Thread: Flat Tax Rate.

Those are the country's (Green) that are currently using a flat rate for income tax.

Some politicians from many major country's (US, Australia, Britain, Spain, Germany......) have been talking in recent years about the possibility of introducing flat tax rates for their country's income tax at around about 25%. Some country's such as Holland have suggested a rate of 40% and country's such as the Ukraine have already put in place a FTR of 13%. The general idea is to stop cash-in-hand work and general tax avoidance as well as being fairer and giving the economy in question a boost.

So would it work in a major western country ? Would the extra people paying tax's (reduced black market) and economic growth pay for the reduction in tax's ? Would you be happy having the same tax rate as someone who earns a lot more then you ?

remember the poll tax riots ? that was a flat tax of sorts

Flat tax concepts in western democracies are not isolated policies. They are just one side of the ledger. They are coupled with entitlement programs. These include senior and disabled pensions, working income supplements, child benefits and so on.

For example here in Canada this would include the current one year paid maternity leave for mother or father, the monthly cheque for each pre-school child....yearly child benefit cheque, etc. ... but would be more on a sliding scale. Much more front end loaded for low income individuals and families than they are even now. so for example, a person earning $100 might pay a flat rate of 25% ($25) but receives $50 in supplemental entitlements. a person earning $200 pays 25% ($50) but only receives $20 in supplemental entitlements.

A big issue in western economies is differentiating liquid assets and income. Millions of baby boomers entering retirement are asset rich but soon to be low income. Flat rate concepts depend on an increase in entitlements, and there is incentive to live off of non-income generated cash flows. There is also a shortage in most labour markets and flat taxes discourages retirees from taking part time positions. Not only do you pay flat tax on the part time income but one also loses entitlements as income goes up. If one pays 10 cents on the dollar with current rates and has no entitlemnets to offset a flat tax, there is incentive to work. If there is 25 cents paid as flat tax, the income to supplement a higher rate is also reduced (for example 15%).....the part time retiree is paying 40% of a part time income instead of the current 10%.

Flat tax is neither a positive or negative but can onlt be judged as such after working through many other variables.

Hmmm very interesting. It would make sense that mainly ex-communist country's would adopt such a system given that their main source of tax income is their young workforce as opposed to us where so much money is held outside of a simple wage income. And i suppose once you include all those entitlement programs the system would just be as complicated, which was meant to be one of the other benefits of a FTR.

There would be so many displaced beaurocrats. If you uncomplicate the tax system, where will all those people with their degrees in paper shuffling find work?

It's ironic, but it may actually be possible to have *too many* educated people. The only job you can give a person like that is one that uses their education. They're not going to go work fast food.

Most of the bureaucracy involves figuring out what counts as "income," what people are allowed to deduct, etc. I don't that that simply switching to a flat-rate tax would really eliminate bureaucrat jobs. Anybody could compute the bracketed tax tables in a few minutes with a spreadsheet, so I don't really think that the government spends a lot of time on it.

Originally Posted by Scifor Refugee

Most of the bureaucracy involves figuring out what counts as "income," what people are allowed to deduct, etc. I don't that that simply switching to a flat-rate tax would really eliminate bureaucrat jobs. Anybody could compute the bracketed tax tables in a few minutes with a spreadsheet, so I don't really think that the government spends a lot of time on it.

Apparently that is one of the biggest advantages of it, according to those in favour of it.

A Flat Tax is regressive (thus bad).

Brackets are no-brainers to calculate, the problem is the endless and complex deductions mired with loop-holes and evasion exception. Even Non-refundable Tax deductions can also be regressive (in addition to making tax code more complex).

It would be worth it to put a lot of unnecessary tax bureaucrats out of work (or assign them to new tasks that benefit the public) if what they do has no added value for society. Unlike building 'needed' bridges and repairing roads 'to give people jobs' in a recession, where at least you get something out of it (and reduce some expenses that would have to be paid eventually).

"Apparently that is one of the biggest advantages of it, according to those in favour of it."

In the middle ages, priests told people the king had a 'divine' right to be the one collecting and hoarding food and income, they benefited from 'the system' although some probably swallowed the cool-aid while others were aware of the political nature of their sermons. The richest 1% also have their gurus which will say that economic salvation('its good for the economy') depends on them getting the brake (tax cuts, privatize, etc), these gurus are no longer priests but econimists, think-thank analysts (lobbyists and PR advisers). To make a long story short I take the advice of 'experts' with a grain of salt.
So I dont agree with the flat tax being good because its simpler, I think its not good and does not make a big(or any) difference in simplicity. :wink:

Originally Posted by icewendigo

A Flat Tax is regressive (thus bad).

How so? A regressive tax is on in which people pay a smaller percent of their income as their income increases. With a flat tax everyone pays the same %.

I would support a flat tax or possible one in conjunction with a consumption tax.

You know, I don't really have any problem paying taxes. Some people complain that they want to pay less, but I really don't care.

To be honest, what really gets me about taxes, is when they're misused.

Taxes are how we pay for things like schools 'n such. Good things. And I have no problem paying taxes to support those things. But when the money is mismanaged to the point that it's lost, or things are over budget, or it's going to the wrong things...then there's a problem.

So I guess what I'm trying to say is that I don't care what my country (and others) do for taxes, just so long as they use it correctly.

Originally Posted by Scifor Refugee

Originally Posted by icewendigo

A Flat Tax is regressive (thus bad).

How so? A regressive tax is on in which people pay a smaller percent of their income as their income increases. With a flat tax everyone pays the same %.

When there's variance in income, the "reality" of paying the "same" % of taxes will be very different because poor people will have to cut into essential expenses while rich people will cut luxuries(3rd car). For those who reminess about the good old days of overt slavery and dont give a crap about human misery, there's also a general economic incentive, basic necesities help the economy more/faster than luxury goods (5 million meals, 5 million soap boxes, 5 million light bulbs, 10 appartments, 2 buses, vs 1 Van Ghoh painting).

The other thing to consider is 'good for who'. For a billionaire a great depression might just mean he'll hire 10 butlers for a crumb of bread instead of 1, and that he'll buy 10 houses for pennies which he will sell 8 years latter at full price, so if that type of guy says something is 'good', it does not automatically mean that its good for the country in general. Junta families in abject poor nations live in luxury even when the people around starve and work 7 days a week. :?


Also paying taxes can be a great thing, if you get services and improved quality of life. The problem is when the government lacks the transparency, accountability and representivness to make good descisions but if you have a government thats not transparent, accountable and representative (secretive, corrupt, etc), you have much bigger problems than taxes. :wink:

Originally Posted by icewendigo

Also paying taxes can be a great thing, if you get services and improved quality of life. The problem is when the government lacks the transparency, accountability and representivness to make good descisions but if you have a government thats not transparent, accountable and representative (secretive, corrupt, etc), you have much bigger problems than taxes.

Unfortunately, in a democracy you either have to have everyone be completely moral, ethical, and trustworthy, or there has to be a complex system of give-and-take. The system doesn't work otherwise. There's no room for a truly honest person in democratic politics.

Flat taxes may be nice, but I'd be curious to know exactly how flat they are. How many times has the tax rate increased for various reasons?

Also, does it make any difference what system is used, if the taxes are misused? Whether the gov is taking flat tax or not, if the money is just disappearing, it's not a good thing.

Originally Posted by icewendigo

When there's variance in income, the "reality" of paying the "same" % of taxes will be very different because poor people will have to cut into essential expenses while rich people will cut luxuries(3rd car).

I see what you’re saying, but I think you’re trying to change the meaning of “regressive tax” in a way that’s not altogether accurate in order to suit your argument. By definition, a regressive tax is a tax in which people pay a lower percentage of their income as their income increases. A flat tax, by definition, is not a regressive tax.

You are talking about the marginal value of money, ie. how $1000 is worth a lot more to a person who has no money than it is to a person who already has millions. That’s a good point, but let’s not forget that terms have specific meanings.

Also, I think that there are some interesting arguments for regressive taxes. In theory the services that the government provides to its citizens are of the same value to everyone. Why should one person have to pay ten times the taxes that another person pays when they are getting exactly the same services?

On a side note, in the US you only pay taxes if your gross yearly income is over a certain amount. This helps keep people with low incomes or part-time workers from being slaughtered by taxes, when they already don't have that much to begin with.

Perhaps we keep the taxation model the same, and instead change how we determine suitable taxation? Raise the bar a bit.

you’re trying to change the meaning of “regressive tax”

Ok then, a flat tax is not "regressive" or "banana", a flat tax is Ungood. :wink:

[quote="Scifor Refugee"]

Originally Posted by icewendigo

...Also, I think that there are some interesting arguments for regressive taxes. In theory the services that the government provides to its citizens are of the same value to everyone. Why should one person have to pay ten times the taxes that another person pays when they are getting exactly the same services?

Some reasons for a progressive tax rate:
1 - Economists have noted that those of lower income spend more than those of higher income -- who tend to save more -- and this spending boosts the economy
2 - It reduces inequality, which is both inefficient and unfair. Inefficient because the more money a person has, the more likely he is to use it to improve his position in society at the expense of others, e.g., more influence on politicians, better legal standing in civil courts, more influence on the media, etc. Unfair, because those not born to wealth will have less of a chance of upward mobility the higher their taxes are.
3 - People actually don't get the same services, as those with more assets receive more police protection, more fire protection, better schools, a foreign/military policy that protects stock investments but not jobs, etc.

The justification for differential tax rates is based on the social contract concept that (ideally) allows the majority to determine what policy should be. (As opposed to a rule-based system like libertarianism or socialism where the public is unable to change the rules.)

Originally Posted by Cat1981(England)

cash-in-hand work and tax evasion as well as being fairer and giving the economy in question a boost.

I fail to see how it would stop "cash in hand" and "tax evasion". You sure they dont mean tax avoidance(theres a difference)?

Just lower taxes in general and dispense with wasting services!

What is the diffrence then ?

Tax avoidance is where you find loopholes and exploit anything you can right off(The big boys with fancy lawyers are good at this) completely within the letter of the law.

Tax evasion is outright illegal i.e. telling lies, diverting cash, Going on the run impersonating someone else who is disable from the nose down etc etc....

Ahhh yes, your right, it should have been 'tax avoidance' rather then 'tax evasion'. Thanks, OP edited.

[quote="IBrakeForTrees"]

Originally Posted by Scifor Refugee

Originally Posted by icewendigo

...Also, I think that there are some interesting arguments for regressive taxes. In theory the services that the government provides to its citizens are of the same value to everyone. Why should one person have to pay ten times the taxes that another person pays when they are getting exactly the same services?

Some reasons for a progressive tax rate:
1 - Economists have noted that those of lower income spend more than those of higher income -- who tend to save more -- and this spending boosts the economy
2 - It reduces inequality, which is both inefficient and unfair. Inefficient because the more money a person has, the more likely he is to use it to improve his position in society at the expense of others, e.g., more influence on politicians, better legal standing in civil courts, more influence on the media, etc. Unfair, because those not born to wealth will have less of a chance of upward mobility the higher their taxes are.
3 - People actually don't get the same services, as those with more assets receive more police protection, more fire protection, better schools, a foreign/military policy that protects stock investments but not jobs, etc.

The justification for differential tax rates is based on the social contract concept that (ideally) allows the majority to determine what policy should be. (As opposed to a rule-based system like libertarianism or socialism where the public is unable to change the rules.)

Unless I was possesed by the ghost of right-wing mc crazy and suffer from amnesia I think you quote was not from me, but otherwise I quite agree with your 3 points

Originally Posted by icewendigo

Unless I was possesed by the ghost of right-wing mc crazy and suffer from amnesia I think you quote was not from me, but otherwise I quite agree with your 3 points

Oops. The quote was from Scifor_Refugee, who had been responding to one of your posts. The way the quoting shows up on this forum isn't as clear as it could be. I'll have to keep an eye on that when I'm quoting someone who's quoted someone else.