Skip to comments.A Kinder, Gentler Flat Tax (But with Tax-the-Rich Unlimited Payroll Tax)
Posted on 10/02/2005 9:51:56 PM PDT by indianrightwinger
A Kinder, Gentler Flat Tax John C. Goodman, 09.29.05, 12:07 PM ET
How to reform our tax system--and satisfy both the left and the right. Steve Forbes has done a commendable job spelling out why America's tax system must be simplified. Scrap the mind-numbingly complex, loophole-filled, savings-averse code, advises the editor-in-chief of this magazine, in favor of one elegant, clear rate. A flat tax is what America needs.
That all sounds good to me. But I think we can do even better. Under Steve Forbes' plan the flat rate would be 17%. All families would get generous personal exemptions, so that a family of four would not pay taxes until its income exceeded $46,000. To encourage growth, the Forbes plan exempts income that is saved and invested. Which means that the Forbes plan is really a consumption tax. It taxes people based on what they take out of the system, not on what they put in.
I would offer Americans an even lower flat tax rate--14% as opposed to 17%--and at the same time do more to help low-income people. Boston University economist Laurence Kotlikoff and I have put together a plan that works in the following way.
First we'd get rid of the across-the-board $9,000-per-person exemption in the Forbes plan. Why should billionaires like Bill Gates get an exemption? Forbes is giving too much money away to rich people. We'd save that exemption money and give it instead, in the form of a rebate, to the bottom third of earners, those who bring home roughly less than $25,000 for a family of four.
Second, Forbes ignores the 12.4% Social Security payroll tax (split between employer and employee). Currently, income over $90,000 a year is not subject to the tax. We don't think it's fair that a $50,000-a-year autoworker has to pay payroll taxes on all his income while a million-dollar-a-year auto executive does not. Under our proposal all wages would face the same income and payroll tax rates.
There is just no way Forbes' plan would ever fly in Congress. Politicians are not going to adopt a system that taxes the wages of the rich at a lower rate than the wages of blue-collar workers. Under our proposal all wages would face the same income and payroll tax rates. And these rates would be paid only once. After that all savings would accumulate tax free.
Our plan allows us to have a lower flat-tax rate and produces results that should appeal to conservatives as well as liberals. What conservatives most want is an uncomplicated system that taxes income only once (when it is earned) at one low rate. Liberals are more concerned about progressivity. They want the rich to bear more of a burden than the poor.
The left objects to most consumption tax proposals because they are not progressive. Low- and middle-income people would pay a greater share of what they earn than rich people. What we are proposing is more progressive than the Forbes flat tax. It's also more progressive than the current system. Using economic modeling, Kotlikoff and I found that under our flat tax the rich would bear more of the burden than they currently do.
We would also use the rebate of tax dollars to the bottom third of taxpayers to solve other social problems. For example, instead of people automatically getting the 14% rebate, we would require them to show that they have health insurance and a retirement pension as a condition. Specifically, to get one-half the rebate (7%), low-income families would have to produce proof of health insurance. This would encourage millions of people who qualify to enroll in Medicaid or in their employer's health plan. Barring that, families could apply the tax rebate to health insurance they purchase on their own. We propose making the other half (7%) contingent on proof of a pension, an IRA, a 401(k) or some other savings account.
So instead of national health insurance and more government spending on the elderly, we would use our flat-tax proposal to urge people to solve these problems on their own.
President Bush wants to reshape our tax system. Many in Congress agree on the need for change. The oft-repeated objection is that tax reform benefits high-income taxpayers at the expense of low-income taxpayers. That objection need not apply.
I always love the term "rebate" to people who dont pay taxes...
Is there a link?
AM -- could you please put the link to the article in. It seems like it wasn't included.
Sorry, I missed it this time. Don't know how to edit the post.
Once you posted it, you can't edit it, only the Admin Moderator can, that's why I also sent him the post.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
Thanks!! I learn. Still fairly new here.
Not with an unlimited 12% payroll tax....
I will NEVER favor that idea, no matter what context.
No problem. The article is a good find, and you'll learn the posting methods.
Man! The Forbes site is just crawling with annoying pop-ups. Ugh! What makes them think people want to be annoyed like that?
You need a firewall or set your IE to stop pop-ups.
Self employed people pay the full 12.5% in addition to all the other income taxes.
Social security is suppose to be for my own retirement. I don't get more back if I pay more in. That's wrong. Many state and federal employees have gotten to opt out of SS. They get a drastically better deal. What they pay in goes to what they actually get back.
I think you ought to be able to provide a bond or some other financial instrument to prove you won't need taken care of later and be able to opt out entirely.
I do have a firewall that stops most pop-ups. But Forbes has that annoying "Take This Survey" box that hovers in front of you wherever you scroll on their page. My firewall does nothing for that.
What is IB4TZ?
IB4TZ means "In before the ZOT." Turbopilot suspects you are a troll, presumably because your registration is so recent. You don't appear to be a troll to me. Welcome to FR.
I am new to FR.
On the post, it is from Forbes.Com. Forgot to add a link, which someone pointed out and thought the Admin will correct that.
Not for those who want to get rid of the IRS and considering how well the "Fair Tax" book is selling, that is a LOT of the people.
Thank You! Yes, I am new. Joined because I am true believer just like most here.
The reason I posted this one is because of its "Liberalism" in Flat Tax clothing.
I am a big believed in Forbes' flat tax idea. That is the fairest and simplest tax.
Reading it right now...
There. I fixed it.
Ever notice that the terms of the debate are always couched in terms of that mythical "family of four"?
Lost in the fog of flim flam is the reality that everone else (except the "low income" non-producers, but voters nonetheless) are getting the massive royal shaft.
Really? My wife and I who have paid the max over the last 35 years will probably never see a cent.
Uhm, I think there is a difference among/between Federal Income Taxes, State Income Taxes, and FICA. Some folks need to read their pay stubs, or talk to someone who can explain a 1040. IMOHO.
1. No executive worth his salt will get paid a million dollar salary as normal 1040 income. They would try to launder it through various means, including stock, options, 1099 income, or (if she wants to be really sketchy) forgiven company loans.
2. Most [liberal?] rich people do not work, so the idea of income tax is a non-issue. They just like to make it that much harder for rest of us, Horatio Alger-inspired riff-raff from joining their country clubs.
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer for additional information:
One should be taxed on what one takes from the common pot not what one puts into it.
Government having a claim on your earnings, before you ever receive them, is contrary to any reasonable concept of a free society. First option on how one's income is to be used or allocated must go to the citizen not government.
- "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."
- "A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."
- "The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury."
"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "
"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."
I agree with virtually every one of our founding fathers that taxes should instead be on consumption!
There, I fixed it even better.
PLEASE keep the difference between wealth and income straight.
The INCOME tax hurts those still TRYING to get rich, NOT the ALREADY-rich.
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I can make those decisions for myself, thank you. I don't need or want the government doing it for me.
"We would also use the rebate of tax dollars to the bottom third of taxpayers to solve other social problems."
Pardon me, but where in the Constitution does it give politicians the right to tax me at all to "solve other social problems"?
It does not. Only in liberals' mind.
Why?? The "Fair Tax Nazis" get away with it twice a week, 52 weeks a year....
And they've hijacked this thread already... guess it's time to "flush it" to the SBR....
Is there a specific reason you revived, and pinged me to, a year-old thread?
Yeah, but 23% the first year? Geez! Add the 8 to 9% of the state sales tax and it gets pretty spendy. Also, you know the swine in Washington are going to keep jacking it up. I do not like our current system, but I just don't trust the buggers.
Also, the cost of a house is going to go through the roof.
Are you aware that the 23% is on NEW goods and services only. Used goods are not taxed.
Are you aware that the 23% would also get rid of the social security and medicare payroll taxes? Meaning that there would be no more federal tax deductions of any kind from your paycheck?
Are you aware that states with sales taxes could conform their sales tax base to the fairtax base and drastically lower their rates without loosing any revenue at all?
Also, you know the swine in Washington are going to keep jacking it up. I do not like our current system, but I just don't trust the buggers.
Nor do I and when the income tax and the IRS, with all their records, are gone (the fairtax bill repeals the income tax, defunds the IRS and requires the destruction of all their records.) Joe Sixpack will then be, for the first time ever, acutely aware of what all this wonderful government is costing him! I somehow doubt that the rate will go up under that condition.
Also, the cost of a house is going to go through the roof.
Not at all as the embedded costs of the current tax system will be removed from every nail, 2x4, and brick used to construct it AND you won't have to first earn $500,000.00 in order to have the funds left over to buy that $250,000.00 home!
You REALLY should visit the fairtax website and do some serious learning!
Yes, I read the tax elimination section. I like that part of it. I'm fairly certain that no state will reduce any part of their taxes as a result of a federal fair tax.
You may be right about taxes not going up with Joe Six Pack realising the cost to him, but the pols will simply couch it in terms of how much Joe will get vs what he pays, and most will fall for it, just like they do now.
A $250,000 house will have an added cost of $57,500 in federal taxes. The current taxes on nails, lumber, etc. will remain in effect as they are taxed at the state level. Supposedly, the lowering of interest rates will offset the added cost of the tax, but that tax is an upfront cost as opposed to a cost spread out over 30 years. Folks will have to come up with a much larger down payment.
I've been called to dinner.
I will continue to read and ponder.