From: pjm@anegada.sps.mot.com (Patrick J. McGuinness)
Subject: Re: why progressive tax rates (was Re: Clinton's Economic plan attacked)
Organization: SSDT SPS, Motorola Inc., Austin TX
Date: Wed, 12 Aug 1992 18:46:51 GMT

In article <1992Aug12.135211.2141@cs.tulane.edu> lang@cs.tulane.edu (Raymond Lang) writes:
>In article <1992Aug12.113301.16060@midway.uchicago.edu> sug6@usite-next.uchicago.edu (Patrick Sugent) writes:
>>                                         You are correct that the flat
>>tax would have to be around 19%, but you either ignored/were unaware that
>>all such reasonable proposals include exclusion of the first $X thousand
>>dollars earned from any form of taxation. (I believe $X thousand is
>>usually $20k, but I would have to look it up.)
>>
>>  So, you see, in both of your examples above the people making less
>>than $20k would pay $0 in taxes, while everyone else paid 19% on
>>everything over the first $20k.  Also, flat tax proposals include virtually
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
>>no deductions outside of this $20k.  The idea is not only to make taxes
>>fair, but to eliminate many of the distortive effects that our current
>>system causes.
>
>Fine, put a cut-off any where you like; but then you end up with someone
>just above the cut-off having less left over than someone just below.
>Isn't that a "distortive effect"?

False. The scheme is like this:
Take income; subtract exemption; tax 20% (say) of the remainder.
There is no distortive effect.

>Besides that, the basic argument still applies.  If the cut-off is at
>$20K, then Joe Taxpayer with income of $21K still has a much harder time
>coming up with $4,200 than H. Russ Billionaire with income of a million
>a year has finding an extra $200K.

The solution then is to lower tax rates. For Joe taxpayer.
Is his coming up with $4200 any easier if he know that the billionaire
is paying tax at a 70% rate?

>Finally, none of the serious proposals for a flat tax that I've seen
>have proposed a rate anywhere near 20%.

What have you seen?
Jerry Brown had 13%.
Lawrence Lindsay had a 19% proposal, with few loopholes (like mortgage
and state income tax deductions) and a *larger* exemption than we have
with the current system. It will be more pro-growth than the current
system, simpler, and is revenue neutral.

Finally, we should mention that a 15%/25% proposal was kicking around
in the '86 tax reform time frame. We finally had a (sort of)
28% top bracket.

> It also stands to reason that,
>the higher your cutoff is, the higher the rate will have to be since
>you're reducing the tax base.

It also stands to reason, that, given the fact that the income
tax raises revenue equal to only about 12% of GNP, that we can easily
lower the rate (while also braodening it) and stil raise
adequate revenues.

>To switch topics somewhat, it occurred to me that this discussion about
>tax rates has overlooked an important point: income taxes are only a portion
>of the an individual's total tax burden.  It is true that our federal income
>tax structure is mildly progressive; but, as a matter of fact, when you
>consider all the taxes one must pay (social security (very regressive in
>itself), state income, sales, etc.) the complete tax structure in this
>country is actually mildly regressive.

Bingo.  So how come only conservatives like Jack Kemp are concerned
about the excessive taxation on the working poor, or the
high marginal tax rates on someone making $11,000 a year. 
(Which in some cases are above 50% and even close to 100% when
welfare and earned income tax credits are added in!) 

How come the only solution the Dems can come up with is blame
Reagan/Bush and raise taxes yet again?

>Ray Lang
>lang@cs.tulane.edu