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  • From: Greg Cox <glcox AT pobox.com>
  • To: "Internetworkers: http://www.ibiblio.org/internetworkers/" <internetworkers AT lists.ibiblio.org>
  • Subject: Re: [internetworkers] Tax reform
  • Date: Wed, 23 Feb 2005 12:20:44 -0500 (EST)

> everyone seems to think the ability to deduct mortgage interest
> encourages home ownership. I believe it really encourages LOAN
> ownership, and actually discourages people from paying off their
> mortgages.

Pre-1986, you could deduct a LOT of interest. Cars, credit cards..
it was a grand old time. Savings rates sucked, but, some things
never change.

> 3) Enact a SIMPLE, progressive tax on wage income, where the first x
> dollars are taxed at 0%, the next x dollars taxed at y%, the next at
> z%, etc. Require the payer of the wage to do all the
> filing/withholding.

We have that now. You'd still want to file at the end of they year,
though. Say I work at HugeCorp, making HugeSalary. They withhold
taxes at a high rate that'll be correct if I'm there all year. Then they
lay me off in July and I can't find work. Suddenly, I've paid too much
tax for what I made, and I want it back. HugeCorp has no reason to go
to bat for me; the government won't pay me back right then: they have
no way of knowing I won't have a job tomorrow, same salary, and be
back on pace for owing what I've paid in.

Filing is a reconciliation and it's Not That Hard. I don't get why
it kicks so many peoples' asses. The hard part is planning in advance,
at hiring time, and mid-year, when you can do something about your
liability for the year.

> 4) Tax all other income at one flat rate, and require the payer of the
> dividends, interest, etc. to withhold and file. If we really, really
> want to encourage home ownership, don't tax capital gains on primary
> residences at all.

Second part first:
Capgains on your primary residence only kick in at 250K gain (500K if
you're married-joint). If this bites you, you deserve to get bit.


Flat rate taxes are like lotteries. They are a tax on people who
can't do math.

Consider:

| .
| .
| .
| .
| ..+
| .. |
| .. |
| .. |
| ....+ |
| .... | |
|.... | |
+-------------------------------

X = taxable income in dollars, Y = tax in dollars.

The curve, poorly represented in ASCII, includes the progressive system
we have now. A low marginal rate for low income, and at a breakover
point, jumping into a higher marginal rate, and another breakover as
you go higher. I'll keep it to 3 brackets for simplicity.

So as you make more money, you pay marginally higher rates on the 'luxury'
dollars. That's a progressive tax. That's a fair system, and what you
want, unless you're rich.

If you replace that with a flat tax, you get this:

| ...
| ...
| ...
| ...
| ...
| ...
| ...
| ...
| ...
|...
+--------------------------------

A straight line.

If you want to keep the same level of taxation (the amount of money the
gummit gets), then you must the same area under this curve. The curve
ends, eventually, or, more correctly, is bounded on the right by "nobody
made more income than this."

OK, technically, you want to integrate the curve*wealth distribution of
the population, but that's held constant for this comparison, so we can
just examine this curve.

The flat tax rate would be X, probably about 30%. That's higher than the
'poor' rate of 10%, near to but necessarily higher than the middle rate, and
lower than the high rate. The AMOUNT of difference between the two rates
is debatable (e.g. 5000 middleclass people paying 1% more can be offset by
50 rich people paying 10% less, or 70 rich people paying 9% less). That
there's 2 intersection points (one at 0 dollars, one somewhere around
the upper-middle class level) where flat and progressive rates produce the
same tax from the same income is not.

Flat rates shift the tax burden from the rich to the middle and the poor.






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