I guess the flat tax idea is resurfacing again.

[Jackpine Radical]

It's one of those ideas that sound really wonderful and fair and all that. Everybody pays the same rate.

It's 17% (or whatever) off the top of everyone's income.

Some proponents do propose that the first $20k (or whatever) be exempted, so to that extent it resembles a graduated tax.

However, the problem always comes in the form of defining "income."

If I buy 1000 widgets for $10K total & sell them for $20k, my gross intake is $20k, but my gain is only $10K, so surely I should only be taxed on the $10K

If I have to buy a truck to haul the widgets around, the payment will come off my profits, but how should I amortize it?

If I take someone to lunch in an effort to persuade her to buy my widgets, is that a business deduction?

How about my "working vacation?"

The Maserati my company bought for me so I can impress people at the upper end of the widget market?

Etc.

Pretty soon you're back in the same mess, but with a lower nominal rate on the rich & a higher real rate on the poor.

[sinkingfeeling]

1. Any so-called 'flat tax' is regressive.

[Jackpine Radical]

3. That is exactly the point I'm trying to make.

[el_bryanto]

2. I think most flat tax proposals are income tax based and remove most deductions

So that if you are the proprieter of a business you are flat taxed on what you pay yourself? while your corporation would "pay" corporate income tax.

Bryant

[Jackpine Radical]

4. The point remains in both cases:

What is "income?"

Many businesses, like grocery stores, have a very low profit margin, like 6%, and rely on volume. If they had to pay 17% (the flat tax number I most commonly hear) on their gross, they would obviously not survive.

[el_bryanto]

8. Well - they would file corporate tax returns

And since Republicans probably want to do away with corporate taxs in this mad proposal, they would probably get around it that way.

I assume that 6% is after salaries?

Bryant

[ProgressiveProfessor]

5. Some basic restructuring of the US tax laws are well overdue

The system is so complex that the tax avoidance industry know more about the laws that the people who write them and the people who enforce them. It is complex to the point of insanity.

We need a complete rewrite, not a flat tax or Fair Tax as proposed, but something simple and progressive.

[Cleita]

6. Time to really consider taxing assets instead of income.

I would agree on a flat tax on let's say all stock market transactions, and when purchasing your second house, car, airplane or yacht. I'm not an expert on this but you get what I'm getting at. Tax wealth. On income, maybe exempt the first $250,000 like the President suggested and tax 50% or better yet 75% of what is earned after that. That would be be a flat tax and every wage earner would fall under the same rules? However, already I'm laughing out loud when this suggestion hit's those neo-con ears and getting their reaction.

[IphengeniaBlumgarten]

12. How would that work?

Suppose someone has 1 million in assets and you tax that at 20% in the first year of your tax plan. So now s/he has assets of $800,000 only. Next year you tax that at 20% again, assets are now $640,000. And so on. In a few years, no more assets left. Well, this is a great equalizer, but did you really intend this to happen?

If you only intend to tax the assets ONCE, then we will need to keep to keep track which assets have already been taxed and which assets are new ones. Newly acquired assets will probably be a related to the amount of income... so maybe we should just stick with taxing income?

[Cleita]

13. Oh, is that how you would work that? How regressive of you. I suppose you like sales tax too.

I'm talking about capital gains. If you have a million in assets and it increases to twice that, shouldn't you pay more than 15% taxes on those gains since you really did nothing to earn it? Also, here in California, we have a 1% property tax. Shouldn't out of state billionaires like the McCains and Romneys, who own million dollar "vacation" properties in my state pay 5% in taxes for the privilege of living here and using our roads and other public services? Considering they have other palaces around the country, it seems they can afford it. Actually, the hills across the highway from where I live is full of palatial beach vacation homes that go empty most of the year, or they are rented out for a profit, while the beaches are full of destitute poor people living in trailer parks or in their cars or on the beach. It seems they can pay 5% property taxes and there should be taxes on the rents, which is income generated from assets not labor.

How does that work for you?

[IphengeniaBlumgarten]

15. I sense some confusion...

I understood you to say you wanted to tax assets, which are things of value that someone owns, for example stocks or real estate. I was asking how you intended to structure that tax and gave two examples.

I am perplexed as to how you think that means I like regressive taxes. (I don't.)

If by taxing assets you mean we should have a higher tax rate on capital gains and second homes, then fine by me.

I believe income from rents (less expenses) is probably already taxed as ordinary income.

[Cleita]

16. In my post I stated I don't really know how to go about this, however, here is another

way that has been suggested of taxing assets, income from assets and not taxing labor. It would be a tax on stock transactions:

http://articles.washingtonpost.com/2012-11-30/opinions/35585690_1_tax-stock-trades-sales-taxes-bush-era-tax-cuts

In the debate over the “fiscal cliff,” President Obama and congressional Republicans have returned to the proposals that they were sparring over before the election. They remain at odds over key elements of revenue and spending. Yet both sides are unwilling to consider a minuscule tax on financial transactions that could be a major source of income.

A financial transaction tax would apply to purchases and sales of derivatives, options and stocks. The tax would be small, half a penny or less on each dollar of the transaction value, depending on the product. This idea is often called a “speculation tax,” because it would hit hardest at frothy high-volume trading as opposed to sober long-term investment.

Wall Street might object, but taxing its sales is hardly a radical idea. Americans in all but five states pay state sales taxes, ranging as high as 7 percent, every time they buy a car, an appliance, a pair of pants or piece of furniture, but a trader on Wall Street can buy and sell millions of dollars’ worth of financial products each day without paying a cent in sales taxes. A teacher or police officer who buys a $100 pair of shoes in the District or Maryland pays $6 in sales taxes. Meanwhile, if a financial speculation tax were applied to stock trades at a rate of 0.25 percent, a day trader would pay just 25 cents on every $100 worth of stock bought.In the debate over the “fiscal cliff,” President Obama and congressional Republicans have returned to the proposals that they were sparring over before the election. They remain at odds over key elements of revenue and spending. Yet both sides are unwilling to consider a minuscule tax on financial transactions that could be a major source of income.

Now a lot of people think Ralph Nadar is a left wing wacko, but he's actually a multi-millionaire himself and understands how this works.

[OceanEcosystem]

7. I suppose there is one thing to be said for the flat tax.........

Which is that it would make taxation extremely simple and easy to understand - at least, in theory.


Of course, I'm sure a lot of tax professionals wouldn't like that.


And tax revenue would probably decrease, overall, the rich probably paying significantly less.

[Jeff In Milwaukee]

11. Here's the thing...

Full Disclosure: I'm a Tax Professional.

A certain amount of the complications that arise from personal taxes is that there has been an effort to keep taxation equitable, and to avoid creating an undue burden on taxpayers.

Example: You and I are both the same age (30) and we earn the same income ($40,000) per year. We should pay the same amount in taxes, right?

But what if you have two kids and are struggling to pay off student loans? What if your elderly widowed aunt comes to live in your house because nobody else in the family will take her and she can't afford an apartment on her own?

And me? I'm single with no financial responsibilities at all. In fact, your $40,000 is earned from wages and all mine comes from a trust fund. All I have to do is cash the checks (actually, with direct deposit I don't even have to do that).

Now the tax code does create exemptions and deductions and credits to prevent your tax burden from being a financial hardship -- what with two kids and an aunt to provide for. It only makes sense that some taxpayers with identify income should pay less than others, depending on their individual circumstances.

And that trust fund thing? Perversely, the code taxes income from interest and dividends (and capital gains) at a lower rate than income earned by people who actually work for a living.

[LonePirate]

9. Flat tax rates make the poor pay more and the rich pay less

Deductions are never or will never be removed so the wealthy get to pay a lower rate on their wage income that isn't hidden or deducted away while everyone else sees a rate increase. It's more class warfare and hoodwinking perpetrated by the wealthy 1%.

[Jackpine Radical]

10. Exactly.

[winter is coming]

14. That turd floats to the top pretty much any time taxes are discussed.

It wouldn't surprise me if the 1% have folks on retainer whose sole task is to promote the idea.

[KamaAina]

17. A surprising number of Dems take the bait.

Just like with ed deform.

Jerry Brown based his presidential campaign on the flat tax. One of my favorite progressives (and all-around human beings) bit on it.

[winter is coming]

18. It "sounds fair" until you do the math, or unless you have some

idea of what life is like for the working poor.