30 Replies to “Flat Tax, Schmat Tax”

  2. What are the arguments against a flat tax? That some citizens should not be burdened with paying for a share of the services they use? Maybe in the days when being poor meant near starvation and a make-shift shack by the railroad this made sense but today’s poor have more toys and disposable income than most families of the 60’s and 70’s.

  3. Imagine the incentive for wealth creation (and tax compliance!) in a system that taxes the lowest income brackets at the highest rates?

  4. WE hve a flat Provincial tax in Albeta. Works for us. Now we need a federal one. Its the fairest tax around. Everyone pays the same rate but at different levels of earnings.You earn a million you pay 17%. You earn 50,000 you pay 17 %. It Makes for stability. As well as predicablity for buisness.

  5. i think 30% of the economy is accounting now . could drop alot of middle accounting types.

  6. Preston Manning advocated a 17% flat tax rate with a deduction of 12,000 bucks,(more than it is now),back in the early ’90’s. There was the usual howling from the other Parties and demonizing of the “fascist Manning with the ultra-right fundamentalist Christian agenda”.
    I always thought it was a good idea.
    The BIG opposition to the flat tax would come from the bureaucracy that administers tax collection,Revenue Canada,as they could probably fire half their employees under a less complicated system.

  7. It doesn’t matter how much the tax is or how its collected. Won’t make any difference, governments are all spending MORE than they take in anyway.
    Reducing the total expenditure on government by 10% however, THAT would create an explosion of growth in the private sector. Reduce it by 50% and see a supernova.
    It would make China into an instant backwater again. The only reason China is growing at all is we aren’t allowed to make stuff here anymore.

  8. we aren’t allowed to make stuff here anymore
    Oh really? What stuff are we not allowed to make here anymore?

  10. Rev:
    Don’t forget nobody pays individual Alberta tax on their first $16,875 of earned income.
    So, a person making $30,875, for example would pay 10% of $14,000 (the difference between the two). On a pure level, that $1,400 would be just a 4.5% rate.
    Take it up to $66,876 minus the exemption, would make it $50,000 taxable income … $5,000 tax or 7.47%.
    OK, bump it up to $116,875. Pay tax on $100,000 or $10,000. Works out to 8.55%.
    So, once a rudimentary figure is allowed for basic needs, the flat tax with a cost-of-living exemption is also ‘progressive,’ with higher incomes paying a higher percentage of taxes.
    But then, as has already been pointed out, why would anybody need accountants?

  11. I have always been amazed at the tax structure in the US. Have they never heard of a Bell Curve? They rely far too much on the ‘rich’ who are becoming less and less likely to be the ones working on start-up companies or expanding current ones and growing opportunities to create real wealth and real tax revenue (through real jobs – not ObamaJobs). It really is shaping up to be an Atlas Shrugged scenario.
    A flat tax works for me but the average US citizen already considers him/herself overtaxed (no socialized health care for example – I’m thinking they would want at least that for an increase in income tax).
    And the aforementioned impact on the IRS/CRA bureaucracy and accountants and tax lawyers would be a major hurdle.
    “Tax the rich, feed the poor,
    Til there are no rich no more”
    (then who are you gonna tax suckers?)

  12. As Margaret Thatcher said: “Socialism only works until you run out of other people’s money”

  13. Kate and the late great Murray Rothbard: He always said that the method of taxation, e.g., flat tax, consumption tax wasn’t important. What is important, as The Phantom suggests, is the LEVEL of taxation not the methodology, and that means the level of SPENDING.
    That said, I’ve argued many times over the years that rates should decline as income rises, as politically impossible as that would be to sell! Kinda like a “volume discount”.
    I cannot envision a flat tax. Too many accountants and tax lawyers are heavily invested in a “progressive” tax system and as complicated as possible, thank you very much. The marginal tax rate is the keystone to much tax planning — shifting income to lower income children and spouses, delaying income until some future point when taxable income is expected to be lower, etc. etc. etc.

  14. I think the concept of a flat tax has been misrepresented.
    It is always considered a political non starter, but I think its because its not explained correctly.
    A flat tax is considered to be everyone paying the same rate, ie 20%.
    A progressive tax is considered to be paying more taxes as you earn more money (doing your “fair share”)
    Both of these definitions are incorrect.
    I would argue a flat tax would be a tax of e.g. 5000.00 per individual per year. Everyone pays the same amount of money and keeps whatever they earn after that. You can’t get much flatter than that.
    A progressive tax would be that you pay more dollars to the government as you earn more dollars.
    In this case an individual earning 20K a year paying a 20% tax would pay 4K in taxes.
    An individual earning 200K per year and paying a 20% tax rate would pay 40K a year. Nothing flat about that tax in terms of the cheque you cut to the government. But that is what is defined as flat tax now. I would say a better definition of this would be a progressive tax. The more you earn the more you are paying.
    The tax rate might be flat but the dollars you pay increase with your income.
    Paying a tax rate that has the rate increase with increases in income should be called an exponential tax, because the taxes you pay increase exponentially with the income you earn.
    The confusion or misdirection on flat and progressive taxes comes with confusing the tax rate with the actual dollars required to be submitted.
    A flat tax rate is actually a progressive tax since the dollars sent to the government increase with income.
    I’d like to see a politician who advocates a flat tax explain it in this way.

  15. we aren’t allowed to make stuff here anymore
    Oh really? What stuff are we not allowed to make here anymore?
    ……
    Hockey sticks. All made in China now. I kid you not.
    ………………
    That does not mean we are not ‘allowed’ to make them, or most anything else. Define what you mean by ‘allowed’.
    What examples do you have of items we are not allowed to make. i.e. manufacture would be against the law, which are supplied by China.

  16. The more important issue than taxation is cutting government spending so that most of the taxes don’t have to be collected in the first place.
    It doesn’t really matter whether you have a flat tax or a mildly progressive one; the real necessity is that the top rate not be too high. (no, I don’t have a definition for “too high”)
    Many of the loopholes should be eliminated, which will enable the tax accountants and lawyers to find more useful specialties (presumably somewhere within their broader occupations).
    For the individual income tax, retain the personal, spousal and children’s deduction and one for charitable donations. Everything else is on the block — notably that for political donations.
    For corporations, many experts argue that their taxes are passed on to their customers anyway, so why bother taxing them? However, some businesses may have different requirements for government services than others.
    I have been thinking that the corporate profits tax should be abolished, and replaced by a low tax on gross income, of the order of 2 to 3 per cent, which would be similar to a sales tax, and which can be calibrated to raise about the same amount of total income. There should be NO deductions or credits or expenditures or any of the that counter-productive garbage. Total sales, $2-million; total taxes, $40,000 to $60,000. In addition, all business-subsidy programs should be scrapped.
    The ONLY incentive to business should be to make a profit through productive enterprise by giving consumers what they want.

  17. NO income tax. What you gather is yours, and you’re taxed on how you spend it.
    Generate tax revenue with duties, tariffs, property taxes and sales taxes.
    Those who consume the most and thus use more of the communal infrastructure will pay more in taxes to maintain it.

  18. As is my wont, I shall try to inject some numerical analysis into the debate.
    The top 10% of US wage earners make 50% of all the earned income in the US. THERE IS NO FLAT TAX NUMBER that will extract an equivalent amount of tax revenue from this group, assuming there is some reasonable cut-off number under which you pay no tax (they pay more than 40% of all income tax collected in the US). Again, as I noted a few weeks ago, the top 50% of wage earners pay 96% of the income tax; the bottom 50% pay about 4%. 75% of Americans make $50k a year or less; give an exemption on the first $20k, and then tell me how much you’re going to tax the next $30k. 33%? That’s a huge tax increase for most people, and yet, since the richest 5% pay over 38% of all tax revenue, it’s actually a reduction for them, and lower tax revenue overall. 40%? You’re going to tell a family making $50k that they have to pay $12,000 a year in income tax (never mind Social Security deductions). You think the Tea Party is foaming at the month now, this would push them over the edge.
    You can talk about tax avoidance and tax evasion all you want (and cal2: 30% of GDP is accounting?! Pass the bong, buddy), but the reality is the rich do pay their share, and more. It makes me want to puke when Bambam goes on TV, and says the rich have to make sacrifices, as if they’re getting a free ride today.
    I’ve been quoting from JM Keynes’ A Tract on Monetary Reform over the last few weeks. His solution? A “capital levy” – in this case, a tax on the value of individual’s capital. His thesis was when the rentier class corners a disproportionate share of national income, it’s important to balance the scales, and tax not only their income but their share of national wealth.
    This fits in with what I learned from my (decidedly non-Marxist) economics professor as an undergrad. He liked me, and invited me to the faculty lounge to talk about eco topics after classes. His specialty was applying game theory to economic situations. His research indicated that, in any type of pure capitalist society, the game was loaded in favour of those who had money to start, and that eventually, they ended up with all the money. When I naively asked what happened them, he grinned and said “Forcible redistribution”, which is roughly the same conclusion Keynes came to 50 years earlier.
    The flat tax is a chimera, an illusion, a fraud. It will never produce enough revenue to balance the budget. (That said, am I in favour of fewer bands, fewer deductions, and a streamlined tax code? Yes.) So, the question becomes: do we want a violent redistribution, or a relatively peaceful one? The argument against a capital levy is roughly the same as the argument against capital gains tax: you’ve already paid tax on the money once, why do you have to pay it again? But we seem to accept capital gains taxes without much complaint, so why wouldn’t we accept a capital levy at the same time?

  19. I recall a fella, Steve Forbes, if I remember running as an independent for Potus…ran on this Flat Tax idea.
    Forbes was wealthy enough to largely finance his own campaign.
    The IRS bureaucracy, and the tax industry(lawyers and accountants) deployed their capital to destroy him as a lunetic.
    I can’t remember whether it was Cicero or Cincinatus, in Roman times ,who decreeded that democracy would only last until the public, at large, learned they could vote themselves a livelyhood from the treasury…..
    Although I consider myself slightly to the right of Attilla the Hun, I cannot believe that some senior snivel servants and Corporate CEO’s with no capital investment are worth some of these 6 figure salaries….especially the snivel servants.

  20. Kate is exactly right. The progressive tax system will bring down the world economy (not like the blip of 2008) if is not stopped. What happens when nearly 50% of US “taxpayers” pay no tax? … Obama happens, socialism comes next.
    “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
    — Alexis de Tocqueville (Democracy in America)
    Tocqueville’s day is here. Will the American public fight for and win back their country?

  21. What I think we need is to merge the tax system of the country together with the means by which politicians are elected. A persons fractional vote will be a linear function of how much tax they’ve paid on their last tax return. So, for the 50% of people who get income entirely from the government and pay now taxes get no votes. Someone who pays $50,000 in taxes gets one vote and the weighting of the votes increases from there. Such a system would give individuals who are highly taxed a greater say in how their tax revenue was used. If a person on welfare wanted to have a vote that counted, they could get off their butt, start working and have an increased say in government that would be possible once they were paying taxes.
    A system like this would prevent people from voting themselves government subsidies. Given that we have a depraved electorate incapable of understanding financial reality, some new voting system where a person’s vote is a function of the value they provide to society will be needed if democracy is to survive. There are obvious bugs in this system such as the very rich being able to vote for people who would increase their wealth and this could be balanced out with another legislative body where one person one vote counts, but these legislators would have no ability to spend money.
    Originally when I saw this post I thought it meant a tax rate where the rates were highest on the low wage earners and went down from there. This would be a very potent stimulus to get people to work harder, get more money and keep more of it. One of the things that exacerbated doctor shortages is that many doctors, when they do the financial calculations, find that they might as well not work very hard as anything over a certain amount gets eaten up by taxes. There’s a lot to be said for having a bit less money but the ability to enjoy life rather than working ones ass off with most of the money one earns stolen as taxes by the ruling kleptocracy.

  22. Originally when I saw this post I thought it meant a tax rate where the rates were highest on the low wage earners and went down from there. This would be a very potent stimulus to get people to work harder, get more money and keep more of it.
    That’s exactly what this post means. Use the tax system as incentive to make more money – not less. Everything else will take care of itself after that.

  23. @ Kate: those of us in the higher income brackets from time to time do think to ourselves: what’s the point of working that extra bit more if the government is taking 60% of it. So we go do something else. It does happen. If they raise marginal tax rates on the wealthier even more there will be a shift towards more leisure and less output. So if we consider your argument of lowering the tax rates at certain levels, I can tell you for sure I’d work more… and so would others.
    @ loki: I agree. However I am in favor of a flat tax as it is the most morally correct income tax.

  24. I’m inclined to agree that the poor should pay a higher tax rate, since in a country with any degree of socialism, they benefit disproportionately from government services.
    A flat tax would be a pretty close approach to that ideal, though, and might be an easier sell. Who wants to sell a “regressive” tax system? Step right up!
    A flat tax on income, of maybe 10 – 15% (with a statutory cap!), combined with a consumption tax like the GST, would seem to me to be the fairest system we could hope for. I like consumption taxes, because the more lavishly you live, the more you pay.
    I also like Loki’s idea about tying the franchise to tax contributions. Again, I doubt that you could ever manage to DIS-enfranchise non-taxpayers, short of a revolution. It would be political suicide to propose it. But maybe what you could do is award “bonus” votes to individuals who have been net contributors to the economy, based on a 5-year rolling average of federal tax paid. Say one bonus vote for 10,000 to 50,000 dollars tax paid, two for 50 to 100 grand, and 3 for more than 100,000. Limit it to three. That way, any union worker would get at least one bonus vote, so the unions would likely buy into it.
    Carefully crafted, such a scheme could drive a wedge between the union wing and the welfare wing of the Dippers.

  25. The Americans had a revolution where one of the slogans was “no taxation without representation”. There are so few people paying tax (income tax at least) that we are now in a situation where we have representation without taxation. I would propose a system that you have to pay x amount of tax before you can vote. Net takers should note be able to vote.

  26. A flat tax is the way to go but a system designed by accountants, run by accountants and is their income base will dig their heels in very deep in resistance to change. It must be done.
    Same as the justice system. Justice will only be served when the lawyers are removed from the control. It’s not a justice system at all, but a legal system, designed by lawyers, and run for lawyers. Justice is not even on their radar.

  27. Kill income taxing, 8% NST, fire the Fed and have the US Mint issue value backed hard currency.

  28. North of 60 said: “That does not mean we are not ‘allowed’ to make them, or most anything else. Define what you mean by ‘allowed’. What examples do you have of items we are not allowed to make. i.e. manufacture would be against the law, which are supplied by China.”
    Hockey sticks. The way they are manufactured in China wouldn’t satisfy a billion regulations in Canada.
    Dude, do you know why all Blackberries and iPhones are made in China, a situation that allows IP thieves to have knock-offs on the Asian market before the real product hits the shelf? Because a Blackberry made in Canada would cost $2000 or more. That’s why. And here’s a hint, the major reason for that is -not- labour cost.
    Its designed here, its prototyped here, its sold here, but it isn’t MADE here because no amount of money could get RIM the permits to build the factory in Canada. Insurance and legal alone would probably sink them.

  29. I’m opposed to a flat tax, because I think large-breasted women should pay taxes too.

  30. Glad to hear others mention a “Regressive” tax system. One I have been advocating for years. I’ve never heard anyone mention it before, although as mentioned I can understand why…it would never sell. The more you make the less you should pay in taxes (as a rate). This would encourage people to make more money and work more rather than discourage…besides…someone that has paid taxes on the first $100,000 of his income has already paid more in taxes than most other people have. Furthermore, people in the upper pay scale tend to be creators of jobs, etc anyway. By the time you get to $250,000 or more…I see no reason why you should be paying any taxes at all…you’ve already paid more than your fair share. Any shortfalls in gov’t revenue resulting from the reduction in tax income to the gov’t could be made up by cutting gov’t services…(or eliminating them). I see no reason why 10% of the income of the nation should more than easily pay for NECESSARY gov’t functions.
    Time for the parasites to get some skin in the game.

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