Does anyone who isn't a lobbyist oppose drastic simplification of the tax code? In my ideal world, a no-deduction tax code with one rate of tax would be my preference. But we can and probably should decouple a single rate from the concept of a much simpler code. There's a right-left deal to be struck here - as Matt Yglesias and Chris Edwards reveal.
If I were to propose two single policy proposals to revive the right, I'd champion a gas tax hike, offset by a payroll tax cut; and removal of all tax deductions - corporate and personal - except charity. Imagine how hard the lobbyists would fight the last one. Imagine how wonderful it would be if they lost.
Alrighty.. let's destroy the idea of a "flat tax".. shall we?
This is again using the data from the CBO, and I'm using the last year of available data, 2005.
First, I would agree that taxing on gross income instead of adjusted gross income is a good idea. Tax cheating mostly involves the deductions, in addition to unreported income.
This is pretty simple really. Tax rate here is income tax only, and does not include any FICA or SSI taxation, which presumably would not change in a flat tax system.
Here's the data using the progressive income tax rate;
| Income | Tax Rate | Payment | Net $ |
|---|---|---|---|
| $15,900 | -6.5 | $-103 | $16,003 |
| $37,400 | -1 | $-37 | $37,437 |
| $58,500 | 3 | 1,755 | $56,745 |
| $85,200 | 6 | 5,112 | $80,088 |
| $120,600 | 8.7 | $10,492 | $110,108 |
| $161,800 | 11 | $17,798 | 144,002 |
| $269,800 | 15.2 | $41,009 | $228,790 |
| $588,100 | 19.4 | $114,091 | $474,009 |
| $1,207,200 | 20.7 | $249,890 | $957,310,554 |
| $4,699,400 | 19.9 | $935,180 | $3,764,219 |
| 35,473,200 | 17 | $6,030,444 | $29,442,756 |
Here's the data in a flat tax system. I made a spreadsheet, and it's a bit too much data and formula to fit here, but if we were to have a flat tax, and maintain current revenue, the tax rate would be 9.26%. The number of households included in each income bracket is used to determine revenue.
| Income | Payment | Net $ | Diff $ |
|---|---|---|---|
| $15,900 | $1,472 | $14,428 | $1,576 |
| $37,400 | $3,463 | $33,937 | $3,501 |
| $58,500 | $3,662 | $53,083 | $3,662 |
| $85,200 | $7,889 | $77,310 | $2,778 |
| $120,600 | $11,167 | $109,432 | $675 |
| $161,800 | $14,982 | $146,817 | $-2,815 |
| $269,800 | $24,983 | $244,817 | $-16,062 |
| $588,100 | $54,458 | $533,642 | $-59,633 |
| $1,207,200 | $111,786 | $1,095,413 | $-138,104 |
| $4,699,400 | 435,164 | $4,264,236 | $-500,016 |
| $35,473,200 | 3,284,818 | $32,188,382 | $-2,745,626 |
And there you have it. The break point is around $135,00.. and if you earn beyond that, you start having a lower tax burden. It really starts to add up after a while.
Does that sound like a good plan?
7 comments:
Ahhh if only my taxes were that small in either case :P
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
I don't really know how to compare that data, since it's not in percentage rates, nor do I know the exchange rate.. cbf to look it up.. :)
I assume your taxes would be comparably higher because your health care is state funded, right?
Percentages are easy to work out. For every dollar over the bottom end of whatever Tax bracket you may be in you pay a set amount of cents from that dollar (middle income pays 30 cents so 30%). Thats added on top of the base tax you pay for that bracket (middle income is $4200 no matter how much you happen to earn).
Last financial year I earnt somewhere in the vicinity of $52k of that I paid around $15k in taxes (after whatever deductions I made). At the current exchange rate that adds up to about $34k earned $9800 taxed.
Correct in your response re: state healthcare. We also have much more comprehensive old age pensions and unemployment benefit framework.
I think another deceptive difference in our rates that make them seem radically higher at first glance is they are a series of thresholds which you only pay that % for every dollar over said threshold. Your first few thousand are tax free. Your next few thousand at X% then Y% etc. If it didn't work that way there would be occurences where you got a payrise but took home less pay coz you went up a threshhold. System ensures that any pay rise no matter how small has some net benefit.
Ya.. that seems pretty radical..Kor paying something like 30% tax. American's would go ape shit.. only multi-million incomes are taxed that hard here.. but then some states have their own taxes.. and there's sales taxes. I really have no idea how it compares.
But ya.. better social programs are better.
Our tax brackets work the same way where you pay a certain percent up to a certain amount and then a diff percent for everything over that amount.
For 2008 in the US it looks like this:
# 10% on the income between $0 and $16,050
# 15% on the income between $16,050 and $65,100; plus $1,605.00
# 25% on the income between $65,100 and $131,450; plus $8,962.50
# 28% on the income between $131,450 and $200,300; plus $25,550.00
# 33% on the income between $200,300 and $357,700; plus $44,828.00
# 35% on the income over $357,700; plus $96,770.00
So if I made 70000 last year I would pay 25% of 4900 and add 8962.50 for a total of 10187.50.
So it starts to add up as you get higher, but our "middle class" doesn't pay much at all only 15%.
My last comment included the wrong tax rates, that was married filing jointly. This is the single brackets.
# 10% on income between $0 and $8,025
# 15% on the income between $8,025 and $32,550; plus $802.50
# 25% on the income between $32,550 and $78,850; plus $4,481.25
# 28% on the income between $78,850 and $164,550; plus $16,056.25
# 33% on the income between $164,550 and $357,700; plus $40,052.25
# 35% on the income over $357,700; plus $103,791.75
I thought us singlies paid more than 15% :)
So back to my 70k example. I'd pay 25% of everything over 32550 and add 4481.25. So $13843.75 in taxes.
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