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Flat tax, scene 1, take 12

Discussion in 'Issues Around the World' started by Steve, Jan 22, 2003.

  1. Steve

    Steve Is that it, then?

    Pennsylvania has a large percentage of inhabitants who are retired and who live on fixed incomes. With frightening regularity, letters to the editor of the local newspaper appear, demanding that people on fixed incomes be exempt from paying property (school) taxes. The rationale for this is always given as either "I never had any children" or "My children have been out of school for 40 years". Seriously. I truly hope I do not need to explain the fallacy of either of these two rationales.

    I will certainly grant that property (school) taxes are a burden to any person living on a fixed income. Quite frankly, they're not much fun for anyone. But if we're to open Pandora's Box of tax reforms, we need to be prepared to look at some alternatives:

    <u>Lotteries and state-sponsored gambling.</u>
    Well, opponents will immediately point out that such things impact the poor in a negative fashion and contribute to continued poverty. I prefer to think of them as a tax on people who can't do math. But let's just acknowledge that there are problems with this model and it's not our first choice.

    <u>A levy on businesses</u>
    Hmmm. Ultimately, businesses have a vested interest in ensuring a supply of educated young people, ready and capable of entering the work force. But it's not fair to levy such a tax without giving the businesses a say-so in how it's spent, and do we really want businesses setting the cirricula in our schools? I thought not.

    <u>Sales/use or consumption taxes</u>
    The problem with this one, as I see it, is that everyone purchases goods or services in proportion to their income, absent overextended credit and personal bankruptcy. So, these types of taxes continue to impact those on fixed incomes. Besides, once such taxes have been instituted, they have a nasty way of creeping up, over time.

    <u>Personal income taxes</u>
    Getting a little closer to a potential solution, here. Income taxes, though, have a lot of "baggage" associated with them, thanks mostly to our labyrinthine tax code. Most of us will pass on this one, just because of the bad associations.

    <u>So, how about a special, flat education tax?</u>
    Abolish local property (school) taxes. Replace them with a locally-levied flat rate education tax. Such tax would be applied to all forms of income, including business revenues.

    As with all other state and local taxes, including existing property taxes, this tax could be applied to the itemized deductions for individual taxpayers or families. Additionally, by applying it to business revenues, an extra infusion of money into the system would occur. The businesses would be able to deduct this education tax, as well.

    And, while a flat tax does affect everyone equally, those in their prime earning years tend also to be those who have children in school. Thus, they will be the ones contributing more absolute dollars into the system, which is as it should be.

    OK, my flame suit is on, where are the holes in this proposal?
  2. mikeky

    mikeky Member

    Make it on business profits instead of revenues and I think you've got a winner. Also, keep the property taxes, but exempt these after the property owner reaches 62 (obviously no exemption for business property).
  3. Misu

    Misu Hey, I saw that.

    Actually, I think property taxes should be exempt if the property owner is living on a fixed income, like a retirement fund or Social Security, because there are plenty of 62 year olds (and older) that are still working.

    Also, if a person is living on a fixed income, but they have rental properties, they should be made to pay 50% of the property tax on all income properties.
  4. wapu

    wapu Veteran Member

    Property Taxes on your primary residence should end at some point. 20 years? 25 or 15? not sure what the exact amount should be, but you should be able to actually "own" your property. I do not like using age because those who never owned and then bought a house at 62 would not have paid in. However, my grandparents should not have to sell the house they have lived in for 40 years because of a housing boom in the area doubles their property value.

    Is there any other physical object you can buy, but never finish paying taxes on? Your car? a TV? Even owning a million dollar diamond doesn't require you to continually pay the government every year. "Oh, the guy who lives down the street from you sold his diamond for 1.5 million. Now you owe us an extra $120 a month." That is ludicrous.
  5. Steve

    Steve Is that it, then?

    Some states, Maine is one, I think, do have an annual personal property tax assessed on the total value of everything you own. Other states base car registration fees on the value of the car, not just a nominal processing fee.

    It stinks to live in those states! :)
  6. Robert Harris

    Robert Harris Passed Away Aug. 19, 2006

    When making an argument about anything it helps to have the starting point assumptions correct. What is all of this rubbish about fixed income? How many people are on fixed incomes? How many retirees? How many others? I will not answer those questions, although the data are probably available somewhere on the net. But one item mentioned repeatedly in these discussions, that social security provides a fixed income, is simply wrong.


    Thus retirees, most of whom receive social security, may have low incomes, they do not have fixed incomes.
  7. RRedline

    RRedline Veteran MMember

    I hear the term "fixed income" all the time. What exactly does that mean?! My income is roughly the same each month, so am I on a fixed income? I just don't understand why people use that term. :nut:

    I am definitely in favor of a radical change in the way we are taxed. I think the very notion of "personal taxes" and even property taxes is absurd. Why should somebody be taxed just for owning something?

    Here is an idea I have for taxes, but I have never run it by a large group of intelligent people before. I am curious to know if there is a major loophole in this.

    Eliminate all current taxes. Implement a federal sales tax on all taxable purchases(including homes and property). Each state would also be able to set a state sales tax on these same purchases. The sales taxes would be very high(probably more than 30% combined), but there would be no other taxes! Wealthy people spend more than poor people, so they will pay a proportionally higher amount of taxes. There would be no exemptions, no forms to fill out, no more payroll deductions. When you spend money, Uncle Sam gets a cut.

    I just don't understand why we are taxed for purchases(State sales taxes), for earning money(federal and state income taxes), for owning property(local property taxes), for farting(county fart tax)...okay, I made that last one up. My point is that I think we should only be taxed for spending money - not for both spending, earning and owning!

    Is my idea stupid? I question how it would affect businesses, especially ones with little overhead who provide services and not products.
  8. Steve

    Steve Is that it, then?

    The CPI does not take into account taxes. It is strictly related to the average price of consumer goods, hence the name "Consumer Price Index".

    Property taxes, as any holder of real estate can attest, have a nasty way of rising in large amounts. Such increases tend to not only negate any SSI adjustments related to changes in the CPI, but also to result in a net loss of after-tax income for persons on a fixed income.

    A person on a fixed income is one who does not have the means to substantially increase it via promotions, bonuses, commissions, or job changes. SSI may be low, and it may be adjusted for inflation, but it is most certainly fixed.

    All of this information is available on the web, too, although of such widespread knowledge as to be assumed to be common in scope.

    Of course, it would be gauche of me to refer to anyone's points as "rubbish", so I will refrain from doing so.
  9. Steve

    Steve Is that it, then?

    RRedline, consumption taxes, which your proposal falls under, have been bandied about for some time.

    The primary problem with them is that lower income people spend a proportionately higher amount of their income on things such as food, gas, clothing, housing, etc.

    A flat tax on consumption affects them more and takes a larger overall percentage of their total income than it does from people of higher income levels.

    For instance, if one person makes $25,000/year and another makes $100,000/year, and both spend $30/week on gasoline, the 30% tax on that $30 represents a much greater expenditure to the lower income person than to the higher income person.
  10. ShinyTop

    ShinyTop I know what is right or wrong!

    The raise in social security is after the fact. When you get an annual cost of living raise your income is up to date that day and no other. So once a year you catch up to rising prices? No, they catch up your monthly check, not the money you were behind all through the year.

    And then urban sprawl reaches your neighborhood and your home's value goes from 50,000 to 150,000. A couple still working can expect longevity raises and can even look for a higher paying job or can sell the home and move to a more affordable neighborhood. The options for a couple existing on fixed retirement and/or social security are a lot less. There is a definite difference in fixed income for a working person and a retired person.

    The sales tax in lieu of all other taxes can easily be made to exempt food, medicine, and housing below a threshold level.
  11. Steve

    Steve Is that it, then?

    How would someone prove they're below that threshold, though?

    I wouldn't want to have to present some "proof" that my income was below a certain amount every time I bought groceries.
  12. ShinyTop

    ShinyTop I know what is right or wrong!

    I put it badly. The exemption on food and medicine should be on all unprepared food and all medicine. The housing would be subject to a threshold to keep 10,000,000 dollar mansions from being exempt.
  13. Steve

    Steve Is that it, then?

    But, still, I buy my food and medicine from wherever I happen to find it convenient, at the time. How would each place know....

    Oh, wait, never mind. I just got it. Sometimes I can be dense!
  14. eakes

    eakes Registered User

    In addition to SS as 'fixed income', those people who retired from companies with defined benefit pensions have an income that was set at the time they retired and it will not change.
    On the subject of how to fund schools, I can not think of a 'better' way than property taxes. I shudder any time one of our politicians mentions a state income tax for any reason (Texas doesn't have one thank goodness). Consumption taxes are subject to a lot of abuse as to what is taxed and is regressive since low wage earners pay a higher percentage of their salary for basic necessities than do higher wage earners.
    At the end of the day when all factors are considered, let's stay with a property tax. It's a known enemy.
  15. RRedline

    RRedline Veteran MMember

    I understand that, but I say, "So what!" The way it works now, people pay state taxes(not all states actually) on food, so poorer people spend more on state sales tax for food already. I don't understand why that isn't fair. How about large people who eat more than smaller people? Is it fair that they have to spend more money(in general - not necessarily taxes) because their larger bodies require more food?

    And besides, someone who makes $100,000 per year is likely to spend more money on other things that the person making $25,000 per year could not afford. For example, he/she may purchase a much more expensive car, an expensive television, fancy computer, jewelry, expensive clothing, etc.

    I am already paying a larger portion of my income in state sales taxes for food than Bill Gates does, but it really doesn't bother me at all. Are the reasons you've outlined really why these consumption taxes are frowned upon? I wasn't expecting that at all.
  16. Steve

    Steve Is that it, then?

    Food is tax-exempt in PA. I live here, too.

    <u>Prepared</u> food, and food purchased in restaurants is taxed, but food bought in grocery stores is tax-exempt.

    The regressive nature of consumption taxes is exactly the reason why they are frowned upon.
  17. RRedline

    RRedline Veteran MMember

    You are right, but wealthy people still pay less money, in general, to eat(not taxes). And why can't things such as food be tax exempt? Computers, cars, homes, yatchs, etc. could still be taxed.

    If I get a speeding ticket, my fine is a much higher percentage of my income than a rich man's ticket is. Is that 'fair?' I am just trying to understand the reasoning for being upset at a system where poor people would pay much less, overall, in taxes than a wealthy person would.
  18. ShinyTop

    ShinyTop I know what is right or wrong!

    FYI, unprepared food and medicine is not taxed in Florida. And we have no state income tax.
  19. Stiofan

    Stiofan Master Po

    Well, here in California everything is taxed. Income tax is 9 to 11%, I think. Counties collect sales tax as well as property tax, the state not only gets it's income tax, but consumption taxes on tobacco and gasoline, etc. Business get taxed on their property too, including equiptment, furniture and stuff. They were going to to tax clean air, but couldn't find any. I'm single and have been paying for your spoiled little brats for the last 27 years, which is doubly painful since there is no way they can learn anything in our rotten schools.

    I have nothing to say on what people have written here, I just wanted to bitch a little bit. Perhaps we'll have an earthquake tomorrow.....
  20. mike

    mike mesmerized

    Are you on the left or right of the San Andreas Fault? ;)

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