A tax proposal

[SerriaFox]

A few months ago a posted a flat* tax idea. I'm re-posting this because I feel the earlier thread got derailed, because I want to include a poll, and because I feel that tax reform is badly needed.

The first element of the tax idea is what I'm calling a Basic Living Stipend (BLS). I got the name from David Weber where he got it or if he just made it up I don't know. I envision the Basic Living Stipend as a monthly cash payment to all citizens. The BLS is not a guaranteed minimum income (GMI) as I understand the GMI. The GMI gives people who are unable to reach an arbitrary amount enough to bring their income to the GMI. Because of the cost associated with having a job, the GMI actually creates a welfare trap, where people are worse off if they take a low paying job. Since there is no reduction in benefits with the BLS there is no trap. The BLS would not be consider taxable income (including at the State Level). The BLS would not be subject to judgments except for the BLS would not be paid to CONVICTED inmates who are in jail. What the Basic Living Stipend is meant to do is:

For the ultra poor- provide a very minimum amount of money to survive.
For the working poor- provide enough to live comfortably.
For the Middle class- provide a tax-break similar to a progressive tax-code.
For the Rich- be charitable (they lose).

The second Element of my plan is a flat no-deduction tax This tax is meant to replace both the income tax and FICA taxes. In my opinion the BLS provides all the progressiveness needed.

The final element to my plan, and this is new, is for it to be a constitutionally implemented reform. This would prevent congress from ruining it by adding all sorts of exemptions for special interests. Congress would be allowed to:

Increase the flat tax rate.
Decrease the flat tax rate, provided the budget was balanced before and after the decrease.
Decrease the BLS.
Increase the BLS, provided the budget was balanced before and after the increase.
Congress would not be allow to otherwise tax personal income.

My original plan was for a BLS of $600 per adult and a 33% flat, no deduction, tax, this means:

The ultra poor (unwilling or unable to find a job)- would have $600 for a single or $1200 for a couple to live on.
The working poor (40 hours a week) would have $1480 (600+7.75*40 hours*4.3 weeks*0.66 after tax) for a single or $2080 for a couple. A couple with each person working 40 hours a week would have $2960 to spend

When evaluating this plan I discover that it would be a net increase in taxation. If neutral earning is desired the plan could be tweak by raising the basic living stipend, or lowering the flat tax. I believe although I don't have the numbers that this would improve the economy. Because the poor spend a higher percentage of their available cash I believe this would spur economic growth.

The Basic Living Stipend is meant to replace long-term welfare program such a food stamps and housing assistants. However I believe social security programs for the disabled and retired would need to continue. I'm not sure if unemployment should be consider part of the basic living stipend or should continue. I am certain short term disaster programs and payments such as those ran by FEMA would need to continue.

Some of the questioned I have:

How much should the Basic Living Stipend (BLS) be?
Should Parents get more money?
Should widows get there spouses BLS?
Should the tax rate be flat or progressive (The BLS already makes it progressive)?
Should unemployment be consider separate form the BLS?
In light of the increasing automation and the declining need for “unskilled” labor is the basic living stipend needed (no poll, just type your response)?
Should this be constitutionally implemented? (again no poll option)

 

[Cutlass]

You should start by looking up the idea of a Negative Income Tax. Which is more or less what you are talking about for the BLS. Only the idea has been developed further. It may seem ironic to many, but the NIT is an idea championed by the father of modern libertarianism in the US. There seems to be a pretty good review of the idea at the Wiki link above. And you should take some time to read that to refine your idea.

 

[Integral]

$1200 per year per household isn't an awful lot and would be a loss for the poor, as the Child Tax Credit + EITC grant more than that already. I have this intuition that tax reform ought aim to make the poor better off.

The Integral from 2007 would have loved your idea. I posted extensively on a quite similar system back then -- look up any of my posts from 2007-08 that mention the "negative income tax". The Integral of 2011 is less convinced.

Fair warning: everyone's gonna ask you how you plan to address "capital" income.

 

[warpus]

Why is the flat tax such a popular concept among Americans?

As far as I know no western country has ever tried this thing.. am I wrong about that? Where is the data that would lead one to conclude that a flat tax is a good idea?

 

[Cutlass]

Why is the flat tax such a popular concept among Americans?

As far as I know no western country has ever tried this thing.. am I wrong about that? Where is the data that would lead one to conclude that a flat tax is a good idea?

A "flat tax" is popular because it has no intention of being flat. And to understand that, you have to understand what income is. The main proponents of "flat taxes" excluded most of the income of the wealthiest taxpayers. That way they could make the claim "look how fair it is" while at the same time dramatically shifting the tax burden from the rich to the middle and bottom. It gets sold to the middle based on ignorance of the details of the program plus it takes advantage of that portion of the middle that thinks the poor are being given a free ride at their expense.

The proposed rates of the "flat tax" are typically drastically lowballed, to make it appear that everyone is getting a break.

That's not to say that all proposals are the same, or that none of the proposals are honest ones. But the ones that have gotten the most attention tend to be pretty fraudulent.

The Negative Income Tax idea has been around for a while. And when combined with a tax, even a flat tax, can produce a progressive result. That depends on the design of the income tax.

But a NIT is a political non starter in the US. Even though people of all political persuasions have from time to time expressed support for the NIT idea, I cannot believe that the political situation in the US would ever be that generous with what is, ultimately, a welfare program.

 

[Antilogic]

Fair warning: everyone's gonna ask you how you plan to address "capital" income.

I might be the first. How does this plan address alternative incomes? I find that when most people complain about the complexity of the tax code, they are not talking about the progression in values. They are talking about the number of deductions, exemptions, ability to "hide" money in different types of accounts, etc. As far as I can tell, the OP does not address this except in the most loose sense.

I have other concerns when people talk about "constitutional implementation" and the like. I see constitutions as frameworks explaining and enumerating the process through which decisions are made, and they should specify as few specific policies as possible beyond the basic principles of liberalism (stuff like representation in government, free speech, press, religion, no slavery, equal rights, etc.). Many people have taken a different tact towards this, where a constitution is a more-permanent version of a law, or some kind of Biblical document. The US Constitution already has a clause saying the legislature can raise taxes to carry out its duties, that is enough. Why talk about constitutions at all?

Your BLS takes up the role of traditional unemployment insurance, if I understand your plan correctly, so if you were to advocate something like this, you already have unemployment covered. As far as widows receiving a deceased spouse's BLS, do widows still file tax returns as married or as a single person? There's your precedent, whether you want to change it or if it is fair to change it is an opinion that can be discussed.

You also talk about a "net increase" in taxation, but could we see the numbers? This implies the government is increasing its revenues, but without any numbers to compare figures to we can't really have a discussion. Is it still around 14% of GDP like it is now, or 18% like it was historically, etc.?


EDIT: I was going to quote Cutlass and talk about the American fascination with the flat tax, but he hit the major points. So kudos for saving me some time.

 

[warpus]

A "flat tax" is popular because it has no intention of being flat. And to understand that, you have to understand what income is. The main proponents of "flat taxes" excluded most of the income of the wealthiest taxpayers. That way they could make the claim "look how fair it is" while at the same time dramatically shifting the tax burden from the rich to the middle and bottom. It gets sold to the middle based on ignorance of the details of the program plus it takes advantage of that portion of the middle that thinks the poor are being given a free ride at their expense.

Interesting, but it doesn't really explain its popularity as a concept in America.

I mean, way too many Americans think that it is a good idea. Where's the data to support that conclusion?

 

[Cutlass]

Interesting, but it doesn't really explain its popularity as a concept in America.

I mean, way too many Americans think that it is a good idea. Where's the data to support that conclusion?

It's not data. It's emotion.

Now to be fair, the income tax is FUBAR, and has been for a long time. And that raises sympathy for anything that would replace it. But most of the people who support it have no real concept of the implications of it.

 

[warpus]

It's not data. It's emotion.

Now to be fair, the income tax is FUBAR, and has been for a long time. And that raises sympathy for anything that would replace it. But most of the people who support it have no real concept of the implications of it.

Ahh so basically

1. Flat tax is a bad idea
2. People like it because it makes them feel good (I'm guessing because it's supposed to be "equal"?)
3. The existing tax code is crap

 

[Cutlass]

Ahh so basically

1. Flat tax is a bad idea
2. People like it because it makes them feel good (I'm guessing because it's supposed to be "equal"?)
3. The existing tax code is crap

Pretty much. Now a flat tax doesn't inherently have to be complete crap, but designing it so that it doesn't ( and remember, it will not be truly flat, no matter what you do ) is pretty difficult. Your 2 and 3 points are right.

 

[warpus]

Yeah, how would you design it so that it is flat? Wouldn't you pretty much have to a bunch of exceptions, depending on how much money you make, and your circumstances, making it non-flat in the end?

 

[SerriaFox]

To answer your questions

Capital gains is income therefore it is tax at the flat tax rate of about 30-33%. Just like all income.

Because there are no deductions the alternative minimal tax is thrown at the window with the rest of the tax code.

1200 dollars is probably a net loss to the people currently stuck in the welfare trap. However because there is no qualifying for the BLS there is no loss of benefits when the get a job. Which means that if they get a minimal wage job the should be better off than they are now.

A flat tax is the "idea of fairness. Every pays the same part of a dollar earned. It does not work at all for the very poor. And there are problems with it for the very rich.

 

[JollyRoger]

Yeah, how would you design it so that it is flat? Wouldn't you pretty much have to a bunch of exceptions, depending on how much money you make, and your circumstances, making it non-flat in the end?

Yeah, most flat taxes blossom into a busty lass in fairly short order - people soon realize they didn't want absolute flatness, some curves are sexy.

 

[SerriaFox]

One more Question I failed to answer the NIT.

The NIT as describe by Wikipedia is a bad idea. It uses the GMI. The vanishing benefits cause the welfare trap. That is one of the reason I tried to come up with a new name. The BLS functions as a negative income tax for anyone making less than $21,600 a year (assuming $600 a month and 33%). And a progressive tax code for anyone making more.

 

[Cutlass]

Yeah, how would you design it so that it is flat? Wouldn't you pretty much have to a bunch of exceptions, depending on how much money you make, and your circumstances, making it non-flat in the end?

In the United States, you don't. Between the multiple federal taxes, state taxes, and local taxes, it really can't be done.

 

[SerriaFox]

The important thing that distinction the BLS from the GMI used in the NIT is Warren Buffet still get the BLS. The $600 dollars paid would not even make a dent in his tax bill but it would still be there. Under the BLS every dollar you earn makes you richer. Under the NIT describe elsewhere if you don't make the minimum every dollar you up to the minimum make you no richer.

 

[Cutlass]

Are you talking about $600/month? Because you know, that only goes as far as the rent on a 1 bedroom apartment. And not even that in many parts of the country. Food and utilities not paid for.

 

[zjl56]

In the United States, you don't. Between the multiple federal taxes, state taxes, and local taxes, it really can't be done.

If only your logic could ring as clear to many voters.. The flat tax would cripple our nation to the point of leaving it little better than a modern feudal society (see Russia or Belarus).

 

[SerriaFox]

Yes $600 a month per person. $1200 for a couple is doable. $600 for person would be awful hard. But you can use a roommate. and if you get a minimum wage job you will be up to $1480 a month.

What level would you recommended as a freebie? With no qualifying needed.

 

[Cutlass]

Yes $600 a month per person. $1200 for a couple is doable. $600 for person would be awful hard. But you can use a roommate. and if you get a minimum wage job you will be up to $1480 a month.

What level would you recommended as a freebie? With no qualifying needed.

Roommates or jobs is not an option for many people. $600/month would put 10million people living in boxes under bridges.