Hillary Clinton's short-term capital tax plan.

[Loki]

I really suggest you research the Fair Tax. A monthly pre-bate on the national sales tax to cover basic needs alleviates that concern.

No, it doesn't. That helps the poor, not the middle class.

Let's say we have three households: A making $20k, B making $70k, and C making $1 million. Let's assume the flat tax is 10% (the number doesn't really matter). Furthermore, let's assume assume that every one gets $15k free of taxes (again, the number itself doesn't really matter).

Family A ends up paying taxes on $5k. That means it pays $500 in taxes, which comes out to 2.5% of taxes.
Family B ends up paying taxes on $55k. That means paying $5.5k, or about 8% of income.
Family C ends up paying taxes on $985k. That means paying $98.5, or roughly 10% of income.

The poor do pretty well under this system. The rich and the middle class pay virtually the same taxes. Now let's compare that to our current regressive system.

Family A gets various exemptions and deductions, which means it effectively pays no income tax at all.
Family B ends up paying about 15% on most of its income, which works out to $7k or so (or 10% of income).
Family C ends up paying most of its taxes at the highest income ladder, which means about 35% of income (granted, it will get it down through various deductions).

So under the current system, the tax rates paid are 0%, 10%, and 35%. Under a flat tax, those numbers would start with 2.5%, 8%, and 10%. I think anyone with some math skills would notice the problem here. The rich are now paying 10% instead of 35%. The math doesn't add up. Someone has to pay to make up for the shortfall. So what happens? The flat tax doubles for everyone. To come anywhere close to breaking even, the poor will have to pay perhaps 5%, the middle class will have to pay close to 20%, and the rich will pay a bit over 20%. And this is just the federal income tax.

A consumption tax leads to an even worse outcome for the middle class. Let's assume we have those same families and the same 10% tax, with the same exemption for the poor. The only assumption I'm adding is that the less you make, the larger portion of your income you spend.

Family A still pays taxes on $5k, because it will spend that entire $5k. That means it pays $500 in taxes, or 2.5%.
Family B might spend 80% of its income and save the rest. That means it's paying $4k in taxes, or roughly 8%.
Family C might spend 30% of its income and save the rest. That means it's paying $30k in taxes, or roughly 3%.

Same problem here as before. We're now collecting far too little in tax revenue. Except in this case, doubling the tax rate hits the middle class even more.

Family A now pays $1k in taxes (20% of $5k), which is 5% of income.
Family B now pays $8k, which is 12% of income.
Family C now pays $60k, which is 6%.

That's clearly not enough to cover the current spending levels. So we have to double that again (40% consumption tax).

Now Family A pays $2k, which is 10% of income. Family B pays $16k, which is 23% of income. Family C pays $120k, or 12% of income. Chances are, this still won't be enough. Do you see where I'm going? The middle class consistently comes out at the bottom here. There's no mechanism inherent to this tax to change that.

[Aimless]

loki specifically mentioned the middle class, not the poorest households.

http://www.forbes.com/sites/beltway/...h-the-fairtax/

[Loki]

Thanks for the link.



Looks like my random spending estimates were pretty reliable.

[Veldan Rath]

Total misrepresentation of the Fair Tax. Ballyhoo.

[Loki]

Which part? The fair tax is basically the consumption tax in my post.

[agamemnus]

There seems to be a trend of thinking one can disagree with facts. It's a fact that a consumption tax and a flat tax benefits the rich at the expense of the middle class. It's basic math.

Your math is probably correct if you consider that "rich" people spend less money as a percentage of their earnings. However, it doesn't matter. What matters is what is spent, not what is earned, you see!

Edit: so, looking at your math post above, you do demonstrate that according to your accounting, to keep the same level of spending with the current tax system means that the rich will get an effectively lower tax rate and that will make everyone else poorer. But then remember that taxes are an impediment to supply meeting demand. There is a deadweight loss. So, consider that the deadweight loss is now fully erased from the earnings on wages picture. You will have, then (probably), more employment, and although you'll have a bigger deadweight loss on the sales side of the equation.

You can also still tax things other than tangible or intangible goods. Tax services -- just do it at the point of sale. Tax things that rich people spend more of to make up any shortfall. Yachts... real estate...

Let me throw another one in for you: since the rich make most of their money on "investment", just tax that more, or increase corporate tax rates. Don't we agree that we need to have better incentives for work? What better way than to reduce the tax rate for it to 0?

[Loki]

You know that the Laffer curve was discredited, right?

[Lewkowski]

You know that the Laffer curve was discredited, right?

Source? The Laffer curve makes perfect sense. at 100% tax rate you get near 0 revenue. At 0% tax rate you get 0 revenue. At 1% tax rate you get some revenue and it climbs until it reaches a median and then it descends once work outside of the underground economy is sufficiently disincentive by punitive tax rates.

[Loki]

Source? The Laffer curve makes perfect sense. at 100% tax rate you get near 0 revenue. At 0% tax rate you get 0 revenue. At 1% tax rate you get some revenue and it climbs until it reaches a median and then it descends once work outside of the underground economy is sufficiently disincentive by punitive tax rates.

http://business.time.com/2012/08/09/...all-is-a-foul/

No, it doesn't make sense. It makes sense that lower taxes lead to higher national income. It doesn't make sense that the additional income will rise so much as to offset the decrease in revenue. It has never worked that way. Where it might work is where taxes were previously prohibitive.

[Lewkowski]

Your source talks more about deficit spending and stimulus then it does about optimal tax rate.

[Loki]

Use some logic. Let's say I'm paying a 1% tax. Do you think that if I no longer need to pay that 1% tax, I will somehow increase my production by more than 1%? The Laffer Curve works only when the previous tax rate was so prohibitive that people weren't willing to produce much at that rate. Or perhaps they were delaying production waiting for the tax rate to go down. It doesn't work when existing tax rates allow reasonable levels of investment.

[Lewkowski]

Use some logic. Let's say I'm paying a 1% tax. Do you think that if I no longer need to pay that 1% tax, I will somehow increase my production by more than 1%? The Laffer Curve works only when the previous tax rate was so prohibitive that people weren't willing to produce much at that rate. Or perhaps they were delaying production waiting for the tax rate to go down. It doesn't work when existing tax rates allow reasonable levels of investment.

I don't think you understand the Laffer Curve. If you no longer pay the 1% tax, revenues go down because it is on the left side of the slope. It is only if the tax rate is higher than the optimal tax rate that tax revenue would go up if tax rates are reduced.

[LittleFuzzy]

No, he does. He said the same thing you just did. But Loki knows what you don't, that the tipping point between left and right sides falls at a much higher level of taxation, a prohibitive level of taxation, than you think it does.

[Lewkowski]

No, he does. He said the same thing you just did. But Loki knows what you don't, that the tipping point between left and right sides falls at a much higher level of taxation, a prohibitive level of taxation, than you think it does.

The example used was 1%.

[LittleFuzzy]

The example used was 1%.

Yes, so? It doesn't matter if the example was 1% or 35%, it goes the same either way, because that "optimal" tax rate you refer to is much higher than you think it is, much higher than taxation is now for anyone in the US.

[GGT]

No, it doesn't. That helps the poor, not the middle class.

Let's say we have three households: A making $20k, B making $70k, and C making $1 million. Let's assume the flat tax is 10% (the number doesn't really matter). Furthermore, let's assume assume that every one gets $15k free of taxes (again, the number itself doesn't really matter).

Family A ends up paying taxes on $5k. That means it pays $500 in taxes, which comes out to 2.5% of taxes.
Family B ends up paying taxes on $55k. That means paying $5.5k, or about 8% of income.
Family C ends up paying taxes on $985k. That means paying $98.5, or roughly 10% of income.

The poor do pretty well under this system. The rich and the middle class pay virtually the same taxes. Now let's compare that to our current regressive system.

I'm just glad to see someone else call our current tax schemes regressive!

Family A gets various exemptions and deductions, which means it effectively pays no income tax at all.
Family B ends up paying about 15% on most of its income, which works out to $7k or so (or 10% of income).
Family C ends up paying most of its taxes at the highest income ladder, which means about 35% of income (granted, it will get it down through various deductions).

So under the current system, the tax rates paid are 0%, 10%, and 35%. Under a flat tax, those numbers would start with 2.5%, 8%, and 10%. I think anyone with some math skills would notice the problem here. The rich are now paying 10% instead of 35%. The math doesn't add up. Someone has to pay to make up for the shortfall. So what happens? The flat tax doubles for everyone. To come anywhere close to breaking even, the poor will have to pay perhaps 5%, the middle class will have to pay close to 20%, and the rich will pay a bit over 20%. And this is just the federal income tax.

Indeed, there are still shortfalls, and the math doesn't add up.

A consumption tax leads to an even worse outcome for the middle class. Let's assume we have those same families and the same 10% tax, with the same exemption for the poor. The only assumption I'm adding is that the less you make, the larger portion of your income you spend.

Family A still pays taxes on $5k, because it will spend that entire $5k. That means it pays $500 in taxes, or 2.5%.
Family B might spend 80% of its income and save the rest. That means it's paying $4k in taxes, or roughly 8%.
Family C might spend 30% of its income and save the rest. That means it's paying $30k in taxes, or roughly 3%.

Same problem here as before. We're now collecting far too little in tax revenue. Except in this case, doubling the tax rate hits the middle class even more.

Family A now pays $1k in taxes (20% of $5k), which is 5% of income.
Family B now pays $8k, which is 12% of income.
Family C now pays $60k, which is 6%.

That's clearly not enough to cover the current spending levels. So we have to double that again (40% consumption tax).

Now Family A pays $2k, which is 10% of income. Family B pays $16k, which is 23% of income. Family C pays $120k, or 12% of income. Chances are, this still won't be enough. Do you see where I'm going? The middle class consistently comes out at the bottom here. There's no mechanism inherent to this tax to change that.

....and it's not like the "middle class" has a way to change things outside the entrenched two-party political process.

[agamemnus]

http://business.time.com/2012/08/09/...all-is-a-foul/

No, it doesn't make sense. It makes sense that lower taxes lead to higher national income. It doesn't make sense that the additional income will rise so much as to offset the decrease in revenue. It has never worked that way. Where it might work is where taxes were previously prohibitive.

Agreed. I don't dispute that at some tax levels reducing taxes does reduce total revenue... case in point i a user-submitted piece on Kasich's Ohio policy. (also ties in nicely with the issue of policing sales versus personal income taxes):

http://www.forbes.com/sites/realspin...-income-taxes/

[Lewkowski]

No one is suggesting that ALL reductions in tax rate = increase in tax revenue. That's where its a curve.