How 'bout we get rid of payroll taxes? They like to talk of "fairness" how fair is it to take money from people who will never see it back when that is what was promised?

Don't see it happening though. Too many voters need to be taken care of.

It's not that old people should be kicked to the curb, that's no better.

And, no, I don't have an answer about how to fix that yet.

But putting in a flat tax without removing FICA et. al. doesn't seem to make a lot of difference.

Sorry, feeling surly today. :-?

Originally Posted by Buster Brown

What about replacing both the income tax and FICA with a single flat tax, after a standard deduction equal to the poverty level based on household size? Most current estimates peg the latter at about $8,000 for a single adult - then you could merely double this for a married couple even though the poverty line for a married couple with no kids is less than twice that for a single adult, so no one could scream "marriage penalty." As far as further deductions for children goes, there shouldn't be any; we should officially adopt the Malthusian view of encouraging families to have as few children as possible, to protect both middle-class lifestyles and the environment too.

Okay... so if you oppose immigration AND you want to encourage families to have as few kids as possible like that (most won't be able to afford more than 1 under such a system) then we're not merely talking stagnation here - this could cause serious declines in the US population! How far down do you want us to go... 200 million? 100 million? 50 million? Or even less?

And with no deductions for children (none currently exist under FICA), the rate could end up being quite low - maybe less than 20 per cent even with it replacing both the income tax and FICA.

This would be an improvement over a national sales tax with a rebate, since the rebate would have the unwanted side effect of enabling non-working drug addicts and alcoholics; and with FICA being eliminated, Dick Armey's vision of everyone having the right to support themselves before they begin supporting the government can be realized.

How low do we need to go? Low enough to create labor shortages so severe and chronic as to make labor unions as powerful here as they are in most of Western Europe; and if that happens maybe the unions would once again become the heart and soul of the Democratic Party - instead of the goofy collection of "groups" that have been vying for that position for the past 35 years (how high a priority would a union-dominated Democratic Party place on forcing states to recognize gay marriages, for example?).

Who knows? Maybe then some semblance of a genuine two-party system in this country would actually take hold.

Originally Posted by Mike Alexander '59

Originally Posted by Buster Brown

What about replacing both the income tax and FICA with a single flat tax, after a standard deduction equal to the poverty level based on household size? Most current estimates peg the latter at about $8,000 for a single adult - then you could merely double this for a married couple even though the poverty line for a married couple with no kids is less than twice that for a single adult, so no one could scream "marriage penalty." As far as further deductions for children goes, there shouldn't be any; we should officially adopt the Malthusian view of encouraging families to have as few children as possible, to protect both middle-class lifestyles and the environment too. And with no deductions for children (none currently exist under FICA), the rate could end up being quite low - maybe less than 20 per cent even with it replacing both the income tax and FICA.

This would be an improvement over a national sales tax with a rebate, since the rebate would have the unwanted side effect of enabling non-working drug addicts and alcoholics; and with FICA being eliminated, Dick Armey's vision of everyone having the right to support themselves before they begin supporting the government can be realized.

Now here's an example of a specific proposal which can be looked at. Combining FICA and the income tax would mean the this new flat tax should raise the 950B from the old income tax plus the 650B from FICA&Medicare for a total of 1600B. The graph suggests that a flat tax of ~26% with average household deduction of 10K would raise this revenue. A flat tax of ~32% with 20K deduction would also do it. Buster's plan is in between these two, so let's say 15K average deduction with 29% flat rate.

Our household federal income+FICA taxes is about 28% of our line 22. So we would come off slightly better with this scheme.

Eliminating the employer contribution for FICA should increase average incomes by about 7%. The law could require that companies pay their employees these savings. A near-median household making 45K today, would make about 48K under the new law. Of this, they would pay 9.6K in taxes, leaving an after-tax income of 38.4K, which corresponds to a combined tax rate of 14.5% based on the curent income of 45K. This corresponds to a ~7% rate for current income (this is the ratio of lines 61/22), which doesn't seem to be so much of a burden on the median household.

Based on the 48K income, the overall tax rate of 20% is larger than the rate such an income currently pays. This is a larger tax burden than before by this income group and so this should result in an increase in the amount of tax paid by the bottom 50% of taxpayers, addressing Mr. Lamb's concern. Mr. Brown, what is your current ratio of line 61 to 22? How would you fare under your plan?

All around, this plan seems like a fairly sound idea.

My calculations are based on those made by the advocates of the so-called Fair Tax that was the subject of a previous post I made somewhere on this forum. For those unfamiliar with this, the Fair Tax is a 23 per cent national sales tax which would replace both the present income tax and FICA - and since what I'm proposing would include neither a universal rebate nor any deductions for children (although the deduction for two adults would be higher under my plan than the amount subject to rebate would be in theirs), shouldn't the net savings from the above result in a lower rate (than 23%) bringing in the same amount of revenue? So that's where I don't understand why the rate would need to be around 29%; also, where does your average deduction of $15,000 come from? Do married households outnumber single households by 7 to 1 in America today?

Originally Posted by Buster Brown

My calculations are based on those made by the advocates of the so-called Fair Tax that was the subject of a previous post I made somewhere on this forum. For those unfamiliar with this, the Fair Tax is a 23 per cent national sales tax which would replace both the present income tax and FICA - and since what I'm proposing would include neither a universal rebate nor any deductions for children (although the deduction for two adults would be higher under my plan than the amount subject to rebate would be in theirs), shouldn't the net savings from the above result in a lower rate (than 23%) bringing in the same amount of revenue? So that's where I don't understand why the rate would need to be around 29%; also, where does your average deduction of $15,000 come from? Do married households outnumber single households by 7 to 1 in America today?

Total final sales is greater than income. A portion of the sales dollar goes to new investment and replacement of capital stock. Thus, if total output (sales) is taxed, the rate would necessarily be lower than if only income is taxed. Also since the first X dollars of household income is untaxed the rate on the remainder is higher still.

Under your system households consisting of a married couple would get a $16,000 deduction. Households containing just one single worker would get $8000. Those with two, $16,000. Those with three, $24,000, and so one. I am guessing that under your system, the average household deduction would be around 15K. It could even be higher, depending on how many families put their kids to work in a family business (and thus increase the number of single workers per household).

I have only one real problem with the Flat Tax concept. I think we can accommodate the incomes on 90+% of the population in a reasonably fair way. It's virtually impossible to prevent the top 10% (and especially the top 1%) from getting a windfall. We already have an economy that is tilted toward the top. Do we want to validate this through the tax code?

Notice that anytime some form of income is chosen to be exempt, it's always "unearned". That says a lot by itself.

Originally Posted by Buster Brown

How low do we need to go? Low enough to create labor shortages so severe and chronic as to make labor unions as powerful here as they are in most of Western Europe; and if that happens maybe the unions would once again become the heart and soul of the Democratic Party - instead of the goofy collection of "groups" that have been vying for that position for the past 35 years (how high a priority would a union-dominated Democratic Party place on forcing states to recognize gay marriages, for example?).

Who knows? Maybe then some semblance of a genuine two-party system in this country would actually take hold.

So you prefer the parties to crystallize around core economic issues? Speaking as one who cares much more about cultural ones I would oppose that

Originally Posted by Mike Alexander '59

Total final sales is greater than income. A portion of the sales dollar goes to new investment and replacement of capital stock. Thus, if total output (sales) is taxed, the rate would necessarily be lower than if only income is taxed. Also since the first X dollars of household income is untaxed the rate on the remainder is higher still.

Under your system households consisting of a married couple would get a $16,000 deduction. Households containing just one single worker would get $8000. Those with two, $16,000. Those with three, $24,000, and so on. I am guessing that under your system, the average household deduction would be around 15K. It could even be higher, depending on how many families put their kids to work in a family business (and thus increase the number of single workers per household).

What if all income - not just wages - is subject to the tax? How would that affect what the rate would need to be in order for it to be revenue-neutral? (And yes, that is what I have in mind; otherwise the very rich whose income was derived exclusively from investments would end up paying nothing at all).

And I would restrict the personal exemptions to two per return, closing the loophole you have so thoughtfully pointed out (and the $8,000 is just a rough guess taken from a variety of national-sales-tax oriented web sites; the actual poverty line for a single-person household is probably marginally higher - something like $8,230 or so).

Originally Posted by Buster Brown

What if all income - not just wages - is subject to the tax? How would that affect what the rate would need to be in order for it to be revenue-neutral?

My calculations do assume that all types of income, earned and unearned are taxed.

And I would restrict the personal exemptions to two per return, closing the loophole you have so thoughtfully pointed out (and the $8,000 is just a rough guess taken from a variety of national-sales-tax oriented web sites; the actual poverty line for a single-person household is probably marginally higher - something like $8,230 or so).

The family in my eaxample who send in a tax return for the parents with a 16K deduction. Each working member of the household besides the parents would send in his or her own tax return with the 8K deduction.

In no case would any single return ever have more than two deductions in it. Households, however, could have more than 16K worth of deductions (and more than one return per household).