Flat tax - the CONs' dream. Would they adopt the following?

[Fmr. Gov. NickG]

The tax you propose wouldn't come close to funding the government.   I doubt you would even make enough money to cover the interest on our debt.

Right now the very wealthy pay about 50% of their income in all combined federal taxes...as they would under your plan.  However, under your plan, the middle class would pay a lot less, or nothing at all.  

I think the deduction for children is way too high....but you might need to raise the base rate as well.  If you did this, your system might be better than what we have now.

Yet there is still no substitute for a truly progressive income tax!

[Fmr. Gov. NickG]

Flat tax could be a good idea if you deduct some amount and tax the remainder in a flat rate.

Take the family total income $i and subtract from it $d  (deduction) per each family member. On the remainder put a p% tax rate which translates into $x. If the income level of the family is under $L per family member then the negative tax would be as if the income is $L per family member.

i = total gross income.
n = family size
d = deduction per family member
p = the flat tax rate
x = the  tax in $.

The algebra of it is simple:
x= (i - n*d)*p/100      

Examples (let’s assume a family of 4)
d = $15,000, p = 50%, n=4 and L = $5,000 ( L becomes relevant in this example only when the income is under $20,000 )  

If gross income is 200k, tax will be 70k and net income 130k
If gross income is 120k, tax will be 30k and net income 90k
If gross income is 80k, tax will be 10k and net income 70k
If gross income is 60k, tax will be 0 and net income 60k (no tax)
If gross income is 40k, tax will be (-10k) and net income 50k (a negative tax)
If gross income is 20k, tax will be (-20k) and net income 40k (a negative tax)
If gross income is 0k, tax will be (-20k) and net income 20k (a negative tax with ‘adjusted’ income)
Finally (an extreme and a rare example):
If gross income is 1M, tax will be 470k and net income 530k

And what about Social Security?
Believe it or not, but I am in favor of abolishing the SS as well as the welfare system,
BUT ONLY IF (and I reiterate ONLY IF) a taxation method like the example above is implemented.

For people eligible for SS, simply change D to 2*D for example.
Then for a family of two retirees, who do not have any additional income the tax will be:
(0 – 2*2*15,000)*50/100 = -30,000
and the net income will be 0 – (-30,000) = 30,000

Why should there be a negative income tax?  That would involve robbing someone of their income to give it unwillingly to another.  No thanks.  Under such a system, I would - as would most rational people - refuse to work and just live off the system.

A family of four can't "live off the system" for $20,000 a year.  Maybe for one year in an emergency, but eventually, they would still need to work to make a decent living.  Most people would rather work than live in poverty.

[Fmr. Gov. NickG]

Sales tax would have to be graduated to some extent too.  You assign each item a "luxury" value from 1-10.  You'd pay maximum tax for buying a yaht but no tax for buying bread.

I don't like the flat tax because it shifts a greater burden onto the poor and middle class.

So what if a guy who makes $25,000 a has saved to buy his girlfreind a nice engagement ring, should he too have to pay a huge tax?

Ten percent maximum.

Like some other plans I've heard, this wouldn't come close to funding the government.  Does "fairtax" actually have an estimate for how much revenue a 10% sales tax would collect?

I would guess this tax would have to be about 40% to come close to a balanced budget, if you're not taxing food or any spending up to the poverty line.

[Fmr. Gov. NickG]

Actually, tax revenue has gone up dramatically in the two nations that have adopted the flat tax: Russia and Iraq.

Post-war Germany implemented a flat tax over the objections of Truman's socialist Democrat advisors (in the American Zone, of course). Their economy subsequently exploded afterwards--the Wirtschaftswunder

Well, sure, tax revenue won't necessarily go down just because we have a flat tax...but it will surely go down if the flat tax is only 10%!...or even 50%, with the sort of deductions Shira is talking about.
 

[Fmr. Gov. NickG]

Sales tax would have to be graduated to some extent too.  You assign each item a "luxury" value from 1-10.  You'd pay maximum tax for buying a yaht but no tax for buying bread.

I don't like the flat tax because it shifts a greater burden onto the poor and middle class.

So what if a guy who makes $25,000 a has saved to buy his girlfreind a nice engagement ring, should he too have to pay a huge tax?

Ten percent maximum.

Like some other plans I've heard, this wouldn't come close to funding the government.  Does "fairtax" actually have an estimate for how much revenue a 10% sales tax would collect?

I would guess this tax would have to be about 40% to come close to a balanced budget, if you're not taxing food or any spending up to the poverty line.

Are you counting out income taxes on corporations? That is a HUGE sum of money that comes into the federalg government. It works perfectly fine on the state level at 4-10% depending on the state. Why do you think it would have to be 40% to work on the federal level? Why does this have support from members like Tom Delay?

Maybe not 40%, but at least 30%.   Is Fairtax actually advocating only 10%.  If this is an actual proposal with congressional support, I wonder if anyone has had CBO score the bill.

What does the average family pay in federal taxes?  About 25%, I think, so the tac would have to be at least this high.  Plus, you're exempting the first $15K-$20K of everyone's spending.  Plus you're exempting food.  And people don't spend every dime they make, so everything they save doesn't get taxed.  I'd say this would push it up to around 40%.

[Fmr. Gov. NickG]

The proposed bill sets the tax rate at 23%.

Lower than I thought, but still much higher than 10%.