(no subject)

[theweaselking]

James Nicoll explains his plans for the true Flat Tax.

You know, I'm not a guy with a crazy tax plan, but I have yet to have anyone explain to me why the plan of "Exempt the first X income from taxes, tax the rest at a Y flat rate" is unworkable.

And, honestly, I think I really must be missing something, here, because nobody *does* it.

Define your poverty-plus-a-bit level - pulling a number completely out of my ass, say $25,000/yr.
Define your tax rate - from a similar location, let's say 20%.

The first $25,000 you make in a year, from any source, is tax-free.
The rest, no matter how little or how much it is, is taxed at the flat rate.

Calculate exemptions however you want, but simply make all exemptions count as additional money you can claim tax-free over your initial $25,000. If you want education to be subsidised, deduct tuition at accredited institutions from your total earned income. Want to encourage children and make things easier for families? Add $10,000 per dependent child to the allowed "no-tax" amount.

Obviously, I'm pulling these numbers out of my ass. That's not the point. The point is, in PRINCIPLE, what am I missing? Why does this not actually work?

Comments

[theweaselking.livejournal.com]

Couldn't your second disagreement be resolvable simply by setting the tax-free exemption bar higher, and increasing the tax rate above that?

Make it $100,000 and 20% taxes, just so that my example numbers are easier to crunch. THis means that a guy making 100k pays nothing, a guy making 150k pays 5%, a guy making 200k pays 10%, and a guy making a million pays 18%, and a buy making a billion pays pretty damn close to 20%.

20% of a billion isn't much when compared to the whole, but it's monumentally more than 5% of 150k or 0% of 100k.

(As for your first disgreement: The family is in the exact same situation it was last month, or last year. They just pay less tax, now, on their limited income. While it may not solve the problem, I do have difficulty in seeing how it will hurt them in real terms.)

[kjn]

Well, the second disagreement really needed another clause, that of the marginal value of money. That is, the value of each part of your income for personal means diminishes once a certain threshold has been reached (which is basic living expenses of a good standard). A 10% wage increase would be valuable to me, given my current modest wage - it'd immediately increase the standard of living and economic safety for me and my family. However, for the very rich, the only thing a 10% increase can do is either increase gratutious spending or put on the pile, doing no good whatsoever[1].

The same is true on basically every income level, and so it makes sense for the state to take that money just lying in a pile, doing no good whatsoever, and put it to actual use.

The next thing to consider is that the majority of the total taxes will be paid by the middle class. Each will not pay very much, but there're plenty of them (if you only have poor and very rich, then the poor get seriously screwed). You have to get them onto the tax system, and the best way to do that is to tax the rich - a lot.

[1] This is where the amazing expansion of the capitalist economy is hidden. The capitalists can use that extra money by investing it, and thus make even more money. But right now we're talking personal money only, not capital.