Tuesday, October 11, 2005

Lets talk taxes.

It’s Tuesday and I was just finishing reading my Sunday paper (remember I have kids, it takes a while). I was on the 17th page of section A of The Oklahoman. There was an editorial that caught my eye.

The article was on replacing the income tax with a flat tax I am all for. I believe that being taxed based on consumption is fairer then being taxed on your income. This information from the Economist I found to be a concise bit of information.

A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a single rate of tax on all income above it. The progressivity of such a system can be varied within wide limits using just these two variables. Under systems such as America's, or those operating in most of western Europe, the incentives for the rich to avoid tax (legally or otherwise) are enormous; and the opportunities to do so, which arise from the very complexity of the codes, are commensurately large. So it is unsurprising to discover, as experience suggests, that the rich usually pay about as much tax under a flat-tax regime as they do under an orthodox code.

The flat tax has proven very effective in other countries. Check these additional stats for the Economist article.

Estonia became the first country in Europe to introduce a “flat tax” on personal and corporate income. Income is taxed at a single uniform rate of 26%: no schedule of rates, no deductions. The economy has flourished. Others followed: first, Latvia and Lithuania, Estonia's Baltic neighbours; later Russia (with a rate of 13% on personal income), then Slovakia (19% on personal and corporate income). One of Poland's centre-right opposition parties is campaigning for a similar code (with a rate of 15%). So far eight countries have followed Estonia's example (see article). An old idea that for decades elicited the response, “Fine in theory, just not practical in the real world,” seems to be working as well in practice as it does on the blackboard.

Here’s my opinion on the Fair Tax.
With some of the information that Neal Boortz has been spouting about the Fair Tax I don’t think it’s that fair. It still guarantees welfare through the tax code. My mother-in-law bought his book and after reading a bit through and discussing it over dinner with my husband, father-in-law and myself, there are flaws that he just bypasses.

He swears that a $100 purchase would have $23 in tax. In essence the product is $67, not $100. He says it is a 23% tax. Simple mathematical skills show us (by dividing $67 by $23) that the tax rate is actually 34%. He’s playing a bit of a slide of hand trick in his book.

Whether you agree or disagree give this some thought before you condemn it. I want to hold on to my money longer. I’m ready for no April 15th deadlines and NO IRS!


Ditto said...

The flat tax is a really nice idea. I just don't think the politicians will do it. One of the big political footballs is taxes. Each party uses it to make points with their constituency. If you create a flat tax, the politicians are going to lose a big tool they use to make points with their constituency. Because of that, I don't think they'll do it.

Jeremy said...

I'm all for a flat tax but there's another problem to consider: the rich people with old money. They don't spend it. They shop at Walmart, garage sales, etc. and keep their money in their pockets or in the family. Old "uncle scrooge" would essentially pay less in taxes. Money has become some people's savior and they hoard it, which hurts our economy that so desperately depends on the exchange of money.

Sara said...

You have a valid point, except I'm not sure how many are using loopholes to avoid paying much. From what I understand there are a quite a few.