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Some of the most heated politics debates are about taxes, and who should get taxed more and who should get taxed less on their income.

But there rarely seems to be any debate in US politics as to whether everyone's income should get taxed at an equal rate - e.g. flat tax. (aside from one GOP presidencial candidate in 2012, no other major political figure openly advocated this), which may be argued is the fairest approach as far as people being treated equally under the law.

What are the main stated objections to implementing stated tax in the United States?

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    And just so you know, a flat tax rate just means people get to quibble about what's included in "income"... – Affable Geek Dec 18 '12 at 3:53
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There are two stated disadvantages:

  1. A completely flat tax rate is frequently considered unfair to people with incomes that are below or at minimal survival (poverty) level.

    Let's assume that we have 3 people, one making $10k/year, another making $11k/year, and a third making $40k/year; with an effective state+federal flat tax rate of 10%; and a minimal cost of living in their area of $9,500/year (e.g. rent+food+other non-luxury expenses).

    Now, after taxes,

    • the first person's take-home income is $9k/year. He basically can no longer survive on his own income (whereas he could before the tax).

    • the second person's take-home income is $9.9k/year, down $1.1k. This leaves him $400/year surplus, which is 26% of what his surplus would have been pre-tax. He's better off than the first person, but still, his surplus income just got cut by a factor of 4!

    • Third person's take-home is $36k, down $4k. A pretty annoying hit, but his surplus income is down only 14%, compared to before taxes. Not pleasant, but not nearly as impactful to, say, ability to invest in his future.

    Therefore, a completely flat rate is generally heavily detrimental to people who are close to poverty level.

    As such, at least SOME degree of un-flateness (via tax credits or lower rate) seems to be a reasonable enough policy, since driving people below poverty level is a much heavier hit on the economy (as they would simply drop the job and go on welfare).

    Now, having said that, there is something to be said for flat income tax rate at the income bands where the hit to surplus isn't as drastic, if your goal is fairness and equal treatment under the law.

    For example, if you tax a guy making $100k a year an effective rate of 33% (which sounds about right for federal+state taxes combied), his surplus rate is down ~37%, at 63%. Hardly fair since it's over 2 times the impact compared to the guy making $40k.

    If he was only taxed at the same 10% as #3, his surplus impact would only be 12%, not 37% (to make it completely fair in terms of surplus impact, his effective tax rate should be a shade higher than 10% (13% by my back of the envelope calculations).

    This is where we come to the second state objection comes in.


  2. Now, the second stated disadvantage of a flat tax policy is that it is "unfair" in terms of the absolute amount of after-tax surplus income that people get.

    In other words, people claim that with 10% flat rate (or even the "more-fair 13% I calculated above), the $100k/year guy will take home $80.5k surplus income, which they claim is "unreasonably high" enough to be unfair to the guys making $11k (who only takes home $1.5K even with no tax) or $40K guy (who takes home "only" $26.5k surplus with 10% tax).

    The general counter-argument to that is that is "any measure based on absolute amount of take-home pay will be 100% arbitrary - meaning, some person in government gets to decide how much money is 'enough' for you to make and how much is "too much". So $80.5k is too much to be fair, but $57k is fair enough.".

    If you don't see anything wrong with that, imagine that some day, another person comes to power (let's call him 'Ilyich'), and declares that everyone - you personally included - can only take home no more than $800 above poverty level. What makes that amount any less arbitrary than your decision that $80k is "unreasonably high"? You literally have absolutely no logical, moral or philosophical ground to claim that $80k is "too high" and "$800" is "not too high", aside from utilitarian "there are too few guys making $100k/year who vote, so they are powerless to stop me".

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    @gerrit - the question was explicitly frames as "what are the disadvantages", with an angle to fairness, not "how can we steal more money from people". – user4012 Dec 16 '12 at 16:44
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    @gerrit Implicit in your statement seems to be the assumption that "every dollar collected by the government is a benefit and every dollar not collected by the government is a cost." In addition, you seem to imply that the income distribution brought about by market forces is wrong, and whatever you favorite government determines is right. The logical conclusion of that is for the government to determine everyone's income. blog.qtau.com/2010/12/what-if-government-paid-everyone.html – Sinan Ünür Dec 18 '12 at 1:40
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    @SinanÜnür I wholeheartedly support the statement that an income distribution brought by the market is wrong. It's a very common misconception that a free market makes free people; this is not the case. As for the first statement, redistribution of wealth makes sense because dollars have a much higher use with poor than with rich. See also en.wikipedia.org/wiki/Basic_income_guarantee – gerrit Dec 18 '12 at 9:39
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    @SinanÜnür That link contains numerous falsehoods, btw, but this may not be the right place to discuss them (one I can name is the implication that government employees do not produce anything; that is obviously false). – gerrit Dec 18 '12 at 9:41
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    @gerrit No, this is not the right place to discuss it further, but "government employees who exist solely to take from one person and give to another" do not produce anything that anyone in the market is willing to pay for. In the absence of that task, they would be involved in making or doing things other people want to pay for, therefore increasing the total resources of the nation. – Sinan Ünür Dec 19 '12 at 0:47
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The essence of the objection to a completely flat tax rate is based on a notion of cardinal utility that many find intuitively appealing. It is asserted that an extra dollar is worth less to someone who already has $1,000,000 (Person A) than to someone who has only $10,000 (Person B).

Therefore, the argument goes, taking a dollar from Person A would decrease her happiness less than it would increase Person B's happiness, leading to an overall increase in total happiness in society.

As an economist who subscribes to an ordinal view of preferences, I cannot accept that as a justification. The cardinal approach allows a person to claim that your property in his hands would make him happier than you losing your property would reduce your happiness, and can be used to justify almost any grab.

In practical terms, I think the argument is invalid because income is a flow, and actual wealth is a stock concept.

For example, if Warren Buffett chose to stop making income tomorrow, he would be in the position of Person B, but still live a very good life.

On the other hand, a budding actor may get her first (and maybe only) major movie deal, and make a boatload of money in just a single year (Person A), only to have it taken away to help poor Person B.

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    So essentially the argument is to decrease income taxes and increase estate taxes. That way, stagnant money starts flowing again. – Joe Z. Dec 20 '12 at 0:47
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    @JoeZeng - correct. Another example is same-income-bracked immigrants compared to established Americans in middle-to-upper middle class. Someone born here may be making same exact salary, but they potentially already have a house either inherited from family, or bought 30 years ago while real estate was cheap; and possibly are set to inherit some wealth from family. Therefore, to them, the utility of income is less, as the income cashflow contributes less to their overall wealth/equity.... – user4012 Dec 20 '12 at 23:02
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    @JoeZ. I think it's important to note that an estate tax isn't perfect either. Someone who spends all his (potentially very high) income every year can dodge an estate tax by having few assets. Taxing wealth discourages saving, which can stagnate investment and leave people without a safety net when times get bad. The budding actor from the original example would still get taxed heavily as he had to hold his savings from year to year and live on them, so he would be more likely to spend a large portion and hope he could make more later. – lazarusL Oct 2 '14 at 0:38
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    A major flaw with the cardinal theory of utility is that while people direct some of their income toward personal consumption, many also direct some toward wealth generation; since those who generate more wealth per unit of income earned are apt to be richer than those who don't, that means that rich people will, on average, more effectively direct their income toward wealth generation. While the value of $100 worth of consumption to a rich person may be less than that of $100 worth of consumption to a poor person, ... – supercat Jan 20 '15 at 18:08
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    ...a rich person is likely to direct far more of his income toward wealth-generating endeavors which will benefit not just himself but many other people as well. – supercat Jan 20 '15 at 18:14
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First off we do have a flat tax in the U.S. - Sales tax is flat by most every definition. And property tax is flat by the definition of the owner's income level does not impact the tax (the owner's income level does impact what property they can buy).

For income tax, what is equality? Is it the same percentage, the same total dollars, the same level of pain, the same benefits you accrue from our system, the same level of opportunity, or ...

Key to your question is what do you want to have equal.

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  • Sorry about the vagueness. I edited to clarify. – Zetta Suro Dec 15 '12 at 23:59
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    I Think it is pretty clear that a flat tax is a flat percentage rate of income tax. And actually there are many different sales tax that affect different things at different rates in different areas. Sales tax could be said to be an reverse graduated tax since the poor are going to spend a greater percentage of their income on sales tax than the rich. – SoylentGray Dec 16 '12 at 4:33
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    @Chad Most flat tax proposals have included deductions, some aimed at the poor and some aimed at the rich. I've also seen several "flat tax" proposals that keep the graduated rates but eliminate all deductions. Not sure I would call that flat tax, but it is used. – David Thielen Dec 16 '12 at 14:38
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    @Chad - here you go - the Cato Institute - cato.org/pubs/journal/cj5n2/cj5n2-6.pdf – David Thielen Dec 16 '12 at 15:14
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    can you point me to the part that says flat tax is simply removing all deductions with out changing any rates? The idea promoted here is a 19% rate on consumption with a 12.5k standard deduction. It is not even an income tax but rather promoting something similar to the European VAT – SoylentGray Dec 17 '12 at 6:01
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The reality is a flat tax has no practicable advantage over a progressive tax system.The tax introduces no real complexity to the system. At the end of the tax preparation process, you look your net income up in a table that gives the income tax. That process is no simpler with flat tax than it would be with a tax rate involving complex transcendental functions.

The main objection to a "flat tax" is that it does not address the complexities in the tax code. It is a political distraction from more significant taxation issues.

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  • A flat tax has a very practical advantage: Inflation will not push me into a higher tax bracket when the purchasing power of my income has not increased. – EvilSnack Jun 7 '18 at 2:47
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    @EvilSnack That's easily avoided, so long as the brackets are pegged to inflation. It's not a necessary feature of progressive taxation -- it's a bug in our current implementation of them. – David Apr 2 '19 at 19:08
  • No problem with that, although the problem of a government in denial about the real rate of inflation will remain. – EvilSnack Apr 3 '19 at 2:24
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the big issue have already been addressed, I won't reiterate them too much. The short version being that 10% of someone right at poverty does them far more harm then 10% of someone totally rich. Part of this is because there is a certain minimum amount everyone must spend to survive, so a 10% tax on income may drop a poorer person disposable income (income after minimum cost to just survive) by 99% and a rich persons disposable income by 10.2 %. It's argued that it's the disposable income which really affects ones satisfaction, so the guy who loses 99% of it suffers greater.

Studies do show that the very poor money is a major factor, and an increase of a small percentage of income can have a very real affect on happiness (more by removing stress that they won't have enough to survive), as income goes up the difference in happiness that extra income provides starts to drop quite rapidly. By middle class the difference is actually pretty minimal as income increases. by upper class it has no real affect on happiness. Of course this is only one factor in considering taxes.

However, I wanted to focus on the other issue, our complex tax laws. We have more then just the flat percentage we pay, we have all kinds of deductibles, credits, etc etc that are factored into our taxes.

Some argue that these are too complex, making it impossible for anyone to know how to pay their taxes. When you have to factor in the price of a tax consultant to figure out what you owe then perhaps things are a little too complex? I won't speak to the complexity issue, because it's sort of arbitrary (how complex is too complex?). For now lets look at the difference between a flat tax rate and just one or two of these sort of adjustments, something small enough to not make taxes too complex; is it worth doing?

There is a reason for all these laws, they are designed to encourage behaviors we want. For instance I donate quite a bit of money to charity...or did last year (personal investments mean I won't get to this year sadly). I was not forced to pay taxes on my charitable donations, so I'm encouraged to give my clothing to charity rather then throwing it out because not only will it help people, but it will save me a tiny bit of money. To those who are not motivated by helping others the tax savings can still result in charitable donations, and those donations can help the goverment (better to give a 30% tax savings to someone donating their old clothes to the poor then to pay 100% of the clothes costs in welfare for someone below the poverty line to buy clothes).

I'm looking to buy a new car soon. I seriously looked at an electric partially because of the tax savings on it (turns out it can't manage my long drives). My parents looked into solar panels for their house for the same reason. These savings aren't much, but they can be just enough to push those who are undecided towards these options. In both cases these options help the enviroment, which the goverment feels is worthwhile. By applying tax savings they can better encourage these investments. Ironically my parents didn't get the solar panels because their retired and wouldn't be able to gain much of the tax savings, if they were able to they would have bought the panels.

The point is, by applying adjustments the goverment is able to provide subtle encouragement to every day folks to do things they approve of. While there are other ways to do some of this, for instance subsidizing the solar panel and electric car industry so they can offer cheaper services, doing it through taxes is deemed the best approach (it's more direct control over the results for limited logistical overhead, and allows more competition and market forces over subsidization). Other things, like encouraging people to donate their clothes instead of throwing them out, is really hard to do without taxes refunds.

The goverment feels that this bit of extra complexity in taxes is worth it because taxes are the main way the government can encourage positive activities without mandating them by law.

Personally, with everything so automated I would love for the government to automatically communicate with banks and businesses and generate my basic taxes for me; there is little need for me to manually enter this all when the goverment is already collecting and correlating it! Just let me add in the deductibles I get for obscure things. I should never ever ever have to calculate my tax on stocks, which is annoying enough to make me want to just stop investing in the stock market lol. Ah well, maybe in another 20 years it will happen lol.

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    I sympathize with much of what you say. It's not the "flat" ness of the tax rate that needs addressing, it is the myriad ways in which the government uses personal income tax as a way to tweak behavior. And pander to special interests. – Floris Jan 27 '17 at 21:25
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    @Floris the entire purpose of every law ever created is to tweak behavior. Encourage certain behavior, and discourage other behavior. We wouldn't go through the effort to formalize civil institutions apart from that endeavor. – David Apr 2 '19 at 19:12
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What are the objections to implementing a flat rate income tax in the United States?

I'd imagine accountants wouldn't like it at all, considering it would make people's lives much easier, and their services much less necessary.

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    A flat tax system is not any more/less complex that what we have now. In otherwords, the tax rates isn't any sort of direct correlation to the complexities of our tax laws. – user1530 Feb 17 '16 at 7:11
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    There's no good reason why taxes wouldn't just be set to a flat rate everywhere, but one that's low enough to justify not being able to make any deductions.. accountants could be made completely unnecessary with a clear, simple tax code, but it won't happen because government's aren't actually interested in making our lives easy.. otherwise they'd already have done that. – Kikka Kutonen Feb 18 '16 at 14:17

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