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That's exactly why we have a proliferation of taxes and tax breaks instead of a simple tax system. Perform a thought experiment. Say we just have a straight 35% income tax. Now, say you need to raise additional revenues. Do you (1) raise the single tax; or (2) impose a new tax on some specific part of the economy? Option (1) gets everybody mad at you. Option (2) gets only a tiny number of people mad at you.

Same thing for tax breaks. Say you want to cut taxes. Do you cut the marginal rate, which helps everyone (even non-voters), or do you target cuts in a way that helps people who are likely to vote (homeowners, people with employer-paid health insurance, old people, etc.)? Same thing with business tax breaks. Do you cut rates for all businesses, or do you target them for businesses that are big employers in your state/district?

I get mad at option 2 each time they do this, we got more crap to deal with, more rules, more bureaucracy, more paperwork. If you want to raise taxes, fine, but stop trying to hide it and extract in every corner.

I do however agree you need some control about where you ask taxes on, but keep it simple. And reuse those tax-levers whenever possible.

Yeah but a flat tax would be extremely regressive. If you had a simple equation like tax% = x/4 + 10, where x is your tax percentile, politicians could loudly say that they wish to increase or decrease the slope of the line and people would know that increasing slope would mean a more progressive tax.

If it had a standard deduction and all investment income was counted the same as wages, it might actually be more progressive than the current system, depending on the exact numbers. Payroll taxes are mainly what affects people at the lowest income levels.

I like this. I think our democracy (or whatever we've got now) will continue to crumble until and unless "we, the people" get a sense, individually, of the cost of paying for what we pay for, and our share of the cost. Until that happens there will be no honest discussions about what we really value and prioritize.

Your proposal would do that neatly. The system is way out of whack, lends itself to corruption, crony capitalism, rent seeking, and entitlement. We all have our favorite tax breaks (which is why it's been so hard to change), but we really need to get back to basics: every dollar you get is income taxed at some level, and everyone gets some standard deduction, and that's it. No weird industry tax breaks (because, arbitrarily, politicians decided we wanted more, or less, of a certain thing: cars, homes, solar, coal, etc...), just clear numbers we can grapple with.

Yeah, but the point is correct. Progressive tax rates are fine, but there are tons of weird deductions/tax breaks that can be applied

It wouldn't be regressive, it just wouldn't be progressive either.

A flat tax hurts people with lower income more, because they have less disposable income to begin with - a lower proportion of their income is discretionary.

One of the aspects of The Fair Tax, which is basically a flat tax, is the idea of a "prebate" - a sum of money (between $4-7K if I recall) that is paid to each taxpayer every year to help cover the basics like bread and milk.

I mean, great, but now you're back to tax brackets... May as well stick with the graduated system.

I encourage you to read up on The Fair Tax. There are no brackets. There would be a single sales tax rate on all retail purchases. Nothing else. No deductions, no loopholes.

I understand the concept but can't get behind it because it disproportionately taxes the poor (as a portion of their income). Taxing consumption gives the more wealthy a break since spending doesn't rise 1:1 with income.

So it's not really a flat tax -- it's just a tax system with tax credits and fewer brackets than we have now. I'm sure there will be other popular proposals for tax credits and deductions: EITC? Charitable donations? Investment losses? Mortgage interest?

If we adopt a flat tax, we will eventually turn it back into the same tax system we have now, for the same reasons we ended up with our current system in the first place -- people like all of the credits, deductions, and exclusions they get now, and they would vote to restore them in a heartbeat.

I get your point, and I agree nothing short of something really catastrophic will drive any change. And then there will be pressures to corrupt it all over again. But imagine if it was a constitutional amendment. It wouldn't be impossible to pervert, but it would be harder than it is now.

A preemptive rebate check only makes a difference in the first year of the system. If it's actually a advanced refundable credit, then suddenly you don't really have a flat tax, you have a flat marginal tax with a refundable credit (or a flat tax with an exempt UBI.)

Of course, then you need an even higher marginal rate to achieve revenue neutrality.

Why does it matter if its discretionary?

ok. Good talk everyone.

I think you are confusing flat tax (proportional) with poll tax (constant).

No, I don't think he is at all. Linearly proportional taxes are regressive both because of the declining marginal utility of income, and the lower proportion of income that's discretionary at the bottom end of the income distribution.

I guess I don't know what regressive means anymore.

It doesn't mean the poor pay more. It doesn't mean the poor pay more proportionally to income...

A flat tax is called regressive because it drastically reduces discretionary income for the poor.

But isn't everything bigger to a small denominator?

E.g. the poor recieve me government services relative to discretionary income?

I understand your point, but it's not nearly as bad as an actual regressive tax. I would support a flat tax over the thousands of loophopes that exist now for rich and wealthy people any day. As the system works now they probably pay even less than what they would pay under a flat tax system.

E.g. capital gains tax.

Let's just have a 1% flat tax, and if government needs more, they can use lotteries.

Like the recent Obamacare repeal debacle has shown, a lot of people believe they have a simple solution to complex issues, until they actually try to implement it.

Your example doesn't make sense. That bill didn't represent a repeal or a simple solution of any kind, just some fairly meaningless modifications to Obamacare that nobody even wanted to vote on.

> Yeah but a flat tax would be extremely regressive.

Not really, because everyone who can afford to pay another human being to figure out how to not pay taxes, would now be actually paying N%, reducing the pressure on the rest of us. That they still would have lots of money left over, after paying their taxes, as opposed to most of the rest of us who spend close to every dollar, would not bother me at all.

And if you like: 0% up to N$/year, 10% up to M$/year, 20, 30, 35.

To follow up on this with a point that's been made here on HN before: the problem with the tax is not so much the backend complexity as the user interface. Dealing with the kind of situations @rayiner describes above explains why we are where we are. But that's inevitable with a progressive tax code.

The UI problem itself has largely been solved by TurboTax. It could be solved by government itself with a simple free web interface but that's not how America works, for better or worse.

And, on review of the article itself, I see it's about simplifying tax filing, not the tax code itself.

I'm not against the idea of cleaning up the tax code, removing the outdated cruft and making it more transparent, if that's possible. But simplifying taxes in the way flat-tax-proponents want will only make sure the rich get richer.

> I'm not against the idea of cleaning up the tax code, removing the outdated cruft and making it more transparent, if that's possible. But simplifying taxes in the way flat-tax-proponents want will only make sure the rich get richer.

Not necessarily... if taxes were mainly on import, export and currency exchanges. All those HFT trades would have tax implications.

Taxes do not exist to raise money. If the government needs money, they can just print it.

Taxes perform many functions. One of those functions is to limit federal spending, another one of those functions is to discourage certain behaviors, making too much money, burning too much carbon, leaving too much money to your descendants, drinking too much alcohol.

Simplifying the tax code is a dumb goal, fight against changes to the tax code that you don't like, but don't assume that the system itself is wrong.

I'm going to argue something a bit different: the overall tax revenue is roughly equal to government spending. The complexity of the tax code is to some extent a distraction. It's complex, and has winners and losers, but ultimately you'd need to raise the same amount whatever you did.

If you really want lower taxes, you need to be honest: you'll be taking that money from someone else. Even then, it's amazing how many politicians trailblaze cuts in spending that don't really make a difference.

Want to make a huge difference to the US tax base? Take a look at defence spending. And don't pretend it won't cost some people dearly if you cut it.

> If you really want lower taxes, you need to be honest: you'll be taking that money from someone else.

s/lower/raise

Taxation is theft.

> Take a look at defense spending. And don't pretend it won't cost some people dearly if you cut it.

I grew up on a US Army base. I can honestly tell you from firsthand experience that an absurd amount of that money goes to waste. 550 billion dollars is an insane amount of money.

> the overall tax revenue is roughly equal to government spending.

Not even close - spending FAR outpaces tax revenues. That's what the federal deficit comes from. Last year we got about $1.20 in spending for every $1 in taxes collected.

A counterpoint: not all countries are so obsessed with lowering taxes. It's hardly a topic in Germany for instance. At the same time the tax system is also pretty complex

The other problem with "only tax three things" is that the government wants to raise a lot of money and so [the combination of] those rates end up being really high, and enormous resources are invested in finding ways to make X-instances not technically count as an X for purposes of tax law, and the tax code must balloon to fend off these increasing "attacks".

We basically have that, except it's goods X, Y, Z are untaxed at rates a, b, c. That is, those goods are tax exempt, a.k.a. they're deductible expenses. Some of those goods get you a tax credit.

Multiply this by tens of thousands. And you get them in various ways, a handful are on form 1040, a bunch more are on form 1040A but those are just categories the actual deductions are found in a booklet that lists the specific goods and what their category is for 1040a, and there's literally asstonnes that have their own private worksheets to compute the deduction or credit, some of which must be filed, most of which don't even get filed but you have to do them to correctly compute the deduction or credit.

It's this complicated because a tiny lobby with a lot of influence manages to go their own private "line" item deduction, and almost no one knows about this. It's accountants and tax preparation software.

A complex tax system allows competition within the tax advising service provider market. You get what you pay for... the original American Way (tm).

You desire a system that encourages and facilitates blatant deceit?

Seems more like the parent is pointing out that a simple, manageable tax system isn't politically tenable in a representative democracy. Certainly not one as madcap as the USA's.