Flat Tax is Good for the Economy
Debate Rounds (3)
I now await my opponent's opening arguments.
Four Points on how Flat Tax is bad for the Economy
1. It will overwork an already overworked system:
(http://www.npr.org...) The reality is very simply that the IRS is suffering, and has suffered, and likely will continue to suffer budget cuts. Normally this means nothing to us as tax payers except a slower refund but it also means that the auditing system is now almost defunct and even with advanced systems like the DIF score (http://www.irs.gov...) for statistical value there's simply not enough personell. Flat Tax only invites people who are not going to pay anyway likely due to lower income to simply not pay anyway and no one will be able to track them because the main manpower will be focused on the greatest revenue sources which spreads an already thin workforce even thinner.
2. The Math is bad.
Using a simple math layout allow me to give the values of taxation for a 100k, 50k, and 20k earner as "Single" individuals with no dependents using a modified percentage method (for ease of understanding) using 2015 tax tables (http://www.forbes.com...).
So a 100k earner's "natural" bracket is 28% in taxation or $28,000 before deductions and itemization (which will not be gone through due to the difficulty of things like AMT (http://www.irs.gov...) which drastically changes how taxes work in higher earning brackets) so taking this into account as a simpler example.
A 50k earner would have a tax rate of 25%.
A 20k of 15%.
Let us set our hypothetical value at 20%. This makes sense as the goal of the flat tax, to give a "break" to the high end earners and make the low-end "pay their share" (http://www.heritage.org...):
"The tax system should ensure the lowest-income citizens do not see their limited resources depleted by taxation; the tax system should also ensure that everyone else is paying in to cover the cost of government. Too many taxpayers today pay little or no income tax, placing an ever-greater—and unjust—burden on those who do pay tax and creates a dangerous dynamic in which large numbers of citizens receive government services they perceive to be free. Many previous and otherwise fine tax reform proposals, such as the well-known traditional Flat Tax, which achieve other worthwhile goals, would have the unfortunate effect of increasing the number of citizens outside the tax system."
So continuing with the math there's now an 8% and 5% tax cut for the 100k and 50k citizen respectively and a 5% increase for the 20k citizen, which ironically induces greater hardship on the lowest income tax payer, but let's see the savings in numbers:
8% of 100,000 is 8,000
5% of 50,000 is 2,500
This creates a 12,500 dollar liability to taxes.
5% of 20,000 is 1,250 in total so it would take 10 common workers for just one of both pair combined to compensate for the liability. If you want to have it in a different light it would take two lower earners to compensate for one medium earner and three for a highest earner's tax cut. Now I want you to note that this sounds great but let's introduce a millionaire.
The millionaire would have a bracket of 39.6% or a tax of 396,000, at 20% that is a massive 196,000 dollar change which is equivalent to 157 (156.8) common workers just to make up for that deficit at the 20k level. I need not express what happens if a person makes over one million dollars but at current there are 10.1 million millionaires in the US (http://www.cnbc.com...) so take the difference of 196,000 and multiply it by 10.1 million and you get a deficit that has to be made up for of $1,979,600,000,000. Divide that number by the $1,250 "increase" to the lower wage earners and you would need a total of 1,583,680,000 individuals to make up for that deficit alone.
I'll put that in words: One BILLION five-hundred eighty-three MILLION, six hundred and eighty thousand. Note that the United States doesn't actually have a billion people (http://www.census.gov...) so that's quite a problem. Flat tax is hilariously inefficient when it comes to raising governmental funds because the deficit in taxation is large enough to cover the literal value of Bill Gates (http://www.nbcnews.com...) at $81,000,000,000 (which let's not even go into how big his tax cut would be) 24 times and that's just for millionaires not including higher earners or any other class of earner.
Most of the united states earns less than (http://politicalcalculations.blogspot.com...) the 50,000 bracket and furthermore the 20,000 bracket is close to the median of 26,000 so that means that there would be A) an even larger decifit since many individuals are actually getting tax cuts which begin at an income of 36,900 of 5% and B) no one to make it up.
3. There's no alternative funding.
First and foremost personal taxes make up a decent portion of tax money but not all of it and corporate taxes (which have even better rates that individuals presuming again a simplified version of taxation to avoid the complexity of the actual code) [http://blogs.wsj.com...] however a fair amount is still withheld or "passed through" corporations on to investor burden and true taxation on corporations reads as higher (due to the passthrough) than the 16.9% cited. As corporations are paying less and less and now the general public is also taking a huge tax cut while simply taxing the poor all the more this simply generates absolutely no revenue for the government at hand since passthrough values reported on forms 1099i are still capped off as part of the whole investment.
4. It presumes everyone will pay their taxes and that loopholes will be eliminated by "transparency".
Which is naive. The deficit just got worse and there's nowhere near enough people to enforce it nor is there any real value to taxing the poor since all federal programs and state programs that support the poor come from tax dollars (effectively making them not pay tax) so what exactly is being paid for and by whom? Is the State expected to begin more enterprise funds and become "for profit"? The Municipal bonds issues by the State are tax free so does that change? None of this cited because none of this is actually answered for; where exactly are the answers to these complex questions and how exactly will itemization, AMT, and various other factors work? Also how will EIC, child credits, and various other credits often claimed including dependency work? Will MFJ be effected versus single and will sole proprietorships still be doubly taxed?
This is no simple task and there are a lot of answers missing.
I'll begin on my case.
Contention 1: Flat Tax does everything a tax reform needs to do.
1. The first main thing is reduction of tax rates, but it is nowhere close to most of my opponent's inccorect math. We can firstly observe that there are two main tax rates out there. That of a 40% tax rate for that of the "rich" and a 30% for the Middle Class. The Herritage Foundation has suggested that of a flat tax rate of 28%. Under this system that would mean that taxes for EVERYONE would be reduced and hence people would be freer to spend their money on the free market and stimulate the economy that way.  To further this, the flat taxation system would end up keeping the Earned Income Tax Credit system, or EITC, which both Liberals and Conservatives support as this reduces poverty rates, especially for single mothers and single parents. 
2. The recent studdies have shown that this New Flat Tax system would create economic growth. They've shown that there will be 0.143 percentage points increase to our nations economy.  One of the key things here for this growth is that it eliminates double taxation on the current system which hampers economic developement. Senator Hatch has shown (in the graph bellow) that the effects of this double taxation (Capital Gains Tax) is harming the economy and destroying our GDP growth as a nation as we are loosing almost $1 trillion. Study done by the Tax Foundation found that, "the desired capital stock is extremely sensitive to its expected after-tax return. The Tax Foundation model predicts that after a several year adjustment period, the capital stock would be 16.9 percent less than otherwise, work hours would be about 1.25 percent less, and GDP would be 6.3 percent lower than otherwise. Because tax collections depend on the size of the economy, these anti-growth effects would be expected to have a negative feedback on tax collections. When our model takes the smaller economy into account, it estimates that ending the rate cap on long-term capital gains and qualified dividends would actually reduce federal revenues by $122 billion." 
s://danieljmitchell.files.wordpress.com...; alt="Tax Foundation Double Taxation Dynamic Chart" />
3. Finially it would completely reduce the complication behind this taxation system and have that of three deductions. Under the current system there are tons of legal and finiancial issues that need to be solved and only that of the Flat tax can do so. Herritage Foundation writter and researcher, JD Foster stated that, "The New Flat Tax offers tremendous simplification for individuals and businesses; it provides much greater transparency so that taxpayers can be more confident the taxes they pay are in line with those of their neighbors, and so taxpayers can be more informed about the true costs of government."  My opponent tries to refute this in his 4th contention, but yet he fails to back this up with valid evidence. He fails to realize that there can only be three deductions under this new sytem as shown by the Heritage Foundation and they are as follows, Higher Education, Charity Contrabutions, and Morgage Interest Deducations, that's it.
Contention 2: Russian Example.
A similiar tax system has been implamented in Russia, but here's the kicker. The tax rate was already at 28%, but the Russians lowered it to 13%. The IMF viewed Russia and they found that due to the low tax rates that more people paid their taxes and this resulted in more income for the government.  Another key thing is that in Russia it provided more income then what they had under that of the Progressive Tax system. Upon doing research they also found that jobs were more accessable and the jobs market was thriving.  In the end they found an increase of tax compliance, so more revenue and most importantly there was an increase in productivity since people got to keep more of their earnings. 
"Under this system that would mean that taxes for EVERYONE would be reduced and hence people would be freer to spend their money on the free market and stimulate the economy that way."
Who is everyone since those who do not pay the actual tax rate of 28% would be probably not everyone who saves money? While avoiding a discussion on the income disparity as shown in a previous source the majority of households make beneath the 30% mark for taxation which again was shown in the real 2015 IRS percentage charts in the source by Forbes. Why do I make that point? The notion that everyone wins is completely false. As a matter of fact it's almost the direct opposite; all cash flows are eventually taxed at a flat rate meaning that the concept of everyone winning is at best a falsehood esp. for households that do not earn a lot of money and therefore do not have capital to save for the "saving deduction" in my opponent's source:
"Personal saving would be deducted immediately and would remain tax exempt until spent on consumption."
This is nothing more than a pseudo Tradiational IRA system  and in turn has no real tax benefit as a deduction for low income workers who simply do not have the capacity to save 28% of their tax dollars due to basic cost of living without inclusion for unexpected events or damages.
Also, let's redo the math under the 28% tax rule using the real rates of the IRS in 2015 tax season as shown prior for millionaires to accurately gauge the weight. 20,000 * .08 = 1,600, the increase in the liability from current tax rates for lower class working citizens and looking at our millionaire the difference between the actual 39.6% and 28% would be 116,000. So for one millionaire you need 72.5 worker's wages to make up for that tax. There are a real 10.1 millionaires so you need a real 732,500,000 lower class to compensate. Again that's just one tax class figure of only exactly a million and does not incorporate any other group which would get a fundamental tax cut including those who are say high earners 250,000-500,000 which could potentially include bankers, surgeons, lawyers, engineers, accountants and financial workers, etc.
"To further this, the flat taxation system would end up keeping the Earned Income Tax Credit system, or EITC, which both Liberals and Conservatives support as this reduces poverty rates, especially for single mothers and single parents."
There are two problems here:
1. The source doesn't explain how it works in the new tax system only what it is. All credits would have to modified since the credits themselves only work within current brackets and are based on income brackets themselves as well as number of dependents, specifically children in most cases, but the earned income credit tables  are extremely low. Ironically because the flat tax increases taxation for those who would normally not even pay tax by flattening it across the board the EIC would be probably rendered worthless under it's current model.
2. The next problem is a simple math problem. In the first round I purposefully left out credits and deductions so that the reader could easily see the effects on collected taxes, which of course pay for social services, grants, and various other necessities that the government runs including state dispersments and budgeting. All systems suffer because credits and deductions lower taxes and in the case of say, millionaires, putting 28% of your income into savings to avoid paying taxes is really quite easy but on the next front we also have:
"The only remaining deductions are for higher education, gifts and charitable contributions, and an optional home mortgage interest deduction."
Gifts to charity.
"More than 80 percent of those worth $25 million or more give at least $10,000 a year to charity, and 21 percent give more than $100,000 a year to charity."
From the CNBC source in my first proposal over 21% of millionaires cut their taxes under this model by almost half. Regularly. So now it's just donate and save for the wealthy and never pay taxes again? Well compensating for the difference in one millionaire who does pay tax is one thing but compensating for one that simply uses elegant tax planning strategum and avoids taxation altogether is another. It would take 175 working class to compensate up from 72.5 for just one "smart millionaire" who took the saving's account deduction.
"The recent studdies have shown that this New Flat Tax system would create economic growth. They've shown that there will be 0.143 percentage points increase to our nations economy." If recent was 2003 and if it was using the same model as the Heritage plan which it isn't, and furthermore if one reads the conclusion's second paragraph, which cannot simply be copied and pasted due to the formatting of the document itself, it clearly states that it is an oversimplified plan that does not account for sudden income changes or contingencies. The source itself is hypothetical in a perfect world not accounting for many real-world issues including a major loss of financing or financial crisis related to certain economic principles that do occur in the real world. It also cites a previous paper from 1995 that had the same issues.
Furthermore lowering the GDP is not equivalent to lowering the GPP  and my opponent read the source wrong. The value of investments would drop by 16.9% and with fewer taxes being collected the GDP of course drops but does the GPP drop? That's the real question relative to taxation.
The graphic itself is just outright wrong. This is based likely on AGI before credits and deductions just like my own simplified model for understanding taxes and tax rate differentials. In 2011 46% didn't pay taxes but under normal circumstances about 40% of the population does not pay FIT  and there are a myriad of other factors that are not being taken into consideration; in essence you save nothing under the flat tax because it doesn't actually have a standard deduction anymore. Or would it work like that of Clinton's design eliminaing tax liabiliy for most of the population anyway? 
3. The reality is that the taxation sysem has been complicated by the changing economic climate in the country adding over 75,000 articles since the major revision in 1987. The idea of a very simple taxation sysem in a governemntal climate based entirely on serving it's populace where a massive chunk of he citizenry do not pay taxes is, at best, whimsical. Tax planning and legal maters involving situations regarding flat tax are still massive even in Russia  it's not as simple as flicking a switch and understanding. Furthermore it's 13% flat for residents but a whopping 30% for EXPATs and non-residents  which effectively covers the rates of he citizenry and their low GDP is a result but Russia does no have the proposed economic growth promised  by flat tax. It is not that simple.
It is criical to look at the whole situation of a country before using it as an example as with the Russian Tax Revenue including EXPATS at 30% and the increased accessibility to the country in general in the last few years there is more to this than it would seem.
The IRS has actually given another and more recent statement on the flat tax than what my opponent has provided you. The IRS has provided what they call the Army-Shelby Flat Tax Rate at that of 17%. Once again I remind you that this debate is about the flat tax system not a certain percentage. I could argue Hermain Cain's 9-9-9 tax system and as long as I get my points across I would win this debate on the grounds that I defended that the flat tax is benefitial to the economy. I don't have to argue a percentage. (http://apps.irs.gov...) There is also an extemption of $35,000 which many families would fall under and would thus be TAX EXEMPT. Showing that they would not have to pay taxes. Please visit the link I provided you to see the chart. So we can see that my opponent's "everyone doesn't win" theory is false and null. My opponent tried to do math here and came up with a minesul number, but we can see that the 20,000 that he provided falls under the IRS's tax extemption so we do not see the impact that my opponent is warning of.
If we observe the above chart we can see that it compares Flat, Progressive, and Regressive Tax. We can see that the flat tax would be the best here as it permits the same tax percentage for all. This is key when we decide to tax income instead of products as we would never be 100% sure that consumer confidence would be up and under a fair tax plan in zero consumer confidence the federal government would be making no money compared to if the average joe has a job then the government would be making money reguardless if the consumer spends their paycheck or not. (http://one-simple-idea.com...)
As a point that I've brought up earlier and my opponent has dropped was that of the simplication of the tax system under the flat tax. (http://www.heritage.org...) Instead of having to go through the current number of 893 tax pages the new tax system treats those equally and doesn't punish those of us who contribute to the nation's wealth and ends discrimination under taxation this is something that has been harped on by the US Supreme Court.
Above we can see that under the flat tax system they all pay the same exact tax rate vs. that of a Progressive tax rate. Under this system we can see that you would be getting more revenue than under the progressive tax system which is rediculous. (http://one-simple-idea.com...) Here we can see that under the flat tax system you can get more revenue and you wouldn't be harming the average joe as much as they wouldn't be paying as much in sales tax that would come under the currnet tax system and not only that, but we have to realize that the harm that would be done under the status quo, which he DROPPED! So I'll extend those points across the board. My opponent is also incorrect on the EITC as it shows at the bottom of the page just on how much said tax system works and saves this program. We can also see in a study done by Harvard is that the income gap isn't because of revenue, but because of that of education. They found in their study that by decreasing the gap by lowering the wealth of that it decreases economic growth and thus harming the economy of richer nations. (http://blogs.wsj.com...) So we can see that by sticking with the current economic system that we are harming our own economy conterary to belief.
If enacted we can see that the flat tax would give us.
1. Faster economic growth.
2. Increasing economic growth and productivity via increasing incentives. Like in Russia.
3. Instant wealth as all income net would increase.
4. Simplicity and fiarness. (http://www.heritage.org...)
My opponent argues that the rich will use this as an abuse, but you have to realise that under this system that more people will donate more money to charity of which we can see that the theories of Milton Friedman are coming true. In his book, Capitalism and Freedom, he showed that this tax system and charity would provide such an antidote to poor that they would replace things like Social Security and Welfare. With these things looking to give our federal government net deficets in the future with the Baby Boomers retiring we can see that it would be a great relieaf system for our government to take this burden off of their hands and they would be able to put money into more needed areas.
For the EXPAT argument we can see Russia is very nationalist so it's obvious that they would be treating their expats like that and this harsh punishment helps their own economy as well.
In conclusion, we can see in this debate that the flat tax is better than the status quo and I have won this debate for several reasons. We can see that my opponent did not defend the status quo and he only insisted on attacking the 28% flat, but yet to realize that there are other flat tax methods out there like Hermain Cain's 9-9-9 plan. We can see that this plan has worked abroad and that this plan will work at home and reform our own economy providing much needed relieaf and stimulas to grow our economy exponentially.
Thank you and please vote Pro.
1 votes has been placed for this debate.
Vote Placed by kasmic 1 year ago
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