OK.... looks like a lot has gone on here since I last checked.
First things first, to veer off the main argument for one second, I think that many who are against the progressive tax nature are more in line with just reducing federal spending. The major reason is that you can lower taxes
for everyone. The problem now is, however, that we take
spending as a given and then look at how to fund that, which inevitably comes up with different discussions.
To the points about the rich gaining more benefits than the poor from protection of their wealth and the poor with a little extra money being the ones starting jobs that create wealth. These are both explicitly about our legal system, the single (I believe, even though it is flawed) most important and greatest aspect of our country. The firstp oint about gaining more benefits so they should be taxed more is similar to holding them hostage or blackmail by the U.S. Government. You are doing well... well we will TAKE THE RUG OUT FROM UNDER YOU if you don't pay! The poor or less well-off, or underclass or working class, or whatever you may want to call it may create many jobs by starting companies, but:
a.) This is overstated (anecdotally) to the amount of wealth and job creation done by the more wealthy. The wealthy try to become richer, and, in so doing, are able to provide services and jobs to more people
b.) The major reason that the poor or whatever name they are given are able to create jobs, if at all, is because of the structuring of the legal system which PROTECTS their property and legal rights and PROTECTS their wealth. The point about people not paying the lottery (by Frugality of Apathy) was not regarding a lottery... He was saying that starting a business or shooting for the upper echelons of society is like a lottery, a lot of risk and return. If some of the return is taken away, it means less people will take the risk to create jobs and engage in creative destruction, which I believe is the greatest aspect of capitalism.
It all gets back to how you feel you should incentivize the behavior you desire. By spreading around wealth, by starting with the point of we need X amount of dollars how will we raise it I feel is the wrong way. Where the government should start is, we should spend no more than Y amount of dollars (Y<X) and then find a way to fund that. It is all backwards IMO.
To aelighten, empirical evidence has shown that in U.S.A., the subsitution effect barely does dominate the income effect. For men, they are essentially 100% equal (40 hours a week no matter what
), but for enabling women, increased marginal real wages (or decreased marginal tax rates) does increase productivity and working hours.
Flat tax thoughts:
I am not sure I am for it or against it because I am concerned about revenue equality and ability to enforce all parts of the economy, but I would like to mention a few things.
A remarkable amount of American wealth is held overseas for tax purposes alone. If the flat tax is implemented, then it is possible to see up to 11 trillion dollars (Alan Greenspan's estimate) flow into the economy and banking system, which will allow
sustainable low interest rates and a more sustainable growth in the housing market (the amount of risk-free, accessible cash in the previous five years was overextended, with the extra cash, much of the oxerextension would be absorbed/necessary). This would help many consumers and, especially, producers have access to more capital.
Much of the price of a final product (what does much mean?
) is hidden in with corporate taxes.
Example:
Ticonderaga pencils require rubber, wood, yellow paint, aluminium, and graphite. The rubber, wood, paint, aluminium and graphite companies each need to post profits to their shareholders/employees/investors. All the money given to them is given in after tax money, in order to post the same amount of money, you will need a lot less actual net income. This will allow for either prices to be lowered, or returns on investment to increase (not a huge jump, don't misrepresent this point), but probably somewhere in between. This effect for all the inputs in different products will allow a lower price of up to 2-4% by some Economists' estimates. Think about what this would mean to American car companies, being able to obtain cheaper steel and other inputs to be able to sell back to the consumer. After this is
then when you place the (23%/30% depending on how you look at it) price. This, again, assumes revenue neutrality, and it is yet to be seen how this will be accomplished.
The flat tax allows many different aspects of the economy which go untaxed (not sure how large a segment this is, however) to be brought in eventually. This is primarily in regards to illegal immigration. I am generally for more open borders, as long as it is not a security risk, and feel that one of the problems with this is the ability of immigrants to take part in our schooling system, our healthcare system or legal system without paying into it. This will at least change some of that.
Transparency. Perhaps the most important aspect of the flat tax will be increased fiscal responsibility that this will hopefully entail. When you find out that the tariff rates on Colombian oranges have increased by 2%, you do not know how that will effect local orange prices or specifically you. So many different deductions, tax rebates and hidden taxes are in the present tax codes that it is tough to see how the federal government is getting tax from you. If you find out, however, that a certain plan (let's say national health care) will increase the sales tax from 23/30 to 27/35, you will be able to fully see how the benefits will be funded. It will allow you to make a more educated and functional decision. Whether that decision is one you want to undertake is up to you, but it is a lot more clairvoyant (one of the reasons I think that withholding has made it easier for the government's spending to get out of control).
In this way, all wealth does eventually get taxed in the way that money spent whether now or tomorrow will have the same tax on it. Save today, spend tomorrow... no taxes today, taxes tomorrow. Oh my God, does this actually ENCOURAGE saving!?!?!!?
One more point I find about increased inequality that many bring up. I will bold it because I feel it is very important.
Is it more important to find out how much of the wealth went to the rich or poor or to look at each segment and figure out did the poor get better? Did the rich get better?
I feel that many of the rich getting
more rich does not "outweigh" the poor also getting richer. Recent energy and commodity price jumps notwithstanding, the real income the middle class has increased, even though as many point out the numbers have decreased and the rich are getting richer faster. Should this matter? Up to you to decide.
Don't remember who said it, but what makes inequality and protection of the rich lead to a stagnant and non-growth economy? I don't think so... many jobs are sustainable only by the ridiculous spending habits of the rich. Rolls-Royce cars, clothes for pets, private cooks, butlers and drivers, the housing market 8) ... the list goes on and on...