Sunday, August 08, 2004

Flat Tax

Once again, National Review is publishing a flat tax article that totally ignores the fact that the payroll tax applies only to the first $87,000 of income, which means that a flat income tax would make the overall federal tax take a greater percentage of the middle class's income.

Worse, it contains this sentence:
Conservatives are split on whether to replace the current, hopelessly broken tax code with a flat tax that would allow tax returns to be filed on a post card, or a national sales tax that would replace the income tax.
Why would a flat tax necessarily allow returns to be filed on a post card? The main thing that would be different is the lack of tax brackets, but tax brackets are simple to apply. In either the current system or a flat tax system, you simply have to look up the "tax owed" for your adjusted gross income. Whether there are several tax brackets or one makes no difference here.

Now, if a flat tax didn't allow any deductions or exclusions for anything, that might result in a small savings in paperwork. After all, the difference between the 1040EZ form and the regular 1040 is one page.

As for the simplicity (or complexity) of the tax code, many of the hardest problems arise when you try to define what "income" is. Does income include what your employer pays for health insurance? For parking places? For meals? If you win the Nobel Prize and donate the money to charity, do you have to include the winnings as income? What about inheritances between husband and wife? Between other family members? How do you calculate capital gains? What about alimony? What about gifts to minor children? What about the assignment of income? What about business income? What costs count as business expenses and what costs don't? What about self-employment income? What about life insurance proceeds? What about interest?

Under either a flat tax or the current tax system, these sorts of questions would arise.

2 Comments:

Anonymous Anonymous said...

THIS ARGUMENT MAKES NO SENSE. THE OTHER HALF OF PAYROLL TAX IS ALSO PAID BY CONSUMERS. IF YOU DO NOT UNDERSTAND THAT YOU SHOULD NOT BE MAKING THESE ARGUMENTS.

4:46 PM  
Blogger Stuart Buck said...

"Economists generally agree that the entire payroll tax is actually paid by workers because their wages are lower by the employer's share of the tax."

http://www.cbo.gov/showdoc.cfm?index=2125&sequence=0

9:10 AM  

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