Thursday, November 16, 2006

2 quick shots and a tax rant

1—The Texas Triple is on.  No question about it.  Training for the bike portion begins this weekend with a nice “little” 40 mile ride.  The running portion will begin concurrent with the bike portion but I won’t be ramping up the miles until probably after the marathon.  There will likely be t-shirts involved.  There will likely be sponsorships involved.  There will even likely be a story in the daily fishwrap.  This is going to be so wicked cool!  And yes, Vic, I know it’s insane.  I expect to see you at the finish line.


2--Beautiful days are wonderful.  I love them.  Except…  People seem to check their brains at the door on beautiful days.  Yes, it’s wonderful to go out driving on a beautiful day, even if you’re driving to work.  BUT DRIVE LIKE YOU HAVE SOME PLACE TO GO DAMNIT!!!  Quit meandering across the freeway.  When you turn on your blinker, merge already.  Some of us may actually have to get to that gas station before we run out of gas and you going 15 mph is not helping either my stress level nor my patience.


3—The flat tax is a scam.  I used to be a big fan of the flat tax—just slap a percent on it and I’ll send you a check—but that was before I actually did math on this thing.  It’s a flat out scam.


Currently we work under what’s known as a “progressive tax” where increasing amounts of money are taxed at increasing rates.  The first x,000 is taxed at rate A, the second x,000 is at rate B, etc. etc.  The logic is that necessities are bought with the first money that comes in the door and luxuries are bought with the last money that comes in the door.  With the first, say, 10,000 people buy rent, food, utilities, transportation.  With the 10th 10,000 people buy nicer houses, nicer clothes, nicer transportation, and big fancy super yachts.  While more actual dollars are spent by those who make more on the basic necessities, the added expense is a luxury expense, not a necessity expense which is why Randalls can afford to price things 20% higher than Foodarama.  Foodarama is not including a “luxury premium” on their foodstuff since folks who shop at Foodarama generally shop there on a budget and can’t generally afford to shop at Randalls.  You don’t have to believe me.  I’m right and that won’t change with you believing me or not.


So, if you do math and plot out progressive income increments of 10,000 going all the way to 100,000 and tier a mythical tax system on top of that of 1% per 10,000 (.01 for the first 10k, .02 for the second, .03 for the third, etc.) you have a model of a “progressive” tax system.  In the US ours is only 4 “brackets”—it used to be 5—and they’re not tiered in the same way, but I’m making a model, not a replica.


Add up the numbers across the board and you have the total tax bill for each income “bracket”.  Divide the bill by the income figure and you have your total tax percent.  Under the model the higher incomes are taxed at a higher rate, but the first money in the door—necessity money—is always taxed at the same rate.  The “luxury” money is taxed at a progressively higher rate.  With the model I described above the tax rates go from 1% (for 10k) up to 6% (for 100k).  This may look odd, but the math holds up because only the last 10,000 is taxed at 10%.  So, the vast middle class in the model that makes between $30k and $60k pays a tax bill of between 2% and 4% (30k = 2%, 40 and 50 = 3%, 60k = 4%).  Opponents to this idea call it subsidizing poor, lazy, unproductive people and punishing hard work and higher education.


Under a flat tax, however, it doesn’t quite work that way.  The flat tax says all money is taxed the same whether it’s necessity money or luxury money, so if you’ve only enough to buy toothpaste and dinner, you’re paying the same percent of your income to the government as if you’re shopping for 100ft yachts.  Instead of the last 10k being taxed at 10%, it’s taxed at the same rate as the first 10k.  For the purposes of my model I’ve decided first to set the rate the same across the board so that the last 10k is taxed the same as the first 10k—1%.  The tax income plummets from 22,000 model bucks to 5,500 model bucks.  In order to bring tax income back to the 22,000 figure, the rate has to be quadrupled so the first 10,000 in the door—the part that pays for toothpaste, soap, rent, diapers, food, etc—is taxed at 4% and all money across the board is taxed at the same rate.  The net effect on the top 3 tiers, of course, is a reduction in the tax bill from 5, 5, and 6% respectively to—you guessed it—4% (it’s a flat tax, simple math).  Opponents say this is jacking taxes on the poor in order to lower taxes for the rich.


In order to make the idea more palatable to the masses, a modified flat tax has also been suggested where the first dollars through the door—the necessity dollars—are not taxed at all.  The first tier is 0% or there’s a refund or some such so that there’s actually a tax CUT for the poorest in the system.  Well, if you take the first dollars out of the equation the balance has to be made up somewhere and that somewhere is—you guessed it—every other tier gets their rate increased…  except for 3.  Can you guess which 3?  Yup, the top 3.  The net effect across the board is an increase in the 20k, 30k, 40k, 50k, and 60k tiers but a reduction in the 70k, 80k, and 90k tiers.


The other thing the flat tax does is shift the income spread from the top 3 tiers to the other 7—as can be expected from the math described above.  Under the “progressive” system 62% of the income comes from the top 3 tiers and 34% from the middle 4 with 5% from the bottom 3.  With the flat tax system the burden shifts to 53% for the top 3 tiers, 40% for the middle, and 7% for the bottom.  (Of course, this does NOT take into consideration the concentration of wealth or the relative populations within the strata.  That’s a whole ‘nuther level of analysis, but I can assure you that the wealth is more concentrated toward the top than the bottom and middle.)  Opponents say this is shifting the burden from the rich to the poor.


I’m not going to say what’s fair.  Some will say that those who are using the government services and system are those who should be paying for it—a pay-to-play type of system.  Others say that those who have benefited the most from the “system” should be paying the most.  As a matter of principle I don’t like taxes, but I know they a reality and a necessity.  As for the question of fairness, I’m going to let the math speak for itself.


Anonymous Iain said...

It's on? Good. Where are we riding?

10:23 PM  
Blogger Vic said...

You really miss the whole point. What is required in our free society is to remove politicians from their gatekeeper role over the income and resources of all Americans. Real reform requires abolishing the income tax and returning to the system our Founders intended, funding the federal government with tariffs, duties, and excise taxes – sales taxes – not with the privacy-destroying income tax. We should return to the original, constitutional tax system of the United States of America.

To control the resource base of a decision-maker is to control his decision. But the ultimate decision-maker in American life and politics must be the people. And the people cannot be free without a resource base of material comfort and sustenance free from government domination or control. A tax system putting government in control of the people's income irresistibly tends to put government in control of political decisions as well.

The Founders sought to avoid this path to tyranny. So they made a direct tax on the income of individuals unconstitutional.

These comments are attributed to Alan Keyes, the ONLY guy in America that's got it right and addresses the real issues of tax reform. More on this at this link. I'm curious to know your view on this.

9:57 AM  
Blogger Joe said...

The founders also included a little section about certain people being 3/5 of a person and not having the right to vote. Ammendment 16 made an income tax constitutional. Ammendment 14 made slavery unconstitutional. I think it's safe to say the founders didn't establish a perfect union, but only a "more perfect" union. The constitution was a good document, but it wasn't perfect. That's why there's been 26 ammendments... plus that one about all the free speech that the founders forgot to include in the constitution proper.
Alan Keys is not the ONLY guy in America who's got it right... he's got an opinion and from the first half of the article I'm not convinced his opinion is not based on an overly paranoid vision.
I'll finish Alan's article and address the sales tax idea later. We'll see if he can change my mind about that one.

8:05 PM  
Blogger Vic said...

I don't think that Alan's argument or mine was made simply by the fact that it was what the original founding fathers intended. Neither Keyes or I am saying "if it's the way it was when this country was founded, then that's the way it should be." Certainly, Keyes' argument has mor merits than that. Surely that can't be the end of any argument as you rightly stated. I do believe that as the Founding Fathers believed and as our federal government was financed up until the early 20th century when the income tax was made constitutional, that the income tax is antithetic to liberty. It is a slave tax and cuts at the very fabric of our constitution and our ideals of freedom, privacy, individual rights, one man, one vote, justice, government by the people and for the people.

8:59 PM  
Blogger Joe said...

It's not a slave tax. Keyes isn't proposing going back to the pre-income tax system. There was no sales tax before the income tax was instituted. He's proposing instituting a different tax on consumption that will... well, I'm not sure, I've got to do the math.

9:30 PM  
Blogger Vic said...

Well, if it's not a slave tax, then what is it. Who get's first dibbs on your paycheck? Who chooses where your first dollar is spent? If the opposite of liberty and freedom is slavery, then IT IS A SLAVE TAX.

1:36 PM  
Blogger Joe said...

Calling it a slave tax... or SLAVE TAX... is rhetoric. You have control of your money. You're earning income, the income is taxed. You have control over the witholding. Hell, you can even demand to be placed on a contract/cash basis. Plenty of employers are willing to hire contract only employees.
But calling an income tax a SLAVE TAX is just another case of knee-jerk political rhetoric that gets in the way of informed discussion of the facts and turns the discussion towards whether or not the income tax is a SLAVE TAX and not whether or not some other system is more or less equitable.

9:29 PM  

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