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The 7 - Current Events & Politics - Maybe VAT Tax is not such a great idea afterall Register and log in to post!
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Grimis
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#1 Posted on 7.9.04 1612.00
Reposted on: 7.9.11 1612.08
A New Study indicates that a VAT tax may be bad news for the bottom 80-percent of tax payers:
    Originally posted by the Instiute on Taxation and Economic Policy

    # In virtually every state in the union, the bottom 80 percent of taxpayers would face much higher taxes under a sales tax. Nationwide, these tax increases would
    average about $3,200 a year.

    # Put another way, on average the 80 percent of Americans in the middle- and lowerincome ranges would pay 51 percent more in sales taxes than they now pay in the federal taxes that the proposed national sales tax would replace.

    # In contrast, the best-off one percent of all taxpayers nationwide would get average tax reductions of about $225,000 each per year.
If that is truly going to be the potential ramifications of a VAT tax, perhaps it may be best to not consider that as a viable alternative.

Looks like the only good solution to the tax issue will be the flat tax...
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#2 Posted on 7.9.04 1617.47
Reposted on: 7.9.11 1617.56
Grimis, it depends on what you VAT. A flat tax would work also. But honestly for all the rhetoric, nothing will change in the near term. I like the idea that you cut a monthly check to the Feds for Taxes, including FICA and Medicare. Then maybe people would get mad enough for something to be done. This is like abortion and other issues, pols love to talk them but if we fixed them they lose great issues to beat their opponents over the head with..
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#3 Posted on 7.9.04 1940.31
Reposted on: 7.9.11 1944.04
Perhaps I don't understand, but isn't a VAT basically a flat tax with exemptions?

The flat tax tends to tax lower income workers a lot more as well, does it not?
Von Maestro
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#4 Posted on 7.9.04 2022.26
Reposted on: 7.9.11 2022.27
    Originally posted by Guru Zim
    Perhaps I don't understand, but isn't a VAT basically a flat tax with exemptions?

    The flat tax tends to tax lower income workers a lot more as well, does it not?


Guru-

As I understand it, the VAT tax is a consumption tax on goods purchased, while the flat tax is a fixed percentage on your income earned.

With the VAT you will pay as much as you choose to buy, while with the flat tax you will pay (assuming it's 10%) $1,000 on $10,000 earned, $10,000 on $100,000 earned, etc...
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#5 Posted on 7.9.04 2236.22
Reposted on: 7.9.11 2245.47
Well, the VAT would exclude food. The flat tax wouldn't. That seems to mean that the flat tax would hit even harder than a VAT would, but maybe I don't get it.
Von Maestro
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#6 Posted on 7.9.04 2241.29
Reposted on: 7.9.11 2249.26
    Originally posted by Guru Zim
    Well, the VAT would exclude food. The flat tax wouldn't. That seems to mean that the flat tax would hit even harder than a VAT would, but maybe I don't get it.


I think you're missing on when the taxes are taken.

As I understand it, the flat tax would be on your income earned (as it is now). The VAT would replace income tax & you would only pay taxes on the items you would purchase(with certain exceptions like food...).

I'm personally more in line with the VAT/National Sales Tax, as it would not allow the government to have a clue as to what I earn. If we're forced to live with the income tax as it is now, then a flat tax seems much more fair than the current system.

Hope that made the difference between the two more clear. :-)
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#7 Posted on 7.9.04 2259.13
Reposted on: 7.9.11 2301.57
OK, let's say I make $12,000 a year.

Current tax system: $0 paid

VAT system: Anything not food taxed at a rate.

Flat tax system: $1200 taxes owed.

This is how I'm seeing it - what am I missing?
Madame Manga
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#8 Posted on 7.9.04 2259.27
Reposted on: 7.9.11 2304.11
The problem is always in the exceptions. That's one of the biggest problems with the federal income tax--there are too many exceptions, and figuring out if they apply to you is a multi-billion-dollar business and a huge opportunity for tax evasion. A flat tax is income tax without the exceptions, and theoretically at least, gets rid of those problems.

A national sales tax or VAT would have to have exceptions, because if it didn't, you'd have obvious injustices done to the poorest citizens. OK, so food is exempt, because it's a necessity. What about basic clothing? Everybody's got to wear pants, right? How about my designer duds, then? How about medicine? Well, that includes Viagra and Botox, right? How about the car and gasoline I have to buy to get to work? How about books and other educational materials? How about my mortgage?

In a few years, you'd have a situation just as hairy as the current one, IMO. No congressman ever born has been able to resist pushing exceptions for his constituency, or at least for his donors. When social engineering gets built into tax structures, everything gets messy.

This sort of thing isn't limited to the Feds. Twenty years ago, I was working in a delicatessen when California decided to levy sales tax on "snack food". I.e., food that you don't *really* need to eat. Well, that's a judgment call, isn't it? You may eat chips with your lunch every day. I may buy them three times a year. You may drink sodas while I drink milk; you may consider cake or pie an essential part of the meal, while I always have fruit. Before that law passed, almost nothing we sold in that deli was taxable. We went insane trying to figure out what was "snack food" and what was "real food". What business is it of the government how high my sugar intake is?

MM
Von Maestro
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#9 Posted on 7.9.04 2330.25
Reposted on: 7.9.11 2330.26
    Originally posted by Guru Zim
    OK, let's say I make $12,000 a year.

    Current tax system: $0 paid

    VAT system: Anything not food taxed at a rate.

    Flat tax system: $1200 taxes owed.

    This is how I'm seeing it - what am I missing?


At it's simplest that's about it.

As Madame Manga alludes to, the "anything not food" exception is where the VAT runs into problems. What is the definition of "necessity"?

As far as the flat tax, it basically simplifies the tax code & makes it fair. Earn more & pay more, but everyone is essentially "equal".
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#10 Posted on 7.9.04 2350.22
Reposted on: 7.9.11 2351.08
Additionally, I don't understand how the flat tax will eliminate the need for payroll tax.

Payroll tax is currently at 15%. Every flat tax proposal I've seen has had 10% as the magic number. That just doesn't add up right there already.

If Payroll tax continues at 15% and a flat tax is introduced, then it seems to me that working people would have a 25% tax rate, while people living off of investments would have only a 10% tax rate.

I can't see how the flat tax is either fair or better for the low / middle income. I'm calling you on this one Grimis - please let me know where I'm missing the math.
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#11 Posted on 8.9.04 0005.22
Reposted on: 8.9.11 0005.53
Why stop with a flat tax? Wouldn't the fairest thing be for everyone to pay the exact same amount in taxes? Let's say the government's budget is 300 billion dollars, and there's 300 million people in the US, and everyone would just chip in a grand. That would be the simplest and easiest thing.

A flat tax wouldn't make things "simpler" or "easier" any of that. Even a complicated progressive tax formula takes your average 14 year old about 5 minutes to calculate out.

Example: I make $80,000. Under a 15% flat tax I'd pay $12,000. Under a progressive system where I pay 0% of my first 20,000 earned, 10% of the next 20,000, and 15% of the 20,000 after that, and 35% of the rest, I pay the same $12,000 (that was actually a coincidence). That took me 15 seconds to figure out in my head. And the best part is, the govt. has these handy dandy charts in the tax booklets where they do all these calculations for you, and you just look up how much you make and the number next to it is how much you owe.

What makes the tax code complicated is exemptions, deductions, schedules, business losses, itemizations, capital gains carryover, stuff like that. If you want to eliminate or simplify these things, great. That would make taxes easier and simpler (fairer is a whole other subjective issue). But those have nothing to do with whether the tax system is flat or progressive. They are two separate issues.

There is exactly one reason people who advocate a flat tax advocate it: they want rich people to pay less in taxes. Fine. Maybe that's all well and good and should be done. But argue the real point. A flat tax being "simpler" or "easier" or "fairer" is nonsense. People use these false arguments (and the "flat tax" thing in general) for no other reason than because it sells better than "rich people should pay a lot less taxes and poor people should pay a lot more" which is mathmatically how any flat tax comes out against any comparative progressive tax system.
Grimis
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#12 Posted on 8.9.04 0816.39
Reposted on: 8.9.11 0818.12
    Originally posted by Guru Zim
    I can't see how the flat tax is either fair or better for the low / middle income. I'm calling you on this one Grimis - please let me know where I'm missing the math.
A flat tax taxes the perecentage of income. If a low income family of four, say $20,000 a year, pays a 10-percent flat tax, they pay $2,000 in taxes. A family making $2 million a year pays $200,000 in taxes.

With a VAT tax, the family pays a percentage(10-15 percent) on all purchases, regardless of whether or not you need the item. Some purchases are necessary(food, clothing, school supplies) while others are not(a yacht). The poor family at that point will be disproportionately effected on the necessities.

    Originally posted by MoeGates
    But argue the real point. A flat tax being "simpler" or "easier" or "fairer" is nonsense. People use these false arguments (and the "flat tax" thing in general) for no other reason than because it sells better than "rich people should pay a lot less taxes and poor people should pay a lot more" which is mathmatically how any flat tax comes out against any comparative progressive tax system.
The class warfare argument strikes again.

I'm not sure if I have mentioned this, but I support a flat tax that has no exceptions for anybody, for anything.
MoeGates
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#13 Posted on 8.9.04 0841.39
Reposted on: 8.9.11 0842.05
1) How would you calculate income? Would you tax earned income, investment income, business income, gambling winnings, inheritance, and everything else all at the same rate?

2) Again, why don't you divorce the tax structure (flat or progressive) from the complexity? Why do you support no exemption, etc? Why do you support a flat tax vs. a progressive tax? These are two separate things. I might very well agree with you about eliminating deductions and such, but that's not what a flat tax is. You can have either a simple system that's either progressive or flat. You can have a flat tax that's either simple or complex.

3) Why is it class warfare to suggest that we restructure the tax system to benefit the poor, but it's not class warfare to suggest we restructure the tax system to benefit the rich? At least when Progessives suggest rich people pay more taxes they don't hide behind euphamisms and false arguments like conservatives do when they advocate a "simple, easier flat tax" as a way reduce the tax burden for the rich and increase it for the poor, and then cry "class warfare" like it's magic words that are supposed to instantly make the fact that this screws the poor irrelevant.
MoeGates
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#14 Posted on 8.9.04 0841.39
Reposted on: 8.9.11 0842.05
1) How would you calculate income? Would you tax earned income, investment income, business income, gambling winnings, inheritance, and everything else all at the same rate?

2) Again, why don't you divorce the tax structure (flat or progressive) from the complexity? Why do you support no exemption, etc? Why do you support a flat tax vs. a progressive tax? These are two separate things. I might very well agree with you about eliminating deductions and such, but that's not what a flat tax is. You can have either a simple system that's either progressive or flat. You can have a flat tax that's either simple or complex.

3) Why is it class warfare to suggest that we restructure the tax system to benefit the poor, but it's not class warfare to suggest we restructure the tax system to benefit the rich? At least when Progessives suggest rich people pay more taxes they don't hide behind euphamisms and false arguments like conservatives do when they advocate a "simple, easier flat tax" as a way reduce the tax burden for the rich and increase it for the poor, and then cry "class warfare" like it's magic words that are supposed to instantly make the fact that this screws the poor irrelevant.
Grimis
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#15 Posted on 8.9.04 0928.44
Reposted on: 8.9.11 0929.01
    Originally posted by MoeGates
    1) How would you calculate income? Would you tax earned income, investment income, business income, gambling winnings, inheritance, and everything else all at the same rate?
Yes.

    Originally posted by MoeGates
    2) Again, why don't you divorce the tax structure (flat or progressive) from the complexity? Why do you support no exemption, etc? Why do you support a flat tax vs. a progressive tax? These are two separate things. I might very well agree with you about eliminating deductions and such, but that's not what a flat tax is. You can have either a simple system that's either progressive or flat. You can have a flat tax that's either simple or complex.
It's a simple flat tax. An across the board, single rate. Progressive taxes are a ridiculously unfair concept, even wut exemptions.
    Originally posted by MoeGates
    3) Why is it class warfare to suggest that we restructure the tax system to benefit the poor, but it's not class warfare to suggest we restructure the tax system to benefit the rich? At least when Progessives suggest rich people pay more taxes they don't hide behind euphamisms and false arguments like conservatives do when they advocate a "simple, easier flat tax" as a way reduce the tax burden for the rich and increase it for the poor, and then cry "class warfare" like it's magic words that are supposed to instantly make the fact that this screws the poor irrelevant.
Because we should not structure any aspect of government to benefit any group. That's why a flat tax has a single rate. The Progressive tax allows government to continue class warfare by taxing different groups at different rates.

What screws the poor, incidentally, is higher and higher FICA rates because government(of ALL parties) can't control spending and stop government handouts.

(And Moe, terms like "screw the poor" certainly sounds like class warfare doesn't it?)
Corajudo
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#16 Posted on 8.9.04 0954.46
Reposted on: 8.9.11 0955.32
In regards to the flat tax, most of the proposals I've seen (and the only way it would be politically feasible to pass the flat tax IMHO) include exempting some portion of income (such as the first $10k) to help the working poor. With this exemption, a flat tax would be progressive.

Still, any homeowner (or condo/apartment owner) would scream at any change in the tax code that eliminated mortgage interest and property tax deductions. And, charities would scream at any changes that eliminate deductions for charitable donations (put universities or other educational groups/institutions in that category as well). Yikes, I haven't even mentioned the dependent tax credit yet either. It'd be tough going for any politician who pissed off those groups, so I don't see how a flat tax is a practical solution.

And, I agree with Grimis in that FICA screws the poor over far worse than our current tax structure, especially since an additional 6.2% is paid by the company and not even seen by the worker.

EDIT: I screwed up the FICA withholding; should have looked it up but have since corrected it.

(edited by Corajudo on 8.9.04 1453)
Grimis
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#17 Posted on 8.9.04 1019.50
Reposted on: 8.9.11 1022.31
    Originally posted by Corajudo
    And, I agree with Grimis in that FICA screws the poor over far worse than our current tax structure, especially since an additional 7.3% is paid by the company and not even seen by the worker.
Not to get too far off topic, but one of the Social Security proposed solutions floating around out there from Cato on the 6.2 percent solution:
    Originally posted by Michael Tanner/CATO
    Under this proposal:
    - Individuals would be allowed to divert their half (6.2 percentage points) of the payroll tax to individually owned, privately invested accounts. Those who chose to do so would agree to forgo all future accrual of retirement benefits under the traditional Social Security system.
    - The remaining 6.2 percentage points of payroll taxes would be used to pay transition costs and to fund disability and survivors' benefits.
    - Workers who chose the individual account option would receive a "recognition bond" based on the accrued value of their lifetime to-date benefits. Those bonds, redeemable at the worker's retirement, would be fully tradable in secondary markets.
    - Those who wished to remain in the traditional Social Security system would be free to do so, accepting a level of benefits payable with the current level of revenue.

    We expect this plan to restore Social Security to long-term and sustainable solvency and to do so at a cost that is less than the cost of simply propping up the existing program. And it would do far more than that.

    Younger workers who chose the individual account option would receive benefits substantially higher than those that could be paid under traditional Social Security. At the same time, the plan would treat women and minorities more fairly and allow low-income workers to accumulate real wealth.

    Most important, this proposal would reduce Americans' reliance on government and give individuals greater ownership of wealth, as well as responsibility for and control over their own lives. It would be a profound and significant increase in individual liberty.
Nautrally, this plan provides way too many solutons and makes too much sense to be passed.

(edited by Grimis on 8.9.04 1120)
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