Thursday, June 12, 2008

More Stuff I Think I Know About Taxes

Some more things I know about taxes, I think:

  • “Flat tax” can mean at least three different things:

--A single rate (18.2 percent?) for all income-tax payers.

--A “flat base,” with all deductions, exceptions, exclusions, etc., boiled out.

--A retail sales tax (or a value-added (“VAT”)) with a single rate for all transactions.

  • One thing it (almost) never means is a single lump-sum payment for each and all potential taxpayers—in effect, a poll tax. But if you did have such a tax, it would be about $5,600 per person. That’s what you get when you divide the current income tax bill by the number of adults in the population.
  • A “single-rate” flat tax would on almost any plausible scenario reduce the taxes on the rich and increase the taxes on the poor. For example, using 2005 data, for a family of four, a “single rate” tax of 18.2 percent, supplanting a graduated income tax and getting rid of tax credits and alternative minimum tax—would reduce taxes for all those with incomes over $144,000, and increase taxes on all others.

It occurs to me you aren’t likely to hear much about these tax issues in this election year, or at least not in this traditional form. Re the single-rate flat tax, my guess is that most voters have figured out at this point htat it is a scam perpetrated by Steve Forbes to maintain his 151-foot yacht. Re getting rid of exceptions--one of the most desirable targets is the home mortgage interest deduction, and that has absolutely no chance of being eliminated in this rotten market. Re sales taxes or VAT, the biggest argument in their favor is that they increase savings. Personal savings are indeed near zero, but in a world clogged with surplus capital, the idea of promoting more savings just doesn’t seem to have a lot of traction.

Source: Still reading Joel Slemrod and Jon Bakija, Taxing Ourselves (4th ed. 2008)

Update: Good stuff om taxes in the current presidential campaign here.

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