>>>>This is exactly why I believe in the idea of a flat tax based on gross income. Your income is higher, you pay more tax. No loopholes to find, no shelters to hide under.
>>>
>>>The problem with a flat tax is that even if rich and poor pay the same percentage, the impact on the poor is much, much higher.
>>>
>>>Pick an arbitrary number. I've heard 10% kicked around a fair amount.
>>>
>>>So, consider three families of four. One earns $40,000 a year (I think that's actually above the federal poverty limit, but I sure wouldn't want to live on 40K), one earns $120,000 a year, and third earns $1,500,000 a year.
>>>
>>>Family 1 pays $4,000 of taxes, leaving them $36,000 to live on.
>>>
>>>Family 2 pays $12,000 of taxes, leaving them $108,000 to live on.
>>>
>>>Family 3 pays $150,000 of taxes, leaving them $1,350,000 to live on.
>>>
>>>Surely you can see that for family 1, the impact of the taxes in terms of their ability to survive is much, much larger than for the other two families.
>>>
>>>Tamar
>>
>>Most proposals I've seen, including several implementations in Eastern Europe, only apply the flat tax to income above a certain level. This reduces the impact on the poor while simplifying the system for the rest.
>
>Just to clear up our Warren Buffet to/fro of a couple of days ago, Jake...
>
>Buffet says that he does not use a tax accountant and does not use tax shelters. I don't doubt that he uses philanthropic donations in his return (no mention by him).
>But his point is that his 15% tax rate (investment income is his main source) is far too low compared to his (15 of 18 participated in his informal survey)employees rate averaging 32.x%.

I agree that his employees are paying way too much in income tax. :)

The reason investment income is taxed less is because it's a double tax. The money is first taxed as a gain to the company (35% corporate rate), and then again as investment income to the investor. Whereas the salary of an employee isn't taxed until the employee receives it. Actually, not until the employee files after deductions.

>He also observed that when the capital gains rate was 40% people were still OK with making good investments and they didn't fold their tents and work half days and then go golfing.

The 40% rate was so well received that in 1978 congress lowered it to 28%. Venture capital funds skyrocketed from ~$39 million in 1977 to ~$570 million at the end of 1978.

While true, people will still invest, they will be less likely to realize their gains while the tax is high and more likely to realize their losses. In other words they'll hold onto winning long term investments longer and not get into short-term investments in order to avoid paying excessive taxes.

There are record numbers of people in the stock market right now, both individually and through retirement vehicles. If the capital gains are raised, mutual fund managers will divert their money into less taxing alternatives. This will result in less investment, leading to less capital gains revenue.

Its a nasty connundrum for a small-government guy like myself.
Raising taxes = less government revenue
Lowering taxes = more government revenue