Tuesday, November 23, 2004

How 'bout a flat tax?

While a simplified flat tax system sounds like a great idea, Douglas Dunn makes some good points. He points out the issues contained in the most recent flat tax proposals, especially as it pertains to 'unearned' income. This is the issue that probably annoys me more than any other. This is the entire arguement against these proposals, (at least until my next arguement). But seriously, so far I have not seen a proposal that properly addresses the subject of 'earned' vs. 'unearned' income. The current proposals have unearned income exempt from taxation. That would be of great benefit to the idle rich, but hurt the working guy. By Idle Rich, we're talking about the wealthy that don't earn anything, and have enough money to live on without having to pay any taxes, they go to fundraiser dinners, to socialize with their friends, so they can write it off against the interest they made on their money, so the middle class in essence, would pay their tax bill. If I happen to inherit a few million I'd be the first in line to write off my party expenses! Don't worry, that won't be happening anytime soon. Well, or ever.

So, lets get rid of the deductions! Well that causes another concern, one Mr Dunn addressed nicely-

the idea of "eliminating all deductions." The basic concept of deductions is based on determining what one's actual income is. For example, consider two working guys. They're both plumbers. They both receive checks throughout the year paid to them which total $100,000. The first guy is an employee. He works for a company that has a scheduler who sets his appointments, and provides him with a truck and tools. The second guy is self-employed. He hires a secretary to schedule his appointments and pays her $30,000. He buys a truck for $25,000. He spends $5,000 more on tools. Is it really fair to say there will be NO deductions? The issue should not be to eliminate all deductions, but to isolate legitimate ones and separate them from welfare for the rich.

Welfare for the rich that's great! So eliminating deductions is not the answer either. Now what? What do we do? A flat tax, or reform?

Dunn makes a good point about the Graduated Progressive Tax. Ultimately it does treat everybody the same. Flat tax proponents want to focus on the idea that people are paying different rates. Well, yes and no. We'll use his numbers for this example. Everybody pays the same rate on their first $25,000, (level 1-15%), if they earn another $30,000, they pay the same rate on
that money, (level 2-28%), and if they make more money, they pay the same rate for that amount,(level 3-33%).

The main thing is that
a person making $200,000 per year, will pay $60,000 in taxes, taking home $140,000. Not bad. A person making only $25,000 would pay $3,750, taking home $21,250....That is the graduted progressive system, level 1@15%=$3,750 in taxes, level 2@28%=$8,400 in taxes, and level 3@33%=$47,850 in taxes.

Under the flat tax of 20% our $25k guy would pay $5,000 in taxes, a $1,250 increase. Our $200k guy, would pay $40,000, a $20,000 decrease.

Obviously this does not benefit the working man, it benefits the wealthy.

Now just to be be clear, I don't even care about that. What continues to bother me can be seen on a previous comment by Screamin Memes,
"The death of democracy starts when the people realize they can vote themselves free money." Yes, free money, and where does free money come from? Taxes. How do you raise taxes to get free money? Lobbyists.

A flat tax does not address our current situation, reform does, but it will be very difficult. We have weaved ourselves into a complicated system. I wish I had a great answer.

The best I could come up with is that lobbyists are a problem so let's make them the solution. What if every taxpayer in the country set up a fund, we each put in $10, there has to be 200 million taxpayers, that would give us a lobbyworth $2 billion! Let's only pay them a minimum salary of $40k or whatever,
until they get our tax reform as specified by us, after that, any of them that were hired would get to split the $2 billion. To break it down, even if we had to hire 500 lobbyist to make this happen, that is a $4 million payday for each. We could even have a $1 fee in our taxes to pay them after as a commission and to keep them employed as a watchdog. Another $200 million per year to be our watchdog. But again, not paid out until we are satisfied with their work. I am not a fan of lobbyists, but I'd do it for that kind of cash!

I know this proposal is full of holes, and I'm sure I will hear about it, but wouldn't this be a great start!

It is going to take something huge to get any kind of tax reform, and I am less than convinced that a flat tax can even work.

If anyone has any insight, please, let me know....

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