<p>First, I don’t even know why on earth you would bring WIC into it, Miami. I don’t know why food stamps would even be an issue.</p>
<p>Also, if you listen to what is being said, if you tax unearned income as well as earned, you would probably have a lot more money, given the rates that would work, there. In fact, I don’t “get” why on earth we would tax earned but not unearned. </p>
<p>Total flat tax rate, exempt earnings up to the poverty line, heck exempt FICA from up to the poverty line, but tax all income at 20% after that, no loopholes? It would be so much better for everyone.</p>
<p>No more bazillionaires paying 13% in taxes. Everyone pays 20% on all income over the poverty line.</p>
<p>Too logical. No way to pay back constituencies.</p>
<p>I know, but ALL income is taxable. Unless all income is taxable, at this point, it’s just a corrupt game of monkey in the middle.</p>
<p>It’s not possible. It will always be gamed by those in power both inside and outside of the government, on all sides of the proverbial aisle. Capitalism has failed. Democracy is for sale.</p>
<p>I would tend to agree with you, but would the government like to admit that all of the money has been essentially embezzled? </p>
<p>Would they really like people to examine the financial assumptions of these ‘retirement’ systems? All of the money that people are paying today is immediately shuttled out the door to pay off previous investors. And the only way that you will ever see any of your money back is if the government continues to find sufficient suckers in the next couple of generations. </p>
<p>As a value proposition its crazy. Are today’s 5 year olds, when they are in their 20s really going to buy the actuarial assumptions behind this thing to continue to finance it? Are people still going to be retiring at 67 and living another 12 years and then dying to conveniently stop drawing benefits?</p>
<p>In thinking about stuff like this it’s good to have a basic understanding of the outline of the situation. Currently, federal outlays are about 24% of the nation’s GDP, slightly above the norm for recent history, which has ranged from 19% (Clinton years) to 23% (Reagan years) over the past 40 years. Over 70% of that goes to just four items: Interest on the debt, Social Security, Medicare, and Defense. The combined total of AGI reported on all personal income tax returns is only about 60% of GDP. </p>
<p>So (a) you can’t cut government by 80% without defaulting, abandoning our defense or throwing a bunch of sick old people into the streets, and (b) you can’t fund it with a flat tax of 10%.</p>
<p>There are no magic wands. We’ve cut our basic tax rates well below what American taxpayers paid just 30 years ago. Federal revenues as a % of GDP haven’t been this low at any time since the Korean war. Taxes are the price of living in a civilized country. Wishing it were otherwise won’t make it so.</p>
<p>And federal outlays are higher now as a percentage in part because tax revenues declined dramatically with the financial crisis. The trend is back toward the historical levels.</p>
Currently, personal income tax accounts for about 45% of the federal gov’t’s revenue. To replace the current revenue stream with a completely flat tax would require a rate in the 10-12% range, as shown above. If you are trying to increase revenue, or have income tax be a larger portion of the total revenue pie, then you need a higher rate.</p>
<p>Just imagine:</p>
<p>Your employer withholds 10% from your paycheck, just like they do with SS, and sends it in to the gov’t. Your bank withholds 10% of interest you make, your broker withholds 10% of your capital gains (they are required to track basis now), dividends, IRA withdrawals, etc., and sends it in.</p>
<p>Something like, what, 80% of everyone would no longer have to fill out a tax return. Heaven on earth. :D</p>
<p>You want to give the working poor a break? No problem - no withholding on the first $20K (pick a number), now you need a rate of 15% or so, maybe less. Payroll programs can handle this trivially, the infrastructure for submitting to the gov’t is all in place.</p>
<p>The problem with flat taxes, yet again, is that when you actually do the numbers they amount to a large tax increase for the poor - unless you start exempting lots of people - and then a tax increase for the entire middle of the country and a large tax cut for the top quintile. I don’t understand why that is attractive to anyone other than a rich person. </p>
<p>As I noted in an earlier post, the actual effective federal rate for the middle quintiles is 14%. (That’s from the Tax Foundation, which is not left wing.) This aggregate includes things like mortgage deductions, child deductions, etc. So imagine a basic taxpayer with a house and 2 kids. That taxpayer is exactly the kind of person this country wants to encourage - stable, invested in the country, trying to improve circumstances - and yet that is exactly the person whose taxes will go up as you take out deductions. </p>
<p>I also don’t understand the desire to destroy wealth. I believe the census says somewhere in the 60-67% range of all housing units are owner occupied. Most of their net worth is in the housing, again from census figures. Eliminate the home mortgage deduction and what happens to the value of houses? Eliminate the state and local tax deduction and what happens to the value of houses? You can argue that if we could somehow magically put in a lower rate - some non-achievable 10% flat rate - then it wouldn’t matter but if we’re near the 14% rate now paid then all homeowners would be hurt relative to all non-homeowners. Why do that? What public policy purpose does that serve? Why make it less affordable to pay real estate taxes that maintain schools?</p>
<p>Lergnom, you are correct about the flat tax. The wealthiest people in this country push this tax. Plus they want capital gains excluded from this tax because their poops don’t stink.</p>
<p>The mortgage deduction has problems in my opinion. It encourages people to buy more housing than they need. Housing is a consumer good. Do we really want people to put their wealth in consumer goods? Housing is costly. Time for a new kitchen. New bathrooms. As an investment homeownership is pretty poor. As a consumer good, it is great.</p>
<p>What we need first is an actual budget and not the silly stopgap measures ‘minibuses’ and the government playing kick the can down the road every year or four years.</p>
<p>Lergnom, I could see what you say about the interest rate deduction possibly being true when interest rates were really high, but you can get a loan for a house now at well under 4%. If I’m not living somewhere with housing significantly higher than the national average, how much better am I really doing versus a standard deduction by having my mortgage interest be deductible?</p>
Current “on-budget” federal expenditures (i.e., excluding social security) are about $3.1T. 45% of that is about $1.4T The total income reported on tax returns in 2009 (latest year with IRS reported statistics) was about $8T. During the Clinton years - the closest we’ve come to a balanced budget in recent history, but not quite, when you exclude FICA - the average tax rate based on all reported income was over 14%. 10 to 12% of all income might “replace the current income stream” but that income stream is insufficient to pay the bills. That’s why we’re running a deficit.</p>
<p>And, of course, when combined with the other taxes folks pay, the total tax burden would become wildly regressive, with poorer people paying a much higher portion of their overall income in taxes than the wealthy.</p>
<p>I’d be more inclined to go with the Buffet rule.</p>
<p>I don’t actually understand what’s so difficult about that to understand, sylvan. </p>
<p>I also don’t even care if they make the tax rate flat.</p>
<p>I do care that they stop monkeying around with people being able to have “income” at capital gains rates. The wealthiest people in America don’t care if we have a flat tax or a graduated tax. They just want to make sure we keep it as an “income” tax. Or maybe we should call it a “wage” tax. </p>
<p>What they do not want you to do is tax their unearned income, their stock options, etc. I say, tax all of it. Do it at a graduated rate. But tax all of it. by income, to be clear, I mean any money you earn this year in goods and services and stock options and partnerships and blah, blah, blah, AND in wages.</p>
<p>Notrichenough, you’re right about 2009. And as I said, you can replace the current income stream with a 12% flat tax (plus 15% FICA tax on earned income) But that won’t pay the bills. in 2009 “on-budget” revenues were only 50% of “on-budget” expenditures. Factor in the growth of the economy since that year and you don’t need to double rates, but 12% clearly won’t do it.</p>
<p>I double-checked the 14% figure against the IRS data on the middle quintiles - that’s from the 2nd quintile that starts at about $18,500 (sad, isn’t it?) to the 4th quintile that tops out at $88K - and in fact the total income tax revenues are indeed about 14% of total income. (About $250B in taxes paid on $1.8T of income.)</p>