US Flat Tax Rate

[Revoltingest]

If all else remains equal (i.e. if the amount of revenue is the same in all cases), what does it really matter if the money that you end up with gets tax removed in two smaller chunks (once while the corporation has it, and again while you have it) instead of one large chunk while you have it? The increased efficiency of only having one tax transaction is pretty minimal.

One current problem....
If a poor person receives a dividend, their portion of the corporation pays the same tax rate as a wealthy person.

Or are you talking about leaving your personal tax rate the same while eliminating the corporate tax (i.e. just pay less in tax overall)?

What I typically propose, & in this case too, is to restructure the tax structure in a revenue neutral way.
Of course, I want government's total bite to be less, but that's a separate issue.

 

[JerryL]

Business conducted here

Toyota in Japan spend $5 building a car and sold it to a distributor in Ireland for $10.
The distributor sold it to a lot in the US for $15.
The car was sold to a customer for $20.

Who gets taxed what?
Does it matter if all three companies were subsidiaries of the same corporation?

A company made 1000 washing machines in the US and 1000 stop watches in mexico.
Their total sales (for arguments sake: entirely outside the US) got them $5000 in gross sales.
The company had $4000 in operating expenses.

How much money do they owe taxes to the US on?

 

[Revoltingest]

Toyota in Japan spend $5 building a car and sold it to a distributor in Ireland for $10.
The distributor sold it to a lot in the US for $15.
The car was sold to a customer for $20.

Who gets taxed what?
Does it matter if all three companies were subsidiaries of the same corporation?

A company made 1000 washing machines in the US and 1000 stop watches in mexico.
Their total sales (for arguments sake: entirely outside the US) got them $5000 in gross sales.
The company had $4000 in operating expenses.

How much money do they owe taxes to the US on?

Those are excellent questions.
They're far above my pay grade because to answer them responsibly would require extensive modeling in order to determine effect.
But I'm not giving up!
I imagine that in each country where a company does business, it would be an entity unto itself.
It would have costs & income resulting in a profit which would be taxed in some fashion, ideally without being double taxed.

 

[9-10ths_Penguin]

I've actually proposed taxing it like Schedule E income.

As a Canadian, I'm not sure how "Schedule E" income is different from other types of income.

But adjust it for inflation because gains realized many years
later are in dollars worth far less than the basis year.
(We shouldn't be taxed on loss of value of the dollar.)

Not really different from a payout of accrued sick leave or vacation that's been carried over, which I don't think gets this treatment... right?

 

[9-10ths_Penguin]

I imagine that in each country where a company does business, it would be an entity unto itself.

I live near enough to the border that I sometimes deal with American engineering firms doing projects here out of their US offices. You don't think they should be able to do that (or rather, they they should be forced to set up a Canadian subsidiary)?

 

[JerryL]

Those are excellent questions.
They're far above my pay grade because to answer them responsibly would require extensive modeling in order to determine effect.

It's trying to address those questions that get us the tax system we have.

And it's a flawed system no doubt, and it has huge issues we should address, true.

But I'm not giving up!

I imagine that in each country where a company does business, it would be an entity unto itself.
It would have costs & income resulting in a profit which would be taxed in some fashion, ideally without being double taxed.

We tried that too. What the companies do is shift profits.

So Toyota of American buys cars for $5000 and sells them for $5001; thus having $1 in income in the US.
And Toyota of Japan builds cars for $1000 and sells them for $1001; thus having $1 in income in Japan.
And Toyota of Ireland buys cars for $1001 and sells them for $5000; thus having $3999 profit in Ireland.

That's not hypothetical. Well, the numbers themselves are made up; but that is the actual thing that occurs to avoid exactly the sort of taxation that we do.

 

[9-10ths_Penguin]

One current problem....
If a poor person receives a dividend, their portion of the corporation pays the same tax rate as a wealthy person.

I'm more concerned with the overall amount the poor person has to pay (i.e. total tax minus any credits or income supplements) and less about the amount at any particular point in the pipeline.

 

[Acim]

1) "regressive". Though there was a typo in that one quote.
2) I didn't claim 0% tax was regressive. I claimed flat tax was regressive.

That typo (by me) makes a difference, but doesn't explain how poor people would have disproportionate amount compared with others, unless saying poor people ought to pay the 10%, rather than $0. Is that what you're saying? I'm also unclear on how a flat tax is inherently disproportionate.

Your statement had no relationship to reality. It was categorically silly.

Well, I beg to differ given my reality. Poor people can surely lease vehicles. People with poor credit may have a tougher time. Still possible though, and likely more beneficial than spending $5K on used cars that will need repairs within 3 years or less.

Because warranties cover repairs.

Warranties last 2 to 5 years. After that, if repairs are needed, wealthy people would pay for their own repairs, like all others.

You actually brought up an even better point (though that was not your intent). The wealthy person has the option to lease. This means they actually don't even need to part with (via lending or cash) the cost of the car but only the depriciation.

So while the poor person is paying the full cost + signifigant interest,
and the middle person is paying the full cost + less interest,
the wealthy person is paying only depreciation.

IMO, you are being categorically silly at this point to stick to the claim that only wealthy people can lease vehicles. If one is going to finance a $5000 loan, they will do it at rate of around $110 for 5 years. That is less than most least programs, but then assumes zero in repairs, plus the driver covers all oil changes, and regular maintenance items. If changing to 3 year loan, the rate goes to $175 monthly, which is around low end rate for leasing. With lease you get brand new car, where arguably all maintenance items that might be needed are possibly included in the lease package (I would say probably, but realize not all dealers will provide). Unlikely a new car is going to need any significant repairs in 3 years, while a used car is probably going to need something in that time frame. The new one, is under warranty, the used one probably not. If have every intent to keep the car longer than 7 years, then likely better to purchase, which is option at end of the lease.

Not only does the wealthy person *have* more money, but his money goes farther. Being poor is expensive.

I find that hard to argue against, and hard to argue for. I've had zero health insurance at various points in my life. And I've had employer paid insurance at various points. No such thing as co-pay under the no insurance program, and so you cover everything. Yet, in my experience, doctors will routinely negotiate their rates down if you have no insurance. I've had doctors volunteer this numerous times, and the rate was really low (like less than I pay under co-pays). Not to mention that some states will subsidize poor people's health insurance. I've had insurance where I paid $0 in premiums and $0 co-pays. Within the last 5 years. I would tell you this is easily the best insurance I've ever had. This would then be argument against being poor is expensive (for the poor person).

I've also been middle class wealthy before (not so much now) and recall distinct difference is that I routinely thought in terms of thousands of dollars when it came to expenses. Like, I can get a new furnace for $1800, that's a deal! Whereas being less wealthy (and older adult) you think in terms of hundreds of dollars at a time, and if poor you think of tens of dollars at a time. Still, if having to pay $0 in taxable income and $0 on health insurance, that isn't a horrible way to live, but also depends on what wants you have in life. If absolutely need a 55 inch screen TV, then life might be hard to manage that with rent, food and what have you.

Welcome to the tax code.

Now: raise those numbers so that you can actually finance the government.

I'd look to cut spending on government first. Me, I'd start with defense and work from there. I'd fully expect lots of moaning and groaning and campaigns regarding people or safety becoming destitute while the budget for a federal program is trimmed from $295 billion down to $210 billion. I'd pull out the world's smallest violin, and I'd play it for all those moaners, so they can be comforted.

 

[Revoltingest]

As a Canadian, I'm not sure how "Schedule E" income is different from other types of income.

It's investment income....essentially ordinary income tax, but with no employment tax.

Not really different from a payout of accrued sick leave or vacation that's been carried over, which I don't think gets this treatment... right?

Those things differ....
- Sick leave vacation are just getting paid for not working, & are taxed the same as ordinary wages.
- Employees don't have any basis to adjust for inflation.
- Such hours are typically not carried forward for as many years as investments.

 

[Revoltingest]

I live near enough to the border that I sometimes deal with American engineering firms doing projects here out of their US offices. You don't think they should be able to do that (or rather, they they should be forced to set up a Canadian subsidiary)?

Sounds like possibly a good way to go.
Setting up additional companies owned by one umbrella company here is easy & frequently done.
I don't know how difficult this is to do outside of the USA though.
Perhaps such a tax structure would require coordination with ferrin governments.
A complete overhaul of our approach to taxation would be complex, but could ultimately be simpler, fairer, & more efficient.

 

[Revoltingest]

We tried that too. What the companies do is shift profits.
So Toyota of American buys cars for $5000 and sells them for $5001; thus having $1 in income in the US.
And Toyota of Japan builds cars for $1000 and sells them for $1001; thus having $1 in income in Japan.
And Toyota of Ireland buys cars for $1001 and sells them for $5000; thus having $3999 profit in Ireland.
That's not hypothetical. Well, the numbers themselves are made up; but that is the actual thing that occurs to avoid exactly the sort of taxation that we do.

I don't have a problem with this situation (as I understand it).
If Toyota makes cars overseas & sells them to a subsidiary here, which resells them without making a profit, then they'd properly owe no income tax. It would be disastrous if we tried to tax profits made in Japan.

 

[Revoltingest]

I'm more concerned with the overall amount the poor person has to pay (i.e. total tax minus any credits or income supplements) and less about the amount at any particular point in the pipeline.

The net effect should be that the poor person pays a lower tax rate.
This should be achieved without double taxation on any entity.

 

[JerryL]

I don't have a problem with this situation (as I understand it).
If Toyota makes cars overseas & sells them to a subsidiary here, which resells them without making a profit, then they'd properly owe no income tax. It would be disastrous if we tried to tax profits made in Japan.

In that case: Your tax plan would result in $0 in effective corporate taxes. Every company would relocate its profits.

 

[Revoltingest]

In that case: Your tax plan would result in $0 in effective corporate taxes. Every company would relocate its profits.

Your example didn't appear to involve relocation though.
When Toyota manufactures cars in Japan, we shouldn't be taxing their profits there.
If a company does move some operation overseas, neither should they have to pay
taxes here for profits there. But if any profit comes here, either to the company or
to shareholders, then it would be taxed.

 

[Curious George]

Flat tax is a bad idea. I have seen nothing written in this thread that speaks to fairness or otherwise that negates that. It seems people simply want more money on their own personal taxes.

 

[JerryL]

That typo (by me) makes a difference, but doesn't explain how poor people would have disproportionate amount compared with others, unless saying poor people ought to pay the 10%, rather than $0. Is that what you're saying? I'm also unclear on how a flat tax is inherently disproportionate.

Because taking out of one persons food budget and the other person's art-collecting budget is inherently harder on the former than the latter. You are hurting the poor in a way and to a degree you are not hurting on the rich.

Well, I beg to differ given my reality. Poor people can surely lease vehicles. People with poor credit may have a tougher time. Still possible though, and likely more beneficial than spending $5K on used cars that will need repairs within 3 years or less.

The claim is ignorant and not supported by fact.

Warranties last 2 to 5 years. After that, if repairs are needed, wealthy people would pay for their own repairs, like all others.

Leases last 2-4

IMO, you are being categorically silly at this point to stick to the claim that only wealthy people can lease vehicles. If one is going to finance a $5000 loan, they will do it at rate of around $110 for 5 years.

You just really have no comprehension of how the finance industry treats the poor.

I would tell you this is easily the best insurance I've ever had. This would then be argument against being poor is expensive (for the poor person).

Subsidized insurance is a great thing. It's hardly the only issue.

And you'd be surprised how expensive even a negotiated bone-marrow-transplant or NICU-stay is.

Still, if having to pay $0 in taxable income and $0 on health insurance, that isn't a horrible way to live, but also depends on what wants you have in life. If absolutely need a 55 inch screen TV, then life might be hard to manage that with rent, food and what have you.

Or food. Or clothing. Or school supplies for your children.

I'd look to cut spending on government first. Me, I'd start with defense and work from there.

OK. Well. That put a bunch of people out of work. So you can cut them from the tax rolls and start financing that free medical insurance for them you were mentioning you were fond of.

Then they will vote the people who did it out of office and no matter what your plan was, it's derailed.

Next?

 

[Revoltingest]

Flat tax is a bad idea. I have seen nothing written in this thread that speaks to fairness or otherwise that negates that. It seems people simply want more money on their own personal taxes.

How about the part where anyone making less than $25K/year pays no tax?
And anything the make over that is only taxed at 10%.
It takes very little from them, & encourages earning more.

 

[JerryL]

Your example didn't appear to involve relocation though.
When Toyota manufactures cars in Japan, we shouldn't be taxing their profits there.
If a company does move some operation overseas, neither should they have to pay
taxes here for profits there. But if any profit comes here, either to the company or
to shareholders, then it would be taxed.

Right. So I'll manufacture here, sell to my subsidiary in Ireland at no profit, buy back at an elevated cost, then sell to the consumer at, again, no profit. I made no money, I pay no taxes.

Want to tax my manufacturing plant even though it's making no money? OK. I'll move it overseas.

The only thing I can't relocate is the sales. (even then I actually can for some products: we used to see this back in the tariff days where the wealthy would buy overseas to avoid US tariffs and taxes).

This is why scholarly knowledge is useful in governance. Helps avoid repeating stuff that didn't work (like deregulation).

 

[Revoltingest]

Right. So I'll manufacture here, sell to my subsidiary in Ireland at no profit, buy back at an elevated cost, then sell to the consumer at, again, no profit. I made no money, I pay no taxes.

Want to tax my manufacturing plant even though it's making no money? OK. I'll move it overseas.

The only thing I can't relocate is the sales. (even then I actually can for some products: we used to see this back in the tariff days where the wealthy would buy overseas to avoid US tariffs and taxes).

This is why scholarly knowledge is useful in governance. Helps avoid repeating stuff that didn't work (like deregulation).

I'm sure people can come up with schemes to avoid taxes in ways which we'd want to prevent.
There are likely practical solutions to that.
As for the scenario you suggest, the profits which are made overseas would be taxed if they come over here.
If they're made overseas & stay overseas, I don't see that it's proper for us to tax them for it here.

 

[columbus]

I would advise an exemption clause for any household making under $25,000 per year.

Under $25,000 and pay $0
Make $50,000 and pay $5,000

This is not the way the plans I know about work. And frankly, I really like the flat tax concept.
But the way I know of them, the first 25,000 is exempt. Above that the rate is flat. 25001 would be taxed 10 cents(at 10%).
50,000 would be taxed 2500.
100,000 would be taxed 7500.
This is far less regressive than your OP. Far more sensible IMHO.
Tom