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Flat tax is
Good
88%
 88%  [ 15 ]
Bad
11%
 11%  [ 2 ]
Total Votes : 17

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Donald Hughes





Joined: 02 Sep 2006
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Location: Libertarian socialism

PostPosted: Fri Sep 08, 2006 10:00 am    Post subject: Reply with quote

A proportional income tax should have the same basic effect on earnings as a simple consumption tax, shouldn't it? The difference would be more in investing and the type of black market you'd have. Again, if it is a strategy to reduce the size of government and the tax rate on investment, I suspect you'd have some takers. If it just simplifies the tax system, well then you've missed the point. It isn't supposed to be a policy tool so much as a weapon, at some level.
kwlafayette





Joined: 03 Sep 2006
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Location: Saskatoon Saskatchewan

PostPosted: Fri Sep 08, 2006 11:06 am    Post subject: Reply with quote

The thing about increasing tax rates as you earn more, is that it is punishment of success. At a certain point, people realize that it will benefit them more to spend their time protecting what they have rather than growing what they have. So we have tax avoidance (legal), and even evasion (illegal), instead of people simply working harder. This is what our tax system has become. If you don't believe me, just take a look at all the schemes that are flogged during tax time so that rich guys can catch a break. None of the schemes benefit society, only the rich guy taking advantage of them. Also, you see businesses, like CSL for example, moving off shore. That is millions in taxes that the government of Canada will never see.

The Hall Rabushka book has some numbers that show increasing the tax rates can lead to less money, and lowering them can actually lead to more money in tax revenue. Granted, the period of time they studied was when tax rates were very high in the US.
Quote:
Recall that the first income tax of 1913 imposed rates that ranged from 1 to 7 percent; wartime needs for
revenue increased the tax rate structure almost overnight, to a range of 6 to 77 percent. When peace
returned, the wartime structure of tax rates came under the ax of Secretary of the Treasury Andrew Mellon,
who cut the top rate to 25 percent.
Professors James Gwartney and Richard Stroup have analyzed tax receipts by income categories
before and after the Mellon reductions. After the reductions, the highest income category paid substantially
more in absolute tax dollars and nearly doubled its share of total federal revenues. The lowest income
category paid almost 80 percent less in absolute dollars, and its share of the total burden fell from 23 to 5
percent (see table 2.1). To repeat, cutting the top rate from 77 percent to 25 percent produced a more
progressive tax system.
How can this be? How can a massive windfall to the rich cause them to pay more in federal income
taxes? Why do lower rates increase progressivity? One big reason is that formerly high-bracket taxpayers
shifted assets from tax-free bonds into productive outlets. Even though the rate reductions were greatest for
higher-income brackets, the 1920s cuts shifted the tax burden to that area. The tax base proved highly
responsive to changes in the incentive structure during the Mellon years.

http://media.hoover.org/docume.....apter2.pdf

Quote:
Republican appointee Andrew Mellon’s 1920s rate cut was not a unique episode in U.S. tax history.
President John F. Kennedy, a Democrat, took up the same cudgel to cut marginal tax rates across the board
in his term of office. Proposed in 1963 and signed into law in March 1964, Kennedy’s legislation reduced
all brackets, from a range of 20 to 91 percent to 14 to 70 percent. In dollar terms, about 70 percent of the
estimated total reduction of $5.5 billion would go to taxpayers making less than $10,000, who made up 84
percent of all taxpayers and who bore 48 percent of the income tax burden. Although the largest dollar
amount went to taxpayers of modest means, the largest percentage cut applied to those with taxable
incomes over $500,000.
Using income data reported by the IRS, Lawrence B. Lindsey compared taxes paid by high-income
taxpayers before and after the 1964 rate reductions. In 1965, the first year for which the new rates applied,
high-income taxpayers declared more taxable income and paid more in taxes than they would have paid
under the old law. The trend was especially pronounced in the highest bracket (see table 2.2).
Lindsey offers three reasons why lower rates increased the share of taxes paid by the rich. One,
taxpayers in the highest brackets shifted money from consumption or tax-sheltered investments into more
productive, taxable investments; tax avoidance declined. Two, taxpayers became more honest as evasion
became less rewarding; tax evasion declined. Three, some taxpayers, rewarded by higher after-tax returns,
worked harder; incentives improved.

Quote:
The 1980s provide the best evidence that lower tax rates increase the fairness of the tax system. Between
1981 and 1986, marginal tax rates were reduced across the board, although the full rate reduction in the
1981 Economic Recovery Tax Act did not take effect until January 1, 1984. The Tax Reform Act of 1986
further reduced the top rate of 50 percent to 28 percent. How did the rich respond? The share of total
individual income taxes paid by the top 1 percent (by adjusted gross income category) rose from 17.9
percent in 1981 to 25.6 percent in 1990 (see table 2.3). The share paid by the top 5 percent rose from 35.4
percent to 44 percent and by the top 10 percent from 48.2 percent to 55.7 percent. The bottom 50 percent
reduced its contribution from 7.4 percent in 1981 to 5.7 percent in 1990.
Why did the cuts in marginal rates increase the tax burden on the rich? As before, when tax rates fall,
upper-income households shift assets out of instruments that generate tax-exempt income, or from schemes
that are designed to shelter income, into taxable economic activity. In 1986, federal tax expenditures, items
that represent revenue lost from loopholes, amounted to $500 billion. By 1990, the figure had fallen to
$400 billion. More than $100 billion of activity was brought into the tax net, largely by individuals in the
former high brackets. Lower rates also curbed tax evasion.
The 1990 budget accord raised the top personal tax rate from 28 percent to 31 percent. This marginal
tax rate increase was part of President George Bush’s $500 billion deficit reduction package, negotiated
with the leadership of Congress. For married filing jointly, the 31 percent rate applied to taxable income
over $82,150 (equivalent to adjusted gross income over $100,000); this bracket constitutes the top 3.3
percent of the income distribution.
The IRS statistics for 1991, the first taxable year following the 1990 tax rate increase, reveal that the
superrich, the top 1 percent of income distribution, and the ordinary rich, the top 5 percent, both paid
smaller shares of total income taxes in 1991 than in 1990. The new, higher tax rate in the 1990 law reduced
the progressivity of the system, making it less fair. We expect that IRS statistics for 1994 and beyond will
show that less fairness, not more, was the most visible consequence of the 1993 tax increase legislation.
Political rhetoric is no match for evidence when it comes to real tax fairness.
kwlafayette





Joined: 03 Sep 2006
Posts: 6155
Reputation: 156.2Reputation: 156.2
votes: 28
Location: Saskatoon Saskatchewan

PostPosted: Fri Sep 08, 2006 11:12 am    Post subject: Reply with quote

Donald Hughes wrote:
A proportional income tax should have the same basic effect on earnings as a simple consumption tax, shouldn't it? The difference would be more in investing and the type of black market you'd have. Again, if it is a strategy to reduce the size of government and the tax rate on investment, I suspect you'd have some takers. If it just simplifies the tax system, well then you've missed the point. It isn't supposed to be a policy tool so much as a weapon, at some level.

I think the tax system should be, and only be, a tool to reaise needed revenue for the government. It shouldn't enforce social policy, encourage one behavior over others, or try to be anything else. Right now the tax system is used for everything, it is a hammer, and it is the only tool in the box so to speak. You can drive screws with a hammer, but there are better tools that will do a much neater job.
Donald Hughes





Joined: 02 Sep 2006
Posts: 166
Reputation: 16.2Reputation: 16.2
Location: Libertarian socialism

PostPosted: Fri Sep 08, 2006 11:33 am    Post subject: Reply with quote

Quote:
The thing about increasing tax rates as you earn more, is that it is punishment of success.
All taxes "punish" something. The point is to balance the needs of the treasury off with ability to pay and efficiency effects. Most people accept that the rich are in a better position to pay and that the efficiency effects do not outweigh the use of increased revenues.
Quote:
At a certain point, people realize that it will benefit them more to spend their time protecting what they have rather than growing what they have.
What is that point, and how specifically are rich people avoiding working more and spending all their time on tax avoidance/evasion?
Quote:
If you don't believe me, just take a look at all the schemes that are flogged during tax time so that rich guys can catch a break. None of the schemes benefit society, only the rich guy taking advantage of them.
The vast majority of tax expenditures include some specific social benefit. They are things like the RRSP deductions and whatnot. The more obvious benefits for investment-class types are put in place because the Right has argued that these would transform the tax system into a pro-growth system. Any "alternative" proposed almost always simply exaggerates the waste in current tax expenditures (like RRSP deductions) and then proposed a system where those sorts of expenditures are actually institutonalized (higher consumption taxes). This is not to say these sorts of shifts are inherently wrong, but they are part of a much larger argument that most blockbuster solutions totally miss or simplify.

As I suggested, there is also an element of the larger struggle involved. Many tax reduction plans are strategies in favour of owners and coordinators/managers and against the general population.
Quote:
Also, you see businesses, like CSL for example, moving off shore. That is millions in taxes that the government of Canada will never see.
The problem is, try to design a simple tax system that incldues some universal definition of revenues and applies globally. It is impossible. The complications in the tax system don't arise simply out of government corruption of one sort or another, but because the government needs to react to complications or evasions in the system. This happens largely because of a long definitional debate. This debate exists in any tax system. Or collection system of any kind, of course, when we look at things like private insurance and the like.
Quote:
I think the tax system should be, and only be, a tool to reaise needed revenue for the government. It shouldn't enforce social policy, encourage one behavior over others, or try to be anything else. Right now the tax system is used for everything, it is a hammer, and it is the only tool in the box so to speak. You can drive screws with a hammer, but there are better tools that will do a much neater job.
Actually we have a lot of "tools" in the tax toolbox. This is frequently used as a reason why we should move towards the "hammer" of a single tax. But the tax system can actually be a very efficient way to introduce social policy, certainly from a Right-wing angle. Presumably by your logic it would have been better for Harper to fund child care spaces more directly, instead of expanding tax credits towards this end. There are problems with this strategy, but they are generally recognized by the planners involved.
biggie





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PostPosted: Sun Sep 10, 2006 1:15 pm    Post subject: Reply with quote

I'm in favour of a "flat-tax" - Establishing a base percentage, regardless of earnings. Too many people look at the economy and think "rich get richer" - guess what? as the rich get richer they also spend a lot more of their money... Its along the same lines that Canada gets richer as Alberta prospers, or suffers as the maritimes suffer. Success breeds success. Failure breeds failure. By punishing higher-earners, you're reducing(not eliminating) the drive to be more successful.

As far as business and corporate taxation - I think we need to decrease both of these rates to an extremely attractive level. We need to cut certain restrictions(CRTC being one of the best examples of this). We need to improve the ability of business to do business in and from Canada. If we can accomplish this, we'll pull more people out of that "dreaded' low bracket..

Side Note - As I have just recently pulled out of that low bracket - its not hard at all to survive on $20,000/year... People who make 60+ may think so, but it really is not(Unless you're in T.O. I suppose..)
REWJR





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PostPosted: Sun Sep 10, 2006 1:57 pm    Post subject: Flat Tax ( Income ) vs Fair Tax ( consumption ) Reply with quote

The Flat Income Tax and the FairTax Consumption Tax
A Comparison of Federal Taxation Proposals

http://www.pafairtax.org/resrc.....r%20tax%22
Craig
Site Admin




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PostPosted: Sun Sep 10, 2006 3:58 pm    Post subject: Reply with quote

Donald Hughes wrote:
The vast majority of tax expenditures include some specific social benefit.


Perceived social benefit. Constantly trying to up the % of our population enrolled in post-secondary education isn't necessarily a benefit. There are stupid people out there who shouldn't be in college. But we endlessly spend money on student loan programs, creating countless spaces, and attempting to keep tuition affordable. I wouldn't mind paying taxes if it wasn't to fund the social lives of tens of thousands of geography and philosophy students (I should know, I was one of those geography students).

Quote:
They are things like the RRSP deductions and whatnot


I like how RRSP deduction is referred to as a "tax expenditure". It isn't. You don't collect the money so you can't expend it.

Quote:
The more obvious benefits for investment-class types are put in place because the Right has argued that these would transform the tax system into a pro-growth system.


Worked well in Ireland.

Quote:
As I suggested, there is also an element of the larger struggle involved. Many tax reduction plans are strategies in favour of owners and coordinators/managers and against the general population.


Like the GST reduction?

Quote:
I think the tax system should be, and only be, a tool to reaise needed revenue for the government.


I agree with you. I need a shower.

So you prefer Reform's taxation strategy over Liberal and NDP taxation strategies?
Donald Hughes





Joined: 02 Sep 2006
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Location: Libertarian socialism

PostPosted: Sun Sep 10, 2006 5:00 pm    Post subject: Reply with quote

Craig wrote:
Perceived social benefit. Constantly trying to up the % of our population enrolled in post-secondary education isn't necessarily a benefit. There are stupid people out there who shouldn't be in college. But we endlessly spend money on student loan programs, creating countless spaces, and attempting to keep tuition affordable. I wouldn't mind paying taxes if it wasn't to fund the social lives of tens of thousands of geography and philosophy students (I should know, I was one of those geography students).
Yes, well, that's fine. And personally sometimes I do wonder about the efficiency in spending, say, $100,000 altogether on a Canadian student of development (or business, say, from a conservative perspective) when the same money could be used to finance development work (or a small business tax cut, from a conservative perspective). But that isn't really a criticism of the tax system but specific expenditures. I found that the more I learned about the tax system, the more I found real programs that couldn't be filed under some abstract category of "waste" or "loopholes." The kind of tax expenditures I disagree with the most, for example mortgage interest deductibility in the US, tend to be the ones that are the most politically protected and the least about helping people.
Quote:
I like how RRSP deduction is referred to as a "tax expenditure". It isn't. You don't collect the money so you can't expend it.
"Tax expenditure" is a semi-technical term used to describe the various deductions and credits within the tax system and their relative "cost" in lost revenue. From the perspective of simple budgeting they are basically equivalent to a spending program. This is not to ignore complexities beyond that basic point, but it is true. For example, the child care tax credit essentially took a planned set of intergovernmental transfers plus some Ministerial spending and shifted it largely into a tax expenditure.
Quote:
Worked well in Ireland.
Ireland received large subsidies through its membership in the European Union. It then used those subsidies to radically increase post-secondary education funding and cut taxes. It's population and GDP (and also/therefore GDP per capita) are about the same as British Columbia. BC and Ireland had somewhat different policies over the last decade.
Quote:
Like the GST reduction?
The GST reduction was a political decision made by Harper a few years ago, believing that it was a kind of demonstrative and visible tax cut that would bring in a conservative government to do more conservative things. In itself it is not a very conservative sort of tax cut, since it does not encourage investment in the ways that neoliberals would support. That is why most right-of-center special interest groups and journalists grumbled about this, to the degree that I think (IIRC) that Harper largely shelve the idea during the 2004 campaign. In fact, I think that if Martin had agreed to a more reductions in corporate and high marginal income tax rates, you might have had a very different tune from those interest groups. Remember that a lot of Liberals wanted that to happen, look at the Finance Committee's report a few years ago on this issue, and this is also an additional reason why Brison and Stronach felt comfortable switching. More importantly, these pressures are part of the reason why the Conservatives ended up pushing through personal and corporate income tax cuts in addition to their GST reduction. This is something that "business" expected and wanted, along with new contracts for things like the military, avoiding a national childcare program, and other things like that.
Quote:
I agree with you. I need a shower.
Well you wrote and then self-quoted that part, so I'm glad you agreed with it. :)
Quote:
So you prefer Reform's taxation strategy over Liberal and NDP taxation strategies?
No. I feel that all parties of note were moving in the wrong direction on taxation in the last election. I was pleased however that the NDP had admitted its 2004 policies were a mish-mash of policies targeting investment that they hadn't adequately costed for, thanks to the intervention of Summerville. Summerville is now a Liberal, of course. I would prefer that parties like the NDP support the repeal of some Liberal and Conservative tax cuts over new and often arbitrary taxes on investment. Of course, I also support many things that would make business increasingly unprofitable over time, so I try not to make the mistake of many Leftists of becoming dependent on corporate and investment taxation.
Craig
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PostPosted: Sun Sep 10, 2006 5:15 pm    Post subject: Reply with quote

Donald Hughes wrote:
The GST reduction was a political decision made by Harper a few years ago, believing that it was a kind of demonstrative and visible tax cut that would bring in a conservative government to do more conservative things.


Actually, Harper stole it from the NDP which introduced the exact same tax cut to parliament in 2000.

Quote:
I would prefer that parties like the NDP support the repeal of some Liberal and Conservative tax cuts over new and often arbitrary taxes on investment. Of course, I also support many things that would make business increasingly unprofitable over time, so I try not to make the mistake of many Leftists of becoming dependent on corporate and investment taxation.


You want to turn us into a nation of exporters and sap domestic consumerism.
Donald Hughes





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PostPosted: Sun Sep 10, 2006 5:47 pm    Post subject: Reply with quote

Quote:
Actually, Harper stole it from the NDP which introduced the exact same tax cut to parliament in 2000.
He did not "steal" it from the NDP. But, yes, the NDP has long supported eliminating the GST and matching the lost revenue with increaesd income taxes. In 2000 I assume they introduced a motion to cut the tax instead of the tax cuts that Martin introduced.
Quote:
You want to turn us into a nation of exporters and sap domestic consumerism.
It would be difficult to see how Canada could be more of a "nation of exporters", really, but if you mean that I want Canada to "export" health care and education to more of the world, yes I would be in favour of that.
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