Flat Tax

[mileslunn]

What are people's thoughts on the idea of a Flat tax and if for it, why it is a good idea.  If against, why a bad idea and how many brackets do you think they should have and what do you think the lowest and top brackets should be at in your country?

I am personally generally against a flat tax not so much due to being philosophically against but the difficulty of implementing without causing more harm.  Nonetheless the idea can work will in new emerging democracies where compliance isn't high such as many former Eastern European country.  My reason for being against it in countries that don't have it is there are only two ways to have it.

1.  Implement a revenue neutral one which means tax cuts for the rich and tax hikes for the poor.  Unlike many on the left, I am fine with tax cuts for the rich, but the benefits from that will be less than the harm from hiking taxes on the poor since the poor have a higher marginal propensity to consume.

2.  Drop the top rate to the bottom rate.  Unless there are a lot of loopholes where the rich are paying the same or less than those in the bottom (Contrary to popular opinion this happens far less often than people think) this means exploding the deficit or massive spending cuts.

On the other questions, I personally think in my own country of Canada we should have three brackets and be synchronized with the provinces.  Below are in Canadian dollars and I give the federal rates + provincial rates and then total.

No tax on those below 20K
Lower Bracket: 10% federally + 5% provincially = 15% for those making 20K to 50K
Middle Bracket: 20% federally + 10% provincially = 30% for 50K to 150K
Upper Bracket: 30% federally + 15% provincially = 45% for those over 150K

For UK brackets seem fair as they are, while for US, going on the assumption of a flat 5% state tax, I would suggest the following three brackets

10% for under 90K
25% 90K to 400K
40% over 400K

Due to large hole it would create, deductions would be dramatically scaled back and a 5% VAT implemented.

[courts]

crackpot idea

[Dr. MB]

No. Someone making $20K a year shouldn't have to pay the same percent as someone making $500K.

If there was a society where wealth disparity was reduced, say, so the richest make only 4x as much as the poorest, I'd be fine with a flat tax.

[mileslunn]

No. Someone making $20K a year shouldn't have to pay the same percent as someone making $500K.

If there was a society where wealth disparity was reduced, say, so the richest make only 4x as much as the poorest, I'd be fine with a flat tax.

Depending on whether the flat tax has a minimum threshold or not they may pay less.  If no minimum threshold than they pay the same, but if a minimum threshold, their marginal rate will be the same but effective rate will be lower.  Say if 10K is tax free and the flat tax is 20%, then someone making 20K would only pay 10% while a person making 500K would pay 19.6%

[TML]

Both the Bush 43 and Obama administrations were not in favor of a flat tax, stating that this will result in tax increases for people with lower incomes and decreases for people with higher incomes.

[MasterJedi]

It's a libertarian/conservative wet dream, in reality it's awful.

[Kingpoleon]

No. A 10%/15%/20%/30%/37.5%/45% six-tier bracket is ideal, in my opinion, chiefly cutting taxes on those making $40,000-$75,000 for singles, and double that for couples. A 7.5%/10%/15%/10% four-tier corporate tax sounds like a good idea to me. Flat taxes only really make sense for sales taxes and VAT.

[courts]

Flat taxes only really make sense for sales taxes and VAT.

yeah that sounds like something i could live with

[muon2]

IL has a flax income tax at 4.95% with very few allowed deductions (eg no mortgage or charitable) and a generous EITC (Earned Income Tax Credit). It's easy to administer but doesn't grow as fast as the cost of services when the population is stagnant or declining, as it has been most of this decade. IL also has a 6.25% state sales tax + variable local tax but it is levied on the fewest categories of any state with a sales tax, mostly just retail goods. The revenue structure would be improved more by expanding the sales tax to cover consumer services (the bulk of which are used by higher income households) than by shifting to a set of progressive marginal income tax brackets with more complex deductions to avoid hitting the middle class.

[mvd10]

A flat tax is extremely vague and broad btw. I mean, you could have a 25-30% flat tax with no deductions or exemptions where capital gains income is taxed just like normal income combined with a very significant fully refundable tax rebate. I imagine something like that would actually be pretty progressive.

[ηєω ƒяσηтιєя]

No, this sounds like a terrible idea.

[Blue3]

I wonder what the rate would need to be to balance the budget, no deductions/credits or rebates or exceptions, with current spending levels... anyone know?

[UncleSam]

I wonder what the rate would need to be to balance the budget, no deductions/credits or rebates or exceptions, with current spending levels... anyone know?

Considering the size of the deficit and that the top 10% pay 80% of the taxes, it would almost assuredly have to be higher than the current highest income bracket to balance the budget. If not higher, it would certainly be very close to it.

I believe that someone ran the numbers and found that if you tax the top 10% at 100% you still wouldn’t balance the budget on taxes alone, so it’s definitely possible that it is impossible to balance the budget without spending cuts. There’s certainly no realistic way to tax our way out of the deficit at this point.

[Blue3]

I wonder what the rate would need to be to balance the budget, no deductions/credits or rebates or exceptions, with current spending levels... anyone know?

Considering the size of the deficit and that the top 10% pay 80% of the taxes, it would almost assuredly have to be higher than the current highest income bracket to balance the budget. If not higher, it would certainly be very close to it.

I believe that someone ran the numbers and found that if you tax the top 10% at 100% you still wouldn’t balance the budget on taxes alone, so it’s definitely possible that it is impossible to balance the budget without spending cuts. There’s certainly no realistic way to tax our way out of the deficit at this point.

I am just wondering as a thought experiment.

Also, I'm not sure about the top 10% being taxed at 100% not solving the deficit. Maybe if those were the only taxes... but a moderate hike from the pre-Trump Tax Cuts would have probably done it, since Obama got the deficit down to about $380 billion from the $1 trillion+ of his first year or two.

[Senator-elect Spark]

Nope. It would be terribly inefficient.

[Ban my account ffs!]

Nope. It would be terribly inefficient.

Efficiency is a very good thing.

[MR DARK BRANDON]

A flat tax would be very good for our economy. If we raise taxes, rich people keep losing money however with this no one is losing money. Instead of trying to make rich people poorer, let’s make the poor richer.

[True Federalist (진정한 연방 주의자)]

A flat tax would be very good for our economy. If we raise taxes, the rich keep losing money however with this no one is losing money.

I'm not certain if you're stupid or trolling. I'll give you the benefit of the doubt and assume you're trolling.

[MR DARK BRANDON]

A flat tax would be very good for our economy. If we raise taxes, the rich keep losing money however with this no one is losing money.

I'm not certain if you're stupid or trolling. I'll give you the benefit of the doubt and assume you're trolling.

A flat tax has been proven several times to help.

[Antonio the Sixth]

One of the most evil ideas in economic policy.

[muon2]

One of the most evil ideas in economic policy.

The flat tax existed long before the idea of variable tax brackets. In many areas of tax policy it still has a role. One might call it it anachronistic for modern income taxation, but a blanket tag of evil seems over the top.

[True Federalist (진정한 연방 주의자)]

A flat tax would be very good for our economy. If we raise taxes, the rich keep losing money however with this no one is losing money.

I'm not certain if you're stupid or trolling. I'll give you the benefit of the doubt and assume you're trolling.

A flat tax has been proven several times to help.

Help the rich. Every flat tax proposal I've ever seen either raises taxes on the poor, reduces tax revenue, or both.

[mvd10]

It's worked pretty well in Russia (and I guess Estonia as well, but that's hard to say). But the problem is that those were Eastern European economies who basically had to build everything up from scratch after the fall of the Soviet Union. I suppose circumstances would be completely different in North America or Western Europe. Like I said before, a very broad flat tax with some form of refundable tax credit to make it progressive would be something I'd go for when building up a tax system from scratch, but I don't think it's feasible to just completely replace the American tax system with something like a flat tax. Eliminating deductions and slightly reducing the rates probably is the best you can hope for.

[True Federalist (진정한 연방 주의자)]

Saying that the Russian experience with flat taxes shows that they work wonders is akin to saying that Stalin's Five-Year Plans showed off the wonders of central planning.  In both cases you have to ignore the relevant history and how might have worked alternatives that could have been implemented instead.  There is no denying that coming out of the Communist era, the Russian economy needed a fairly simple system of taxation and it needed to avoid the idea that the rich needed to have their wealth confiscated (or alternatively completely shielded).  The flat tax achieved that, and perhaps it was the only tax scheme that would have both done that and been politically possible at the time.  But that doesn't mean that the flat tax is the best tax.

This is a U.S.-centric forum, so discussing economics primarily in the economic context of America makes sense. Progressive tax rates that don't reach so high as to be confiscatory are definitely possible here.  That isn't to be said that there isn't room for improvement.  (For instance the old C corporation rate schedule was a poster child for how to not do progressive tax rates as in two separate places, it had higher catch-up rates.)

[Republican Left]

Could a flat tax be more palatable with a generous exemption or like what has been suggested more, a tax credit/deduction to make it more progressive. That said, while it may sound painful, isn't the premise of a flat tax to encourage all taxpayers to be sensitive to government spending as well as reducing the influence of special interests who seek crave outs in the tax code? To be honest, I don't think it's so bad in theory to make sure everyone has a stake in something (such as having everyone pay for the safety net or etc). I understand the practical realities can be more painful though.