> If there were a 'flat' tax [...] the rich will be more willing to pay
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
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To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
This year, progressive taxation, rising %:
90 peasants each earn $10 and are taxed 20% -> $2 per peasant.
10 nobles each earn $90 and are taxed 40% -> $36 per noble.
Total collection is $540.
Next year, flat tax, same % for all:
90 peasants each earn $10 and are taxed 30% -> $3 per peasant.
10 nobles each earn $90 and are taxed 30% -> $27 per noble.
Total collection is $540.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.
It's worth pointing out that the Treasury takes in tax revenues throughout the year. The sources of that income are:
50% Payroll Income Tax. 35% Social Security Taxes. 7% Business Taxes. 7% Excise Taxes.
70 years ago they were:
25% Payroll Income Tax. 25% Social Security Taxes. 25% Business Taxes. 25% Excise Taxes.
I think the priority is fixing this distribution to levels which were historically perceived as being more fair. The wealthy are one problem. The oversized corporations are the everlasting machine which drives them.
Excise taxes are effectively sales tax but only on specific products. This is less economically efficient than broad-based taxes unless the thing you're taxing is something you're specifically trying to discourage (e.g. cigarettes) rather than having the purpose of generating revenue, but since 1955 the government has become more inclined to ban things it doesn't like than tax them.
In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
Social Security is already taking in less money than it's paying out. Reducing the Social Security tax would imply reducing Social Security benefits, since that's where it goes, unless you're proposing a more significant reform of the system in general.
The size of corporations and the amount they're taxed are two entirely different things. Indeed, the tax code does a lot of things to encourage corporations to be larger, like taxing dividends and capital gains after corporate income has already been taxed, which creates a tax preference for leaving the money inside of an existing corporation rather than investing it in starting a new competitor.
> In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
This is the common wisdom. I doubt it. The legal system in the USA is worth paying for. If these companies really want to submit to European law, then, they're welcome to it. I don't think that loss actually hurts domestic businesses but helps the massively.
Companies are subject to the laws in all the places they do business. They pay income tax in the place they have net income, which is something that they control themselves.
Corporate income tax is essentially designed wrong. Property tax is where the buildings are, payroll tax is where the workers are, sales tax is where the customers are, corporate income tax is where the profit is. Which they just put in the country with the lowest taxes.
It's basically this: Employees in the US get paid $1B to design a product that employees in China get paid $1B to manufacture and then it gets sold to customers in Europe for $3B. The net profit is then $1B, but where is it? If the subsidiary in Ireland pays the subsidiary in California $2B for the design then it's in California. If they instead pay the subsidiary in Shenzhen $2B to manufacture it then it's in China. If they instead pay them each $1B then it stays in Ireland. And then the company picks based on whichever one has lower taxes.
There is no real way around this because in real arms length negotiations it would depend on which subsidiary has more leverage against the others, but in modern companies what that really comes from is the strength of the company's brand or customer lock-in as a result of patents or copyrights, since without them the profit would be negligible because there would be no barriers to competitors entering the market and causing razor-thin margins, but all of those things are easy to move into whatever jurisdiction you like since they only exist on paper.
So international corporations pay taxes in Ireland and purely domestic corporations pay taxes in California which puts the domestic corporations at a disadvantage when the taxes in California are higher.
To get accurate numbers you need to scale either the before or after numbers to reflect changes in the effective overall tax rate over the time period.
You also need to look at overall tax burden, not just federal. It used to be that the states levied taxes and did stuff. Now mostly what happens is that the feds levy taxes and piss it back onto the states in the form of grants to do qualifying stuff.
IDK how this distorts the percentages but it certainly does.
I disagree. This is a way of looking at _where_ the government funding comes from or it's a way at looking at the _share_ of burden by source. The overall tax rates don't actually matter in this case and only implicate how that share is distributed within the group.
The point I'm trying to make is businesses used to carry a more significant fraction of federal spending during a period where they had less overall influence relative to the citizen.
Now we're inverted. Businesses have excepted themselves from most of the costs leaving that burden to the citizen, but we live in a country where business needs are put well ahead of the citizens.
Another issue is that super wealthy folks don't get their money from regular wages. They borrow money from banks using their assets (e.g., stocks) as collateral. They pay back the loan at relatively low rates. The borrowed money is not taxable income.
>That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
They would be more than willing to be flat taxed at their current rate because it would still save them the hassle and the stress and the uncertainty.
Now, it would likely reduce what they pay eventually, because if you flat taxed the whole populous at their rate there'd be a new government pretty quick, but that's not the point.
> That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
That's what everybody says but then you look at effective tax rates in real life and the highest ones are paid by people like doctors rather than billionaires because the complicated system is the thing that allows the billionaires to pay less.
Meanwhile you don't need a complicated marginal rate system to get a progressive effective rate curve. Just give everybody a tax credit in a fixed amount and then use the same rate for everyone. Here's your table when you do that:
90 peasants each earn $10 and are taxed 42.5% and receive a $2.25 credit -> $2 per peasant, effective rate 20%
10 nobles each earn $90 and are taxed 42.5% and receive a $2.25 credit -> $36 per noble, effective rate 40%.
These numbers, of course, assume that as in your example you need the average effective rate (by earnings) to be 30%. By comparison, for example, US federal receipts as a percent of GDP have been stable at ~17% of GDP since the end of WWII (and were dramatically lower before that). Your numbers would be more in line with what would happen if both federal and all state taxes (including e.g. property tax) were replaced with this system.
That's not a progressive-tax brackets versus flat-tax thing.
That's a "having different rules for different ways of making money" thing.
> the complicated system is the thing that allows the billionaires to pay less
Something true of a parts is not necessarily true of the whole, and vice-versa. The reason billionaires pay less than we might expect comes from relatively simple factors, not because the tax-code is too complex for poor people to get the same result.
> That's a "having different rules for different ways of making money" thing.
That's the thing which is a consequence of the existing complexity, which in turn is a consequence of trying to do brackets by income.
A flat rate tax is you collect VAT on everything no exceptions, send everyone a check in a fixed amount as the credit to make it progressive no exceptions, and you're done.
Different marginal rates is oops, if you use VAT then rich people have poor people go to the store for them so you have to use income tax and track everybody's income. But some people get income from investments and then it's not realized until they cash out, which allows a bunch of fancy tax dodges, but trying to tax unrealized gains has a bunch of other serious problems like liquidity and valuation. Also, you didn't really mean to tax everyone's retirement savings, so now you need a bunch of stuff like 401(k) to undo the thing you didn't really mean to do, and now you have some more complexity. And it continues like this until you turn around and doctors are paying higher taxes than billionaires because billionaires have more resources to navigate all the complexity.
The numbers for Elbonia are unlike the US but you can use numbers to say all kinds of magical things.
US median income $75,000
top 10% $149000
top 5% $352000
Which is 203000 more, therefore half of the top 10% must earn $101500 less than $149000 to have an average of $149000 which is only $47500 which is 0.6 times median.
If you tax them 40% they have only 0.36 times median left.
See?
top 1% $749000 is 397000 more than the top 5%, therefore 4/5 of the top 5% earns $99250 less than $352000 which is only $252750 which is only about 3 time median.
top 0.1% $3312693 is 2563693 more than the top 1%, therefore 9/10 of the top 1% earns $284854 less than 749000 which is only 464145 which is only about 6 times median.
I don't know where all the money went but it isn't here.
I have no idea what you're trying to demonstrate with all that, it looks like a 1+1=3 Chewbacca Defense.
Moving from a progressive-tax to a flat-tax (with the same total receipts) will lower the tax-burden on one group and raise it on another. You don't even need numbers to understand it: It's the same as how leveling a see-saw will result in one end moving up and one end moving down.
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To offer a specific critique:
> top 10% $149000
Correct, $149,000 is the hypothetical income of a single person sitting in-between the bottom 90% and the top 10% of income. This means every single person in the top 10% earns at least $149,000 per year.
> therefore half of the top 10% must earn $101500 less than $149000
No no no, something has gone Very Very Wrong here.
It is literally impossible for anybody in the 10% to be earning less than the lowest-earning member of that group.
I think you're reaching for the wrong statistics. You want averages of subgroups, rather than medians or percentiles which tell about about where boundaries lie. In my original Elbonia example, knowing "There are peasants and nobles and the poorest noble has an income of $90" wouldn't give you enough information to work with.
The first chart shows an ascending staircase of tax-rates as each group has a higher average income (not shown) than the prior group, indicating a progressive tax scheme.
With a flat tax, every bar would be the same moderate height. We don't automatically have enough information to say exactly where the horizontal line would be, but clearly it has to be somewhere between today's "Bottom 50%" and "Top 1%", meaning those groups would see a tax-hike and a tax-cut respectively.
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Another approach is the next chart, "High-Income Taxpayers Paid the Highest Average Income Tax Rates".
Much like my "many peasants" and "few nobles" groups, this chart has 6 groups. It shows the smallest group, the "top 1% of people" took in 22% of the taxable income, and paid 40% of the taxes, and so on down the line for the other chunks.
Under a flat tax, any group with X% of the income would also pay X% of the taxes. In other words, the right-hand stack would shift to look like the left-hand stack.
Knowing this, you can tell which groups' "taxes paid" boxes would grow (tax hike, boo) and which which groups' would shrink (tax cut, yay).
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
_________
To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.