07 August 2007

Taxes: Some data

Jack and I have started a discussion of the role of taxes, among other things. This little post from The Daily Dish (Andrew Sullivan's blog) contains some interesting info putting to rest the common perception among Democrats that people earning ca. $50K pay more in taxes than those earning ca $250K. It's worth a read.

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At 07 August, 2007 16:41, Blogger jack perry said...

Nice facts to know, but the author concludes:

Perhaps if more of them were aware of the true facts, they would share the Republicans' fondness for the flat tax and be less enamored of progressivity.

Eh, what? Maybe I'm thicker than I thought, but I don't follow this at all. We don't have a flat tax now, but a progressive tax, so it makes sense that people making $250K pay more in taxes than those at $50K. I don't see how anyone would think a flat tax would make this any different.

As someone who favors a progressive (!) tax system, I'm wholly unconvinced that I should support a flat tax.

At 08 August, 2007 00:50, Blogger Joey said...

^ Read the Fair Tax book by Neil Boortz.

I think it would be a much cleaner way of handling the income tax problem.


At 08 August, 2007 08:14, Blogger jack perry said...

Care to summarize it?

At 08 August, 2007 12:53, Blogger Joey said...

Three line summary

1.) 23% sales tax replaces the income tax
2.) A "Prebate" covering all taxes on basic expenses would get mailed to everyone
3.) Prices stay roughly the same as the costs of tax preparation and passing taxation costs onto the consumer are roughly equivalent to that 23% tax.

It is revenue neutral but is easier to deal with.

At 08 August, 2007 14:02, Blogger jack perry said...

A "Prebate" covering all taxes on basic expenses would get mailed to everyone

This is an issue I have with most government programs, including the flat tax you have specified. To elaborate somewhat:

(1) In Hattiesburg, Mississippi, basic expenses are lower than in Raleigh, NC. The expenses in Manassas, VA are even higher, and it continues climbing as one moves through Washington, DC or New York City. Should residents of each city receive the same prebate, the same way residents of each city receive the same minimum wage guarantees?

(2) Suppose you answered "no" to problem (1). (I myself would answer no.) How would the legal code account for this in a flat tax? What bureacracy would have to determine the prebates?

(3) After Hurricane Katrina, housing values in Hattiesburg jumped by 50% (a conservative estimate), and rents went through the roof. Other parts of southern Mississippi were hit much worse, while others still have relatively low housing prices. What approval process would be in place to adjust the prebate based on such sudden changes in circumstances?

(4) Will the prebate be based on actual family size, or on average national family size, or on average regional family size? Or will it be a fixed amount granted to each taxpayer regardless of dependents and children?

All of these issues are addressed rather elegantly by the current tax code. If a flat tax aims for justice on any of these issues, it requires the creation of a new bureacracy to address them, and begins to lose its "flatness." The only thing that's simple is the 23%; the prebate isn't simple at all, unless it's manifestly unjust. That's something flat tax advocates never get around to mentioning.

At 09 August, 2007 00:43, Blogger Joey said...

1, 2 & 4: The prebate is adjusted based on the poverty line in each state and your dependents. The Census Bureau is in charge of calculating the poverty threshold I believe.

3: What happens even now? When rent/property is no longer affordable market pressures drive people out of the area.

The Fairtax is far from perfect, but our current system is even further.


At 09 August, 2007 04:02, Blogger jack perry said...

3: What happens even now? When rent/property is no longer affordable market pressures drive people out of the area.

Actually, rent & property jumped because people moved into the area. Traffic is a nightmare, and people tell me that there used to be none.

When property values jump, mortgages increase, so the deduction from the income tax increases. People who already have mortgages don't pay more, so their deduction doesn't increase correspondingly. When it comes to owning a first home, then, the current system appears to reflect the market much more accurately than the Fairtax.

Of course, the current tax code leaves renters out in the cold, but this is because the current system encourages the acquisition of private property instead of renting in an apartment that one doesn't own. Unless I'm mistaken, Fairtax lacks this incentive to become responsible.

At 09 August, 2007 10:15, Blogger Clemens said...

I assumed the author was talking from the point of view of those making the big bucks (I know, that excludes you and me!). From their POV a flat tax would be a better idea.

But I'm with you on the progressive tax system. It needs to be simplified, the loopholes closed, and the code rewritten in something resembling modern American English, but I don't see any of the proposed 'reforms' working terribly well.

For the moment Joey seems to be (ahem) "unemployed" so talk of taxes is for him theoretical. Except for the sales tax.

At 09 August, 2007 10:59, Blogger Joey said...

I think I recall having some taxes withheld this year.



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