Inspired by flat tax thread - how much is enough?

[Charade]

Not so. If it is a consumption tax, they can't take advantage of the system. Either they spend the money up front, or they SAVE the money for the future relieving SS. In the first scenario, the government gets paid. In the second, the government saves. Looks like a win-win. Feel free to poke holes.

I was referring to the current tax system and the flat tax system. Sorry for the confusion.

 

[treesinger]

The government forces behavior modification on society all the time through laws,taxes and other regulations. Why should this be any different?

Because you can't legislate thought.

 

[treesinger]

I was referring to the current tax system and the flat tax system. Sorry for the confusion.

My bad, I'm being a monkey wrench. Have fun y'all, gotta go to work.

 

[Charade]

I'll pay up when the tax code says to pay up. I doubt there are more than 5 people in the country that actually voluntarily send more taxes to the government to help the government!

But would you purposely decline a pay raise knowing that it would move you into a higher bracket (under the current system) or push you into the tax base under the flat tax system?

 

[bicker]

Just another thought on your example. The FT system could be set up with a stop gap point that until you bring home after taxes what you did BEFORE you crossed the threshold, you'd get tax credits to make your take home pay the same.

That would create a DMZ, I suppose. So, in my example, everyone gets to take home the first $100 of their income, regardless of the tax. So folks making between $100 and $110 would all take home $100, and then folks making more than $110 start paying tax.

It's a better approach than the OP's idea, since it doesn't have the paradox. It does leave people making between $100 and $110 in a situation where every extra dollar they make goes directly to the government, though. That's a really big disincentive to work more.

Unremarkably, the best way of address that disincentive is with a progressive tax.

 

[Charade]

Because you can't legislate thought.

Sure you can. You "think" about putting on your seatbelt (the law in most states) when you get into your car.

 

[bicker]

Not so. If it is a consumption tax, they can't take advantage of the system.

That's not true. Consumption taxes provide significant incentive for Black Markets. It's really the major problem with consumption taxes and the reason why they're generally not considered a viable alternative.

One way to address the Black Market concern is to regulate money more strictly: Basically it's Big Brother. You don't have money unless the government says you have money. So the government knows every dollar you get, and where it goes, so knows every dollar you spend, and therefore can apply your consumption tax to it. I don't think anyone likes that idea.

 

[Charade]

It does leave people making between $100 and $110 in a situation where every extra dollar they make goes directly to the government, though. That's a really big disincentive to work more.

Paying taxes is certainly a "disincentive" to not work (or work more). But if it doesn't affect their take home, who cares? Once they cross over from the DMZ, they are still paying taxes.

 

[bicker]

The government forces behavior modification on society all the time through laws,taxes and other regulations. Why should this be any different?

The government can provide incentive and disincentive -- it cannot and does not "force." Since the success of the proposal explicitly requires that people act a certain way, laws, taxes and other regulations aren't sufficient. For the proposal to be successful, people already have to act that other way naturally.

 

[bicker]

But would you purposely decline a pay raise knowing that it would move you into a higher bracket (under the current system) or push you into the tax base under the flat tax system?

I run my professional life like a business. My company would not take a project on that we know we would lose money on, so I surely wouldn't take a gross pay hike that would result in lowering my net pay.

 

[bicker]

Paying taxes is certainly a "disincentive" to not work (or work more). But if it doesn't affect their take home, who cares?

They'd care -- why work the extra hours if you get absolutely no extra take-home pay for it?

 

[Charade]

I run my professional life like a business. My company would not take a project on that we know we would lose money on, so I surely wouldn't take a gross pay hike that would result in lowering my net pay.

But that's exactly what the current system does at certain income thresholds. Doesn't happen with the flat tax system if the "DMZ" we talked about was incorporated into it.

 

[Charade]

They'd care -- why work the extra hours if you get absolutely no extra take-home pay for it?

They are not working extra hours. How do you figure that?

 

[bicker]

But that's exactly what the current system does at certain income thresholds.

No. The current system ensures a smooth function. If you use tax tables, you'll see miniscule steps (as compared to the dollar amounts), but you always could use the regular formulas, and you'll see no steps.

 

[bicker]

They are not working extra hours. How do you figure that?

In order to increase their gross pay from $100 to $105, they'd have to work more. Yet, with the DMZ, they'd take up the same amount of money.

 

[Charade]

In order to increase their gross pay from $100 to $105, they'd have to work more. Yet, with the DMZ, they'd take up the same amount of money.

That would be true if they didn't work a straight X hour week. I was referring to getting a pay raise while still working the same amount of hours.

 

[bicker]

That would be true if they didn't work a straight X hour week. I was referring to getting a pay raise while still working the same amount of hours.

The pay raise issue is addressed by the DMZ, though only partially. Here's why: What is a company's motivation for giving an employee a pay raise: To reward them for good work and to provide incentive for them to continue to do good work. Well given the scenario we're discussing, here we have the company giving a pay raise and getting very little in return for it: Since the employee doesn't see any of the extra money, it doesn't provide the employee as much incentive as if the employee did see some of that money, as is the case with a true progressive tax system.

Beyond that, the DMZ doesn't address the added-hours scenario at all.

 

[swilphil]

Sure you can. You "think" about putting on your seatbelt (the law in most states) when you get into your car.

But not because it's legislated. I do it so I don't die if someone hits me.

 

[bicker]

Even beyond that, over time even legislation can influence people's behaviors. However, the effect is over time. You cannot rely on it to take effect immediately, which means any proposal that relies on people acting a certain way cannot be put forward until after societal behaviors have already changed.

 

[JudicialTyranny]

That approach would be particularly regressive on the lowest-income folks who aren't below the poverty line. It would actually provide them incentive to work less, because once they drop below the poverty line they no longer pay taxes, and therefore could end up with more net income than if they were above the poverty line! Such structures are unequivocally unfair.

This is a misnomer that I hear quite often with the current tax code.

For example, when my dad worked a lot of overtime one year, he asked me "is this going to put me in a higher tax bracket?". It doesn't matter!

With the current tax code, if you make over a certain amount that goes into the next tax bracket, only only get charged the higher percentage on the amount over the limit! Many people I have encountered think that you get charged the higher rate on all income, which is not true.

For example, let's say the upper limit on the 28% bracket is $100,000 (I forget what it is actually, and I don't feel like looking it up.) That means anything you make over $100,000 will be taxed at 31% instead of 28%. But it does not change the rate for the amount under $100,000!

Example:

You make $100,000, staying in the "28%" bracket:

$100,000 x .28 = $28,000 (this is not reality because there are brackets below 28% but let's consider it for illustration)

You make $101,000. Now you are "in" the "31%" bracket: Is your tax now 31% x $101,000? No!

$100,000 x .28 = $28,000
$1,000 x .31 = $ 310
Total: $28,310

With many of the flat tax proposals, there is a large exemption, and you pay the flat tax on income over that amount. Let's say the exemption is $50,000 and the flat tax rate is 20%

You make $50,000:

$50,000 x 0% = 0 (no tax due)

You make $100,000:

($100,000 - $50,000) x .20 = $10,000 (you pay tax on $50,000 only)

So your argument against the flat tax is that people won't want to make that extra $50,000 so they don't have to pay $10,000? It doesn't make sense! Even if it was only $60,000:

($60,000 - $50,000) x .20 = $2,000 (pay tax on $10,000 only)

Are you saying that people will forego netting $8,000 ($10,000 over the limit minus the tax) just so they don't have to pay the $2,000?

If I gave you $10,000 with the caveat that you have to give me $2,000 of it back, would you take it?