and other myths of the Flat Tax are examined here in my new article on the Flat Tax in this month’s Atlanta Life Magazine.
Source link: http://archive.mises.org/8722/the-flat-tax-is-not-flat/
The Flat Tax Is Not Flat
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I seriously doubt that anyone ever paid a 80% or 90% marginal income tax rate under the US tax code because rich people don’t have income, they have capital gains.
Capital gains are a part of income as are wages, salaries, interest earned, and so on. (Even gambling gains are included in income, unless I’m mistaken.)
I liked this analysis, especially the idea that the current income-based tax brackets would be replaced with family-structure-based tax brackets. As it is, the special rules for families, children, home owners, renters, small businesses, etc. all amount to the income tax system being one huge social engineering project. As part of the VRWC, I can say that we did not create this one.
I wonder what the author’s take is on the FairTax, mentioned in this article.
Laurence
Question. Is inflation a flat tax?
Walt:
Not to speak for Mr. Vance, but while inflation is technically a flat tax (since dollars are fungible) in effect it’s extremely regressive, just like sales taxes.
In fact, inflation is essentially a universal sales tax. While inflation affects the purchasing power of held capital whether spent or not, it only actually impacts the holder at the time the capital is spent, just like a sales tax. By contrast income taxes affect revenues generated by held capital even if they are also held.
The bad part about this is that at least sales taxes can be reduced or omitted on necessities to allow the poor some little respite, but the government can do nothing to directly mitigate the effect of inflation on them other than subsidies of some kind, somewhere along the chain of commerce.
StM:
Not only is it regressive, but it is actually a subsidy to those who first receive the new money. The first recipients (and less so for those who receive the money later) get to spend the new money at yesterdays prices, prior to the knowledge of the monetary increase having driven prices up. Those who receive the new money last, or not at all pay the increasing cost of goods entirely out of their own savings or earnings. As with all political actions, there are two classes, those who benefit from state action, and those who pay for the state action.
I seriously doubt that anyone ever paid a 80% or 90% marginal income tax rate under the US tax code because rich people don’t have income, they have capital gains.
I remember, around 1962, Mickey Mantle being asked whether he was upset that Willie Mays was being paid more than he was. Mantle’s salary was $90,000. He said it really didn’t matter since 90% of any salary increase would go to taxes anyway.
Is this a great country or what?
“Revenue Neutral”
I love this term, as if the government is actually earning money.
How about “Plunder Neutral” instead.
Joshua, see my Mises.org archive for the articles I have written against the FairTax.
“I seriously doubt that anyone ever paid a 80% or 90% marginal income tax rate under the US tax code because rich people don’t have income, they have capital gains.”
The above statement is the reason politicians can play the “fair share” card in campaigns. The myth that rich people don’t pay taxes. Capital gains are taxed, monies that have already been taxed at corporate levels mind you. Capital gains tax rates have been much higher in the not too distant past. And there does indeed exist, not only a disincentive to invest but also to work more, when tax rates punish both.
Walking in the presence of gitnsa here. Cool thinking all around!
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