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Comment by jxramos | Hacker News Reader

The regression application here seems flawed, that assumes a fixed percentage is applied to a fixed amount, where that amount is invariant to income. That is not the case with a flat tax where a fixed percentage is applied to a variable amount. The flatness of the flat tax is on the percentage, the amount (income) is the variable portion that will be more or less based on the individual. The percents however will be equal. That's about as equal and fair as you can get as far as I can see, equal treatment for all, namely everyone pays the same percentage whatever that percentage is. It's a simple inequality too: p$XXXX(rich) > p$X(poor) so the rich still pay more right?

https://www.investopedia.com/terms/r/regressivetax.asp

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My understanding is that while yes, in some sense a flat tax is neither progressive nor regressive, that's not really what people are talking about when they say a flat tax is regressive. Instead, the issue is that the poorer you are, the larger percent of your income is spent on essentials.

If I go from spending $200/month on groceries and then I get an enormous 300% raise at work, I'm not going to start spending $800/month on groceries, maybe $300. The rest goes into the discretionary part of my budget. So, to someone making $40,000/year, paying 20% of that in rent, 10% for food, 20% for healthcare, and 15% for other stuff, adding a 15% tax is a decent chunk of the rest of their budget. But, for someone making $400,000/year, paying 15% for rent, 2% for food, 10% for healthcare, and 15% for everything else, then 15% of their income towards taxes is comparatively much less of their total budget!

This is true, even though everyone is paying a proportional amount of their income. Another way of thinking about this is as follows: if there is a homeless woman on the side of the street who makes $30 one day begging for change, should she be taxed at 15% and have to give the government $4.50 because it's "fair", or, should she be receiving more value in benefits than the average citizen because there is a floor on how much you can spend on food and survive?

Thus, even a flat tax can in practice be regressive, because essential spending does not scale with income.

An addendum: While it is not relevant to this argument, I also agree with the other commenters that whether a tax system is flat or has marginal brackets is not the main source of complexity, and is relatively super simple. The main complexity comes from determining which sources count as income. Presumably, birthday presents don't, but whoops, now there's an exception. And this is suddenly how tax laws get super complicated.

Yes, I'm starting to awaken to the fact that at this point we're no longer talking about income but disposable income. The points about what you're calling essentials. I'm trying to think about this mathematically, this is what I'm feeling out so far...

Premises

    X = income
    c > 0 (income difference)
    p = tax rate
    e = some expense

    ==> X+c > X   (income inequality)
    ==> (1-p)(X+c) > (1-p)X   (income after taxes)
    ==> 1/[(1-p)(X+c)] < 1/[(1-p)X]
    ==> e/[(1-p)(X+c)] < e/[(1-p)X]  (expense relative to disposable income)

Like with many things people mean different things by the same terms. I'm thinking more along the lines of the second investopedia article which makes the point of This type of tax has no correlation with an individual's earnings or income level.

A flat tax would be more regressive than a progressive tax scheme - it's a spectrum.

> That's about as equal and fair as you can get

Equal in terms of % of income paid: yes, fair: no way. Your statement makes the assumption that the opportunities to gain higher income are equally and fairly distributed, which they are manifestly not.

Actually I just tried to tease out a definition from the investopedia article, which I was mislead reading the sales tax example which has a fixed amount (the price of some taxable goods) which holds no sliding scale based on income. The regression appears to be strictly around the idea of burden to the individual and how much disposable income they get left with.

Looking at the wikipedia article they claim that flat tax lies between a regressive and progressive tax.

> The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation rises. In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases. https://en.wikipedia.org/wiki/Regressive_tax

Where in my statement does the assumption of equal income mobility pop up?

Another hit mentions a proportional tax as a middle ground between regressive and progressive gradients. The central point is how things are treated relative to income. https://www.investopedia.com/ask/answers/042415/what-are-dif...

> Where in my statement does the assumption of equal income mobility pop up? You wrote:

> [A flat tax is] about as equal and fair as you can get

I disagree about the fair part, but we likely have different ideas about what fair means in this context. For me, equal opportunity to income mobility is part of what fair means.

You're not accounting for the marginal utility of money. The marginal utility of money decays exponentially with respect to income.

It probably does, but why is that relevant? I'm curious about these branching criticisms that come up, another fella above mentioned equal opportunity to earn higher income, you and a few others mention this marginal utility idea. I think these are valid concerns but lumped into taxation break what I think should be an application of the single responsibility principle (https://en.wikipedia.org/wiki/Single_responsibility_principl...). That single responsibility in this case is to make a contribution of our income to fund the government, period. We should have a simple tax formula strictly dedicated to funding the government where everyone has skin in the game and contributes equally along some metric. The flat tax seems a dead simple reasonable metric and is unquestionably equal when focused on contributions.

Once we start trying to equalize along these other dimensions of marginal utility or equality of some other thing we're no longer focused on funding government but enacting some equality/justice endeavor. Those I imagine probably also suffer from holding no simple formula to calculate their equalities against. Let such endeavors be handled by some other government agency dedicated to those causes, why drag the tax system into the mix and complicate things is what baffles me.

> Once we start trying to equalize along these other dimensions of marginal utility or equality of some other thing we're no longer focused on funding government but enacting some equality/justice endeavor.

Creating equal opportunity and administration of justice are functions of government. You seem to agree:

> Let such endeavors be handled by some other government agency dedicated to those causes,

How would you fund such government agencies except via tax revenue?

> why drag the tax system into the mix and complicate things is what baffles me.

The IRS doesn't administer, i.e. Social Security and Medicare. It is just responsible for collecting the tax needed to fund them. Otherwise each government agency would need it's own revenue collection arm, which makes little sense from an efficiency perspective.

A flat tax set at the very low levels its proponents advocate would effectively defund government programs like Medicare and Social Security, which is often the goal behind such proposals.

Note by the way that social Security tax is today an example of a regressive tax which caps out at around $132,000 of income.

> That single responsibility in this case is to make a contribution of our income to fund the government, period.

Yes. And as part of that you have to decide how much each person is to contribute.

> We should have a simple tax formula strictly dedicated to funding the government where everyone has skin in the game

Yes.

> ..and contributes equally along some metric.

Yes, according to their means. The metric is contribution proportional to your ability to contribute and that folds in implicitly the idea that your "means" are non-linear with respect to marginal utility. Noblesse oblige. [1]

> The flat tax seems a dead simple reasonable metric and is unquestionably equal when focused on contributions.

No, it is not. Because 10% of 10K/yr income of someone working at burger king is an undue hardship whereas 10% of 1M/yr income of someone running a big company is no burden at all. 1K to someone making 10K may be the difference between sleeping in a bed and sleeping in the street, but 100K to someone making 1M, frankly, they wouldn't even notice it.

No, we know how much we need to fund the government based on cost of policies enacted. That's not the job of the IRS, that's the job of the budget committee in congress. What the IRS is doing is figuring out how to apportion that burden among the population.

> Those I imagine probably also suffer from holding no simple formula to calculate their equalities against. Let such endeavors be handled by some other government agency dedicated to those causes, why drag the tax system into the mix and complicate things is what baffles me.

Again, the goal is to figure out how to apportion the burden, and that's done by indexing to marginal utility, bringing us back to where we began.

To be clear this isn't coming from someone looking to take from others, I'm in the top marginal income tax bracket, and I think it should be much higher than it is. IMO it should go back up to 70% as it was for much of the 1900s. [2]

[1] https://en.wikipedia.org/wiki/Noblesse_oblige

[2] https://www.washingtonpost.com/us-policy/2019/02/27/top-tax-...

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