually work for a living I get taxed at a higher rate that someone who lives off of their investments.

 

[MikeMangum]

It's not a question of pain and suffering. It's a question of fairness.

This.

 

[GreyICE]

It's not a question of pain and suffering. It's a question of fairness. It's a question of me being a minority partner in my own life's work. It's a question of the rest of the population who knows they won't have to pay so they shrug their shoulders and assume that the rich can and should pay for everything.

Besides the top tax bracket stops far short of "buy a small country" money. If you want to tax those people you need to tax property, not income. I'm the guy stuck in the middle between the rich and the middle class yet because I actually work for a living I get taxed at a higher rate that someone who lives off of their investments.

Oh investment taxation. Well that's one whole different kettle of fish. If you want to argue that our entire structure for that is screwed up, then... yes.

As for you being a "minority partner in your own life's work," ridiculous. The federal income tax caps at 35%, and that's at $186,000 (a point where you're quite comfortable). State is usually 2-5%. Social security is going to be around 3-4% at those levels (or lower) thanks to the cap, and the rest won't add up to a whole chunk. So tops you're talking 45%, and that's at a rather enormous income.

P.S. If you're in the 35% bracket, you're rich.

 

[NewtonTrino]

Oh investment taxation. Well that's one whole different kettle of fish. If you want to argue that our entire structure for that is screwed up, then... yes.

I would argue our entire tax system is a hodge podge that has evolved and certainly wasn't thought out.

As for you being a "minority partner in your own life's work," ridiculous. The federal income tax caps at 35%, and that's at $186,000 (a point where you're quite comfortable). State is usually 2-5%. Social security is going to be around 3-4% at those levels (or lower) thanks to the cap, and the rest won't add up to a whole chunk. So tops you're talking 45%, and that's at a rather enormous income.

Jeez only 45%, what a bargain!

P.S. If you're in the 35% bracket, you're rich.

Sorry but I call BS on this. Define rich.

 

[Dancing David]

Why would anyone take a financial risk under your scenario? There's a risk associated with capital gains (you could lose all your principle) that doesn't exist for a salary. And you take it even farther by disallowing losses! This is why capital gains tax rates are less than income tax rates.

That may be, and again it is just an idea. The losses may be high but so are the profits. I did not realize the only reason people made capital investments was to get out of paying taxes. I don't mind expenses but there are huge lop holes that fall under expenses.

Currently you can make boodles of money and never pay taxes.

 

[Dancing David]

To maintain tax revenues, it would mean massive tax breaks to the top and therefore massive increase on the bottom (or middle, if that is what $50-75k refers to).

But maintaining tax revenues is not the intent behind flat tax, is it...

Um currently we have system that aloows too many exemptions and loop holes.

the top ten percent makes ~85% of all income, so they pay about 85% of taxes.

A flat tax would not increase that and should lower it. I do not see why a company that makes TV shows can declare itself a loss every year and pay such high salaries.

That is the whole point of the flat tax, NO tax breaks for no one.

 

[Dancing David]

I.. dunno. I'd say a tax that puts more lower income people under water (like Dancing David's idea) is regressive. Because uh.. Yeah, I'd have minor problems paying my bills if I suddenly lost more of my check income. Like.. a lot of them. Since cost of living here in Seattle is just enough that minimum wage is very barely enough if you're lucky to work full time. And I'm not.

Yes but how many corporations make huge amounts of income and then skate on taxes?

Taxes under the defintion of regressive are lower per cent wise as your income goes up.

Would a flat tax have a higher impact on discretionary spending, maybe , maybe not. I contend that the flat tax rate might be lower after all the rich companies start to pay their share.

And I also support a higher minimum wage.

Again this is an idea, it will never happen because of corporate influence.

 

[Almo]

I thought a flat tax was effectively regressive due to the marginal utility of excess cash.

 

[NewtonTrino]

Currently you can make boodles of money and never pay taxes.

How? I certainly haven't been able to avoid taxes.

 

[NewtonTrino]

I thought a flat tax was effectively regressive due to the marginal utility of excess cash.

But how marginal is the utility of excess cash. This seems like a very squishy concept to me.

 

[MikeMangum]

I thought a flat tax was effectively regressive due to the marginal utility of excess cash.

By that logic, any tax system that did not result in identical after tax incomes for everyone would be "regressive". How about we don't spend so much time and effort trying to change the definition of words as a means of persuading people to support certain policy positions and instead simply move directly to attempting to persuade people of certain policy positions.

 

[MikeMangum]

I did not realize the only reason people made capital investments was to get out of paying taxes.

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.

 

[Meed]

Sorry but I call BS on this. Define rich.

Richer than 99.8% of the people in the world?

 

[NewtonTrino]

Richer than 99.8% of the people in the world?

In other words the middle class should also be paying the highest tax rates. After all they are richer than almost everyone in the world.

 

[drkitten]

But how marginal is the utility of excess cash. This seems like a very squishy concept to me.

Well, everything in psychology and economics is at least partly squishy. You can't predict human behavior with the accuracy you can predict a rat's -- and you can't even predict a rat's with the accuracy you can predict a neutrino's.

But that doesn't mean that human behavior with respect to excess cash isn't well-documented and well-understood. People work hard enough to get what they want, to the point where the return from additional work will not justify itself in terms of additional wants satisfied. Herbert Simon coined the term "satisfice" for this process [and won the Nobel Prize in economics for his analysis of this point].

For example (I believe this example is from Simon himself, although I took it from Wikipedia) : "Example: A task is to sew a patch onto a pair of jeans. The best needle to do the threading is a 4 inch long needle with a 3 millimeter eye. This needle is hidden in a haystack along with 1000 other needles varying in size from 1 inch to 6 inches. Satisficing claims that the first needle that can sew on the patch is the one that should be used. Spending time searching for that one specific needle in the haystack is a waste of energy and resources."

You get a similar effect in terms of excess cash, and the experiments are easy to run. Pay one group of students $x amount to do task a, and another group $y amount to do task b. Then offer both students an additional $z to do an additional (optional) task c. These experiments have been done, and the results tend to show that the more you're paid initially, the less likely you are to do the optional task (i.e. if x>y, then students in group one are less likely to do the optional task). This is basically a direct measurement of the decreasing marginal utility of cash.

And of course it makes sense why people would do this. If I have enough to "satisfice" my current monetary needs, then I would prefer to satisfice my non-monetary wants.

 

[NewtonTrino]

Well, everything in psychology and economics is at least partly squishy. You can't predict human behavior with the accuracy you can predict a rat's -- and you can't even predict a rat's with the accuracy you can predict a neutrino's.

But that doesn't mean that human behavior with respect to excess cash isn't well-documented and well-understood. People work hard enough to get what they want, to the point where the return from additional work will not justify itself in terms of additional wants satisfied. Herbert Simon coined the term "satisfice" for this process [and won the Nobel Prize in economics for his analysis of this point].

For example (I believe this example is from Simon himself, although I took it from Wikipedia) : "Example: A task is to sew a patch onto a pair of jeans. The best needle to do the threading is a 4 inch long needle with a 3 millimeter eye. This needle is hidden in a haystack along with 1000 other needles varying in size from 1 inch to 6 inches. Satisficing claims that the first needle that can sew on the patch is the one that should be used. Spending time searching for that one specific needle in the haystack is a waste of energy and resources."

You get a similar effect in terms of excess cash, and the experiments are easy to run. Pay one group of students $x amount to do task a, and another group $y amount to do task b. Then offer both students an additional $z to do an additional (optional) task c. These experiments have been done, and the results tend to show that the more you're paid initially, the less likely you are to do the optional task (i.e. if x>y, then students in group one are less likely to do the optional task). This is basically a direct measurement of the decreasing marginal utility of cash.

And of course it makes sense why people would do this. If I have enough to "satisfice" my current monetary needs, then I would prefer to satisfice my non-monetary wants.

I have no bone to pick with the concept.

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. Eat your own dogfood people.

 

[Meed]

In other words the middle class should also be paying the highest tax rates. After all they are richer than almost everyone in the world.

Ridiculous, they are only richer than about 99.15% of the world, not 99.80%!