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Flat Tax vs. Progressive Tax

xXCryptoXx
Posts: 5,000
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5/15/2014 7:02:03 PM
Posted: 2 years ago
I know next to nothing about economics, but one think I have been wondering about is the flat tax and the progressive tax. Which do you guys think is economically better? Which do you all think is more fair?

The flat tax seems more fair since it takes the same percentage out of everyone.
Let's say there is a man A has 100$, B has 1000$, and C has 10,000$ with a flat tax of 10%.

A pays 10$, B pays 100$, and C pays 1000$.

This seems more proportionate and in a certain sense "fair" since everyone is affected the same, even if the money taken is different.

However with a progressive tax it seems to punish the more successful since it affects them more negatively than those who have less money. It is not proportionate.

I think from an ethical standpoint the flat tax is more fair.

Economically however I am completely open to what you all have to say.

Again I know very little about economics so if something I said was flawed or stupid, well now you know.
Nolite Timere
DanT
Posts: 5,693
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5/15/2014 11:25:24 PM
Posted: 2 years ago
At 5/15/2014 7:02:03 PM, xXCryptoXx wrote:
I know next to nothing about economics, but one think I have been wondering about is the flat tax and the progressive tax. Which do you guys think is economically better?
The flat tax is simpler, which is always better in regards to implementing economic policy, specifically taxes. An ideal tax system would be proportional to one's income, as to not reshape the nature curve of the labor supply. It would also be ideal to have an easily calculated tax, so that individuals could better plan ahead. In all these regards the flat tax is superior.

Which do you all think is more fair?

" Fair" is by definition "without favoritism or bias". Since progressive taxation is arbitrary and the flat tax is objective, the flat tax would be the most fair.
The flat tax seems more fair since it takes the same percentage out of everyone.
Let's say there is a man A has 100$, B has 1000$, and C has 10,000$ with a flat tax of 10%.

A pays 10$, B pays 100$, and C pays 1000$.

This seems more proportionate and in a certain sense "fair" since everyone is affected the same, even if the money taken is different.

However with a progressive tax it seems to punish the more successful since it affects them more negatively than those who have less money. It is not proportionate.

I think from an ethical standpoint the flat tax is more fair.

Economically however I am completely open to what you all have to say.

Again I know very little about economics so if something I said was flawed or stupid, well now you know.
You are on the right track. You may want to read Adam Smith's Wealth of Nations, or Milton Friedman's Capitalism and Freedom; both are insightfully good reads.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
jimtimmy3
Posts: 189
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5/16/2014 1:37:05 AM
Posted: 2 years ago
The justification for progressive taxation is based upon diminishing marginal utility for income. Basically, an additional $1 of income is worth a lot more to a poor person than a rich person.

I still don't favor progressive taxes. I don't favor taxes period. But, I thought I'd at least offer the typical justification.
slo1
Posts: 4,308
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5/17/2014 6:19:36 PM
Posted: 2 years ago
At 5/15/2014 7:02:03 PM, xXCryptoXx wrote:
I know next to nothing about economics, but one think I have been wondering about is the flat tax and the progressive tax. Which do you guys think is economically better? Which do you all think is more fair?

The flat tax seems more fair since it takes the same percentage out of everyone.
Let's say there is a man A has 100$, B has 1000$, and C has 10,000$ with a flat tax of 10%.

A pays 10$, B pays 100$, and C pays 1000$.

This seems more proportionate and in a certain sense "fair" since everyone is affected the same, even if the money taken is different.

However with a progressive tax it seems to punish the more successful since it affects them more negatively than those who have less money. It is not proportionate.

I think from an ethical standpoint the flat tax is more fair.

Economically however I am completely open to what you all have to say.

Again I know very little about economics so if something I said was flawed or stupid, well now you know.

Three areas to consider in addition to what you wrote:

Regressive: Why not include regressive in the mix? There is an argument to have the rich well funded and able to use their monies to spur the economy which lifts all boats.

Take Texas for the moment. TX does not have a state income tax. From a state perspective, tax is generally collected at a local level via property tax and on a state/local level via a sales tax on most items.

Rich people who are saving/investing can pay less taxes than a poor person who has to spend a greater % of income on expenses which may be taxed. Is that fair?

Fairness: It seems like the method of measuring "fairness" needs to be defined.
- From a perspective of national security, we spend a good chunk on national security. Who really receives a greater benefit from national security. Arguably a poor person could live just as happily under the rule of another country. A rich person has more wealth at stake that could be lost if the US was taken over by another country, or had resources stolen, or had X,Y & Z happen.

Should the poor person pay as much as a rich person towards national security? That argument can be made the same as well when looking at many of the institutions. Does torte law give as much benefit to the poor as it does the rich?

Social programs: The last question that needs consideration is the level of social spending on the poor. Things like health care, assistance for heating, unemployment insurance, welfare, etc. It seems counter productive to tax the poor just to give it back to them via gov programs. it would be better to take the least amount from them so they can afford to live without assistance. Of course that assumes one wants to spend a dime on the poor.
Khaos_Mage
Posts: 23,214
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5/18/2014 12:01:46 PM
Posted: 2 years ago
At 5/15/2014 7:02:03 PM, xXCryptoXx wrote:
I know next to nothing about economics, but one think I have been wondering about is the flat tax and the progressive tax. Which do you guys think is economically better? Which do you all think is more fair?

The flat tax seems more fair since it takes the same percentage out of everyone.
Let's say there is a man A has 100$, B has 1000$, and C has 10,000$ with a flat tax of 10%.

A pays 10$, B pays 100$, and C pays 1000$.

This seems more proportionate and in a certain sense "fair" since everyone is affected the same, even if the money taken is different.

However with a progressive tax it seems to punish the more successful since it affects them more negatively than those who have less money. It is not proportionate.

I think from an ethical standpoint the flat tax is more fair.

Economically however I am completely open to what you all have to say.

Again I know very little about economics so if something I said was flawed or stupid, well now you know.

Ethically, everyone paying the same amount would be the fairest, wouldn't it?
Keep in mind the income tax is not a tax on wealth, and in America, often not taxed on all income, either.

The thing to be aware of when discussing this, is the current status of taxation in America (I can really only comment on American income taxes).
Currently, about 47% of Americans don't pay taxes, or rather, according to my research, at least over 30% of taxfilers don't pay taxes.
A flat tax would raise the taxes on these people tremendously, including seniors, while the rich pay less. Actually, the rich will pay about the same, but the upper middle class or whatever will pay less.
Because of this, going to a flat tax is impossible. Steps may be taken to get there, but it will be a process. The first step would be to eliminate negative tax liabilities.

What is better for the economy?
Honestly, they are probably about the same, if not, the progressive might be better, since more people would likely have disposable income. If me working 40 hours a week is enough for food, rent, and taxes and little else, ($15K at 10%) I'm likely not going to restaurants, movies, and the like.

Also, the 10% figure is hella misleading.
Does that include elimination of payroll taxes?
If not, then it is $17.65% for the "poor", plus any state taxes.
Also, 10% flat tax is likely not going to be enough. It would likely be about 15-20%.
Looking at the first table:
http://www.irs.gov...
About $8 trillion in income (not true income, mind you), to generate just over $1 trillion in taxes. That's 12.5% roughly. Keeping in mind that a single man who makes 20K is paying only about 5%.
This ignores other sources of tax revenues (like gax tax, payroll, excise, and others), eliminates the tax credits and deductions.

Using the table, taxable income (AGI - deductions BEFORE and credits and other taxes) was about $5.5 trillion, which is like 18% flat tax.
My work here is, finally, done.