I see various threads alleging that the IRS is either abusing its power for the sake of the government or for the sake of the wealthy. Well, it isn't exactly a new idea, but there is a simple solution: A no-loopholes flat income tax. That would mean that, regardless of how many dependents one had and how or where one invested one's money, one would still owe the same amount. I think that 10% would be about right, though I'd have to do more research before I could give the exact percent we need. Economic libertarians, of course, should like this idea because it would reduce the disincentives created by taxation. Economic populists should like it too, however. Why? There would be no more "tax shelters"- none. The only way in which a person could get out of paying their taxes would be to hide income completely, something that is nearly impossible to do. I appreciate all replies. Thank you very much.

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"Some people complain about the system. The system is not good, so they can't do anything. It's an excuse. Freedom is in your heart." (Jin Xing)

How do you define income? Do you allow investment losses to offset gains? How about business expenses? When does a capital gain become income?

A flat tax sounds great, but the answer to such questions will necessarily be complex, and that complexity will create opportunities to cheat, or shelter income, or what have you.

Past that, there are some other questions:

What about people below the poverty line? Do we tax them at 10%, too? What happens to the social safety net?

What about people just above the poverty line, for whom a 10% tax will put them below the line?

Does it bother you that a flat tax will essentially shift much of the tax burden from the rich to the middle class, and from the middle class to the poor?

What about charities? Will donations no longer be tax-deductible? What effect will that have on charitable giving?

A flat-tax may be simpler than what we have now, but it will not be simple. And the poor will bear the brunt.

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Man up.

Actually, they wouldn't. All other flat tax proposals I have seen have a minimum amount of taxable income, and so does mine (again, I'm not going out on a limb with an exact number, but it might be somewhere near 10% above the poverty line).

Payment from an employment contract and/or profits from self-employment. I would also allow incorporation in fewer cases to prevent an obvious attempt to cheat the system (since I oppose corporate taxes).

In my proposal, it doesn't. I oppose all federal taxes except for one flat income tax. I would cut spending even more than I would cut taxes, but I already went through that in other threads.

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"Some people complain about the system. The system is not good, so they can't do anything. It's an excuse. Freedom is in your heart." (Jin Xing)

How do you define "profit"? Again, it gets messy the minute you start allowing subtractions as well as additions.

For instance, you don't tax dividends. What if I set up my company so that I don't draw a salary but I own all the stock, and simply receive a dividend on that stock that is the tax-free equivalent of a salary?

What if I pay my workers with nonvoting, dividend-paying stock, such that after the first year (when I assume the transfer of stock is considered taxable income), they never pay income taxes again?

Clever people will find ways to game the system, especially if the rules aren't comprehensive enough to cover the complexities of the real world.

Outside of business owners, you seem to be saying you would take only wages. So a trust fund kid whose entire income consists of dividend payments would never pay income tax?

It seems like the rich and the poor would pay minimal taxes and the middle class would pay nearly all of it.

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Man up.

Well, you would be paying the money from yourself to yourself, so it wouldn't really matter.

Well, since those workers would be taking a risk by owning stocks that can lower in value, I don't see any problem with such an arrangement.

Some parents want their children to inherit a vast fortune (I wouldn't, but if other parents do it isn't my business), so the trust fund scenario, which would be the only advantage rich families would have over middle class ones, would just be a greater incentive for such parents.

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"Some people complain about the system. The system is not good, so they can't do anything. It's an excuse. Freedom is in your heart." (Jin Xing)

So business owners would never pay taxes.

The value of the stock is irrelevant. Heck, I'd price it at $1 to keep their taxes low that first year. If I wanted to pay someone $20,000, I'd "pay" him 20 shares of stock priced at $1 each, with each share paying $1,000 in annual dividends. His first year he'd pay $2 in taxes; in all subsequent years he'd pay nothing. When I want to give someone a raise, I either adjust the dividend or give him more stock.

That's not the point. The point is that the rich would figure out ways to take their income in nontaxable ways, so they would pay zero tax. The poor would pay zero tax because of your income floor. That leaves the middle class to pay the entire thing. Unless their employers pull the tax dodge I outlined above. In which case nobody pays anything and the government gets no revenue.

A more modest flat tax -- which uses the current system, but sets one marginal rate, eliminates most deductions and sets a personal deduction equal to the poverty line -- would be workable. But it still would shift much of the tax burden to the middle class -- especially if you eliminate all other forms of taxation.

Given a choice between a flat tax and a sales tax, I'd take the sales tax. That still shifts the burden to the middle class, but not quite so sharply. And it would be far simpler.

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Man up.

Actually, Force, our income tax system mostly started out just like that. In 1913, when the modern income tax was implemented (there was one after the Civil War, too, but it went away), the tax rate was 1% on taxable net income above $3,000 ($4,000 for married couples). But right away they started slipping in deductions and exemptions. Over time it became more progressive and the tax rates changed tons of times. What happens in the real world (as Raytri alluded to) is that defining "income" just gets more complex. Everyone wants something exempted. And they often get their way. If you started with a flat tax it would quickly become a progressive flat tax so the poor and middle class are happy. Then all sorts of exclusions, deductions, additions, etc. would creep in and in short order you end up right where we are.

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I wasn't born with enough middle fingers.

I'll defer to your judgment, since you know far more about economics than I do. What do you suggest as an alternative?

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"Some people complain about the system. The system is not good, so they can't do anything. It's an excuse. Freedom is in your heart." (Jin Xing)

I don't have any issue with a flat tax as you proposed, it's just that lessons from history show that your simple, easy to understand flat tax turns into a monster pretty quickly. It just won't stay flat and easy.

Right now I really like the Fair Tax idea. No IRS, no forms, no payroll deductions, fair to the poor (though not perfect) and economically beneficial. www.fairtax.org.

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I wasn't born with enough middle fingers.

The immediate effect however would be a nationwide crisis similar to Michigan's when the auto companies went out. A lot of specialized, skilled, educated people (in MI's case engineers, in this case accountants) out of work all at once.
How do you handle something like that?

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"Man lives in the sunlit world of that which he believes to be reality. But unseen by most is an underworld, a place that is just as real... but not as brightly lit... A DARK SIDE!"
-opening from Tales From the Darkside