That makes no sense. Paying more taxes does not give more say in the political process. However, unfortunately, today making bigger campaign contributions to candidates or parties or PACs does. The flat tax does nothing to that power gap – heck, it gives those with higher incomes more money to influence politiccs, and makes the poor scramble harder to pay for the basics.
Of course it makes sense. People complain that the 1% have too much influence in politics and they pay a vastly disproportionate amount of the government’s bills. Of course they are going to have a disproportionate interest in politics and spend a disproportionate amount of money to influence politics. A flat tax would go a long way toward neutralizing everyone’s willingness to unduly influence politics. If everyone paid the same rate, nobody could make the argument to screw someone else at his expense (the way it works now). If voters (and businesses) were confident that rates would stay flat and regulations minimal/constant, they would find better uses for their money. The only changes to the tax code under a flat tax would be whether to increase or decrease the rate equally for everyone.
Do you mean specifically the federal income tax (i.e. Romney’s 47%)? Or taxes in general? Many of Romney’s 47% do pay payroll taxes on their wages and salaries, as well as sales and other state/local taxes.
yes, income tax, which is the topic or the thread.
If you have a view that there should be no situational cases of special treatment, then you can logically make the case that the tax rate for long-term capital gains (after adjusting for inflation) should be the same as that for income.
But if you have the view that the tax code should be used to incent desirable behavior, then lower taxes for long-term capital gains makes a great deal of sense. Current income is guaranteed, whereas a long-term investment can be at significant risk.
The reason that America is considerably richer than any other collection of 320M people in the world is due to its encouragement and appetite for risk. And to be clear, I am talking about risk taking where if the investment goes south, the investors are the ones that bear the loss, not the “let’s privatize gains and socialize the losses” type of risk taking that happened during the Great Recession.
Actually the topic of the thread is taxes and higher ed. Not taxes in general.
Taxes on endowments.
Taxes on Grad student tuition waivers.
Elimination of student loan interest deduction.
Seems to me that certain members of Congress do not favor Higher Education
Those are two separate complaints. People complain that the 1% have too much influence in politics because they “pay to play” via donations. In years when I’ve been in a higher tax bracket, my senators and representatives don’t listen to me any more than they listen to anyone else. But big donors, the people they “dial for dollars”, THEY have a say.
On another topic, it sounds like the Senate has released their version of the bill. The only change I see related to education so far is that student loan interest would still be deductible under the Senate version.
@intparent - “Dialing for Dollars” is right!!
I’ve read that they are required, by their Party Leadership, to spend 4 hours a day doing just that, and that they have dollar quotas to meet.
That is hopefully good news regarding the Senate version.
So far no one reporting any change to the PhD waiver taxation by the Senate. I worry that you are right in post #175. I think there are plenty of members of the party in power that just want to stick it to higher education, even their own state universities. 
Ugh. I’m so angry and a tad scared.
Well, all people should tell their friends and family, especially grad students telling their parents and grandparents, about this, and the number to call for their representatives in the House and the Senate.
If they’re Democrat, to encourage them to fight this. If they’re Republican, to express opposition. In both cases give real stories about the impact.
I emailed my Fox news Republican dad with a link to one of the articles and a comment on how this would impact D2. He has been silent.
However, long term capital investments also tend to have significantly higher possible gains than current income. I.e. higher risk, higher potential reward.
Even if you take this viewpoint that long term capital investments should have added tax incentives, should the incentive be a tax rate cliff at the one year point for the holding period, as it is today?
What would make more sense for capital gains would be to use regular tax rates, but multiply the basis by an inflation factor based on the length of the holding period. This would eliminate taxation of gains that are purely due to inflation. In this model, if one desires an additional incentive, an incentive adjustment of an extra percent or few can be added to the yearly inflation rates used to calculate the inflation factor. This way, the tax incentive increases gradually with the length of the holding period, rather than being a cliff at the one year point.
I was a grad student back in the day and benefited from this tax treatment. Neither of my two kids are likely to go for a PhD so I don’t have a personal stake, but am deeply worried that there will be no real way for talented (especially STEM) kids to do advanced study. The opportunity cost, already high, will be insurmountable.
But just on a “putting this in terms that everyone can understand” (rather than only those who have experience in the arcane world of PhD funding):
How is this any different than starting to tax need-based, or merit-based tuition scholarships for undergraduates? Wouldn’t people hit the ceiling over that? That low-SES kid who gets a full ride to Harvard is getting 60K+ of value per year. Shouldn’t he have to pay taxes on that money? (SARCASM folks).
The issue is fundamentally the same. The school is making it possible for a student to attend, based on whatever criteria they have for awarding such tuition "discounts’.
An article from Forbes (which is generally very conservative).
"How is this any different than starting to tax need-based, or merit-based tuition scholarships for undergraduates? "
Because the grad student is working for the tuition, teaching classes, running labs and programs. These are things the school would have to pay an employee to do if they weren’t giving the grad student something of value. If a merit scholarship isn’t given, the school would still go on with that empty seat (or probably one filled by a full pay student). The merit scholarship is an award for past learning and work. Sometimes the IRS does tax prizes and awards, but often doesn’t.
I can see the grad students arguing is that they aren’t being paid the going wage for their work. If it is an instate student, the student is being ‘paid’ the instate tuition rate. Another student might be doing the exact same work and yet is being ‘paid’ twice as much as an OOS student. A student at a private school might be ‘paid’ even more. If these students were being paid on the open market, they’d all probably make about the same and it may not have anything to do with the tuition.
This is why we need a flat tax. Everyone is an expert in what should be done with everyone else’s money and knows precisely what rate each dollar from each source should be taxed.
To that end, the appropriate tax rate for capital gains and dividends is 0%. The income used to buy those shares was already taxed. Plus, the business itself is paying taxes which is factored into its valuation. How many times can a dollar be taxed before it is taxed enough?
Say your net state and federal income tax is 25% of your income. Say that the tax on capital gains is 25% as well. If you make $100 you could spend all of your net of $75 after taxes or invest it. If you invest and the investment grows at a typical average of 7% a year and you hang onto it for say 30 years, then it will be worth about $600. Sell it now and you owe $150 in additional taxes. The income of $100 incurs a total of $175 in taxes plus the risk of investing plus the 30 year delayed gratification relative to the guy who spent all his money. You could argue that the spender paid sales tax, say 6%. OK, settle on a 6% capital gains tax to keep it even. People wonder why we underfund our own retirement savings.
Colleges are just going to reduce the rack rate of their tuition to compensate for the tax. They will adjust tuition down for STEM , which is typically fully funded, to extremely low rates and keep it the same or raise it for non-funded areas. It will be the opposite of the current surcharges for business and engineering/CS at many schools. How ironic is that?
They do have some students who pay full price (whether advisable or not). They’ll lose that income. Plus, some colleges charge all graduate students (masters who are paying and PhDs) one rate per credit hour. It seems like tax evasion to change that.