The flat (income) tax is a regressive tax

myp said:

Intellectually, it is absurd to say your position and chance did not play a role in what you became. You undoubtedly had a lot of help along the way. As I said hard work plays a major role too, but both are tremendously important. There are others who have worked just as hard and maybe even harder, possibly even harder and smarter and might not have made it as far as you because they just did not have luck on their side. Maybe the guy who sold his business too early- right before it really took off- might be a good example. I have a feeling you won't agree with me on this point though, but I just ask that you at least consider that it is potentially true as I take yours to be potentially true. Because either way neither you or I have empirical proof.


What property rights is Sumner trodding on? Seriously, he just views the limit different than you do not even necessarily further against private property rights than you do. Again this is your opinion and that is his. As for the government's agenda, anything it does (or does not do for that matter) can be described as it's "agenda" if one so tries.

Virtually everything I responded to above and you posted in response is opinion though and not anything real. Now trying to get back on topic, what is your response to my claim that a progressive income tax system is about just as abuse-prone and easy to calculate inherently as a flat tax system is? You did not respond to that part of my post.

Also, do you think value is what matters in taxation or nominal dollars? And if it is the latter, you are okay with the rich paying less value (to them) in taxes?

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I have limited time at the moment so I'll just address the first item.

Your example of the man that sells his business just before it took off is exactly the type of example Sumner would use, or any person that believes in "luck". It assumes the success would come to the business no matter who the owner was, if the first owner had just hung in a little longer, the success would have been his. Thats not reality.

Reality is that when the first owner sells, it is because he has reached his limit, he is tired, he sees no future in the business, and he wont' or can't invest any more into the venture. His attention is no longer focused on making the company a success, but on getting out from under the burden. He may have done his best, but it wasn't enough. It is much more likely that no matter how long the first owner keeps the company, there will be no success for that company.

He sells the business to a new owner that sees a future for the struggling company. The new owner brings new ideas and new energy and new life into the company. It still may fail, but it has a chance to succeed.

Chance plays a role in everything, of course, business included.

However, even when a lucky opportunity presents itself, you have to work hard to take advantage of it. It may be lucky that your company got this big contract, but if you're not working to fulfill the terms of that contract, it will ultimately end up a loss. So can you look at a person's record and say that they were lucky to have been born into a decent family, in the right place, at the right time? Yes, absolutely. But then there is also a story of how that person was prepared to take advantage of those situations, mostly through persistence and dedication. (The heiresses you mention are extremely rare examples.)

I don't think that the mere fact that chance plays a role means that you can justify progressive taxes.

For one, it is in everyone's best interests to allow wealthy people to keep their wealth. For the most part, they're not consuming it, they're investing it. As was mentioned, Bill Gates is not guarding a palace full of billions of big macs. He owns Microsoft. And Microsoft creates products that are useful to a great many people, and enhance their productivity, ultimately enriching everyone. To really become wealthy, one must become an investor and build these capital machines . . . and that is not an activity that should be taxed at a higher rate simply because a bunch of socialists see the accounting and say "WOW! that's a lot of big macs I could eat!"

myp said:

Now trying to get back on topic, what is your response to my claim that a progressive income tax system is about just as abuse-prone and easy to calculate inherently as a flat tax system is? You did not respond to that part of my post.

Also, do you think value is what matters in taxation or nominal dollars? And if it is the latter, you are okay with the rich paying less value (to them) in taxes?

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A progressive tax is not based upon economics but subjective criteria such as inequality and fairness and philanthropy. It is social engineering, not taxation to pay the bills.


Just as you wrote in your first post,


1) Value is subjective. A dollar to a rich person is not worth the same as a dollar to a poor one.


How are you going to tax value evenly? How are you going to account for the time value of money, or the way the money was earned, or how that money will be spent by the rich person?


What is the value of a dollar to a poor person? Two people of equal wealth, one spends $10 on beer so he can goof off, another spends $10 on a textbook so he can educate himself and improve his position, another gambles his $10 away, another donates $10 to a charity. Each obviously values his $10 differently, and each spends his $10 in ways that have different impacts on society.


Who will make all these decisions reagrding fairness and value, and who will determine the recipients of the social engineering? With so much power, these decision makers will abuse their position.


Since a progressive tax system is social engineering, it will be abused because it is setup to be abused:


1 - the initial assumption is that the society is unfair and it is the governments job to make it fair.


2 - the criteria used to setup the tax system will be subjective, and the people making the decisions will be biased.


3 - there will always be pressure upon politicians to shift the tax burden upwards. There will always be people that want to use the government to do "good deeds", solve social justice, correct financial inequality, ad nauseum.


With a simple flat tax, the emphasis is on one thing: pay the bill. It could be as simple as a fee, the government creates a budget, divides by the population, and everyone pays that amount.

myp said:

Inherently this is not true. How can you say flatout that it is not based on econ and just subjective criteria? You are getting into motives here and that argument can stand for any tax depending on who is arguing for it and why. There are plenty of people who want a flat tax and know nothing about economics, but just want it because they think it is fair (usually because they don't understand the marginal utility of money). It is economic fact that money has marginal utility and that a progressive nominal tax can try to counter that. Ask any economist and they will tell you that.


There is no perfect system but there are better and worse systems



Okay... Doesn't change the fact that money has marginal utility.



A flat tax is just as susceptible to "social engineering". Stop trying to pretend it is not. It is a regressive tax. You are taxing value differently. The higher the rate goes, the more you hurt the poor and relatively less hurt the rich. It is JUST AS SUSCEPTIBLE.


In that case, so is a flat tax.



Only someone who does not understand the argument would say that. I want to tax EQUALLY. Sorry that you think the poor should be more burdened vs the rich I do NOT agree. How can you stand for equality in opportunity and support a twisted tax like that?


The criteria for a flat tax is ALSO subjective.



That's simply not true. You have seen it with Bush, etc. that it is not the case, and this is not inherent to the progressive tax. You can also have this sort of problem with a flat tax in either direction (up or down).


It really is not. That is not how the country or the world works and never will be. From information problems between projections and expenditures to emergency problems to simple politics to the sometimes benefits of deficit spending there are way too many things you are overlooking here.


Anyway, it is all about incentives and utility (even for the flat tax and the studies show it has it's flaws ). These things can be studied and while not perfectly applied, can be applied intelligently. That being said, something like a progressive consumption tax might be a better solution altogether in comparison to the income tax. Now before you bring in the social engineering thing again, let me tell you that by how you define it, any tax is social engineering.

Even in a flat income tax, you are taxing income (vs. other things that you could possibly tax). You are also putting in a tax that affects the rich less than the poor which will certainly have social affects. If the rate is too high, you might increase the number of poor that go on welfare or starve depending on how the welfare system is. The different characteristics of a flat income tax are chosen subjectively because other options do exist. A flat tax can be manipulated just as much and inherently has "uneven" affects just as much as any other tax.

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Progressive tax systems are all about motives. It is an attempt to equalize perceived inequality. I say "perceived" not to mean there is no inequality, but to mean that the inequality is in the eye of the beholder. It is subjective. What is fair to one person is unfair to another.

If you are going to use marginal utility as your basis, you also have to consider the marginal utility of the benefit received from the government. If I pay $1 in taxes and receive $10 in benefits, I have a huge utility benefit. If I pay $10 in taxes and receive $1 in benefits, I have a huge utility burden.

Marginal utility is subjective as well. Read the studies that try to accurately quantify marginal utility, its a joke. There are many intangibles such as benefit received from the government and society. If I own my house, then I receive a larger utility benefit from the government (police & fire protection) than a person who rents. If I own a taxi, I receive a larger benefit (use of the road system) than someone who rides a bike. How do you quantify all of this and where do you draw the line? It is ripe for abuse.

You should read "The Law" by Frederic Bastiat, published in 1850. Its a short book (its really an essay) but an excellent read. Here is an online translation http://bastiat.org/en/the_law.html

myp said:

You are using a lot of strawman arguments and irrelevant arguments here in response to what I am saying. Specifically:

1) I am arguing for a progressive tax on the basis of equal taxation, on the basis of equality in process, not on the basis of previous inequality. It does not matter if some people use inequality as an argument for a progressive tax as surely some use other arguments for a flat tax too. My argument is what matters here. Me and you are both using libertarian, equality in process arguments for our taxes, so drop the redistributionist rhetoric as it is not relevant.

2) Benefits received from government is not relevant here. You might have different usage of public goods and free rider problems in a flat tax system too but that has nothing to do with the tax system itself.

3) I never made a claim that the marginal utility has been quantitatively measured. It is not really even possible given the utility at one income level can differ between two people. That does not mean however that marginal utility does not exist and that it should not be considered. Because it can't be measured, you won't have a perfect system but you can still have better systems (i.e. certain progressive systems over flat). Ironically, you used the Laffer curve as an argument earlier, but you use the Laffer curve in the same way I use marginal utility here. We both know the Laffer curve exists, but neither of us (or anyone else on this planet) knows where the optimal point of the curve is for any market in the world. Yet, that does not mean we should not consider it in developing tax policy- we just try our best to not go over the apex of the curve if max tax revenue were the goal.

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No, you are not using Libertarian arguements. A progressive tax is not libertarian. A progressive tax by definition is a form of wealth/income redistribution based upon subjective criteria.

You really should read Bastiat.

Who determines "equal taxation" & "equality in process"? And exactly what is "equal taxation"? At first it was based on marginal utility, but no longer. The Laffer curve is far simpler to understand than marginal utility. The Laffer curve has uncertainty, marginal utility is a black hole.

Exactly what is equal taxation?

Why do you think a progressive system is better? What does "better" mean? At whose expense does this betterment come (nothing is free)?

myp said:

That is just silly. "Libertarian" is not some sort of party platform. It is a way of thought and one that values equality in process. It is not farfetched to say that taxing people equally in value is equality in process. Also not farfetched to say a regressive tax is not.

I am not going to get into this moniker battle with you because frankly it does not matter. I know I believe in freedom and I believe that my proposals are most conducive to it. If you want to call me a liberal, conservative, or whatever, so be it.


I am quite familiar with Bastiat.


Both are understandable. Both are "black holes" when it comes to actually measuring them quantitatively. If you can't see that, I don't know what to tell you. Look at the studies and just as you can't find a strong measurement of utility, you can't find a strong tipping point for the Laffer curve (not to mention that if you did for a particular market it doesn't matter now since the market has changed as it is always changing). But just because we can't measure them precisely does not mean they do not matter. Just like I would not support a 100% tax even on a solely economic standpoint (because of the Laffer curve), I do not support a regressive tax on value (because of marginal utility).


Why do you think a flat tax is better? At whose expense does that betterment come from? What are you even trying to ask here? You see the logic and arguments here already just as I see yours.

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Let try to summarize your position.

You believe a flat tax is unfair (regressive).

Tax burden should be determined based upon a persons ability to pay the tax. A progressive tax system.

A persons ability to pay should is determined by some yet to be defined metric, perhaps marginal utility, the value of money, spreading the pain evenly, its TBD. The objective seems to be to make the tax burden equal not in terms of dollars paid but in terms of "value". You want to spread the pain evenly.

Here is the problem - pain, value, fairness, utility, etc are all subjective. Everyone will have their own idea of the acceptable levels, and the gaps between individuals will be huge (compare Ron Paul versus Bernie Sanders).

Even if you do as you claim, and start far to the side of safety and set low rates, the pressure will always be to shift the tax burden to the upper end. Your version of "safe" and "fair" will not be your replacements version of "safe" and "fair". With complicated and nebulous concepts such as marginal utility, there is tremendous room for "plunder" (Bastiat).

The only solution for true fairness is for the government to stop all social engineering. No federal involvement in education, housing, welfare, social justice, income or wealth inequality, or any social subject. That includes manipulation of the tax laws, which means taxes must be set without consideration of subjective or emotional terms, and that means no progressive tax system.

myp said:

This problem exists in a flat tax too. How do you continue to refute that? The higher the rate, the more burden on the poor vs. the rich. If you are going to still have other taxes like cap gains, etc. then that is another area where the acceptable levels of income vs. cap gains or income vs. inheritance, etc. will vary based on who you talk to. Then there is the matter of present burden vs. future burden when you are deficit spending. And then there is inflation which even when you try, you can't keep completely stable.

And again, you cannot make the argument you do with the Laffer curve (to justify taxes below a certain threshold) and then reject the same logical basis for an argument based on marginal utility.

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I do not refute that all tax systems are subject to abuse. A flat tax is less prone to abuse because there is less room for manipulation, one tax rate affects all people, and the government cannot pit one group of people against another. A progressive tax system has explicit objectives which are not budget related (social justice etc), and it divides the population and pits one group against another, making it easier to manipulate and abuse.


The Laffer curve is a macro effect and can be measured. There are several periods in US history at which the tax was changed significanty and suddenly, this tends to isolate cause and effect and provides data for the Laffer curve. There is still uncertainty but there is data.


Marginal utility is almost an individual effect, utility is impacted by many, many parameters. It cannot be applied broadly to the population as the Laffer curve, but must almost be applied to individuals. Except in the most simplistic cases, it is little understood and very subjective. Read the papers, economists almost make up weightings of utility in order to study it.

myp said:

That is simply not true. You really can't keep saying this ad nauseum because that will not build your case. And this has not even been true historically- again I point you to the Bush tax cuts.


This problem exists with the flat tax TOO.

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Of course its true, and the Bush cuts are a perfect example. A sunset date was applied because there was so much pressure to keep the tax burden high and shifted to the upper side. Read the arguements over the past year about the extension, the opposition uses the same arguements you use of fairness, burden, value, plus class warfare.


Look at the history of the US tax system. The burden has steadily shifted to the upper side. There are times when the shift is reversed (Coolidge, Kennedy, Reagen, Bush) but these shifts are always overcome over time and the march towards imbalance to the upper side continues. The taxes in terms of dollars, income, and GDP have increased tremendously and the burden has shifted far to the right to the point that the bottom half pays no federal income tax.

myp said:

The same "social engineering" problem you see in progressive taxation exist in flat taxes TOO. Ironically, I am sure you support this "social engineering" when it comes to the national military. Maybe you just need to redefine social engineering? Or just realize that the world isn't perfect and it's all a tradeoff.

You are making all these arguments using characteristics that you think are inherent to progressive taxes, yet you do not realize that not only are the characterizes not inherent to progressive taxes (although can be problems depending on the system) but that they are just as possible in a flat tax too. Taxation isn't a perfect science and you can't make it such.

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Perhaps you are equating "social engineering" with the government. They are not the same.

National defense is one of the few Constitutional powers given to the federal government, and the job of defending the nation must be funded. The job is to protect the nation, not perform social engineering such as equal opportunity based on race/gender/sexual orientation. The only criteria should be the requirements for the job and whether a person can perform those requirements.

I do not support social engineering in the tax system either. I do not support tax exemptions for anyone or anything or any reason. A flat tax applied evenly cannot perform social engineering because it cannot redistribute wealth or recognize social inequality or any other subjective side issue. A flat tax cannot tell one group they make too much and must pay more to support some other group. A flat tax cannot be used by politicians and the govt as a weapon (bribery, buying votes) to use to pit one group against another.

The govt can engage in social engineering on the spending side, but that is independent of the revenue side whether it is progressive or flat.

Shift from taxinget incomes to a general sales tax.

MYP, I suppose your concept of a flat income tax is a single rate upon a net income tasx base.

Let us describe the sum of illegally evaded income taxes and legally avoided income taxes, and government’s income taxes enforcement cost as “IRS’s tax leakage and enforcement expense” or simply “leakage”.

The leakage of for taxing net tax incomes increases exponentially as the net income tax increases.

Because reduction of taxable net income is so complex and worthwhile, payer’s compliance expenses within a net income tax system also somewhat exponentially increase as tax rates increase.

Our major federal tax revenues are progressively rates upon personal and corporate net incomes. I believe that a majority of voters would prefer flat rated taxes.

It is financially and politically unfeasible to increase lower earners’ income tax rates or to more favorable reduce upper income earners’ income tax rates.
There are more superior (than our current) methods for providing some tax consideration for lower income earners; there are methods applicable to taxing incomes or taxing gross sales but the extent of all such tax consideration is limited.

I’m an advocate of creating a federal sales tax and providing the superior tax considerations for lower income earners within the sales tax and the income taxes.

There is much less leakage from a sales tax and very significantly lesser taxpayers’ compliance expenses. Sales taxes are not regressive but appear so when they’re compared to progressive income tax rates.

Due to tax loop holes, income taxable incomes and thus tax revenues are greatly reduced. U.S. progressive income taxes ain’t that progressive.

Each year we should simultaneously and revenue neutrally increase our sales tax and reduce our income taxes. I believe at some incremental step our sales tax will approach an unacceptable rate and the transformation will be halted. If I’m incorrect, income taxes will be eliminated.

Respectfully, Supposn