How does a flat tax work?

Post Reply New Topic

Which is why so much garbage is sold under the line "think of the children!"

I don't think anyone is arguing that you can't have deductions with a flat tax. If a flat tax eliminated deductions, the argument that it reduced tax revenues would be completely bogus. Just eliminating the deduction for mortgage interest would be a huge increase in revenue.


While true for many states, that's not actually true for Massachusetts. Many federal deductions are not allowed in Massachusetts; my Massachusetts taxable income is substantially higher than my federal taxable income. Possibly you have not noticed this due to using a computer that figures out automatically which deductions apply to Massachusetts and which don't.


Much of the complexity of the Massachusetts instructions have to do with backing out of federal deductions, where most states just use federal AGI and such. That said, the main point of a flat tax is not that it is simpler; it is that it's fairer.


Those are all problems that already exist with the present system. The social security tax is already regressive. Medicare taxes are already flat, as is unemployment insurance in Massachusetts. The worst thing, though, is that the current system is highly regressive at the top end because people at the top end tend to pay the lower capital gains rather than the higher earned income rate. A flat tax would help ensure that people in the top 0.1% of income, who have seen their share of all income increase by over 300% in the last few decades, pay their fair share.


Unfortunately Massachusetts can't unilaterally get rid of the complexities of federal taxes. However, if the federal government got rid of the those complexities, it would certainly make financial planning simpler, because you wouldn't have to worry about so many different types of income. And, as I said, the main reason for a flat tax is because it's fairer, not because it's simpler.

Yeah, that doesn't work. The Social Security trust fund has, by the books, about a $2.5 trillion surplus which will suffice to pay out the projected benefits until about 2037. But in reality, all of that money was spent by politicians who wanted to pretend they weren't adding to the budget deficit. It will not be possible to pay out benefits for the people who have already paid in without taxing the younger generation for it.

Some corporate subsidies are worthwhile. Certainly not all, but there is a role for the government to play, particularly in funding unprofitable R&D (provided that plublicly -funded research doesn't lead to privately-held patents).

The idea is generally to lower the rate in exchange for eliminating the deductions, and flat tax advocates do argue for the elimination of deductions. Way back in my first post, you remember, I said there were multiple variations on the theory.



I went right to the MA tax department, and pulled up a copy of the tax return, before writing that. The most interesting calculations are in determining Schedule C and Schedule E income, and MA starts with them right off the federal. If MA is making changes to those numbers, they are minor.

MA does eliminate the Schedule A deductions, it looks like, which would explain your MA income being higher than federal. But nothing all that interesting happens on Schedule A, from a CPA perspective. Those deductions tend to be more economic policy driven than other items on the tax returns.



Is it?



Would it? You don't need a flat tax to eliminate the capital gain preference; why not just eliminate the capital gain preference?




MA is free to create it's own two line system completely from scratch. And most proponents of a flat tax DO favor the idea because it sounds like it has simplicity. The commonly accepted trade off is to have something potentially less fair when applied to off-the-norm situations in order to create simplicity and a perception of fairness. At the grass roots level, it sounds good to people because they think it would be easier to apply and enforce. Without that perception, few would be interested. Now, I can't say that is why MA has chosen a flat rate system, but I know that simplicity is the appeal when most people talk about it.

Actually, what makes financial planning such a tricky business is that no one can stop tinkering with the tax system. Just the talk of making a wholesale change like converting to a flat tax system can render financial plans completely mute. If we want to make financial planning easier, we should accept the flaws in the tax code and just freeze it. Oh, and never write sunset laws, like the 2011 estate tax cliff. That one has been rrreeeaaalll fun (sarcasm).

World Series time! I'm not a big baseball gal, but I've got a team in this one!

I hope it's the Giants...

Lol, you bet!

Most education at that time was poisoned by the church.

If you really want to cut spending, cut airport security. It's completely pointless. If I were a terrorist, I'd just move onto something else, like schools.

Last edited by Ambrose_Rotten on 28 Oct 2010, 1:31 pm, edited 1 time in total.

No need, you can still get past airport security easily enough if you actually want to. The security measures we do take at airports cause a lot of hassle without providing us with much extra safety, while any reasonably clever terrorist would still be able to get some sort of explosive device on board.

This is true.

In theory though, if airport security were perfect, there would always be other targets.

seriously. i think if everyone who waited 2 hours to get through security at LAX knew how much marijuana and other drugs were on the persons of the other people in line, there would be a riot over the ridiculousness of it all.

"sure thing, mr. homelandsecurity patch wearing tsa guy, you can smell my feet and look in my shoes. that laptop? oh, i'm going to have a friend repair it in new york, that's why it doesn't work right now."

but we'd rather pay $3 for a $1 bottle of water that isn't really cleaner than the tap water which is virtually free.

besides, if we didn't have airport security to complain about, we might start talking about the record profits from the cost+fee+fee+fee+fee+fee+paytoilet bs.

there are other targets now. better, in many respects.

yet they are not attacked.

either the superfriends are real and work for homeland security or the threat is greatly exaggerated.

Yeah, we're pretty much saying the same thing.