Big Issues Challenge
Debate Rounds (3)
National Retail Sales Tax
I want a less formal debate because it is Pro's job to persuade me to be "pro or con" on one of the big issues. So Pro can start making his case in the first round. If Pro fails to convince me, he/she loses the debate.
I'd like to convince him to be 'Con', on the issue of the Flat Tax.
Many people are for the Flat Tax because at first viewing it seems like an extremely simple and fair idea-- a complete no brainer. For a while I was Pro Flat Tax, and I was writing a paper for my English class with that as the topic. I was halfway done, doing research, when I found a website that blew apart my idea of the fairness of the Flat Tax. So much so that I simply couldn't continue with my paper. So even though the paper's due date was drawing extremely near, I deleted the paper in its entirety, and started anew on the Con side. The argument that made me do this is pretty much summarized like this:
The American Tax System today taxes income progressively, with those who make roughly $9,000 a year taxed at 10%, and those making $400,000 or more taxed at 39.6%. If a Flat Tax were implemented, taxes would have to be set somewhere in the middle (most likely 25%), in order to provide the government its usual--or at least close to usual funding. This results in the top four highest earning tax brackets to have tax breaks, and it causes the bottom two earning brackets in our nation to receive steep tax hikes.
Take McDonald's employees for example. The average worker (not a manager) makes between $10,000 to $15,000 per year. Under our current tax system, the highest earner of this estimate would be taxed at 15%. They would lose $2,250. Under my theoretical Flat Tax, they would lose $3,750. This is an extra $1,500 leaving the pockets of the working poor. This effect only gets worse the less money you make. And the less money you make, the more each dollar will count to your surviving.
And while this would be going on, the rich would be cashing in big time. People complain about the rift that has opened between America's economic classes, but they would have a lot more to complain about if the poor are losing a quarter of their money and people who are making over $400,000 are saving $60,000.
The idea that the Flat Tax is fair because it will tax equal fractions of people's wealth is faulty, because people value that same fraction of their wealth differently, based on how close they are to not being able to make ends meet economically speaking.
I had an awesome debate with somebody about the Flat Tax, and the person's biggest point was the job creation that would ensue if the rich suddenly had more money to invest into their businesses. What my opponent failed to address was that while theoretically there'd be job creation, the low income jobs (like McDonald's) would be so much more heavily taxed than before the Flat Tax, that for the majority of people (those who had a low income job prior to the implementation of the Flat Tax) would have their situations degraded substantially.
And of course if you're in support of job creation through allowing the rich more money to invest into their businesses, that does not mean you have to support the Flat Tax. If you want the helpful tax cuts on the rich without the harmful tax hikes on the poor, then just support lowering the taxes of the rich.
In conclusion, the tax hike that would have to be set upon the poor in the instance of the implementation of a Flat Tax would cripple them, making our country more "top heavy" than it already is. Progressive Taxation (which is what we currently use) is more fair than Flat Taxation because it taxes people based upon what they can handle. Flat Tax assumes that everyone will be able to handle the same loss of a fraction of income, which is an incorrect and economically harmful assumption.
Thanks to Con for accepting the debate.
I am certainly not convinced yet. It would be fair if I first explained my knowledge on the Flat Tax. I am familiar with Steve Forbes' Flat Tax(1) but I don't have an opinion on the matter whatsoever.
"Flat Tax assumes that everyone will be able to handle the same loss of a fraction of income, which is an incorrect and economically harmful assumption."
I completely understand what your getting at. Essentially, a multi-millionare and someone that lives below the poverty line would pay the Flat Tax at the same rate. If the rate was 15% of income. The multi-millionare would still be able to purchase cars and other expensive items. While the impoverished person will have to be more cautious with their budget.
'And of course if you're in support of job creation through allowing the rich more money to invest into their businesses, that does not mean you have to support the Flat Tax. If you want the helpful tax cuts on the rich without the harmful tax hikes on the poor, then just support lowering the taxes of the rich."
I would suggest you look up the Progressive Consumption Tax or the National Retail Sales Tax. The two are similar but different due to how the Progressive Consumption Tax functions. My preference is the Progressive Consumption Tax.
I would like to ask Pro several questions:
1. Wouldn't the middle class take the brunt of the Flat Tax? And not the poor.
I ask this because the person you gave in the example would probably be exempt from taxes. That is if the tax credits and deductions transfer over to the Flat Tax. Remember Mitt Romney's 47% claim. He was saying that 47% of population weren't paying Federal income tax. If the tax credits and deductions transfer over the poor wouldn't be paying taxes(at least at the Federal level.
2. Doesn't the Flat Tax generate more revenue?
I ask this because usually "the right" is attempting to defund "the left." It seems the government would have more money as a result of the Flat Tax that Steve Forbes is proposing. It would same the government would be able to spend more money on various things like social programs, funding pensions, and paying off debt.
3. Isn't the Flat Tax doing well in Eastern European countries like Belarus, Russia, and Ukraine?
I am unfamiliar with the efficiency of the Flat Tax. I am interested in being informed whether it is inefficient or efficient.
Before I get into Q&A however, I'd like to address the Forbes' 'Flat Tax'. It is a Flat Tax in name only. In effect it would be a Progressive Tax, with lower rates than are present today in America. It is able to do this because of the tax deductions that would be given to people at different rates, creating a situation where some people would not be paying 17% and some would. They would be in unofficial tax brackets. This information comes from Con's link in the previous argument.
I feel this is important to note as I continue with answering Con's questions, because certain benefits that receive mention in regards to the Flat Tax are not benefits that come about due to the fact that it's a Flat Tax, but rather they come about due to the its Progressive nature.
It depends on what you define as middle class. There are several different estimates, some place middle class as earning $36,000 to $57,660 a year. Others believe that to be too narrow of a group, and extend it to $19,178 to $91,705, which accounts for 60% of US households. Estimates for lower class often heavily factor in the % of Americans below the poverty line, which is 15%. For a family of four, lower class is defined as $23,050 or less. Based on these estimates and ranges we can take a look at our current tax bracket and see where changes might occur. Now as I mentioned earlier, a Flat Tax that has unofficial tax brackets thanks to deductions is not really a Flat Tax. In the case of the Forbes' model it's just a tax system with lower progressive rates. Under such a pseudo Flat Tax, neither the middle class nor the poor would take the brunt of the Flat Tax, thanks to their deductions and exemptions leaving them with taxes they can handle. Under a real Flat Tax, using the narrow estimate of middle class earning, it is unlikely they would receive a tax hike. With the broader estimate, the people on the lower end are likely to see a tax hike, but everyone else would be fine, with those on the upper end likely receiving tax breaks. For those beneath the poverty line, you can see nearly every family would receive tax hikes.
To reiterate, this is under a real Flat Tax, not under a Pseudo Flat Tax such as Forbes'. Con asks what would the case be if the exemptions many poor people currently receive carried over to a Flat Tax. In that case they'd be fine, but then it wouldn't be an actual Flat Tax if they paid different percentages in actuality.
According Forbes' and his rate it would, yes. However this should not be considered desirable. The government has shown thus far that it is incapable of producing a budget that actually saves money to be put towards debt reduction. Why should giving them more do anything besides rack up a larger debt? That's like giving a substance abuser more of the substance they abuse and expecting they'll sell it instead of use it for themselves. Before any actions are taken to increase government revenue, the budget needs to be streamlined to maximum efficiency, to ensure there are no wasted dollars that could be used instead of asking for more. Currently we are not at a point of streamlined efficiency, as this debt clock shows.
The three countries included in your question are often used as examples for the good a Flat Tax can do. But after looking up the Tax Systems for all three countries, I found again that they are creating brackets through deductions and exemptions. I do not despise this Pseudo Flat Tax, it certainly seems to be working well. It can be equated to the same thing as a Progressive Tax System that simply has low rates, which is something I am certainly for.
After reading Con's questions it is apparent to me that we are on slightly different pages as to what a Flat Tax is. I am arguing against a Flat Tax that gives across the board completely equal percentage tax rates. Many of the popular proposed plans and popular enacted plans do not follow this model. They follow a model that has a flat rate that is changed through deductions, essentially creating a Progressive Model with very low rates.
But even under the real Flat Tax wouldn't there be exemptions and deductibles? For example, one of the benefits to being married is that people making under a certain amount will be charged at a lower rate.
My question is why do you think the Flat Tax have exemptions and deductions?
'Why should giving them more do anything besides rack up a larger debt? That's like giving a substance abuser more of the substance they abuse and expecting they'll sell it instead of use it for themselves. Before any actions are taken to increase government revenue, the budget needs to be streamlined to maximum efficiency, to ensure there are no wasted dollars that could be used instead of asking for more."
I understand what our saying. To some extent I agree that more revenue would not stop this obstreperous behavior of reckless spending. However, this doesn't eliminate the behavior of public officials abusing public debt. Austerity is coming whether the majority of Americans like it or not. Public officials only have the capacity to balance the budget temporarily like in the mid-1990s. But then again that was a majority Republican congress and a Democratic president which is a rarity.
"I do not despise this Pseudo Flat Tax, it certainly seems to be working well. It can be equated to the same thing as a Progressive Tax System that simply has low rates, which is something I am certainly for."
The Forbes' Flat Tax is not progressive, it is flat. Deductions and exemptions only affect the money that is to be taxed. The rate does not change at all.
"I am arguing against a Flat Tax that gives across the board completely equal percentage tax rates. Many of the popular proposed plans and popular enacted plans do not follow this model. They follow a model that has a flat rate that is changed through deductions, essentially creating a Progressive Model with very low rates."
Pro is thinking theoretically about the Flat Tax and not practically about the implementation of it. It seems Pro is getting at the idea the Flat Tax will be a flat rate for everyone. In practice this wouldn't happen due to married couples, single moms, couples with kids, people who have to take care of the elderly, those who have to take care of the disabled, and etc.
The Forbes' Flat Tax and the Eastern European Flat Taxes shouldn't be considered progressive because the rates of taxes do not grow as one goes up the income bracket. The Flat Tax would still remain the same rate for someone that is below the poverty line and someone that is a millionaire. They would just have different deductions depending upon circumstances. Depending on the situation the millionaire may have more deductions than someone below the poverty line. For example, if a millionaire may have invested so much of his money in certain institutions that he pays little in taxes.
I am concerned about how the Flat Tax will be implemented in practice with various deductions, exemptions, and credits. I have not been convinced to be against the Flat Tax. I am not for it either, I still remain neutral on the Flat Tax. I would like to thank Pro for participating in the debate.
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