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QotD: Flat Tax

Question: If you were going to institute a flat tax, what would the terms be? If you're so against the flat tax that you can't think of any terms, why?

My Answer: The first $25,000 is free. No tax. After that, income is taxed at 40%. A paycheck of $1500 every two weeks ($3k/month, so about $36k/year) would net you $961 untaxed ($25,000/26 paychecks) and $323 in taxed income (60% of the remaining $539) for a total of $1284.

This solves one of the problems of a flat tax - that it hurts the poor far more than the wealthy - but doesn't avoid the other problem: that wealthy people would easily be able to afford lawyers to find loopholes. After all, most wealthy people don't exactly get paychecks every two weeks.

You are encouraged to answer the Question of the Day for yourself in the comments or on your blog.

4 Responses to "QotD: Flat Tax"

  1. I've actually been fighting a flat taxer for a while now and the best we can agree on is 20% accross the board for individuals and corporations on everything. No loopholes for SUV's no loopholes for corporations that manfacture something specific, nothing. You pay Social Security on ALL of your income not just the first 80k. No corporations with Bahamas mail drops. You do business in the US you pay taxes in the US. You gift money to charity or your children, or the bum on ths street, that's income it's taxed.

    I don't think I'm 100% behind this idea, but it good to use against Flat Taxers because 1) the fairness of it appeals to me. The basic premise is no one gets special treatment, not even the fat cats and it gives me a chance to get digs in on corporate welfare and other fat cat exemptions. and 2) It'll never happen.

  2. I'm not "so against" the flat tax, but I do realize that it has draw backs that will keep it from ever coming to fruition.

    Taxation is more than just a means of gathering revenue for the state. Taxes gather revenue, influence voters, and allow the legislature to manipulate the way people live their lives.

    I think that the tax deduction for charitable giving is going to be on the books for the rest of my life. I think that there will be taxes on socially undesirable things as well. This is how law makers can encourage certain behaviors and discourage others. A flat tax would presumably disempower legislators a bit. It would make taxation into a purely revenue gathering activity.

    I wouldn't like that. I like to be free to do socially undesirable things and to simply pay a little more to do them.

  3. I love the idea of a flat tax (above a certain income threshhold, probably), no loopholes, no special consideration for types of income, etc. I think the gov't would make more money by having a low tax rate that everyone pays, than extracting a progressive amount and trying to outfox accounts, etc.

    I also know that as long as the tax code is used to encourage or discourage the behavior of the citizens (tax break on mortgage interest, tax break on electric vehicles, tax hit for selling stock options immediately) it will *never* happen. As long as gov't bureaucracy has the tax code as a leash on the citizenry, it will not disappear.


  4. I favour taxing all unearned income up to the hilt and getting rid of taxes on earned income already. This would mean, for instance, that rent would be taxed at about 95%, the rest given to the site administrator for their work. No land hoarding. The one good thing about this is that it's definite and it doesn't impact on production: you can't produce land.

    Same would go with dividends and other unearned incomes.