My biases first. I sympathise strongly with lower and lower middle income Americans not at all with economic elites or corporate America. I think its pretty clear that the existing free market dominated/ low tax era that can be dated from roughly 1980 has led to very slow or negative income growth for these groups and high poverty and that tax reforms have almost entirely failed (or have entirely failed to reverse this). I dont want to past the various data sets that show this, if anyone is interested they can look at historical income data from the census bureau adjusted for inflation by income strata.

I also dont care about overal national income or earnings, I care about how well the bottom 80 percent are doing and the economy can grow very fast and they lose ground. For the last three years at least the economy has, for instance, grown at a 3 percent clip (considered pretty fast by economist) and poverty rates are up and real income down during this period for the bottom 4/5. The last quarter century has shown a sharply bifurcating economic reality with growth very fast near the top but very slow or negative elsewhere (which is why disparity has soared reversing most of the gains achieved after 1910 in income equality). Further I think (radical heresy) that the basic problem in the US in the future is not to little profits or savings, its too little income for most of the public chasing to many goods leading to structural deflation.

That being the case, a flat or sales tax is the worse of all worlds. Even as disparity soars and wages stagnate or decline for most Americans a tax that fundamentally shifts the burden of taxation from elites to the lower income groups is proposed which is what a flat or a consumption tax (their different of course) ultimately are. This is in contrast to the vaguely progressive income taxes (many other taxes are regressive of course including exise taxes). The reason is simple and has to do with the nature of spending on neccesities rather than discretionary income.

Its generally agreed that as income increases the amount of money spent on neccesities as a percent of total income declines. The wealthy of course do buy neater toys and better houses but their income is so much higher that the total percentage of such is much lower. They are thus able to, and do, save more of their income and thus sales or consumption taxes tax a lower percentage of their total income (the exact opposite of a graduated income tax). Flat taxes dont do this, but they still take a much higher bite out of discretionary income (or even from basic necessities) for lower income than from upper income.

Consider ( a simple model purely for narrative purposes). Joe Six pack earns twenty thousand dollars. He spends 16 thousand of this on food, housing, clothing, and other basic nessities that are required to stay alive (it would likely be higher in fact because most Americans live pay check to pay check but I am being conservative in my presentation). A ten percent flat tax hits him for 2 thousand dollers half his total discretionary income. Now consider Joe Fat Cat. He earns a million dollars and spends 200,000 on basic neccessities (its hard to imagine him spending that much on such but I will be conservative in my presentation again). He pays 100,000 in taxes only 12.5 percent of his discretionary income (800,000).

The sales taxes are even worse. Say we have a 15 percent sales tax (what most estimate it would take to replace the existing system). Now Joe Six Pack spends 16,000 and pays 2400 dollars of tax. They have paid 12 percent of their income in taxes and 60 percent of their discretionary income. Joe Fat Cat spends 200,000 and is taxed 30,000 dollars - three percent of his total income and a small fraction of his discretionary income. In fact, analysis of state sales taxes even with excemptions show them to be highly regressive.

This of course fails to consider that other federal taxes such as excise taxes and state and local levies are themselves highly regressive and would add to the burden as would social security. At a time when consumer spending can't easily match production already and where disaprity is growing and income for most stagnating that would be the worse imaginable "solution" for our problems (I would argue that it would also worsen the problem by increasing production and labor displacement by increasing investment which has tended to do both in recent decades while making it more difficult for people to afford to buy it. This helped fuel the Great Depression, a structural gap between productive capacity and purchasing power). People with lower income spend more of their income, they have to, people with higher income save more.

So we should give Joe Six Pack a huge tax cut so he can go get rip roaring drunk?

I think a flat tax would be a great idea!! The tax system that exists in America is to difficult, with to many "holes" in it. So the reality is that while the rich people are hiring some loyars, and are getting away without having to pay a cent, orddinary americans have to struggle throug the worst papermill we have ever seen. That not fair at all. The tax system have to be understandable for everyone who have had basic math in school..So why not say that everyone have to pay, let say 19-20% of their income in taxes. That way, we would lift the taxburden from the low, and middle income group, who are paying like 30% today, over to the wealthiest who are paying almost nothing with todays taxsystem. If this had been done, it would actually have increased the tax-income, because then the richest actually have had to contribute to to the society...

And if we had a flat tax, what ever would all those highly educated tax accountants and tax lawyers do for a living? What a waste!

I'd like a flat tax is if what I heard once is true: that if all loopholes were removed a flat tax could lower everyone's taxes and still provide more tax revenue. I don't know if I believe that or not. But if it's true, I say go for it.
Consumption tax sounds interesting because it might get people to save money and it forces people with illegal income to pay taxes. It might even drive down the prices for things. The only worry is that it will destroy our useless crap-based economy. Oh no! People don't buy cell phone ring tones anymore! Jobs would be lost but that would force us to do something.

clobber lower and lower middle income Americans for reasons I noted above. None of which of course were addressed..... They would shift the burden of taxation from those who can most afford it to those that can least afford it even as the latter group is struggling badly and upper level income is soaring. The existing income tax system while far from perfect is far more progressive.

If people object to the loopholes, most of which are politically popular with the public, there is a simple solution. Keep the graduated income tax and get rid of all the exceptions. Its the loopholes not the progressive nature of the tax system which causes the complexity.

I say we tax 5% each on income, property, and sales. Taxes would be collected directly by the local government (either the city or the county, but not both). Then, 2/3 of the tax receipts would be sent up to the state government. Then the states would send up 1/2 of their receipts to the feds.

At the state, federal, and local level might make sense but would run into the huge political differences in the various regions of the country as well as constitutional issues.

I think having a national income tax with two rates based on income and no exemptions would be a good idea.

1. List all income from all sources

2. Deduct $30,000

3. Multiply the remainder by .20

4. Pay the amount resulting in 3. above


How is this regressive?

Don't you dare include that $30,000 deduction! If you do, very soon, there will be all kinds of tax credits, deductions, and exemptions and we will be right back to the byzantine tax code we now have in no time at all.