In practice a 20% flat tax on all people and corporations without exceptions and deductions would be more progressive than the current system. The wealthy pay very little taxes.
The parent is talking about "progressive" as in "the tax gets progressively higher as you make more money", not in the "social justice" sense. The flat tax being regressive means that the poor would have to actually pay more in taxes than they do now, which is very little. That's seen as a bad thing. Obviously there are solutions to that in flat tax proposals.
Second, "the wealthy pay very little taxes" is a meme. I mean, look at what we've got here:
Those making $250K and up are responsible for 51.6% of all income tax revenue. How much more should they be expected to contribute? Remember: the truly wealthy can live anywhere in the world. There's a balancing act that needs to be established between "you're not paying your fair share" and "soak the rich."
> Those making $250K and up are responsible for 51.6% of all income tax revenue. How much more should they be expected to contribute?
And this is what is so annoying about groups complaints about the wealthy paying taxes. The heavy reliance on misleading statistics.
The quote says a specific group pays 51% of all tax revenue and says it's way too much. Well did they collect 51% of all income?
An entire article that not once answers the most obvious question even though they clearly have the data to answer it.
And to be clear, I'm not talking about Adjusted Gross Income (which is the total after taking every possible deduction in the book), but actually gross personal income. The latter usually isn't reported. The former is which often is used to make percentages of taxes paid seem higher.
And I don't know the answer, it may even help their case - but the fact the most obvious stat question isn't brought up in arguments for why taxes on the wealthy are too high makes it easy to conclude these aren't discussions in good faith.
More, quite possibly. They're likely using infrastructure more heavily (primarily due to the way they make money), they more likely to rely on subsidized work by others (employing people on medicaid etc, because they're not provided health care via employer)...
It's hard to say, but anyone who is a part of a demographic minority that has collected 51% of all the income in a country's economy has clearly gotten some additional benefits.
The IRS is so nice as to provide exactly the metric we're looking for, which is:
For the group of people making $XXX per year or more, what percent of all income in the US does this group earn, and what percent of all income tax does this group pay?
Here's the groups you mentioned:
+------------------+------------------------+---------------------+--------------------------+
| Income group | Percent of tax returns | Percent of total US | Percent of total US |
| | in this group | taxable income | Income Tax owed |
| | | earned by group | by group (after credits) |
+------------------+------------------------+---------------------+--------------------------+
| $200,000 or more | 4.20% | 41.90% | 57.50% |
+------------------+------------------------+---------------------+--------------------------+
| $100,000 or more | 16.00% | 67.90% | 79.50% |
+------------------+------------------------+---------------------+--------------------------+
So yes you can see that those who earn high amounts pay taxes at greater rates than those who earn smaller amounts. However, it's not as though those earning $250k+ a year are only earning 25% of money earned by people in the US but are paying 50% of the taxes. Instead, they're payed around 40% of all the income and pay around 57% of all the taxes.
> The flat tax being regressive means that the poor would have to actually pay more in taxes than they do now, which is very little. That's seen as a bad thing.
It is a bad thing. In low-income households, there is less disposable income. In that case, taxes eat into the cost of necessities (or near-necessities such as broadband for those with slightly higher income). On the other end of the spectrum, for those with large incomes that income is largely disposable.
Dollars are dollars, sure, but there is a distinction to be made between taxing someone's food money and someone's Rolls Royce #2 money.
In other words: The marginal utility of your first dollar is significantly higher than that of your last. Also known as the law of diminishing marginal utility.
> Remember: the truly wealthy can live anywhere in the world.
As an American who often lives anywhere in the world, I'd like to point out you pay US taxes no matter where you live. (though you do get a 90k income exemption, if you are talking about the "truly rich" then that doesn't matter a whole lot)
That is still regressive. A truly progressive tax system would be similar to what we have now but with much fewer deductions that the affluent can use to lower their effective tax rate. (Oft cited that warren buffet has a lower effective tax rate than his secretary because of all the deductions and loopholes.)
Not to mention that there is a huge misunderstanding of how progressive tax rates work. A very affluent businessman was on tv saying they would essentially have no motivation to work if the marginal tax rate increased for him when Obama was campaigning. His idea was that the tax bracket above 250k per year would somehow affect his entire income if he earned more than that figure so he would only want to work until he had 249,999 dollars and then stop making money to avoid "making less money". Of course the marginal tax rate is the rate that your money is taxed above that threshold. In this case the tax rate would go from say 15% to 20% on the money earned after 250k. Let's say you made 260k that year. Your extra tax burden because of the marginal rate increasing would be 20-15= 5% on the 10k dollars. You don't get taxed an extra 5% on all your money made like that fellow thought.
Flat tax is regressive and sales tax is regressive.
I find the whole claim that people, who are otherwise hard-working people, doing whatever it is they're doing to make a lot of money (running a business, lawyering, doctoring, whatever), are going to look at an increased tax rate and just stop doing whatever they're doing. That doesn't make sense to me, from every business owner, lawyer, and doctor I've ever known.
No one would say anything even remotely like, "well, my practice is going well, I saw 20 patients today, oh what rewarding work, but what with these taxes I'll just stay home".
Every single wealthy person I've ever known, their motivation has been the thing they do first, the money a distant second. Maybe I just know pretty decent wealthy people, I dunno.
It's clearly a progressive tax, as the rate goes up as income goes up. Feel free to call the above rates or the idea of a flat tax unfair, but please don't try to glance the meaning of well defined terms like 'regressive tax' to mean what you want them to.
There are two definitions of a regressive tax. the first deals strictly with the percentage rate and the second deals with the proportionality of effect toward lower class incomes. Your flat tax would be strictly progressive on the first front but regressive on the second even more regressive if tax deductions are still a thing. The only fair tax is one that is progressive and accounts for diminishing marginal utility of a dollar. Just like sales tax is a flat tax it's regressive because of the elasticity of demand for essentials.
The point that the businessman was trying to make is not that he misunderstands how marginal tax rates work, but for the next dollar I'm going to earn, I now get to keep less. My incentive to earn the NEXT dollar is therefore less.
This is exactly why we don't have a tax rate on the top bracket of 90% like in the Eisenhower era. It's not about being taxed on all your money when you make over that amount, it is, where is the incentive to grow my self or my company if I only get to keep $0.10 of the next dollar I make.
Most people who pay multiple tax rates across brackets understand how it works.
Listen, I saw it and I know what he said. he said if he goes one dollar over 250k he would make less than if he had not gone over that threshold. this is complete bullshit and it was either an ignorant understanding of marginal tax rates or a deliberate way to obfuscate the issue with a national tv appearance where you can feign ignorance and most of the population doesn't understand tax rates.
He didn't say after 250k my motivation to work is gone because a smaller amount is returned to me.(iirc the tax rate wasn't that much more than it was before anyway) he said he would lose money if he went over that threshold of 250k.
> he said if he goes one dollar over 250k he would make less than if he had not gone over that threshold.
That actually is theoretically possible - there are numerous tax credits and deductions that come with income caps, and while they are generally phased out, it's not always a smooth slope, and can have some cliffs.
Obviously he'd be in a very odd and like one-time situation if that were the case, but it is possible with how screwy our tax system is.
> Obviously he'd be in a very odd and like one-time situation if that were the case, but it is possible with how screwy our tax system is.
That scenario is possible, sure. either way it's disingenuous to make the claim that they would lose money by making one more dollar when the tax breaks were not part of the discussion and that cliff would exist regardless of the marginal tax rate on the high earners(which they were discussing). I am ALL for simplifying the tax code to remove subsidies and loopholes and other complexities to the tax code. I am not for removing the progressive nature of the tax code.
This is such a ridiculous argument because you will never replace all taxes with a simple 20% tax since states, counties, localities, and ports all have the ability and incentive to tax and impose fees.
Due to this, I will focus on what it means to replace the income tax system with a flat 20%. A family of 4 (2 kids under 18) making $50,000 per year pays about $200 in federal income taxes if they do nothing but file their taxes and take the standard deduction, personal deduction, EITC, and Child Tax Credit. A family of 4 making 70k pays something like $2000. A family of 4 making $150k last year contributing to 401k, HSA, IRA's, 2 kids under 18, have an effective tax rate of like 8%.
In every single one of these cases, the families would be worst off (some significantly) if they were required to pay a 20% flat tax.
They also own 88% of the country's wealth. And collect 65% of the country's income. (More if you include investment gains.) Pardon me if I don't shed too many tears. [1]
Increasing taxes on them would hardly qualify as hardship. The utility of a dollar is much lower when you have ~$300,000 in savings (80th percentile), then when you have ~$300 in savings (20th percentile).
Related anecdote: With an annual income of ~$250-300,000, my net tax rate, including untaxable benefits and investment income is the same as that of my partner - who makes ~$30-40,000. If I had an income of $2,500,000, it would be substantially lower.
