Ideal Tax Rates on investments

Jul 2008
Virginia Beach, VA
It is absolutely a flat tax, it's just not dogmatically flat. You're playing semantic games. Flat tax systems the world over have exemptions like this. If it makes you feel better to call it a single step progressive tax, fine. Let's hold hands and agree we need a single step progressive tax.
Then what is the huge difference between a system with two tax brackets and seven tax brackets? Why is one acceptable and the other is not?
Dec 2018
New England
Then what is the huge difference between a system with two tax brackets and seven tax brackets? Why is one acceptable and the other is not?
Several. First, having fewer tax brackets makes it significantly harder to raise taxes as it largely nullifies a the divide and conquer strategy of raising rates one bracket at a time. Second, and this is implied in my use of the term flat system, the elimination of all other deductions, exemptions, credits, etc. shuts down the K Street favor factory. Third, this radical simplification of the code would free up an amazing amount of capital for other, and far more useful, purposes. There have been several studies on the subject, but from memory the complexity of the US tax code is such that for every $1 of tax paid businesses also pay something like $0.30 to prepare and quality check their tax returns. That is a phenomenal waste of money when you consider how much business pays in taxes every year.
Jul 2014
Goober, you're nitpicking over something that is not real. Every state flat tax in the country and every credible federal flat tax proposal I have ever seen has an exception for income earned below the poverty level. Thus the example you give above is nonsense; it doesn't apply in the real world of flat tax systems and never has.
I was responding to someone who was proposing taxing every cent of income at the same rate.
OK then 40%of everything over $20,000, sound fair to you?
Jul 2014
Those who talk about "Text Book Economics" or "Economics 101", would have spent a great deal of their class time on marginal utility.
The theory of marginal utility states that each additional unit of something, be it a loaf of bread, an automobile or a unit of currency, has less utility, a lower value, than the previous unit.
The classic visual that demonstrates this is the multi millionaire lighting a cigar with a burning $100 bill.
It's why graduated tax rates are fair.
20% of $10,000 is a much bigger hit to a person than 20% of a million dollars.
There is a huge difference between $8,000 and $10,000, the difference between $800000 and a million is barely noticeable.
Ten thousand dollars makes a bigger difference to a household with an after tax income of $40,000, than 2 million makes to a household with an after tax income of 8 million.
So tax rates should start low, and go up .
Nothing on the income up to the poverty level, a token tax from there to lower middle class levels, but at the high end(income over 10 million) 70% makes sense.
In a typical market system, wealth becomes concentrated as the wealthy gain advantages to skew income towards the few.
At a certain point, there is revolution, the wealthy are executed, or there is economic collapse, the wealth becomes more distributed , the system begins anew.
A taxation system that keeps wealth from being too skewed can avoid economic collapse and revolution.

That's actually what they teach you in Economics 101, my instructor wasn't a Marxist, he was actually a bank president.
Jul 2014
Not even close to fair. I’d call it confiscatory.
Based on what criteria?
And here's why these tax threads turn into nonsense.
The federal government will spend 4.4 trillion dollars in FY 2019.
If you propose a tax system that won't raise 4.4 trillion, you aren't being serious.
there's about 16 trillion in personal income.
Corporate tax income has been drastically reduced tariffs and seigniorage is next to nothing.
That leaves fees and fines, so how do you raise 4.4 trillion?
Actually the target should be closer to 5 trillion, so we can pay down the debt in good times.
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