patrick.net

"fair" is the framing the rich want us to talk about, since they want to make it "unfair" to tax their marginal dollars more than people who have much less money.

How about "effective", in raising sufficient revenue to pay for our $6.1T/yr government?

"Do you know that mortgage interest deduction is useless when standard deduction is used?"

Not necessarily, since state income taxes are deductible, too.

The standard deduction for married filers is $11,600.

Married filers in California pay that at the $200,000 level, so if you're making more than that every MID dollar is tax deductible.

On a $400,000 loan, the MID is $16,000 starting out, so even a $100,000 household income will see $9000 in federal tax deduction, worth about $3000 in less federal taxes.

Plus once you blow through the standard deduction, smaller deductions like charitable giving become actually deductible.

REpro says

Base (adjusted for inflation) can be also raised by number of dependents individual claim. That will eliminate marriage penalty, encourage for education and building carrier, helps small businesses and start-up companies to move ahead, etc.

I'm not actually seeing how it would eliminate the marriage penalty because otherwise you'd be giving a windfall to a 3 person household with 1 parent vs. a 3 person household with 2 parents.

How does it "encourage education and build carriers[sic]"? How does it help small business and start-ups get ahead? You have done a poor job explaining these things and are hand-waving them through.

What this does is help the rich greatly.

Bellingham Bob says

"Do you know that mortgage interest deduction is useless when standard deduction is used?"
Not necessarily, since state income taxes are deductible, too.

To claim MID itemize deductions on Schedule A has to be filed.
http://www.irs.gov/publications/p936/ar02.html#en_US_2010_publink1000229974

REpro says

MID itemize deductions on Schedule A has to be filed.

Of course. No point in filing a Schedule A if your deductions don't exceed the standard deduction. Paying mortgage interest on a $400,000 loan is a great way for middle class families to be able deduct their other expenses, LOL.

Most middle class in America don’t live in expensive coastal areas. They stay in dark, on false statement sold by e.g. RE agents.

Bellingham Bob says

REpro says

MID itemize deductions on Schedule A has to be filed.

Of course. No point in filing a Schedule A if your deductions don't exceed the standard deduction. Paying mortgage interest on a $400,000 loan is a great way for middle class families to be able deduct their other expenses, LOL.

“Nessuna soluzione . . . nessun problema!„

200k income, 400k house, middle class. One of these things is not like the others.

200k/yr is easily middle class in the MP to SJ corridor.

Just two tech jobs out of tens of thousands.

http://www.redfin.com/CA/Santa-Clara/1822-Eisenhower-Dr-95054/home/1374100

nice middle class home : )

granted, not every part of the country is the Silicon Valley.

$200K for a single salary, now you're talking upper middle class, sure.

Married couples working on one salary and saving the other is the secret of the "Millionaire next door".

Harder to do that in the SV and buy a place, since everyone bids up the goddamn homes so much.

Nomograph says

The only countries with a flat tax are in eastern Europe and the Middle East (e.g. Iraq, Kazakhstan, etc.).

These aren't exactly the kind of nations we want to emulate.

Yep. Flat tax is a horrible regressive idea. The only way to make it work out is to have a negative tax rate for the poor and a scaling tax refund at the end of the year or monthly or whatever for every other income class. The thing is if you do that you no longer have a Flat Tax. You end up with a tax system that looks a lot like ours currently.

If you want to fix the tax system and largely fix the budget at the same time just eliminate many of the tax exemptions that currently exist, put in more tax brackets above $100k or whatever the top bracket is, tax capital gains as income instead of seperately, raise FICA tax for the rich, institute means testing for SS/Medicare for the rich.

Well, the flat tax system in a nutshell fucks everyone else but rich. You pay the tax based on how much you spend. Then why should we pay for school? I am not using it. Even the private school gets some public funding.

The education system is more like an investment. As an investor, a tax payer, I want my return if my investment is successful. If I don't get my return on my investment, I don't want to invest or pay for our education system.

Bellingham Bob says

Not necessarily, since state income taxes are deductible, too

Property taxes as well.

tts says

institute means testing for SS/Medicare for the rich.

the rich (top 1%) are so few that this really doesn't matter.

I think the idea of the flat tax on all sources of income would be great. But I don't know if they can keep the tax system simple without loopholes that always seem to enter our tax code.

But I'd prefer they flat tax everything, every purchase, every appreciation, equally. So we don't have this disgusting system where certain purchases are taxed at lower rate and redirect capital from free market to bubble.

Bellingham Bob says

200k/yr is easily middle class in the MP to SJ corridor.

well if you also include Manhatten and Beverly hills with the MP to SJ corridor that must represent at least .05% of the country. The other 99.95% considers 200k pretty damn good. If I remember right 200k puts you in the top 10%, My definition of "middle" class doesn't extend that far up the scale.

bob2356 says

My definition of "middle" class doesn't extend that far up the scale.

People rise from middle class to upper middle class with that salary, but cashing a $3000 paycheck once doesn't make you upper class.

Upper class goes well the hell beyond all that. If you have to go to work in the morning, you're not upper class.

Once the house is paid off, the kids' colleges are paid for, and there's several million in the bank, sure, welcome to the lower upper class.

I'd be down for a flat tax only if a guaranteed minimum income and universal healthcare were implemented.

Bellingham Bob says

the rich (top 1%) are so few that this really doesn't matter.

Maybe but every little bit helps, especially when you're talking about the top 1%'ers.

Bellingham Bob says

the rich (top 1%) are so few that this really doesn't matter.

However, they have enough power to control 90% of economy.

Will Flat Tax be fair to everyone?

Of course!

zzyzzx says

Will Flat Tax be fair to everyone?

Of course!

But will the resulting entrenched wealth divide?

I know how to make the flat tax fair: flat income. In lieu of that, I propose...

The income tax rate should be a progressive tax that scales in proportion to the square of a function of the rich-poor gap. I.e., the greater the rich-poor gap at every income level, the greater the gradient of the income tax rate at that level.

This negative feedback loop will mean that the only way the rich can get richer is by making the poor and middle class richer.

I love solving a problem by inverting it.

Dan8267 says

The income tax rate should be a progressive tax that scales in proportion to the square of a function of the rich-poor gap

Another historical athiest had that idea:

"Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labour and live on."

http://en.wikisource.org/wiki/Letter_to_James_Madison_-_October_28,_1785

BobbyS says

I'd be down for a flat tax only if a guaranteed minimum income and universal healthcare were implemented.

Here are countries with universal healthcare. Some of them are able to found it with flat tax.
http://www.gadling.com/2007/07/05/what-countries-have-universal-health-care/

Dan8267 says

I know how to make the flat tax fair: flat income.

That was in communism system and we all know how ended.

REpro says

That was in communism system and we all know how ended.

You mean China?

Most people trying to use the Soviet Union as an example of "communism" are mostly just making a talking point. It's just as easy to talk about feudalism (aka anarcho-capitalism) being a gigantic failure and make the counterpoint. It doesn't really advance the argument.

China (PRC) is communist in name but in reality much of what they do is anything but.

If you read the manifesto and then look at what they are doing it frankly is going in reverse. It was much more communist from 1949-1978..it failed. They tried to control food production to keep prices high but it led to starvation.

Here are the 10 planks of the manifesto and if China obeys them

1) Expropriation of landed property and application of ground rent of land to state expenditures. I guess that can apply given it is a unitary state

2) A heavy progressive tax. Nope..if you start a company you don't get taxed for three years. Taxation of plastic bags is regressive since it does not increase as you use more

3) Abolition of right of inheritance. Nope. There is plenty passed down from one generation to another

4) Confiscation of the property of all emigrants and rebels. Possible but not probable. China could try to take Taiwan by force but why bother? Technically all Confederate property became US property after the civil war so this isn't that far out there

5) Centralization of credit in the hands of the state though a national bank with state capital and a exclusive monopoly. A number of different banks underwrite the currency of Hong Kong
http://en.wikipedia.org/wiki/Banknotes_of_the_Hong_Kong_dollar

6) Centralization of all modes of transportation in the hands of the state. Not a chance.
does this look centralized to you?
http://www.youtube.com/watch?v=7J4kQ7TmMN4
http://www.youtube.com/watch?v=FtIPD-tNOWY
Technically if they really wanted to be marxist they'd ban bikes and cars and buses but they don't.

7)Expansion of national factories and instruments of production owned by the state; reclamation and improvement of estates according to a common plan. Nope. If anything they are spinning factories off because they didn't know how to compete.

8) Equal liability of all to labor. Establishment of industrial armies, especially for agriculture. There's plenty that do not have work in China. They rather work for western style companies than those domestic.

9) Combination of agriculture and industry, to effect the gradual undoing of the opposition between town and country. Well they did have the old hokou systems but that has gradually faded. Even so cities there have massive draws rather than the countryside

10) Free public education for all children. Doing away with children's factory labour in its present form. combination of education with material production. Fat chance There are plenty that do not get a public education. Although it can be strived upon but the numbers frankly make that nearly impossible. Factory labor is often seen as a step above farm labor

They say they are communist because identity is a touchy subject if a state identifies itself as a given designation. Just ask an Iranian if they speak Farsi or Persian..

Herman Cain's 9-9-9 tax plan
http://money.cnn.com/2011/10/11/news/economy/Herman_Cain_999_tax/index.htm?iid=HP_River

REpro says

Herman Cain's 9-9-9 tax plan

The funny thing is that even many Republicans don't like the 9-9-9 up to 3 toppings BOGO $3 taco Tuesdays plan because it would involve adding another new tax. Also, some people would argue that there a national sales tax is unconstitutional, an idea which has more merit than those idiots who think the income tax is unconstitutional.

National sales taxes also help the rich as compared to our current system because more of their income is generally derived from investment instead of labor. For most people, a national sales tax is exactly the same our current system because most people's income is derived solely from wages.

Here's an example. Let's say tax rates are 20% in either case -- national sales tax or federal income tax -- as a percentage of income, which is 25% as a percentage of spending:

Either way, I get $50K income and can spend on $40K of stuff:
$50K - $10K income tax = $40K
$50K means $40K + $10K in consumption tax.

People like the way "consumption tax" sounds because it makes you think that people are being wasteful and therefore it's a tax on being wasteful, but that's just good framing.

In reality, it chiefly functions as an elimination of capital gains taxes and estate taxes -- which is the real goal.

PersainCAT says

the difference is if u make 50k and currently spend 35k worth of stuff. 35k+10=45k so u have a saving account that increase by 5k.
With a sales tax u spend 35k+ sales tax of 7k=42k. so your savings increase by 8k.
then you invest that additional 3k and dont pay taxes on it till u spend it.

lol. But tax receipts went down by 3K. That's not really an apples to apples comparison.

PersainCAT says

the difference is if u make 50k and currently spend 35k worth of stuff. 35k+10=45k so u have a saving account that increase by 5k.
With a sales tax u spend 35k+ sales tax of 7k=42k. so your savings increase by 8k.

then you invest that additional 3k and dont pay taxes on it till u spend it.

No, I already said that:

corntrollio says

National sales taxes also help the rich as compared to our current system because more of their income is generally derived from investment instead of labor.

Note that the investor actually pays more tax than if there were no cap gains tax, but still benefits from the investment. Let's say the investment goes up 100%:

$5K --> $10K if no cap gains, no tax paid
$8K --> $16K -- when you spend this, you pay $3.2K to gain $2.8K vs. the $3K your buddy paid to get $0.

(this is also responsive to tatupu's point)

Anyway, I think it's clear why certain people want a national sales tax.

Fair taxes start with revocation of the feds charter to print money, and elimination of its enforcement arm, the IRS. No direct tax on income as stated in the constitution... Woops, I just nullified most of the comments on this thread.

How the heck does an investment double in value without capital gains? That is contradictory.

Where is the 9% income tax on all the calculations above? It's 9-9-9 income, sales, corporate tax.

bob2356 says

How the heck does an investment double in value without capital gains? That is contradictory.

That's my point. A national sales tax's main goal is the elimination of taxation on investments.

bob2356 says

Where is the 9% income tax on all the calculations above? It's 9-9-9 income, sales, corporate tax.

I'm not including that -- I was speaking theoretically about a national sales tax. The most bizarre thing in the 9-9-9 plan is the inclusion of a corporate tax, although I wonder if that's for political reasons. The corporate tax is usually anathema to flat-taxers.

REpro says

Dan8267 says

I know how to make the flat tax fair: flat income.

That was in communism system and we all know how ended.

With China owning everything?

In any case, I was being factious. My point was that a flat tax would be socially just only if there were no rich-poor gap.

corntrollio says

REpro says

That was in communism system and we all know how ended.

You mean China?

Damn, corntrollio beat me to the punchline.

NuttBoxer says

No direct tax on income as stated in the constitution...

The constitution does not state that a direct tax on income is forbidden, and it does say that the government can pass laws. A law has been passed that requires us to pay a direct tax on income.

Woops, I just nullified your comment.

mdovell says

They say they are communist because identity is a touchy subject if a state identifies itself as a given designation. Just ask an Iranian if they speak Farsi or Persian..

Your analysis notwithstanding (and not all of which is accurate, IMO), most of the powerful corporations in China are heavily government-run. Read this and tell me if you disagree:

http://www.economist.com/node/21528262

Also, my Iranian friends (who typically refer to themselves as Persian) do not find Farsi vs. Persian a sensitive subject.

First off, mdovell; nice one :) albeit i sometimes wonder if it is worth it to correct "knowledge" gleaned from popular belief rather than personal study :)

I have difficulty with believing that asking the rich to pay more taxes (in increased marginal rates) is "fair" I could not look myself in the eye if i told someone who worked hard in school, got a good education, and got a good job that they were less entitled to the fruits of their labor than I, based upon my inability to create the same level of value as he.

let's say single earner making 200k in California. work out the taxes and it ends up somewhere around 60k in taxes per year. someone making 40k effectively pays no taxes after all the deductions and credits.

How on earth is it fair to have 90% gang up on 10% to bear the costs of everything? And in a society where 80% of the population pay no taxes, of course they are going to vote for the 10% to pay for ever increasing "more". Eventually you run out of livestock to slaughter. Once you decide that people don't have a right to their wealth based on their ability to create it, it's a short road to "no one has a right to any products of their labor".

I'm all for a flat consumption tax. Capital is highly mobile. If you tax capital gains, capital moves to where you can't tax it. Wealth producers are highly mobile. If you tax them, they move away also; somewhere you can't tax them. If you don't let them move, they stop producing. If you target their income, they will easily shift the means of their compensation. ie. don't pay me a salary, pay me purely in stock options that I can control taxation on, also, pay for my mansion, car, driver, boat and house staff. Increasing marginal rates are not the answer.

Who cares if someone is a millionaire but live like middle class? consumption tax allows you to tax people exactly proportionate to how many goods and services they enjoy. The more lavish your lifestyle, the more tax you pay. Ideally, this is highly correlated to your usage of society's infrastructure, and your desire to protect your lifestyle. I would go so far as to categorize some basic staple item's as non taxable, such as basic food items (end products) so as not to tax a significant proportion of poor peoples income. In this case, consumption tax would be a flat sales tax to all purchases of tangible goods and services. I would abolish all other forms of taxes. (and tariffs)

Barring a consumption tax, fine, tax the rich more, but don't do it by explicitly proclaiming that they have less of a right to the fruits of their labor than any other hard working individual. Do it by closing loopholes for special interest groups. The mortgage tax deduction is in effect an entitlement subsidized through the tax code, and disproportionately benefits wealthy people in expensive real estate markets. Eliminate it. The same goes for deductions based on number of dependencies (why should i subsidize your children?). The tax base needs to be broadened and flattened, and this will disproportionately come from the rich anyway, but in a way that says that they are no more special than anyone else, as opposed to hunting them like sacred goats to be slaughtered.

Rich4 says

...someone who worked hard in school, got a good education, and got a good job that they were less entitled to the fruits of their labor than I, based upon my inability to create the same level of value as he.

Not discounting hard work, but people often will way over estimate how much of their success is their "own doing", and way under estimate how much is due to luck, and the social support systems around them.

Are you saying that Paris Hilton got to where she is through diligent hard work, and the rest of us shlubs just did not apply ourselves enough? Ah, ha funny.

Rich4 says

I could not look myself in the eye if i told someone who worked hard in school, got a good education, and got a good job that they were less entitled to the fruits of their labor than I, based upon my inability to create the same level of value as he.

Huh, that's funny, I look at myself in the mirror every day and don't have this problem.

Rich4 says

Once you decide that people don't have a right to their wealth based on their ability to create it, it's a short road to "no one has a right to any products of their labor".

This is nonsense. This is not a slippery slope, and slippery slope arguments are generally useless and lazy. Our income taxes are incredibly low right now historically. Historically, income taxes on those with more income has been much higher. I might also add, that people further in the upper echelons than me pay a lower rate on occasion because more of their income is investment, whereas most of mine is labor. That seem perverse too, and even Ronald Reagan agreed and set capital gains rates to be the same as income rates.

Rich4 says

If you target their income, they will easily shift the means of their compensation. ie. don't pay me a salary, pay me purely in stock options that I can control taxation on, also, pay for my mansion, car, driver, boat and house staff.

Something tells me you don't know the tax code very well. Several of those things would be taxable in most circumstances.