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You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world.

The most prescient thing I saw about the Panama Papers leaks was that the biggest reason so few americans were present in those is that America is basically already a tax haven for rich people.

A flat income tax rate is not progressive by the usual definition, even with a flat deduction (imagine trying to scale _that_ to inflation and the endless debates). And we already have a solution for what you propose: gradual increase in the tax rate based on income levels! It has the added advantage of actually handling inflation (since the dollar amounts will go up over time anyways), and don't require a single "big tax number".

If you believe what you say, just argue to remove various deductions and exceptions. We already have percentage-based tax system, there's no need to be that much cleverer.

> You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world.

I missed the part where they are suggesting any of these things.

> If you believe what you say, just argue to remove various deductions and exemptions.

That's exactly what they are arguing?

> where they are suggesting any of these things

>> Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification.

>> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process.

I think it's a bit defeatest to just say that it's just intrinsincly impossible for better things... but I'm maybe reading into those comments too harshly.

They're arguing to rip out everything and replace it with a flat tax + a deduction.

What I'm arguing instead is to do a line-by-line removal of exceptions and deductions, and don't try a "novel" flat tax (instead sticking to a tax with income brackets and different rates, that we _already have_), as it is a better system. And you get the advantage of the optics of "making the tax code simpler" rather than "replacing the tax code".

A universe in which we just removed the number of IRS forms that exist is _roughly_ as good as the universe in which replaced all the forms with one form, except that removing the number of forms and still having a W2 would be much easier to migrate to, and doesn't involve nearly as much philosophical debate (even if the result is roughly equivalent). We don't need a novel solution here, we can just move more towards what other nations do (and where we are actually not that far from!)

That's fine, there's plenty of reasonable debate to be had about specific policy reform, but OPs main point, to me, is how exactly do you intend to get Congress too enact it?

Their campaigns are bankrolled by the people benefiting from the loopholes.

The reason it's so byzantine because taxation is control. The government wants to control your behavior, and when it's prohibited by law from doing it by threat of violence or coercion, it still can do it by employing the tax code. What happens if the court finds the government can't force people to buy health insurance? We declare it a tax on not-buying health insurance. What happens if the government wants to ban something, but is concerned the courts would find it overstepping its boundaries? Tax it until nobody can afford it. Want people to do something? Declare tax credit for it. Want to subsidize certain company? Issue them tax credits. Etc. etc. Nobody would be willing to give up such a versatile tool.

The tax code is structured this way by design, by rich people. If rich people wanted a simplified tax code without loopholes, then they would actively lobby for this, and I guarantee congress would act to simplify the tax code.

The tax code is like everything else created by the US legislature: a product of many decades of compromise between competing ideas. I'm pretty sure none of it was designed.

Many politicians also feel that a flat tax rate isn't sufficiently progressive; that only by taxing higher incomes at higher percentages than lower incomes is it "truly" progressive.

OTOH, many politicians do want to see the tax code vastly simplified- they want the sort of system where you could fill out your taxes on a form small enough to fit on the back of a post card.

Everyone has their favorite thing that they want exempted (farms, capital investments, social security / welfare disbursements, medical expenses, school expenses, mortgage interest, rent, etc), and there are millions who would be put out of work by it- accountants, tax preparers, much of the IRS would be redundant, etc.

All of these competing interests keep us where we are. Blaming it on the "rich people" is lacking in any sort of honest intellectual rigor.

If rich people were actually determining the US tax code, the top 10% wouldn't be paying most of the taxes in the US, and the US tax code wouldn't be hyper progressive. The US would have, at worst, a flat tax approach to income taxes, were the rich determing the tax code.

ProPublica had to commit intense intellectual fraud recently - in their recent tax propaganda rush which is being directed by the Biden White House as part of its hike taxes program - to try to pretend the rich weren't paying their fair share. The rich and upper class are the only ones paying their fair share in fact. Everyone else in the US pays extraordinarily low tax rates by and large. ProPublica had to pretend that unsold stock assets should be called income, that we should calculate rich persons income tax rates based on unsold stock holdings (and the con-artists at ProPublica of course invented new terminology to shoehorn the fraud in), and then that we should lambast those rich people for not paying enough income taxes for said unsold stock. What a joke.

All that's going on right now is the culmination of decades of wildly irresponsible fiscal behavior in Washington DC, and the bill is finally coming due, so they have to drastically increase taxes just to keep the government solvent and to keep the entitlement programs from collapsing. To assist with that agenda, outlets like ProPublica are willing to lie as much as necessary to spin whatever message is required to get the job done.

No. There aren't enough "rich people" to get a politician elected. Most of these things in the tax code are one small chip at a time to make some ordinary person favor a particular politician. Including things like "Roth IRAs" The fact that they have unintended consequences is another story.

I don't think the fact that Peter Theil has a billion dollars hurts me in any way, and no I'm not some unrealistic person who thinks that I, too, can be a billionaire! Only a petty person would be disturbed that someone else has more money than him. It's not a zero-sum game. The fact that there are some outlier billionaires doesn't hurt the ordinary Joe.

What specifically are you arguing against?

Roth IRAs are not some bizarre tax loophole. They're an extremely common vehicle for people planning for retirement - unless their income is too high, that is. Many companies even offer Roth 401(k)s or other Roth vehicles for retirement as well. And taxes are indeed paid when the money is put in.

If someone follows the rules and is extremely successful with their investment strategy with money in a Roth IRA, then what's the problem?

Seems the law is working as intended.

You will never convince me in a million years that $2k was actually the fair market value of his investment that was later worth $5 billion. No one is lucky enough to pick an investment like that with the tiny amount of initial capital you can put into an IRA.

There are clearly some kind of shenanigans going on to artificially lower the price he paid to smuggle it into the IRA. Those shenanigans may well be legal, but they shouldn't be.

Since you're beyond convincing, I won't try to. Maybe the article itself can?

> In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs.

> Anderson dangled something sweeter.

> “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson, who is now retired. If the investment ballooned, he remembered saying, “‘you’re not going to pay tax on it when you take it out.’ It’s a no-brainer."

> The math was compelling. Thiel wouldn’t get a tax break up front, but he’d avoid an immense tax bill later on if the investment surged in value.

For everyone else who is open minded:

Thiel's IRA held Confinity shares. In 1999, Confinity wasn't worth much. In 2021 the company now known as PayPal is worth quite a bit. Confinity could have just as easily folded, been a victim of the dot com bubble, failed to make a deal with Elon Musk's x.com and lost to them, or had any number of disasters along the way that would have wiped out that portfolio.

Even ProPublica's reporting admits this was a risk. The investment adviser's words are "If you really think this is going to be big, you know, you might want to consider this new Roth."

Ironically, because startups fail so much more frequently than they succeed and because the federal government doesn't tax wealth but income, which can be artificially minimized in relatively simple ways, the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment.

Thiel's vast fortune held in a Roth IRA is a corner case, but any talk of it "depriving" the government of revenue when he pre-paid taxes in good faith according to the law and thereby took a fairly significant risk without the benefit of hindsight seems like pure envy.

> the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment.

Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA.

Most start-up shares are held in normal taxable accounts because the holders haven't performed shady sales below market value to launder them under the IRA contribution limit. Compared to that the government only loses money by having them in a Roth account.

> Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA.

How much revenue (income tax, capital gains, whatever) does the IRS receive for an investment whose value drops to $0?

Also, no fraud needed to happen. He earned the money from Confinity, paid taxes on it, invested in some of his (very risky) shares with the IRA and then it paid off over the next 2+ decades.

If you have evidence of this kind of fraud, please let us know. If it were to exist, you'd probably see some evidence (e.g. parallel books, skepticism from investors). ProPublica has tax and other records and they seem to have no evidence that supports your claim whatsoever.

Isn't the most likely story that he put his shares in this account, his company did take off and now he has continued to grow it?

From my memory of how early stage startups work:

The company’s future is very unclear and subjective, and informed investors make bets using their experience and the market determines the price.

But that’s for the preferred stock.

The employees are compensated with common stock, which is valued at some fraction of that. There is often no market price since it’s not sold to investors. It’s also very unclear and subjective, and the reported value is picked by the company in a situation where everyone wants it to be low.

The first result Googling it (DLA Piper) says it often used to be determined by just dividing the preferred stock price by 10, until accounting rule changes in the early 2000s.

I think “fraud” is a bit strong here - it’s very subjective after all - but it may not exactly be a fair market price either.

I'm not claiming fraud. I'm claiming he bought the shares for less than the fair market value.

It's probably not illegal, but it should be (buying below market value in an IRA, not buying below market value in general), because it makes a mockery of the contribution limits for IRAs.

> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process.

The only way to stop this process is a grassroots wave of politicians who refuse the support of corporate donors and have the political will to ban corporate political donations and put something like a $500 yearly cap on individual political donations. This would basically be the end of lobbying. I hope to see this happen in my lifetime. It seems like something zoomers might be willing to do in 20 years when they have more political relevance and the boomers are dying out.

> It's the fact that our elected legislature has created a nightmare boondoggle of a tax code.

I wonder who is financing campaigns of people who keep those loopholes open?? It must be illuminati.

Its a open 'secret' that organised lobbing entities control legislature on a tight leash. Doesn't matter if you vote blue/red/purple the outcome will be the same, you just get different packaging.

ProPublica ran a series a couple years back about Intuit (who owns TurboTax) doing all the lobbying and bribery to keep the tax code complicated:

https://www.propublica.org/article/inside-turbotax-20-year-f...

How would you handle stocks not paying a dividend? It is a clear moral hazard and with a flat tax you could expect even more companies to adopt this practice of only doing stock buybacks.

A flat tax would presumably have the same rate for dividends and capital gains, so I guess it would be pretty much the same for companies?

Stock buybacks aren’t capital gains, until the stock is eventually sold to trigger the capital gains event. More recently, we have seen that wealthy people just never sell the stock and take out low interest loans against it, effectively paying a tax ratr of just a few %.

Nothing wrong with that, it’s like a mortgage. The loan must be repaid at some point and so will the tax on capital gains.

I came here to write basically this same comment. Big fan of the negative income tax as a better (IMO) version of UBI as well. But as you say, it’s probably never going to happen.

> because x% of a lot of income is a lot bigger than x% of a little income.

If you make $10k a year, vs someone who makes $10M a year, and both are taxed the same, the lower income person loses more purchasing power. At 15%, The hit of $1.5k is a harder loss than than the $1.5M.

$10k is definitely under the 1.5-2x poverty threshold proposed by the comment you're replying to. Under their proposal, the $10k earner would pay no income tax at all.

Numbers for illustrative purposes. A graduated tax is more fair from a purchasing power perspective.

Yup. This is why I encourage everyone to do their own taxes. It would help people see how stupid it is. So complicated for no reason .