Why do people whink they would be better off with a Flat tax?

Question

"If progressive taxes soak the rich, and regressive taxes soak the poor, why do we almost never hear the term, "soak the poor"? Perhaps that is a "loaded" question?

Let's imagine two frugal traveling salesmen. They each have to buy a new car every four years to (say) keep up appearances, and they need reliable transportation.
(One guy makes 20K, the other 300K)
Run the numbers on a the RATE of total income each pays on on 5% sales tax.

Poor Boy buys a $20,000 car pays $1000 or 5.0% of his income.
Rich Boy buys a $60,000 car pays $3000 or 1.0% of his income.

Poor Boy has 5 times the tax bite, or rate of tax on a car. Rich Boy hardly feels sales taxes.

Then run the numbers on a $30 pair of Levis, and the tax rate discrepancy triples.
Sales tax is NOT a flat tax. ""

http://www.psnw.com/~bashford/taxation.html

Answer 1

Right you are
The big supporter of the flat tax is the super rich Forbes, who made his fortune from inheritance

Answer 2

I think you've found yourself in two separate arguments.
The Sales Tax is one thing.

The call for a flat tax is a Income Tax.

A Flat Tax doesn't "soak the poor."

Let me tell you another secret:
The Progressive Tax is regressive...
Here is how:
Let's say Joe is rich, he has $50 Million in the bank, stocks whatever. He is rich, he doesn't need a high income. So he doesn't have one, he is in the lower tax bracket, Paying less Income Taxes.
Jim is not rich, he doesn't have money in the bank as a base, therefore he must make money to increase his standard of living. He works hard, has works his way into a well paying job, into the higher tax bracket, he is taxed more.

It is the Middle Class and Upper Middle class who are taxed in this country, not the poor, not the rich.



5% of Wage Earners in the US pay 50% of the Taxes in the US
10 % pay 65%
50% of Wage Earners in the US Pay over 95% of the Taxes.... is that fair?


You don't want to pay high sales taxes, don't buy high priced designer.

Besides, most the stuff people buy are luxury items anyways.

The United States is about Equality of Opportunity, Not Equality in condition.

Answer 3

Try another set of scenarios:

A. 1. Poor Boy earns $40,000, pays 15% in taxes, nets the government $6,000
A. 2. Rich Boy earns $200,000, shelters all but $100,000 in tax deferred investments, takes out return of capital, leaving $90,000. He pays capital gains rate on half, or $45,000 ($45 x .15 = $6750), Has special deductions and write-off for about half of what's left, and the alternative minimum on the rest, or about $22,500 x 30% = $6750. . The IRS collects $6750, plus $6750, or $13,500
A. 3. Accountant buys aspirin; government collects from both a total of $13500 + 6750 , or $20,250

B. 1. Poor Boy earns $40,000, pays a flat tax of 10%, or $4000 ($2000 less)
B. 2. Rich Boy earns $200,000. There are no longer shelters or varied rates. Rich Boy pays 10%, or $20,000 ($6,500 more)
B, Government nets $24,000, or $3750 more, the accountant stays out of the health care system, and Poor Boy buys a 15 weeks' worth of groceries.

A is realistic, but a good accountant could shelter and hide even more of Rich Boy's income. B is flat tax.

A sales taxes affects the poor disproportionately because such a larger percentage of their income goes for food, transportation, and basic goods.

Our current "graduated tax" system has so many hiding places that a person with the right kind of income could come out paying little or nothing - less than someone who earns far far less.

The flat tax is less complicated, and is truly fair because it exposes otherwise "sheltered" income.

EDIT - while I was typing, several people answered. There seems to be a lot of confusion here about terms.

A FLAT TAX is a single tax rate that applies to income, not expenditures.
A REGRESSIVE tax is one that causes poor people to pay more than rich counterparts.
A PROGRESSIVE tax is one that supposedly requires rich to carry more of the burden by making it a "more you earn, more you pay bracket" system.
A SHELTER is a way to invest money that earns income, but you don't pay taxes on the income. This is generally seen as a way to encourage a particular kind of investment.
Tax DEFERRED means you don't pay taxes when the money is earned, as you would when you earn a paycheck, but rather when you "realize" it, or take it out of its investment setting, usually after retirement when your income from other sources has slowed, and your bracket is lower.

A SALES TAX applies to purchases. The more the item costs, the more you pay. If you and I both buy groceries for the week for $100, then we pay the same taxes, even if you earn $3846 (just under $200,000 per year) and I earn $770( or just over $40,000) for the week.

Answer 4

I believe no wage earner in this country should report to our government. No tax forms, nothing to sign, period.

People do not make a choice to work, they must work to survive. People do make a choice to go into business for themselves, invest, etc. They are the ones who should report income and pay all taxes through business and wages for workers, do all tax forms, even for individual wage earners. All burdens of reporting should be on business without the general public ever feeling the sting of the IRS.

Flat tax is stupid, it would give the middle class a far higher burden because they will have less percentage of disposable income then the rich. Fee's and obvious and hidden taxes, interest on loans are a terrible burden to the middle class and robs from their percentage of disposable income.

I believe in a progressive tax, the rich pay more percentage, the middle class less. The poor, probably zip.

What is believed now is the rich, through reducing taxes, will invest it in new businesses. Marginally true, but ignores globalization.

If the middle class if given all the tax breaks, they will have more disposable income and the rich will be forced to invest in America more to keep up with demand.

Finally, the rich benefit from our economic system that helps them stay rich. Thus, we have given them welfare with tax breaks, special incentives, etc. They should have a higher percentage of a tax burden for that benefit.

Flat tax or national sales tax is not the answer.

Peace

Jim

.

Answer 5

Sales taxes are by thier very nature, regressive. Not just for the reason you point out, but, more tellingly, because those of lower incomes spend more of thier income - often all of thier income or /more than/ thier income - than higher-income types who are more likely to save & invest. This is a well known economic model (the Keynesian Cross) that is about as close to a 'natural law' as you're likely to find in the dismal science. No politician, beurocrat, or economist who suggests a 'Flat' tax is unaware of it.

If you face a 5% consumption tax, and you save 20% of your income, you're paying 4% of your income in taxes. If you're facing the same tax rate, but spend all your income, you're paying the full 5%. If you're buying on credit, as well, you're paying more than 5%. If your a billionair, and spend only 20% of your income, the 'Flat' tax is taking a 1% bite out of you.

A true flat tax would be flat /income/ (not revenue) tax, with no deductions of any kind.

Another little startling injustice of our 'income' tax is that it's not an income tax for most of us, it's a revenue tax. Every dime we earn is taxed, even though most of us are in the business of selling our labor - and, without food, clothing, shelter, medical care, transportation and numerous other *expenses* that most of us end up spending virtually all our revenue on, we could not sell our labor (because we'd be unemployable, disabled, or dead). But, do we deduct those expenses and pay tax only on our income? No.

Businesses, OTOH, deduct anything that looks remotely like an expense from thier revenues before they pay taxes.

Answer 6

Your argument is utterly ridiculous. You only pay taxes on what you BUY or CONSUME. If your income is lower, you will have more of your own money to put down on a car! And, poor boy pays taxes on that same car ANYWAY along with a tax on his income at the Federal and State level! So he is taxed TWICE under the current system.
Hell, in my City we even pay a local WHEEL TAX after that!
Rich people would pay more taxes because what they buy is more expensive. GET IT?
And politicians cant gain votes by giving out tax breaks to big corporations like candy!
Eliminate corruption, Eliminate double and triple taxation on items for the poor, and the rich will pay FAR MORE than they do right now on their incomes because EVERYTHING they buy is more expensive! and the percentage of tax they pay will be more accordingly.
Your saying that everyone should feel the same pinch on their incomes when buying things?
Thats communism.
Not a Fair Tax, Free, Capitalistic Society that rewards its citizens with the accumulation of wealth through hard work and accomplishments in their lives.

Answer 7

Did the rich guy still pay 3 times what the poor guy did? So why is it unfair to the poor guy. I tell you what why don't we all pay the same amount next year then the following year we will try the flat tax and after that we can ask which you liked better.

Answer 8

If you mean flat tax then... it eliminates a politicians ability to redistribute wealth for votes. This is very important to maintain a free society that doesn't slip into a dictatorship.

Note to Frank M: With a flat tax people that make more DO pay more.

Answer 9

The flat tax only benefits the rich. That's why it's the Republicans that think it's a great idea. Just one more way for the rich to avoid helping society.

Answer 10

Flat tax is not the answer...When you make more you should pay more...Poor people should pay less...Middle class is what keeps the country going!!!!With oil companys making record profits each quarter shouldn,t they be paying record taxes!!!I think so!!!