How does a flat tax work?

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How does a flat tax work?



Also, I've heard a proposal of doing away with income tax and instead doing a retail sales tax.


[youtube]http://www.youtube.com/watch?v=3PU9Lm6V1rc[/youtube]

^Where I heard the no income tax and retail sales tax (@3:55).

I believe flat tax basically means that everybody pays the same rate as opposed to a progressive income tax where people pay a higher or lower percentage based on their income. So if person A makes 50k a year he would pay the same percentage as person B who makes 500k.

The government couldn't ever make enough revenue off a flat tax without taxing the poor and middle class into oblivion. It would be a total economic disaster.

They might even have to, god forbid, cut spending if the happened. *gasp*

Not so. The government could cut back on some of its operations.

ruveyn

The flat tax is exactly that....a flat rate on all people's incomes. It would have many flaws, some of which being an unfair burden on the very poor and excessive on the rich (income tax should have a max cap).

I think as a sliding scale, it really messes things up without solving much. A flat tax means one rate for everyone. Really, we need to abolish the IRS (a terrorist organization if there ever was one) and eliminate the "tax code" which is thousands of pages of rules that even tax experts don't fully follow or understand.

The proposal of "THE FAIR TAX" is to eliminate the IRS and tax code and replace it with a national sales tax built in to all goods sold. With a lower percentage rate (compared to what we pay in income taxes), we could easily raise as much money (or more) than income taxation does now. By taxing CONSUMPTION and not EARNINGS, people have more money in their pockets to save or spend as they choose. The rich can't avoid the tax except by not spending money. There is a provision of "prebates" for the poor so that the impact on their spending is lessened. By simplifying things, it would encourage businesses to grow and new businesses to open...dealing with IRS compliance is a major expense in the business world. It would also gut a major way government can try to bully both businesses and people...via taxing them.

With a flat tax there is a bottom amount such that people making less than that pay no tax at all. If a constant rate was charged at all levels of income it would be very hard on the poorest, so there is a bottom cutoff.

ruveyn

The flat tax is a very bad idea, but I do like the Fair Tax idea. I think I first heard it from Huckabee several years ago. I generally don't agree with most of his ideas, especially the creationism nonsense, but I think this idea makes a lot of sense, in so many ways. I' pretty sure companies like H&R Block would lobby hard against it, but it would help out those who are scrimping and saving to make ends meet by lowering their tax liability and at the same time would prevent tax evation by the wealthy. Actually, on second thought, a lot would need to be worked out to prevent tax evation in our global shopping mall. I do see a lot of potential with this idea, though.

The revenues from the current progressive tax do not cover government expenses. You can advocate for cutting spending, sure, but if you then implement a flat tax you'll find that you have to cut government to the bone (and a little further) to be even close to balancing the budget.

Flat tax is simply another way for the moneyed class to shift the tax burden onto the middle class.

It's almost axiomatic--if the tax burden on the highest brackets is reduced, that revenue has to be recovered from some other source. A basic personal exemption would see that the poorest people were exempted, but the middle class would continue to be the dumping ground, receiving none of the protection that the poor receive, and none of the benefit that the wealthy receive.

You say cut government spending...where? What? How much would the tax have to be? How much tax revenue would be lost for it?

Undo the welfare state and maintain a military capable of defending the homeland. We don't need armies all over the world. Also keep enough nuclear weapons on hand to expunge any enemy foolish enough to attack us. We could have a sufficient military for maybe 20 cents on the dollar.

We could probably reduce government by at least 2/3.

ruveyn

I like this. Let's do it.

I agree unreservedly with your plans to bring military spending down to 20% of current levels (I might even want to go lower, but 20% of what we spend now is a decent number to keep as as the preeminent military power). Dismantling the welfare state is harder to do. Are you going to tell people who spent 40+ years paying into Social Security "Oh, by the way, we are not actually going to pay out the benefits that we promised you" when it's their money that is supposed to be returned? Are you going to get rid of Medicare?

Cutting government by 2/3 is pretty unrealistic. The most extreme cuts could maybe get rid of a third to a half of government spending, but even then we would need to maintain a progressive tax to be able to finance it. I would argue we would even need some mild tax increases, at least for the top brackets, so that we can run surpluses and start to pay down the debt.

For those who already paid in give them the benefits but terminate the system for younger people. Most important of all: cease corporate subsidies. The corporations receiving government contracts and tax funded subsidies the the real "welfare queens".

ruveyn

Whoops, there goes the education...