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All taxes are regressive

Discussion in 'U.S. Politics' started by Dr.Who, Mar 4, 2009.

  1. Dr.Who

    Dr.Who Well-Known Member

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    From Wikipedia:

    "A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.[1][2][3][4][5] In simple terms, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich"
    http://en.wikipedia.org/wiki/Regressive_tax

    So for example, a tax on gasoline is considered to be a regressive tax because the poor person who earns $12,000 per year and pays $500 dollars per year in gas taxes pays more as a percent of his income than the person who earned $200,000 per year and pays $600 per year in gas taxes.

    What about income tax?

    The middle class person who earns $80,000 per year may be in the 28% tax bracket while the rich person who earns $900,000 may be in the 39% tax bracket. That certainly sounds progressive. But in reality income tax is regressive too. The way it is set up the middle class person may actually pay less than 28% since he gets exemptions and deductions. The actual amount paid might be 20% or less. For the rich person much of his income will be investment income which is only taxed at 15%. The little that is earned income will still be small after exemptions and deductions. On average rich people pay only 18% of their total income. But that is only part of the story. The rich person might own a business while the middle class person most likely works for a business. When the rich person gets taxed he simply takes more profit from his business which means he raises the price of whatever he makes or sells. The guy who works at that business has no one he can raise prices on. Sure he can ask for a raise but that is up to his boss. The short of it is that the rich guy always passes his burden on to someone else. And the one who actually feels the greatest burden is the poor guy.

    What about carbon taxes. If the price and cost of operating of every single thing that emits carbon into the air goes up 10% the rich guy passes that on but the poor guy might have to wait a few more years before getting a newer used car, will pay more at the pump, will pay more at the checkout, will get less raises, will face more competition, etc.

    The fact of the matter is that every single tax out there places a larger burden on the poor guy than it does on the rich guy. The only way to equalize that burden is to reduce taxes as much as possible. A zero percent tax is the only one that is truly not regressive.
     
  2. *Government~Mule*

    *Government~Mule* New Member

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    Never thought of taxes in those terms. Good points. I prefer the fact that they are immoral. Either way, the fair tax will put all arguments to rest. I hope I live to see that day.
     
  3. Andy

    Andy Well-Known Member

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    I prefer a flat tax. A flat tax would eliminate all exemptions, and all deductions. Just have everyone pay a flat 10%, that's it. It wouldn't matter if made $250K or $25K, in either case, everyone would pay just 10%. However, they need to make medicare and Social Security, opt-out and opt-in, in order for this to work.

    The problem with the fair tax is that in nearly every country where they have instituted a fair tax, they have ended up re-enacting an income tax on top of the fair tax. If we could know for sure they would not re-enact the income tax after the fair tax, then I'd support it. Sadly, I don't trust the public or the government to do this.
     
  4. Mr. Shaman

    Mr. Shaman New Member

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    Fine.....make that all income, whether it be direct-income or capital-gains (that little-gem "conservatives" always expect to profit-from...for free).
     
  5. Dr.Who

    Dr.Who Well-Known Member

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    Put your retirement into the stock market if you plan to live past the age of 65.

    Put a hundred dollars in every week. On average stocks return 6%. If you take some of the money you earn and put into stock then you pay taxes on that of 15%. Your 6% profit just became 5.1%. The broker needs to be paid: your 5.1% just became 4.84%. But stocks are risky as we have all just seen. That is an awful lot of risk to accept for a 4.84 percent average return. One would be much better off just paying down their mortgage and saving the 5% or more right off the bat. Yet people think they can beat the market. (even though a monkey throwing darts can beat most investment advisers).

    What do you suppose happens to that scenario if the capital gains tax goes up to 20%. Then it makes no sense at all to make any investments at all.

    Banks stop lending, 401K's stop growing, buildings stop getting built, car dealers stop filling their lots - in short we get the mother of all credit crunches. The one we are going through right now is allegedly caused by less than 2% of all homes being foreclosed on. How big will it be when droves of people stop investing altogether?

    I personally think our economy is too dependent on borrowing and investment as a means of growth. Business should grow with money they actually have. But we can't just shut off the spigot all at once.

    Btw, the figures above were based on investments that get taxed now. For those of you who deferred your taxes until retirement, expecting to pay a small percent of a bigger number, you should be easily able to see the handwriting on the wall, you will be paying a large percent of a large number. You already made plans based on you being in a low tax bracket when you retire. Now the rules have changed.
     
  6. Andy

    Andy Well-Known Member

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    That's prefectly fine with me. Understand that means your 401K for retirement will also be taxed. So if you save up $10,000 and get a 10% return on you are going to get nailed on $250 in extra taxes at the end of the year. If you are good with that, so am I.

    But it also means, no deductions for being black, no deductions for cranking out kids, no deductions for buying a hybrid, no deductions for buying a home, going to school, or gives money to a charity.

    I'm for this. See you think "conservatives" are 'insert lame story saying what conservatives are'. But we are not. I'm all for having a flat tax on all income on all levels.
     
  7. Dr.Who

    Dr.Who Well-Known Member

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    Me too. The only absolutely fair tax is no tax. But since we need some taxes they should then be applied to all people equally. I suggest that it be 17% of gdp and be based both in income and purchases. Then the gov can cut spending to stay in line with the 17% limit.
     
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