Across the board tax rate...fair for all?

[DopeyDame]

I always thought if you are going to do a flat tax, it's pretty easy to still have a philosophical flat tax while making the actual paid rate progressive.
So, the tax rate is the same for everyone, but every dollar range has a different rate.

For example:
Everyone pays 0% on the first 20,000 they earn. Because you need to spend every last penny of those 20,000 on personal needs and living expenses.
Then 10% on the next 20K - 50K you earn.
Then 15% on 50K - 150K
25% on 150K - 400K
35% 400K - 1 Million
40% on the next millions.

(Obviously these numbers are just illustrative.)

So, everyone pays the same amount on the "dollar" that it is. Functionally, you do the math, and it's a progressive tax rate that ends up being something less than the highest rate for the highest earners.

Then eliminate the majority of deductions. (It gets my hackles up to no end that McMansions give people huge tax breaks - they aren't good for the environment, aren't good for resource use, aren't good for community.)

I also think ALL income should be taxes the same - wages, dividends, stock sales, etc.

 

[tvguy]

I have always supported a flat tax. 10% of everything you make over $20,000, no deductions.

It will never happen. Taxes are an industry. Too many IRS employees, CPA's, Enrolled Agents, H & R Block etc would lose their jobs if we had a simple tax system.

That is the financial problem with the Affordable Health Care Act. Administrative costs. Covered California, the California agency that administers AHCA spent $108 million last year in salaries and benefits for it's employees. How much health care could have $108 million bought if the agency didn't exist?

 

[DopeyDame]

I have always supported a flat tax. 10% of everything you make over $20,000, no deductions.

It will never happen. Taxes are an industry. Too many IRS employees, CPA's, Enrolled Agents, H & R Block etc would lose their jobs if we had a simple tax system.

That is the financial problem with the Affordable Health Care Act. Administrative costs. Covered California, the California agency that administers AHCA spent $108 million last year in salaries and benefits for it's employees. How much health care could have $108 million bought if the agency didn't exist?

In 2016, the Cigna CEO made $49 million. That's just one employee at one insurance company. How much health care could be bought if the private insurance industry didn't exist?

 

[sam_gordon]

I always thought if you are going to do a flat tax, it's pretty easy to still have a philosophical flat tax while making the actual paid rate progressive.
So, the tax rate is the same for everyone, but every dollar range has a different rate.

For example:
Everyone pays 0% on the first 20,000 they earn. Because you need to spend every last penny of those 20,000 on personal needs and living expenses.
Then 10% on the next 20K - 50K you earn.
Then 15% on 50K - 150K
25% on 150K - 400K
35% 400K - 1 Million
40% on the next millions.

(Obviously these numbers are just illustrative.)

So, everyone pays the same amount on the "dollar" that it is. Functionally, you do the math, and it's a progressive tax rate that ends up being something less than the highest rate for the highest earners.

Then eliminate the majority of deductions. (It gets my hackles up to no end that McMansions give people huge tax breaks - they aren't good for the environment, aren't good for resource use, aren't good for community.)

I also think ALL income should be taxes the same - wages, dividends, stock sales, etc.

Isn't that pretty much what we have now? The problem (IMO) is the deductions. We are able to regularly cut our taxable income by ~1/3 (mortgage, child care, donations, etc). Someone making little money doesn't really have that option.

Then you get into the argument of should things be tax deductible? My gut says "no", but I can see why the follow are:
Child care: This allows parents to join the workforce and not have as big an impact on their paycheck
Mortgage: Encourages home buying
Donations: Encourages donating

 

[tvguy]

In 2016, the Cigna CEO made $49 million. That's just one employee at one insurance company. How much health care could be bought if the private insurance industry didn't exist?

I agree.

And one of the local, not for profit hospitals pays $10,000 every Saturday during baseball season to put on a fireworks show at the ball park.

And we have 6 $7 million MRI machines here, when there are only enough patients needing MRIs to justify 1 machine. But NO hospital wants to share their MRI machine, they want their own.

IMHO insurance companies are greedy, but a lot less greedy than not for profit hospitals.

 

[Hikergirl]

Isn't that pretty much what we have now? The problem (IMO) is the deductions. We are able to regularly cut our taxable income by ~1/3 (mortgage, child care, donations, etc). Someone making little money doesn't really have that option.

Then you get into the argument of should things be tax deductible? My gut says "no", but I can see why the follow are:
Child care: This allows parents to join the workforce and not have as big an impact on their paycheck
Mortgage: Encourages home buying
Donations: Encourages donating

Someone making above a certain amount doesn't have some of those options either.
Get rid of all deductions and credits for above a certain income threshold, like the pp said $20K and then do a flat tax.
But, it will never happen it is just way too complicated and gov't will never reign in their spending.

 

[MillauFr]

It will never happen. Taxes are an industry. Too many IRS employees, CPA's, Enrolled Agents, H & R Block etc would lose their jobs if we had a simple tax system.

Absolutely correct. There are too many entrenched interests in the status quo.

 

[DopeyDame]

Isn't that pretty much what we have now? The problem (IMO) is the deductions. We are able to regularly cut our taxable income by ~1/3 (mortgage, child care, donations, etc). Someone making little money doesn't really have that option.

Then you get into the argument of should things be tax deductible? My gut says "no", but I can see why the follow are:
Child care: This allows parents to join the workforce and not have as big an impact on their paycheck
Mortgage: Encourages home buying
Donations: Encourages donating

Sort of, but like you said, the deductions are what really causes the problems and complication, plus the fact that different types of income (wages vs interest vs dividends vs capital sales, etc) are all taxes at different rates.
I'm with you that my gut says no to the vast majority of deductions. I don't believe they're especially effective ways of social engineering (ie, encouraging home buying or donations) and I think they make a huge contribution to the confusion and anger behind taxes in general.

 

[DopeyDame]

Absolutely correct. There are too many entrenched interests in the status quo.

Yup - I read a really interesting article about how the government (IRS I think) had a proposal for pre-filled tax returns and free filing. Basically, the IRS already has most of your info from last year and the info it recieves from employers, etc. They could easily pre-populate your taxes, send you a copy to verify and change as needed, and then you just submit it. H&R Block, etc., lobbied hard against that and won.

ETA: Here's the link (and a quick google search found multiple similar articles)
https://www.nbcnews.com/business/ta...spend-millions-lobbying-us-keep-doing-n736386

 

[ColoradoDisneyFreaks]

Get rid of the income tax completely, and go to a VAT/Consumption/National Sales tax. This taxes based on how much is consumed, so the low income earner that eats ground beef (just an illustration, groceries would be exempt from sales tax) would pay much less in taxes than a high income earner who eats filets. A better example, someone who buys a bottom of the line vehicle vs. someone who buys a luxury car with all of the bells and whistles. Designer clothes vs. Kohls or Target, the list goes on and on. There are no deductions, and the only way a high income earner would pay less in taxes, would be to not live like a high income earner.

 

[Colleen27]

I always thought if you are going to do a flat tax, it's pretty easy to still have a philosophical flat tax while making the actual paid rate progressive.
So, the tax rate is the same for everyone, but every dollar range has a different rate.

So, everyone pays the same amount on the "dollar" that it is. Functionally, you do the math, and it's a progressive tax rate that ends up being something less than the highest rate for the highest earners.

Then eliminate the majority of deductions. (It gets my hackles up to no end that McMansions give people huge tax breaks - they aren't good for the environment, aren't good for resource use, aren't good for community.)

I also think ALL income should be taxes the same - wages, dividends, stock sales, etc.

I've always thought this is the way to go too. It preserves the advantages of a progressive income tax system while getting rid of the complexity and the loopholes that make your tax rate as much about how much professional advice you can afford as about your income. It is efficient, transparent, and straightforward. And it ends the (unnecessary, IMO, and in some cases actually harmful) social engineering that is built into our current tax code. But as far as actually trying to make it happen, it is the worst of both worlds - the same entrenched interests that oppose a flat tax (the whole tax industry) would oppose any real streamlining of the tax code, while those who advocate for a flat tax because of how much it stands to save them personally wouldn't have incentive to get behind it because it would actually cost many of them more.

I agree.

And one of the local, not for profit hospitals pays $10,000 every Saturday during baseball season to put on a fireworks show at the ball park.

And we have 6 $7 million MRI machines here, when there are only enough patients needing MRIs to justify 1 machine. But NO hospital wants to share their MRI machine, they want their own.

IMHO insurance companies are greedy, but a lot less greedy than not for profit hospitals.

Sponsorships are a very real area for concern/questions, but the MRI machine situation is capitalism in action. Every hospital wants to improve their rankings, because that's how they attract patients and doctors. And one of the things they're rated on are their facilities. Another is their wait times. The rankings distort the incentive structure so that facilities make decisions based on something other than patient demand and cost-benefit analysis, because they view the rankings as key to future patient load and funding. It is just like high schools steering kids to university over community college, regardless of ability to pay, because the percentage of students going on to university is a key school-quality metric and that metric is key to attracting students which in turn determines funding.

 

[wvjules]

No, a flat tax is not fair. The VAT/Consumption tax above is even worse.

 

[tvguy]

Sponsorships are a very real area for concern/questions, but the MRI machine situation is capitalism in action. Every hospital wants to improve their rankings, because that's how they attract patients and doctors. And one of the things they're rated on are their facilities. Another is their wait times. The rankings distort the incentive structure so that facilities make decisions based on something other than patient demand and cost-benefit analysis, because they view the rankings as key to future patient load and funding. It is just like high schools steering kids to university over community college, regardless of ability to pay, because the percentage of students going on to university is a key school-quality metric and that metric is key to attracting students which in turn determines funding.

And that baffles me. I haven't had a choice of Hospitals in 30 years. I have to go to the facility that my insurance has a contract with (other than in an emergency) and that my Doctor has staff privileges at.

 

[barkley]

It is better than what we have in Washington State where the lower income residents pay 20% and the high income residents pay around 5% in local and state taxes.

where in Washington state does this apply? in our experience local and state taxes (sales, property...since there is no personal income tax) is strictly driven by city/county a person lives in and to some extent (certain types of sales) where (city/county) a person makes a purchase in.

 

[gottaluvPluto]

Someone making above a certain amount doesn't have some of those options either.
Get rid of all deductions and credits for above a certain income threshold, like the pp said $20K and then do a flat tax.
But, it will never happen it is just way too complicated and gov't will never reign in their spending.

Don't forget that as you make more it is harder to put money in a retirement plan. For example, a friend (who has no retirement plan at her job) of mine was upset because they made too much to put $3,000 in a Roth IRA and if they put the $3000 in a traditional IRA only $670 was allowed to be deducted. Her husband has a 401k plan, but that shouldn't count against her.

Then some people have to worry about the Alternative Minimum Tax.

 

[Colleen27]

Get rid of the income tax completely, and go to a VAT/Consumption/National Sales tax. This taxes based on how much is consumed, so the low income earner that eats ground beef (just an illustration, groceries would be exempt from sales tax) would pay much less in taxes than a high income earner who eats filets. A better example, someone who buys a bottom of the line vehicle vs. someone who buys a luxury car with all of the bells and whistles. Designer clothes vs. Kohls or Target, the list goes on and on. There are no deductions, and the only way a high income earner would pay less in taxes, would be to not live like a high income earner.

That's confusing tax dollars with tax rates, though. In terms of effective tax rate, it is just the opposite.

For example, using a 25% consumption tax for the sake of easy numbers:

Family A is working poor. They earn 30K/year and pay $10K of that in rent. Virtually every dime of the rest goes to food, clothing, medicine, car repairs, etc. so it would all be taxed. Effective tax rate: 16.6%.

Family B is middle class, earning 100K/year. They pay $30K/year in mortgage and utilities, contribute 10K to their retirement accounts, and put an additional 10K into a HSA, 529 or other savings vehicles. Even if they spend every dime of what's left on taxable goods, they have an effective tax rate of 12.5% - considerably lower than the working poor family.

Family C is well-off, with an income of 1mil/year. They spend 150K/year on mortgage and utilities on their primary and vacation homes. They also spend 100K on foreign travels and overseas shopping, which isn't subject to U.S taxes. In the U.S., they spend fairly freely and make 250K in consumer purchases each year. The remainder of their income goes into investments and savings. Their effective tax rate is just 6.25%.

Any consumption-based model ends with the same result - those with the lowest incomes pay the highest rates, because they have no choice but to spend most of their income, while those with the greatest ability to invest and save pay less.

 

[DopeyDame]

Don't forget that as you make more it is harder to put money in a retirement plan. For example, a friend (who has no retirement plan at her job) of mine was upset because they made too much to put $3,000 in a Roth IRA and if they put the $3000 in a traditional IRA only $670 was allowed to be deducted. Her husband has a 401k plan, but that shouldn't count against her.

Then some people have to worry about the Alternative Minimum Tax.

Your friend is still welcome to save as much as she wants for retirement. It's just the tax deferred/deductible portion that's limited.

 

[Colleen27]

And that baffles me. I haven't had a choice of Hospitals in 30 years. I have to go to the facility that my insurance has a contract with (other than in an emergency) and that my Doctor has staff privileges at.

Are you in a rural area? I've always had a choice, and we have had some really crappy insurance plans through the years. I pretty much have to drive into suburbia for medical care, but there are three hospitals at about equal distance from me. All three accept my insurance and I have even more choices if I extend the radius out a bit more.

There's a real battle for patients, especially patients with good insurance, in this area. Smaller and rural hospitals tend to lose out and end up closing because they can't offer on-site MRI and other diagnostics and facilities that they don't really need for their patient volume. My part of the county just lost our only local (within 15 minutes) hospital because of that - people stopped going there for non-emergent care because being transferred to the next-closest facility in their system for advanced testing or specialty care was so inconvenient, and the ER was a money loser. So now the building is a walk-in clinic and birthing center, and the closest ER is in the nearest full-service hospital, about 45min away.

 

[Liberty Belle]

I do not support a flat rate tax.

I think anything else I had to say would stray into the political arena, so I'll stop with that.

 

[gottaluvPluto]

Your friend is still welcome to save as much as she wants for retirement. It's just the tax deferred/deductible portion that's limited.

Yes, she still put it in a retirement account. However, it isn't fair and now she will be taxed twice on that money.