

Lessons from eastern Europe's flat tax - 3pt14159
http://www.globalpost.com/dispatch/commerce/100226/eastern-europe-flat-tax

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kaitnieks
I live in eastern Europe and there is one thing that might be relevant. The
flat tax here is actually progressive tax in disguise. We have something that
could be called non-taxable minimal amount (sorry, I'm not an economist) which
is let's say 80 Latvian gold coins (Lgc); the average salary is 400 Lgc; the
income tax + social tax is roughly 32% from the amount that remains after non-
taxable minimum is substracted. So effectively it would be 0% for people with
80 Lgc salary; 26% for people with average salary; 29% for people with 1000
Lgc salary.

~~~
patrickgzill
How long does it take you to compute and then fill out the forms for your
taxes? Also, do you have to declare bank accounts held outside the country?

~~~
kaitnieks
If you're employed then you don't have to do any form filling at all. It's
responsibility of your employer to pay all the taxes and you only get the
amount after taxes in your bank account. Typically accountants do all the
computing.

There is an exception, self-employed people. They do have to fill in forms and
compute everything but their taxes are flat, there is no non-taxable minimum.
They have less total tax % but also less perks (no paid vacations or sick days
etc)

Update: no, we don't have to declare foreign bank accounts afaik. It might
change this year because they just started taxing income from capital gains
which will cause some headache for me personally.

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michael_dorfman
The "flat tax" is, in my opinion, a red herring.

If people want a simplified tax code, that's one thing-- but there's nothing
inherently complicated about a progressively graduated tax rate. It's as
simple as looking a single number up in simple table.

Tax simplification has nothing to do with the flatness of the scale, and it's
being used as an pretext to shift the tax burden from the very wealthy to the
not-so-wealthy.

~~~
dsplittgerber
That is a common misconception. Flat taxes don't shift the tax burden from the
very wealthy to the not-so-wealthy, as they generally include a tax free
amount of income. That leads to hidden progression, so to speak. Also, the
poorer you are, the less likely you are to be able to hire a tax advisor, so
you cannot use all hidden loopholes etc. So a flat tax would actually mostly
benefit the not-so-wealthy.

~~~
gjm11
The so-called FairTax proposed by some US politicians does in fact shift the
tax burden, from the very wealthy and the very not-wealthy to the moderately-
well-off. FactCheck, who are generally pretty reliable, have some analysis at
<http://www.factcheck.org/taxes/unspinning_the_fairtax.html> and their second
graph (the first one is from the US Treasury Department and is potentially
misleading in a way described on that page) divides up incomes at $15k, $24k,
$42k, $75k (I'm sure there's a reason for those divisions; are they where
current tax rates change or something?) and seems to show the <$15k and >$75k
brackets gaining substantially, the $24k-$75k brackets losing out, and not
much difference for the $12k-$24k bracket. Later statements there suggest that
the actual range in which people will pay more is something like $24k-$200k.

So, it appears that at least one prominent proposal for a "flat tax" shifts
the tax burden from the very wealthy and the poor to the middle classes. (I'm
guessing that in absolute terms the great majority of the benefit goes to the
very wealthy, though quite possibly the poor would feel it more.)

~~~
dsplittgerber
My previous idea of a flat tax (over here in Europe) referred only to a flat
taxation of income. The "fairtax" proposal you link refers to a flat taxation
of sales; also there are payroll and income taxes in the US. What I don't
understand: What's the difference between a flat taxation on sales vs income
and, also, what's the difference between a payroll tax vs income tax?

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stcredzero
Link has mandatory video ad. That's a deal-breaker.

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pw0ncakes
I'm generally on the left, but let me ask: what's wrong with abolishing income
taxes and, instead, charging consumption taxes on purchases and transfers?

I may be utterly naive in my understanding, but I'd support this. No income
tax at all; heavy consumption taxes. Tax private jets and true luxury goods at
95+%, food staples at 0%, inheritance transfers at 99% after an allowed small
amount (handing an inheritance down to kids counts as "consumption") and
general consumer goods around 30%. Real estate would be taxed 30% in general
but much 75% (marginal) if the owner's real estate holdings (including the
house being purchased) exceeded 8 years' median income.

The tax would apply to services as well as goods, thus averting the regressive
nature of the traditional sales tax.

Please tell me why this is too naive to work. It seems like it would be a
major improvement.

~~~
3pt14159
So you are really asking a two separate questions:

Your second question is "should we implement a social engineering scheme to
avoid the regressive nature of the sales tax"?

I say "no". We do that in Ontario and it has been such a nightmare because it
distorts spending, complicates pst filing, and leads to people splitting up
coffee orders at Tim Hortons into multiple bills (because a "meal" is tax as a
luxury if it is above 4 dollars, and no, this was never adjusted for inflation
and yes the tax applies to the whole $4.01 rather than just the cent) and
other stupid things (never buy 3 muffins at Tim Hortons, you get bumped into
the non-meal bracket, but buying 6 gets you the bulk discount AND exemption
from the pst because your presumably buying 6 muffins to take home to your
kids, rather than stuffing your face with a 3 muffin "luxury meal"). It is so
stupid Ontario is doing away with it and harmonizing with the federal GST.

As for inheritance, this will just hit the lower class. Only people with
enough money for lawyers will set up trust funds or "gift" their children
$500k to buy their house for them. Also when you say "inheritance transfers at
99%" I assume you mean the government takes virtually all of it. If I were
dying and had $100M I'd move to the Turks and Caicos and die there, where I
can give my kids what I want.

As for your first question, which is basically "can we implement a simple VAT
style tax (ie, tax both goods and services, but let companies deduct the VAT
they paid against the VAT they collected) across everything and not greatly
disadvantage the poor?" The answer is a resounding "Yes" except for a couple
key conditions. First, give every adult a cheque for $7k a year if they have
lived in the country for 10 months or more during that year. Don't ask for
their income or anything. Then implement a 25% tax on EVERYTHING. "Ohh, but we
want to encourage reading" NO! Don't let social engineering make this
complicated. As soon as you bring in exemptions you bring in lobbyists,
accountants, lawyers, and programming complications. All of which slow down
productivity growth which, ultimately, reduces government revenue.

The second thing you need to do is issue a one time cheque to people that are
retired, based on their current savings that are not in some form of non-
income tax fund. The reason for this is that if someone has paid income tax
their whole life and was planning on using their $200k cash they have in their
bank account to live, you can't just increase their cost of living by 30% or
they will starve.

That's it. Problem solved. No more tax forms, or telling the government how
much you earned, or (besides the one time thing) how much you saved. No
worrying about offshore bank accounts, or whether a freelancer should
incorporate or not. More math brains in science and tech. More business brains
in enterprise. The reason it won't ever happen? Politicians need to be busy
bees.

~~~
pw0ncakes
_I say "no". We do that in Ontario and it has been such a nightmare because it
distorts spending, complicates pst filing, and leads to people splitting up
coffee orders at Tim Hortons into multiple bills (because a "meal" is tax as a
luxury if it is above 4 dollars, and no, this was never adjusted for inflation
and yes the tax applies to the whole $4.01 rather than just the cent) and
other stupid things (never buy 3 muffins at Tim Hortons, you get bumped into
the non-meal bracket, but buying 6 gets you the bulk discount AND exemption
from the pst because your presumably buying 6 muffins to take home to your
kids, rather than stuffing your face with a 3 muffin "luxury meal"). It is so
stupid Ontario is doing away with it and harmonizing with the federal GST._

It sounds like this is a problem with badly-engineered consumption tax, not
consumption tax itself.

I generally agree with your proposals. However, I don't think all forms of
"social engineering" are bad. We need to make the best possible statement
about ourselves as a society and what our values are, and that means cracking
down on the tumors. If our rich want to behave like uncultured oil sheikhs,
they can move to the desert, give up their US citizenship, and act like
assholes all they want; but as long as they're in America, they'll behave
themselves.

The US has a problem with cultural inversion: the people at the very top of
society (George W. Bush, Paris Hilton) are uncultured, mouth-breathing
trashbag-fuckers, while (on the inverse) it seems like everyone must know at
least one brilliant, cultured, educated people who are struggling to pay rent.
This is a morale killer. It also ripples through society; the reason we have a
"next-quarter" mentality in business and no universal healthcare is that
uncultured trash-fuckers have too much money and power. We've got to do
something about it, and preferably now while it can still be relatively legal
and bloodless. I think a targeted consumption tax is great because it is
completely bloodless.

[* "everyone knows" clause in last paragraph edited for correctness]

~~~
michaelkeenan
I downvoted for two reasons: first, because of the "everyone knows" comparison
of "uncultured, mouth-breathing trashbag-fuckers" vs. "brilliant, cultured,
educated people" which is the opposite of my experience.

Second, for the tone: "uncultured, mouth-breathing trashbag-fuckers" are the
words of a status-seeker, not a truth-seeker. Hacker News is above this.

~~~
pw0ncakes
"Everyone knows" was a bit of a reach. What I meant is that there are so many
brilliant, educated people getting short-changed-- often due to malevolent
factors like medical bills, student debt, and the calamity that is the
academic job market-- that it seems like everyone _must_ know one, but then
again, I'm not an authority on "everyone's" knowledge.

If society were run by cultured and thoughtful people, we'd have universal
healthcare, and we'd have more jobs in the arts and academia. We wouldn't have
a society in which more than half of all people are living in fear of losing
everything. We can determine by looking at the world we live in, especially
compared to the immensity of the resources we have, that the world is either
run by (1) incompetents or (2) people with malevolent values and, therefore, a
lack of culture. I tend to believe the latter regarding the ruling class.

