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Subject: My new thought on the tax rate rss

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Junior McSpiffy
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Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.
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Steven Woodcock
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GameCrossing wrote:
Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.



Anything that gets rid of the IRS is a plus by me.

Heck, I don't care if everybody flips a coin or rolls dice or draws cards or whatever...just as long as the IRS is gone.



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Wendell
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Agree very much with the idea of getting rid of as many exemptions as possible. Very difficult to do politically, but a good idea.

Flat tax is in my view a poor idea. Actually, your suggestion of sending 'prebate checks' would mean it's not really a flat tax, so you seem to recognize that as well.

The third point - in a way that happens already; as incomes rise, income taxes rise and so do many other taxes*. Do you mean a floating marginal tax rate that rises and falls? The idea of counter-cyclical fiscal policy (raise more revenue in good times/collect less in bad times - but not raising/slashing spending in the same way, which would be pro-cyclical not counter-) has a lot to recommend it.

*edit: I mean the amount collected rise because the overall pot is bigger, not that tax levels rise
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Trey Chambers
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Even among Republicans, very few candidates support a flat tax because it's insanity.

It sounds good out loud "everyone pays the same rate!" but it's ridiculous in practice and disproportionately hurts the poor and middle classes.
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Jorge Montero
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Here's the first thing with tax change proposals: Just like healthcare proposals, you can't wave a magic wand and move to a completely different tax system without breaking a lot of eggs. For instance, what happens to people's home values when your tax proposal comes in? They drop like rocks, because a variety of special tax situations apply to homes, all of which make it easier to want to buy a house.

One of them also hits your idea of 'you earn it, you are taxed on it': In general terms, profit when selling a home is not taxed until $250K. Does your plan mean that I am taxed for every dollar I get when I sell the house? If so, and I can't consider my earlier payments a tax deduction, selling a house would be awful. If instead I decide that no, selling my house doesn't get taxed, then we wonder if suddenly selling houses is the thing to do to avoid taxes, if we just say that all capital gains aren't income, or we have special rules for just primary residences, which becomes your first loophole.

We also have to consider how the changes in personal taxes have to do with corporate taxes: Can I become a corporation and get a very different tax system to apply to most of my income? If I can't, either corporations are very unhappy, or people that can claim their income goes to a corporation dodge a lot of taxes. It's great either way.

OK, enough with your first point, let's talk about flat taxes. Deciding who gets taxed is a separate decision from deciding what's our target total tax rate: I can lower taxes on everyone with a very progressive system, or raise taxes overall by giving people a 70% flat tax. So when we consider who gets taxed, there's one main question worth having: Who is going to pay less taxes, and who is going to pay more? Because in case of a flat tax, there's going to be huge changes for people, despite accounting for prebate checks. If we are revenue neutral vs the situation today, the people that get shafted are those that are those over the prebate, but not by very much, who were able to claim a lot of deductions before: Middle class families with mortgages and children. Who wins? Probably families like mine, between the 5% and the 0.01%, which are out of range of many deductions, but who don't make quite the money to become corporations in the current system. Lawyers, doctors and top IT people. Why in the world does the world want us to pay less taxes?

On your third point, you describe a taxation system that hits harder when the things are good, and softens up when they are not. You have your heart in the right place, but it opens plenty of cans of worms. First, it's a gigantic target for people who have the capability of deciding when they their income. Second, it causes entertaining situations for the federal budget, as you'd have to convince congress to not act in a way that is procyclical. It's very easy for congress to then spend when they have the money (and they'd sooo spend), and then either have huge deficit spending during recession or cut government expenses, which depresses the economy further, making the whole bigger.

That said, wanting stability in the business cycle is a great idea, but why use taxes instead of the Fed? Do trend NGDP targetting. When NGDP goes up, the fed tries to cool the economy. When it does down, it injects money in until the NGDP long term trend matches. This is very different from what the fed does now with inflation because, in practice, the fed is terrified of going over the inflation target, so it's not a long term target but an upper bound. By following the trend, and not looking at just quarterly numbers, we could all have more confidence when making long term predictions: If NGDP is targetted at, say, 4% anually, and we have an awful recession where this year we have a 2% shrink, then the Fed wouldn't just want to get 4% this year, but want to aim for 6%. So in the long horizon, recessions wouldn't matter as far as the whole of the economy goes.
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Flat tax would be great if the range of tax payers were flat, but it is not like that. The range goes from 0 dollars an hour to six million dollars an hour. Given this fact, taxation has to be progressive otherwise it is not fair.

Tying the rate to a legitimate variable sounds like a good idea, as long as the variable remains legit. I mean, no one would try to game the GDP figures for personal gain, right?
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Steve
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Like somebody said, "When you start talking about tax policy you have to get into the 'weeds' to start having a meaningful discussion."

Your 1st idea I assume would let self-employed people deduct the costs of their business. And now that Corps. are people too [Romney said so], are they going to be taxed at the same rate. It looked like you want to tax capital gains at the same rate. What about income earned overseas? Should Exxon be allowed to deduce the taxes it pays in nations where it extracts its oil? Etc. Etc. *

Your 2nd idea needs to specify who gets a check [or now an addition to a bank account or to a debit card they have]. Especially do children get it? Do parents get one for each child? What does this do the Soc. Sec.? Does it replace S.S. [at least partly]? Etc.

Your 3rd idea is the opposite of what the EU demands of its members. In a down turn when tax revenues fall because incomes fall the EU demands that spending be cut and/or taxes raised. Now, I agree it is what should be done but most economists disagree.
. . I have said that MMT says that the US should never run a surplus except in an exceptional situation. So, the tax rate should not be enough to run a surplus. Cutting the rate as GDP falls sounds good. your goal and the reason for it also sound good.

Problems -- 1] Do you mean GDP / capita or raw GDP?
2] GDP/capita in the US seems good until you remember that one man earning $1T in the US would skew the average, so it really wouldn't be a good measure of how well the nation is doing.

. * . I have suggested that there be an Amendment that limits the income tax system to just 5 deductions, 1 being business expenses. Another might be mortgage interest on 1 house. Others? Child care? For a child in general? Etc.
 
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Junior McSpiffy
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wifwendell wrote:
Agree very much with the idea of getting rid of as many exemptions as possible. Very difficult to do politically, but a good idea.

Flat tax is in my view a poor idea. Actually, your suggestion of sending 'prebate checks' would mean it's not really a flat tax, so you seem to recognize that as well.

The third point - in a way that happens already; as incomes rise, income taxes rise and so do many other taxes. Do you mean a floating marginal tax rate that rises and falls? The idea of counter-cyclical fiscal policy (raise more revenue in good times/collect less in bad times - but not raising/slashing spending in the same way, which would be pro-cyclical not counter-) has a lot to recommend it.


A flat tax is very rigged against those living paycheck to paycheck. I honestly think a flat tax would be the best thing, but it has to be acknowledged that those who are in or near poverty would need some help dealing with that. My other thought which is akin to this would be to scrap income tax and go to a national sales tax where basic items such as food, housing, fuel and low-to-medium quality clothing are exempted or taxed at a lower rate.

As to the third point, I do mean to have a floating marginal rate which is pinned to GDP. Let the strength of our economy dictate what it can bear. By combining the floating rate with the natural increase/decline based on economic cycles, it would double down on the effect of tax rates helping regulate the boom/bust cycles and keeping our growth as smooth as possible. Fewer spikes, fewer valleys, better for the middle class.
 
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Oliver Dienz
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GameCrossing wrote:

As to the third point, I do mean to have a floating marginal rate which is pinned to GDP. Let the strength of our economy dictate what it can bear. By combining the floating rate with the natural increase/decline based on economic cycles, it would double down on the effect of tax rates helping regulate the boom/bust cycles and keeping our growth as smooth as possible. Fewer spikes, fewer valleys, better for the middle class.


So would the government be able to run a deficit in times of low growth or does it have to be budget-neutral?
 
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Walking on eggshells is not my style
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GDP does not reflect individual sectors of the economy that may or may not be doing well.

I further reject the premise of relying on a political body to determine the GDP. Definitions will get tinkered with in unforeseen ways, as will the methodology.

A flat tax in and of itself will self adjust revenue received by the government based upon the GDP.
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Walking on eggshells is not my style
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Dude, a flat tax with a $20k exemption, for example, should accomplish what you desire.
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Mac Mcleod
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GameCrossing wrote:
Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.


Many exemptions are legitimate business expenses.

For example- a luxury limo rental company or rental limo driving service can legitimately write off limo's as a business expense. Wrecker's can write off really awesome trucks as a business expense.

Taking a client to lunch is a recognized business expense that also gets abused.

Office space is a legitimate business expense. But what about setting aside 100% of a room of your house to store inventory?

Taxes are simple for 80% (or more) of citizens. Taxes that are complicated are complicated because they really are complicated. And some abusive stuff gets snuck in to the tax code every session of congress. And that process won't stop just because you reboot the tax code.

Resetting taxes would also probably cause a pretty severe financial and stock market panic. Taxes are complicated with a lot of moving parts.

Heck, simply killing the property tax exemption would raise rents, raise housing costs, lower housing prices, probably crush home construction.

Again.. many people already essentially have a flat tax. About 50% of americans. Even as complicated as my taxes are, I knock them out in 2 hours. If you work for salary, don't do a lot of stock or real estate taxes and don't run your own business, then your taxes are simple.

If you do a lot of stock transactions- your taxes are going to be complex. If you run a business- your taxes are going to be very complex. If you are incorporated, your taxes will be even more complex (and frequently lower if subchapter S).

And the highest earning people will be paying and applying pressure to modify the tax code the most and funding the most lobbies.
----

You could get a progressive flat tax for most people by simply giving them a large fixed deduction ($30,000) and taxing them 30% of every dollar they earned above $30,000.

So they'd pay 30 cents tax on $30,001 and about $290,000 on a million dollars income.

But people with the highest incomes can also control WHEN they take their taxes. About 3% of the top 1% flip back and forth between very low (even negative) income and very high income.
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Junior McSpiffy
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hibikir wrote:
Here's the first thing with tax change proposals: Just like healthcare proposals, you can't wave a magic wand and move to a completely different tax system without breaking a lot of eggs. For instance, what happens to people's home values when your tax proposal comes in? They drop like rocks, because a variety of special tax situations apply to homes, all of which make it easier to want to buy a house.

One of them also hits your idea of 'you earn it, you are taxed on it': In general terms, profit when selling a home is not taxed until $250K. Does your plan mean that I am taxed for every dollar I get when I sell the house? If so, and I can't consider my earlier payments a tax deduction, selling a house would be awful. If instead I decide that no, selling my house doesn't get taxed, then we wonder if suddenly selling houses is the thing to do to avoid taxes, if we just say that all capital gains aren't income, or we have special rules for just primary residences, which becomes your first loophole.

We also have to consider how the changes in personal taxes have to do with corporate taxes: Can I become a corporation and get a very different tax system to apply to most of my income? If I can't, either corporations are very unhappy, or people that can claim their income goes to a corporation dodge a lot of taxes. It's great either way.

OK, enough with your first point, let's talk about flat taxes. Deciding who gets taxed is a separate decision from deciding what's our target total tax rate: I can lower taxes on everyone with a very progressive system, or raise taxes overall by giving people a 70% flat tax. So when we consider who gets taxed, there's one main question worth having: Who is going to pay less taxes, and who is going to pay more? Because in case of a flat tax, there's going to be huge changes for people, despite accounting for prebate checks. If we are revenue neutral vs the situation today, the people that get shafted are those that are those over the prebate, but not by very much, who were able to claim a lot of deductions before: Middle class families with mortgages and children. Who wins? Probably families like mine, between the 5% and the 0.01%, which are out of range of many deductions, but who don't make quite the money to become corporations in the current system. Lawyers, doctors and top IT people. Why in the world does the world want us to pay less taxes?

On your third point, you describe a taxation system that hits harder when the things are good, and softens up when they are not. You have your heart in the right place, but it opens plenty of cans of worms. First, it's a gigantic target for people who have the capability of deciding when they their income. Second, it causes entertaining situations for the federal budget, as you'd have to convince congress to not act in a way that is procyclical. It's very easy for congress to then spend when they have the money (and they'd sooo spend), and then either have huge deficit spending during recession or cut government expenses, which depresses the economy further, making the whole bigger.

That said, wanting stability in the business cycle is a great idea, but why use taxes instead of the Fed? Do trend NGDP targetting. When NGDP goes up, the fed tries to cool the economy. When it does down, it injects money in until the NGDP long term trend matches. This is very different from what the fed does now with inflation because, in practice, the fed is terrified of going over the inflation target, so it's not a long term target but an upper bound. By following the trend, and not looking at just quarterly numbers, we could all have more confidence when making long term predictions: If NGDP is targetted at, say, 4% anually, and we have an awful recession where this year we have a 2% shrink, then the Fed wouldn't just want to get 4% this year, but want to aim for 6%. So in the long horizon, recessions wouldn't matter as far as the whole of the economy goes.


Breaking eggs: Yes, eggs will be broken. It happened once before some 20+ years ago when Bill Clinton initiated tax reform, it would happen again. There are admittedly tons of details with that, but that wasn't the main thrust of what I had been thinking of so I will acknowledge that there are lots of "What if"s related to that and move on from there.

You are right that there would be winners and losers in any change to the tax system. But there are winners and losers in the tax system today. Allowing ourselves to be paralyzed by who wins and who loses rather than what works or what doesn't gets us nowhere. But again, the third point was the one I was most curious about, so I will concede that a flat tax or a variation thereof would be difficult to enact and there would be a shakeup in the who-does-well-and-who-doesn't hierarchy of taxation. Taxation will ALWAYS be hard on the poor, but is there a way to enact a flat tax that helps mitigate that pain?

The third part was the meat of my thoughts and appreciate your insights on this. The wealthy... they will always be able to game the system. So those who control when they declare income or don't, that's just another hitch in the system. If it isn't that, it's something else. The wealthy will ALWAYS have the tools at their disposal to get around things.

We run deficits now based on our spending. That "spend all the cash we have when we have it and then bitch and moan that we don't have enough when times are lean," it's what we already do. So it doesn't create a new problem. It just shines a spotlight on needing to have our government save for a rainy day.

The Fed... that is a problem for me. The Fed is a non-elected bureaucrat. Confirmed, but not elected. And they serve largely at the pleasure of the president. So we have had huge periods of time of prolonging bubbles and such in search of a soft spot to land. It drags out recessions and slows recoveries because manipulating the currency is something that is being done by a person who can set policy without consultation. True, their job depends on it turning out well, but that's not a great comfort when there really is no accountability outside of "Did it work?"

Again, this is just my initial impression and working off minimal sleep at the moment, but this is why I threw this out there. I knew there'd be holes so having people to help me talk through them is helpful for me.
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Bojan Ramadanovic
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hibikir wrote:
Here's the first thing with tax change proposals: Just like healthcare proposals, you can't wave a magic wand and move to a completely different tax system without breaking a lot of eggs. For instance, what happens to people's home values when your tax proposal comes in? They drop like rocks, because a variety of special tax situations apply to homes, all of which make it easier to want to buy a house.

One of them also hits your idea of 'you earn it, you are taxed on it': In general terms, profit when selling a home is not taxed until $250K. Does your plan mean that I am taxed for every dollar I get when I sell the house? If so, and I can't consider my earlier payments a tax deduction, selling a house would be awful. If instead I decide that no, selling my house doesn't get taxed, then we wonder if suddenly selling houses is the thing to do to avoid taxes, if we just say that all capital gains aren't income, or we have special rules for just primary residences, which becomes your first loophole.

We also have to consider how the changes in personal taxes have to do with corporate taxes: Can I become a corporation and get a very different tax system to apply to most of my income? If I can't, either corporations are very unhappy, or people that can claim their income goes to a corporation dodge a lot of taxes. It's great either way.

OK, enough with your first point, let's talk about flat taxes. Deciding who gets taxed is a separate decision from deciding what's our target total tax rate: I can lower taxes on everyone with a very progressive system, or raise taxes overall by giving people a 70% flat tax. So when we consider who gets taxed, there's one main question worth having: Who is going to pay less taxes, and who is going to pay more? Because in case of a flat tax, there's going to be huge changes for people, despite accounting for prebate checks. If we are revenue neutral vs the situation today, the people that get shafted are those that are those over the prebate, but not by very much, who were able to claim a lot of deductions before: Middle class families with mortgages and children. Who wins? Probably families like mine, between the 5% and the 0.01%, which are out of range of many deductions, but who don't make quite the money to become corporations in the current system. Lawyers, doctors and top IT people. Why in the world does the world want us to pay less taxes?

On your third point, you describe a taxation system that hits harder when the things are good, and softens up when they are not. You have your heart in the right place, but it opens plenty of cans of worms. First, it's a gigantic target for people who have the capability of deciding when they their income. Second, it causes entertaining situations for the federal budget, as you'd have to convince congress to not act in a way that is procyclical. It's very easy for congress to then spend when they have the money (and they'd sooo spend), and then either have huge deficit spending during recession or cut government expenses, which depresses the economy further, making the whole bigger.

That said, wanting stability in the business cycle is a great idea, but why use taxes instead of the Fed? Do trend NGDP targetting. When NGDP goes up, the fed tries to cool the economy. When it does down, it injects money in until the NGDP long term trend matches. This is very different from what the fed does now with inflation because, in practice, the fed is terrified of going over the inflation target, so it's not a long term target but an upper bound. By following the trend, and not looking at just quarterly numbers, we could all have more confidence when making long term predictions: If NGDP is targetted at, say, 4% anually, and we have an awful recession where this year we have a 2% shrink, then the Fed wouldn't just want to get 4% this year, but want to aim for 6%. So in the long horizon, recessions wouldn't matter as far as the whole of the economy goes.


I don't like the GDP business - too easy to game - but I am on the record for supporting the flat tax with substantial (refundable) tax credit to ensure progresivity.

I am just piping up to say that having done the numbers (for Canada at least) you are wrong in terms of impact on the top quintile of the society by earnings.

My model has flat rate of 46% and basic income/refundable tax credit of $12,000. It has no corporate tax but taxes all capital gains (including on housing) at same rate as any other income. $12,000 also replaces bunch of direct entitlements and practically all tax credits.
This would be sufficient to replace current income of the combined Federal and Provincial revenue from Income, Sales and Corporate taxes in Canada.

Under this system - top quintile (which is mostly folks like what you describe; top end professionals etc...) pay 8% more then they currently do (current taxes estimated from StatsCan etc). 4th quintile pays 7% more. Middle quintile gets hit quite a bit because they are currently beneficiaries of a bunch of tax breaks and entitlements but even they do not suffer grievously - about 10% more tax then presently. 2nd quintile is essentially neutral (a bit better off if they have kids, a bit worse if they do not) lowest quintile makes it like bandits as the system effectively abolishes poverty.

Essentially, everybody who actually makes money ends up paying a bit more - in real terms rich pay the most while poor benefit disproportionately.



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Mac Mcleod
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bramadan wrote:
hibikir wrote:
Here's the first thing with tax change proposals: Just like healthcare proposals, you can't wave a magic wand and move to a completely different tax system without breaking a lot of eggs. For instance, what happens to people's home values when your tax proposal comes in? They drop like rocks, because a variety of special tax situations apply to homes, all of which make it easier to want to buy a house.

One of them also hits your idea of 'you earn it, you are taxed on it': In general terms, profit when selling a home is not taxed until $250K. Does your plan mean that I am taxed for every dollar I get when I sell the house? If so, and I can't consider my earlier payments a tax deduction, selling a house would be awful. If instead I decide that no, selling my house doesn't get taxed, then we wonder if suddenly selling houses is the thing to do to avoid taxes, if we just say that all capital gains aren't income, or we have special rules for just primary residences, which becomes your first loophole.

We also have to consider how the changes in personal taxes have to do with corporate taxes: Can I become a corporation and get a very different tax system to apply to most of my income? If I can't, either corporations are very unhappy, or people that can claim their income goes to a corporation dodge a lot of taxes. It's great either way.

OK, enough with your first point, let's talk about flat taxes. Deciding who gets taxed is a separate decision from deciding what's our target total tax rate: I can lower taxes on everyone with a very progressive system, or raise taxes overall by giving people a 70% flat tax. So when we consider who gets taxed, there's one main question worth having: Who is going to pay less taxes, and who is going to pay more? Because in case of a flat tax, there's going to be huge changes for people, despite accounting for prebate checks. If we are revenue neutral vs the situation today, the people that get shafted are those that are those over the prebate, but not by very much, who were able to claim a lot of deductions before: Middle class families with mortgages and children. Who wins? Probably families like mine, between the 5% and the 0.01%, which are out of range of many deductions, but who don't make quite the money to become corporations in the current system. Lawyers, doctors and top IT people. Why in the world does the world want us to pay less taxes?

On your third point, you describe a taxation system that hits harder when the things are good, and softens up when they are not. You have your heart in the right place, but it opens plenty of cans of worms. First, it's a gigantic target for people who have the capability of deciding when they their income. Second, it causes entertaining situations for the federal budget, as you'd have to convince congress to not act in a way that is procyclical. It's very easy for congress to then spend when they have the money (and they'd sooo spend), and then either have huge deficit spending during recession or cut government expenses, which depresses the economy further, making the whole bigger.

That said, wanting stability in the business cycle is a great idea, but why use taxes instead of the Fed? Do trend NGDP targetting. When NGDP goes up, the fed tries to cool the economy. When it does down, it injects money in until the NGDP long term trend matches. This is very different from what the fed does now with inflation because, in practice, the fed is terrified of going over the inflation target, so it's not a long term target but an upper bound. By following the trend, and not looking at just quarterly numbers, we could all have more confidence when making long term predictions: If NGDP is targetted at, say, 4% anually, and we have an awful recession where this year we have a 2% shrink, then the Fed wouldn't just want to get 4% this year, but want to aim for 6%. So in the long horizon, recessions wouldn't matter as far as the whole of the economy goes.


I don't like the GDP business - too easy to game - but I am on the record for supporting the flat tax with substantial (refundable) tax credit to ensure progresivity.

I am just piping up to say that having done the numbers (for Canada at least) you are wrong in terms of impact on the top quintile of the society by earnings.

My model has flat rate of 46% and basic income/refundable tax credit of $12,000. It has no corporate tax but taxes all capital gains (including on housing) at same rate as any other income. $12,000 also replaces bunch of direct entitlements and practically all tax credits.
This would be sufficient to replace current income of the combined Federal and Provincial revenue from Income, Sales and Corporate taxes in Canada.

Under this system - top quintile (which is mostly folks like what you describe; top end professionals etc...) pay 8% more then they currently do (current taxes estimated from StatsCan etc). 4th quintile pays 7% more. Middle quintile gets hit quite a bit because they are currently beneficiaries of a bunch of tax breaks and entitlements but even they do not suffer grievously - about 10% more tax then presently. 2nd quintile is essentially neutral (a bit better off if they have kids, a bit worse if they do not) lowest quintile makes it like bandits as the system effectively abolishes poverty.

Essentially, everybody who actually makes money ends up paying a bit more - in real terms rich pay the most while poor benefit disproportionately.





If you have a bulge in the population, you end up with lots of citizens who are earning no money (drawing down from savings). How do you pay the bills?

Do you tax cap gains when realized or along the way? Assuming you allow cap losses to offset cap gains?
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i would rather go for a flat income instead of a flat tax rate.

ie each person receiving a steady income (pro rata in regards to their participation/skills in society/economy) and paid by the state.

it would bring all people closer to a good median quality of life instead of the very low-very high or in-between scale that we can observe today.

basic needs should be free in this system (everything you need to live/work) while your income is only used for luxury/entertainment/cultural purposes.

rich people would likely still be rich but on a more reasonable level and based on their personal skill rather than any other criteria, while a poor person would definitely be due to his own mistakes (crime, lack of social or economical commitment).

each person would receive a rating, that increases as their skills/participation increases, and lowers due to crime or lack of commitment.
it should lead to less crime (at least for economic reasons) and be directly linked to each person's choices in life ie your actions have a direct impact on your income and will likely help people to focus on a better development of oneself.

society would thus be less based on egoistical tendencies and concentrate more on overal solutions for society that profit for everyone.
the highs and lows of the economy are directly related to the irrational/egoistical behaviour of company directors and shareholders who decide in function of profit instead of for its impact on society, creating a more steady society.

it would also help for people to work towards the same goals ie if society goes well => you go well => society goes well etc. instead of everyone just caring about their individual situation.

given such a system will likely see fewer actual transactions (ie there is less need to track an individual's expenses) there will be less administration which will help to save costs and free manhours for other applications/perhaps even more time off).

product quality would also increase, as you would have the freedom to go for more quality which may in itself cost more but in the long run costs less since products last much longer.
for example instead of having to buy a new mobile every 2 years, you are more likely to keep the same one for 10 years and thus use less production/chemicals that could adversely affect the environment.
also coupled with a higher increase in standardisation making similar products/their parts much more compatible.

in turn, this will also reduce the need for consumerism ie companies nowadays build upon the people's hype for new products but most "new" products generally differ very little from previous versions, definitely in their basic function.

it would also lessen the evaluation of benefit/loss of a single job, allowing for needed jobs to be done even though economically they might not be profitable but do increase the intrinsic value of society (for example, cleaning/recycling garbage is often not very profitable but a necessity for society).
another example, a songwriter that writes a song in a few days/weeks but gets a huge income due to it being sold to millions of people, that income doesnt reflect the actual effort needed to write the song and often leads to excesses of the worst kind.

such a system would definitely bring the economy/society more in line with humane life expectancies and focus on whats really important in life.
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GameCrossing wrote:
The Fed... that is a problem for me. The Fed is a non-elected bureaucrat. Confirmed, but not elected. And they serve largely at the pleasure of the president. So we have had huge periods of time of prolonging bubbles and such in search of a soft spot to land. It drags out recessions and slows recoveries because manipulating the currency is something that is being done by a person who can set policy without consultation. True, their job depends on it turning out well, but that's not a great comfort when there really is no accountability outside of "Did it work?"
The Fed will tell you they must exist "outside of politics" or else you would get a partisan central bank. They like to maintain a halo of existence as cold, neutral, policy-wonk economists who should not be exposed to the political whims of whoever is in office at the time.

And as for tax discussions, I will simply bring up the obvious:
We expect the same political body (Congress) that created & implemented every one of those tax loopholes to be the ones to untangle the tax mess. It's kind of like expecting the 300 lb. gorilla that just beat the fuck out of you to please administer CPR on your lifeless corpse.
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Economies is based on relative scarcities. Even if you give everyone identical resources, relative differences will arise and economics will adjust to reflect those differences. If everyone has equal income, then it won't be income on which economics is decided.
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whac3 wrote:
Economies is based on relative scarcities. Even if you give everyone identical resources, relative differences will arise and economics will adjust to reflect those differences. If everyone has equal income, then it won't be income on which economics is decided.


income shouldnt decide economics, thats the point as such an economy sends you down the path of egoistical decisions.

relative differences will be covered by the state, say a man is living in the mountains and wants access to purified water, it will cost more in infrastructure to bring it to him but he basically has the same benefit as a person living in the center of a city so it would be strictly unfair to charge him more for it.
as long as the state can and will bear the cost it should be possible.
of course, you shouldnt just let anyone live anywhere, even in remote areas but that is a common choice to be made in relation to what resources are available/sustainable.

it gives people a more open choice instead of being forced into a bad situation.

say, the difference between buying a house in the center of the city or the outskirts, an equal price would ensure a more spread out use of the available terrain.
now, companies and people want to be as close to the center as possible causing lots of traffic jams, increasing car pollution unnecessarily and travel time needed.

black market principles are definitely wrong, ie charge 2000% of a product's real price just because its scarce and people have no other choice, this dehumanizes the economy.
the seller didnt have to put more effort in producing it compared to if it wasnt scarce.
 
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Ferretman wrote:
GameCrossing wrote:
Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.



Anything that gets rid of the IRS is a plus by me.

Heck, I don't care if everybody flips a coin or rolls dice or draws cards or whatever...just as long as the IRS is gone.



Ferret


Nothing he said would obviate the IRS.
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GameCrossing wrote:

As to the third point, I do mean to have a floating marginal rate which is pinned to GDP. Let the strength of our economy dictate what it can bear. By combining the floating rate with the natural increase/decline based on economic cycles, it would double down on the effect of tax rates helping regulate the boom/bust cycles and keeping our growth as smooth as possible. Fewer spikes, fewer valleys, better for the middle class.


You do realise that having progressive rate on taxation acts as a counter-cyclic mechanism, right? And that a flat-tax would not, right?
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Are we talking a prebate of the poverty line * 1.8? I believe that's what they use for some other levels.

I suppose I could get behind that, although I'd rather see the limit set around, say, whatever minimum wage is.

Although I'd rather we just had UBI so we didn't need minimum wage. Then you could simply tax all income.

Or just do VAT. Whatever.

I'm also fine with a logarithmic function that determines your percentage based on your income. (E.g., X + log(Y), where X is the poverty line times a multiple such as 1.8, and Y is a function that sets a cutoff value.)

I don't think it matters that much if people understand the math directly, per se, as long as they can plug one number into a calculator and get their tax rate and amount of tax owed on said income while ignoring all loopholes.

Honestly, just about any method would beat our current special interest riddled system.
 
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GameCrossing wrote:

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.


Government spending is part of GDP.

GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).

Y = C + I + G + (X − M) [from https://en.wikipedia.org/wiki/Gross_domestic_product]

So basically if the government spends more, they can just tax more?
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GameCrossing wrote:
Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.

have you considered doing away with money altogether~
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single sentences wrote:
GameCrossing wrote:
Okay, so I haven't seen this anywhere, so this is just me off the top of my head. Doesn't mean it hasn't been put out there before, just that I haven't seen it. So I'm doing my thing of throwing this out to be shown by others just how bad my idea is.

So first off... hit the reset button on exemptions and loopholes. We go back to the stone age on it. If you earn it, you are taxed on it.

Second, we go flat tax. We send out prebate checks on a monthly basis to those who qualify so it doesn't get to be a hardship on those who are most dependent on their monthly income for sheer survival.

Third... and this is the idea I have just come up with that I really want to have dissected... tie the taxation rate to the GDP. When the GDP goes up and the nation thrives, taxation goes up and it naturally throttles growth back to more sustainable levels. When the GDP goes down, taxation lessens and there is more money put back in people's pockets to spur growth.

My thought was brought about by the realization that the wealthy make their money with the very basic premise of buy-low-sell-high. So the wealth gap can only occur when those low moments are super low and those high moments are super high. The wider the distance between the peaks and valleys, the more wealth inequality grows. So if we put a mechanism in place which naturally helps temper those peaks and valleys and does its best to keep our economic growth as close to the mean as possible, then there is less inequality created because there are fewer opportunities for the middle class to get gouged in the buy-low-sell-high cycle.

have you considered doing away with money altogether~


What a fascinating concept. Is there something I might investigate about this?
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