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Comment by rqebmm | Hacker News Reader

> Despite all the different changes in the income tax rate/other progressive taxes. This supports an overhaul to the tax code to a more simple, flat tax system. From another data source outside this report, I'd have to find it, but historically, no matter the top bracket tax rate, the Federal government collects about 15-17 % income tax. Including when the top rate was 90%+.

Even assuming that is true, it wouldn't change the regressive nature of a flat tax.

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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.

In 2015, the top 20% paid 84% of collected income tax. That would hardly qualify as little taxes.

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.

[1] https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...

A couple things...

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:

http://www.pewresearch.org/fact-tank/2016/04/13/high-income-...

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."

Just one simple example would be that there is an untaxed amount, let's say $25k (or whatever the poverty level is) and everything above is 20%.

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.

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.

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.

> That is still regressive

No, it's clearly not. Lemme give you some examples assuming a 15% flat tax and a 25K pre-bate (or credit, or whatever you want to call it):

1) 25k income, $0 tax - effective tax rate = 0% 2) 50k income, $3,750 tax - effective tax rate = 7.5% 3) 100k income, $11,250 tax - effective tax rate = 11.25% 4) 1M income, $146,250 tax - effective tax rate = 14.625%

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 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.

> 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.

> 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?

Did they get 51% of all the benefits of how that money was spent?

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.

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)...

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?

Probably not. Some quick Googling finds this analysis:

http://www.financialsamurai.com/how-much-money-do-the-top-in...

It uses different split points, but claims that the top 5% of earners make about 35% of the total AGI, but pay 59% of gross income taxes.

Of course, federal "income taxes" are less than 2/3 of total federal taxes on income.

> 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)

Not if you renounce your US citizenship, which is an option the truly wealthy have available to them (see: that Facebook guy).

So, I'm looking at the actual IRS spreadsheet of Income Tax for the year 2014, which you can find here: https://www.irs.gov/uac/soi-tax-stats-individual-statistical...

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.

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.

Please explain how flat tax rate across any income level, while removing the current tax code, would be considered regressive? I have not heard that argument before.

The proportion of tax paid is the same at any income level. Anything that would counteract any "regressive" tax system would have to happen on the personal income side. Which means better education, opportunities, etc., to increase income levels.

I'd support a rule though that said if you make less than the poverty line (around 32k I believe?), you pay no income tax at the federal level.

> Please explain how flat tax rate across any income level, while removing the current tax code, would be considered regressive? I have not heard that argument before.

It's regressive in that it causes the poor to pay more than they do now. With regard to taxes, progressive and regressive have specific meaning.

> The proportion of tax paid is the same at any income level.

I don't believe this is true. You'll have to back up a statement like that with references, rather than just repeating it continuously.

What you are talking about is the effective tax rate. That said, you might find this table of effective tax rates by quintile[1] interesting, as it directly disproves that point.

1: http://www.taxpolicycenter.org/statistics/historical-average...

What I meant by the proportion of tax paid is the same at any income level is under a flat tax scenario, leaving out all tax rules today of exemptions/credits.

If the rate is 10%, the proportion of tax is the same, whether you make $10 or $1 million, you are still paying 10% of your income.

Yes, the effective tax rate collected. The reference you provided only supports my claim. It looks like the effective tax rate, which is the actual rate collected by the IRS is around 20% since 1979. I'd have to find it, but if you take the data all the way back to the New Deal, the effective tax rate is around 17%. Most likely due to it being easier to "hide" income back then.

Regardless, the effective tax rate has stayed around 17-22% over almost the last century, despite the large differences in the tax rates at different brackets. Remember, the top rate during the Eisenhower administration was 90%. Yet the effective tax rate average was unchanged.

I think the problem here is that your inference that a flat tax rate would be good because the total amount of income taxes collected each year as a percent of total income hasn't change has had no supporting evidence presented, and it's such a leap to most people that they don't even understand that's the argument you're making.

Exactly why do you believe that since the total percentage of income collected hasn't really changed that means a flat tax is a good idea? The reason for a progressive tax is not to raise the total amount of taxes collected, but to change which people it is collected from proportionally. I'm not sure what the total percentage collected has to do with that.

Someone making $10 is going to miss 10% of that a lot more than someone making $100, and they're going to miss 10% of that a lot more than someone making $10,000. And someone making $1MM isn't likely to miss it at all.

> It's regressive in that it causes the poor to pay more than they do now. With regard to taxes, progressive and regressive have specific meaning.

Under that meaning, a flat tax is the border between progressive and regressive taxation. It is not an example of a regressive tax.

Increasing the amount that poor people pay makes a tax scheme relatively more regressive, but if it's no more regressive than a flat tax, it's still not "regressive".

> Under that meaning, a flat tax is the border between progressive and regressive taxation.

That depends entirely how you measure. If you measure by total income, then yes. If you measure by income after necessities for living are accounted for, then a very simple progressive tax that takes that into consideration might be considered the baseline, and a flat tax that doesn't take that into consideration could be considered regressive. On the other end of the spectrum, if you make people account for all subsidized government services used and count that as income, then a flat tax is progressive. Without an agreement on the baseline for measurement (which I believe is where a lot of people start disagreeing), you can't even necessarily agree on what is progressive and regressive.

I thought progressive and regressive referred to convex and concave taxation curves, respectively (both monotonically increasing, of course). Then flat tax is exactly the border (i.e. a linear function).

While depending on background, that may be what some people think of as defining progressive and regressive taxes, and may indeed describe at a low level the concept that most people think of and even be the origination of the term, it's not the definition generally put forth currently[1][2] (which is, admittedly, very simplistic). That just goes to my point, which is that people aren't even necessarily in agreement on the terms, and might not even be aware of that.

1: https://apps.irs.gov/app/understandingTaxes/student/glossary...

2: https://apps.irs.gov/app/understandingTaxes/student/whys_thm...

I think these definitions are equivalent. If your marginal tax rate (at least sometimes) increases as you get more income, the curve of tax liability against income will be concave upwards. If it (at least sometimes) decreases, that curve will be concave downwards. Right?

Almost. I think the concept inside many people's heads is simplified to the degree that it doesn't even need to describe a curve. A simple step function, for example (the simplest in this case being if you make less than $X, you pay nothing, otherwise Y%). In that manner, the concept is not approximating the curve, the curve is approximating the concept.

The basic point in simplest form is that the less money a person earns, the greater the impact of paying 20% of their income in taxes is in terms of real dollars left to live on.

A family earning $50K will have $40K left after federal taxes to live on. A family earning $250K will have $200K left to live on. One of these families is hurt more than the other by a flat tax. This is what is meant when a flat tax is criticized as being regressive.

Thanks for the explanation of what he meant. I was thinking more macro, but by regressive, people seem to mean the micro aspect of it. I don't believe it would take a very complicated tax code, if we started over, to make sure the lower brackets are not regressive. Even just using standard deductions, child tax credits (cost of living higher), etc.

A single "family" of one making 50k though should most likely be paying their portion of tax, whatever the tax rate is. At some point an individual has to be accountable and live within their means.

So in the end, the tax rate would be flat, but effective tax rate would not.

If you are just going to carve out a bunch of exemptions, which is what actually makes that tax code difficult in the first place, to end up with the same outcomes that we have now, why change anything? It would actually be even more difficult to get the exemptions right since there would have to be more, they would have to be higher, and their phase outs would be more complicated.

Also, a single "family" of one, pays more in taxes today then say a family of four with 2 kids earning the same household income. Apologies ahead of time if I misconstrued your argument.

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