Progressives won’t like this
A common conception throughout the world stipulates progressive taxation. The concept being rooted in From each according to his ability. In other words, poor folks pay less and wealthy folks pay more. At least it should work that way in theory. It doesn’t. The rich have cash at their disposal that can be used to avoid taxes. The poor do not. If you have $4,000 laying around, dump it in a Roth IRA and avoid (defer) paying taxes on it. Form an S-Corp and salary yourself. Buy an SUV. People with cash do these things and avoid taxes. And I don’t blame them one bit and I do it when I can. And people pay accountants $150 – $300 per hour to tell them how to avoid paying taxes.
Enter the flat tax. Under this method, all people pay a certain percentage. Progressive tax folks say it’s not fair because it places an undue burden on the poor (15% of $10,000 in income has a greater impact on the quality of life than 15% of $1,000,000). I thought there was some truth to that until now.
In parts of what was the Soviet Union, there has been a flat tax of 13% implemented by Putin. Some of the results:
One senior government tax official estimates that before the flat tax took effect at the beginning of 2001, Russians on average declared as little as 25% of their income. Since it was introduced, there has been a marked increase in both payment rates and revenue. Official statistics show that income tax revenue rose 28% between 2000 and 2001, and a further 21% by last year, after adjustment for inflation. Total government revenue from personal income taxes shot up from an unadjusted $6.2 billion in 2000 to almost $12 billion last year.
The government made more money while reducing the tax burden of a large number of citizens.
In the US, things are different due to our progressive tax structure:
Total tax collections in the U.S. are expected to be $2,667,000,000,000 in 1998. This represents 35.4% of the country’s total income.
In 1997, the median tax rate of a single income family was 35.9%. A dual income family paid 37.6%.
In addition, accounting fees for tax preparation and compliance fees cost Americans about $593 billion per year. And low income earners lost $1B in 2002 in loan charges and fees for rapid refund tax loans. And if you exclude the lowest incomes from paying any taxes at all, you can avoid the rapid tax refund rape that they currently go through (and, of course, they’re not taxed).
Why have a progressive tax system that doesn’t work?” asks Vladimir Redkin, an economist at Russia’s Bureau of Economic Analysis.
Yup.
July 12th, 2003 at 10:08 am
I agree the progressive tax is a bad thing. But a flat tax is merely a slight improvement on the progressive. What would be better is a complete elimination on the taxation of income, wages , etc… & substitute it with a sales & services tax.
http://www.fairtax.org has details of their plan. It’s in some subcommitte of the House right now. All in all the national sales tax replacing the income tax seems like a better deal, although if i were calling the shots the percentage would be closer to 1% than the 23% they’re suggesting. Still at 23% that’s less than what most people are paying now.
But check out their site & tell me what you think.
July 12th, 2003 at 10:51 am
I’m not sure a flat tax would simplify tax preparation very much. Looking up your gross adjusted income to find your tax rate ain’t that hard.
The complicated parts of tax preparation have to do with deductable business expenses, education credits, etc. Those sort of deductions won’t go away, and if they do the political process will create them all over again.
Also, the biggest, messiest part of the IRS code is for business taxes, not personal taxes.