Flat Tax

[a_majoor]

There has been lots of discussion about the various tax reductions the Conservative Government has introduced since being elected, most left wing pundits are opposed to selective "Botique" tax cuts, GST cuts and broad based tax cuts (notice the only commonality?)

Perhaps it is time to cut the knot and apply really comprehensive tax reforms:

http://myconservativedreamworld.blogspot.com/2008/01/flat-tax-now.html

Flat tax NOW

The Canadian Taxpayers Federation calls for a flat tax. It is nice to see somebody keeping this issue going. The reasons supporting this proposal by John Williamson and Mark Milke are given as: reduction in administrative complexity; a lower overall rate; a more progressive system because of the elimination of deductions for the wealthy; reduced tax avoidance; and greater incentives to work, save and invest.

To these could be added a decrease in the scope for government to attempt to influence its citizens’ behaviour. Tax incentives to change behaviour often fail. At least as far as the targeted behaviours are concerned; other kinds of behaviour, for example to do with tax avoidance and evasion, may well be stimulated. In addition, they also encourage a mentality that views government as responsible for how people act. If something is truly not in the public interest it can be made illegal. Beyond that, citizens should be left to their own devices.

And then, most tax benefits are not in the general interest, but rather in the political interest of parties catering to key voting blocs. By stopping this kind of electoral bribery a flat tax would introduce a greater measure of honesty into politics. Finally, a flat rate with no deductions would make voters confront the reality that increased public spending requires increased taxation. Those who supported a tax hike would have to feel the pinch themselves, rather than - as we now do - trying to reap the benefits while passing the costs on to others (e.g. the “have” provinces, Alberta, Toronto, corporations or the wealthy, to name a few traditionally favoured targets).

One of the major attraction of a flat tax is that it would help make politics in general, not just the tax system, more transparent and honest. Williamson and Milke don’t emphasize this enough; apart from that they are on the right track.

 

[Reccesoldier]

Taxes in 15 minutes

Too bad that the ideal behind progressive taxation (wealth distribution) is so widely accepted.

 

[a_majoor]

Now that a representative pool of nations have actually enacted flat tax schemes and operated them for a period of years, there will be more real world data to counter the usual "sky will fall" naysayers:

http://en.wikipedia.org/wiki/Flat_tax

Countries that have flat tax systems

These are countries, as well as minor jurisdictions with the autonomous power to tax, that have adopted tax systems that are commonly described in the media and the professional economics literature as a flat tax.

    * Bulgaria [19]

    * Albania [20] [21]

    * Estonia [22][23][24]

    * Georgia [25][24]

    * Guernsey [26]

    * Flag of Kazakhstan Kazakhstan [27]

    * Iceland [28] [26] [29] Iceland's system differs from the Hall-Rabushka flat tax by taxing investment income and allowing numerous exceptions.[30]

    * Iraq [31] [32] [33] It is not clear how effectively the Iraqi tax is being collected in practice.

    * Kyrgyzstan [26]

    * Flag of Latvia Latvia [24]

    * Lithuania [34][24]

    * Republic of Macedonia [35] [26]

    * Flag of Mongolia Mongolia [36]

    * Montenegro [37]

    * Mauritius [26]

    * Romania [24]

    * Russia [38][24]

    * Serbia [39]

    * Slovakia [24]

    * Ukraine [40][24]

Also:

    * Transnistria, also known as Transnistrian Moldova or Pridnestrovie. [41] This is a disputed territory, but the authority that seems to have de facto government power in the area claims to levy a flat tax.

 

[Infanteer]

Seems that a flat tax definately fits into the model of "egalitarian citizenship".  I always found it odd that while 1 person put his 1 share in as a citizen, other people were forced to put 2 shares or more into the kitty for the same rights as a citizen.  Considering that the current model drives people to live in Monaco where none of their money is taxed by the Canadian government, perhaps a more simple tax system would make tax evasion less profitable....

 

[geo]

Thucydides 
From the list of countries you have provided, it would appear that, excluding "modern" Russia, most of them are "don't have much" places.

 

[a_majoor]

On the other hand, based on various parameters, they are moving into "getting some" status fairly quickly. While I would never state that having a flat tax is the only reason these nations have such rapidly growing economies (free speech and property rights have a lot to do with it), flat taxes simply makes it easier to do the accounting and overall reduces reasons to spend inordinate amounts of time on tax evasion and tax avoidance.

When you consider doing taxes is estimated to cost the Canadian economy on the order of $30 billion dollars a year, anything which would release that administrative burden would also unshackle the Canadian economy, and put far more back into the productive economy than any sort of stimulus package ever proposed.

 

[Bane]

          Doesn't the expense of income tax collection deal more with tax loophole's and write off's than a progressive tax structure?  As to the very expensive to collect GST, it should just be taken out of a harmonized PST- GST combo.  Have the province collect both in one shot and the fed's would just take a percentage from the province, rather than a separate collection structure for each.  Brilliant idea, but have fun trying to sell that one to the premiers!  I'm all for simplification of the tax system, but moving to a 'flat tax' to do that is throwing the very useful baby (progressive tax structure) out with the bath water (Byzantine codes of exceptions and loopholes).

my $0.02*

(* Minus applicable taxes)

 

[Reccesoldier]

What is so useful about progressive taxation Bane?  If the government is getting the same amount of revinue and it is much simpler for citizens to calculate and KNOW exactly how much tax they are paying on $1.00 of wages and the government doesn't need to create maintain and run a huge and innefficient taxation bureaucracy what is "useful" about the old way?

 

[Bane]

What is so useful about progressive taxation Bane? 

It puts a lesser burden on low income earners. It's a socially progressive tax system.

... the government doesn't need to create maintain and run a huge and innefficient taxation bureaucracy what is "useful" about the old way?

If you are to get rid of tax exemptions, isn't that where most of the ineffieciency's lie?  I argure that the GST is expensive to collect, that needs to be fixed.  But income tax, I'd imagine that dropping the base rate and eliminating exemptions would produce the majority the benifits that would result from a totally flat system. 

 

[Infanteer]

It puts a lesser burden on low income earners. It's a socially progressive tax system.

Why is it that if someone makes more than an arbitrary number of dollars that they are obligated to pay more then their fair share as a citizen?  How is that socially progressive?  Or is socially progressive just a cover-word for "rich people suck and poor people deserve more even though opportunity to advance is out there".

In my opinion, consumption taxes are the better social tax - those who live an extravagant lifestyle can pay for it.

 

[I_am_John_Galt]

It puts a lesser burden on low income earners. It's a socially progressive tax system.

And puts a greater burden on those who work hard, save, invest and engage in entrepreneurial activities.  It's a counter-productive system.

If you are to get rid of tax exemptions, isn't that where most of the ineffieciency's lie?  I argure that the GST is expensive to collect, that needs to be fixed.  But income tax, I'd imagine that dropping the base rate and eliminating exemptions would produce the majority the benifits that would result from a totally flat system.

Yeah sure, what's your plan to "get rid of tax exemptions"?

 

[Bane]

Yeah sure, what's your plan to "get rid of tax exemptions"?

That's what the Frasier report proposed too.  How is my idea any different.

And puts a greater burden on those who work hard, save, invest and engage in entrepreneurial activities.  It's a counter-productive system.

    I believe the logic of the progresive system also based on econmic utility; in giving breathing space to low-income earners, they are able to make investments in themselves and skills to become higher earners, tax payers, than they would otherwise be if they were highly taxed from the start.  Yes this does not always work out perfectly, but it is sound logic and one could argure that a progressive system has allowed many people the opportunity to work their way into higher tax brackets and improve their life, their families life, and padded government coffers. 

 

[Reccesoldier]

It puts a lesser burden on low income earners. It's a socially progressive tax system.

I think you need to do a little bit of reading.  The modern flat taxes like the one being proposed by the Fraser institute has rather generous basic exemptions as well as certain other exemptions for RESP, RRSP etc.

If you are to get rid of tax exemptions, isn't that where most of the ineffieciency's lie?  I argure that the GST is expensive to collect, that needs to be fixed.  But income tax, I'd imagine that dropping the base rate and eliminating exemptions would produce the majority the benifits that would result from a totally flat system. 

You're probably right about exemptions except that it is the inequality of progressive taxation systems that make people want to "cheat" or "evade" the system.  Think about it.  I've never heard anyone complain that they weren't eligible for deductions but I've often heard people complain about going into another tax bracket and loosing money because of it. This often affects the poor worst of all.

The other thing is why should we as a society tailor our policies to the sector of our population least able to contribute to building wealth and prosperity?  

I can almost hear the gasps of horror, but hear me out.  

If we as a nation focussed our efforts on the earning potential of the middle and upper classes those classes would be enabled to become even more productive.  As a result the quality of life for all would increase, more jobs would be created more opportunities would exist for all, including (possibly especially) for the poor.  But no, we penalize sucess with "progressive taxation", we shovel good money after bad with special education for marginal students and largely ignore the truly gifted children, (hell we've gone so far as to co-opt the phrase "Gifted Children" to mean those with mental problems or retardation) and we handout money to failing business' all of this with little chance of any return for any of it.   Before you say that the ideal of profit or return has no business because we are dealing with human concerns I would ask you who is it that enables our society to function?

I am not advocating the marginalization of any group but rather a refocusing of the wealth and power of the state to reinforce sucess, not to support failure.

Let the flaming begin... :evil:

 

[Bane]

You're probably right about exemptions except that it is the inequality of progressive taxation systems that make people want to "cheat" or "evade" the system.  Think about it.  I've never heard anyone complain that they weren't eligible for deductions but I've often heard people complain about going into another tax bracket and loosing money because of it. This often affects the poor worst of all.

But if there are no exemptions you can't have them no matter how bad you want them, removing exemptions removes the ability to have exemptions. It's a manouver warfare solution to the problem of tax dodgers 

I think you need to do a little bit of reading.  The modern flat taxes like the one being proposed by the Fraser institute has rather generous basic exemptions as well as certain other exemptions for RESP, RRSP etc.

RRSP - Please explain to me why I would put money in a tax deferment tool if there is a flat rate.

 

[Reccesoldier]

RRSP - Please explain to me, why I would put money in a tax deferment tool if there is a flat rate.

Because an RRSP/RESP would effectively reduce your taxable income.  This is acceptable to the government because in the end you (by providing for your own financial security) after retirement would lessen the possibility of you being a drain on the government.  An RESP would help ensure that your children are able to earn and become productive members of society.

 

[Bane]

Because an RRSP/RESP would effectively reduce your taxable income.  This is acceptable to the government because in the end you (by providing for your own financial security) after retirement would lessen the possibility of you being a drain on the government.  An RESP would help ensure that your children are able to earn and become productive members of society.

You put money in an RRSP to defer income tax. That is the whole point. It only works if you have progressive tax brackets.  Unless you have an age over which you would pay less, or no, income tax. Then you could save your pre-tax dollars and remove them at the lower rate once you hit that age.  Sounds a little bit hippie/communist for my liking though.

 

[I_am_John_Galt]

That's what the Frasier report proposed too.  How is my idea any different.

They are proposing a flat tax rate: unless I am missing something, you are proposing the opposite!

I believe the logic of the progresive system also based on econmic utility;

Huh?  It doesn't sound like you know what economic utility is.

in giving breathing space to low-income earners, they are able to make investments in themselves and skills to become higher earners, tax payers, than they would otherwise be if they were highly taxed from the start.  Yes this does not always work out perfectly, but it is sound logic and one could argure that a progressive system has allowed many people the opportunity to work their way into higher tax brackets and improve their life, their families life, and padded government coffers.

Actually it is not sound logic at all: the opposite is true.  The high income / low wealth individual is punished for trying to 'catch up', conversely, the low income / high wealth individual receives more favourable tax treatment.  The system does not encourage 'social climbing', it discourages it.

Socially 'progressive' policy is typically not well-thought-out and generally have consequences that are the opposite of what was intended.

 

[Reccesoldier]

You put money in an RRSP to defer income tax. That is the whole point. It only works if you have progressive tax brackets.  Unless you have an age over which you would pay less, or no, income tax. Then you could save your pre-tax dollars and remove them at the lower rate once you hit that age.  Sounds a little bit hippie/communist for my liking though.

Um, no.  I put money in my RRSP so that when I want to retire I can live my life in the manner I want to.

 

[I_am_John_Galt]

You put money in an RRSP to defer income tax. That is the whole point. It only works if you have progressive tax brackets.  Unless you have an age over which you would pay less, or no, income tax. Then you could save your pre-tax dollars and remove them at the lower rate once you hit that age.  Sounds a little bit hippie/communist for my liking though.

No; one puts money in an RRSP to defer tax in order to enjoy the benefit of tax-free compounding (which has nothing to with progressive taxation).  Sheesh!  :

 

[Bane]

No; one puts money in an RRSP to defer tax in order to enjoy the benefit of tax-free compounding (which has nothing to with progressive taxation).  Sheesh!  :

Avoiding capital gains tax year over year is one benefit to RRSP's.  But income tax deferal is also a very significant reason. :

http://en.wikipedia.org/wiki/Registered_Retirement_Savings_Plan
1.Contributions to RRSPs, up to permitted limits described below, may be deducted from one's income before calculating income tax due.
2.Income earned within the account (interest, corporate dividends, trust distributions, capital gains) is not taxed until money is withdrawn from the plan, allowing the plan to grow faster than the same investments would grow if they were held outside the plan and thus subject to tax.
3.Money may be withdrawn from an RRSP in tax years when one is in a lower income-tax bracket because of lower income (due to retirement, unemployment, etc.) than tax years when one makes contributions.