[kindbud]

um. no it wouldn't. It would be 100% fair.

[SimeyTheLimey]

Originally posted by thunderous_funker:
A tax code that ignores the difference between earning $30K in Los Angeles and $30K in Witchita would be catastrophic.

The tax code does ignore the difference between LA and Wicheta. The federal rates are the same wherever you are.

[The Mick]

Originally posted by thunderous_funker:
That is utterly laughable.

A tax code that ignores the difference between earning $30K in Los Angeles and $30K in Witchita would be catastrophic.

Do you care to elaborate upon this? As things stand now, I would pay the same federal income tax and payroll tax on my salary regardless of where I live. If you're referring to state or local tax rates, fine, but I'm talking about federal taxes.

[Earth Mk. II]

Originally posted by The Mick:
We do not live in a classless system, but your example leads me to think that opponents of a flat tax want the government to adjust tax rates to close the gap between the classes. Sounds like communism to me. A flat tax is the only real fair and equitable solution. Person 2 earns 5 times the money as Person 1, and he pays 5 times the taxes. It is not the responsibility of the government to regulate the impact of a $200 rent increase by manipulating tax rates. If Person 1 cannot afford the increase, he should move to a less expensive apartment, or work harder to earn a raise. Crying to the IRS should never enter the picture. I know many flat tax proposals would raise the tax rates on low income groups, but I say that's the price you pay to live free in the USA, and with a flat tax, that price is the same for everyone (percentage-wise).

More accurately and generally, I would say that he model shows that as the cost of living varies, it has a greater influence upon those households with low incomes. That much, I believe, is self-evident within the model and holds true in the world.

For any other inferences beyond that, I think we would need a better model, since the one I constructed is heavily simplified on a number of levels.

The issue, at least as I see it, is about quality of life, not economic equity. I wouldn't be surprised to discover that a flat-tax scenario may push a low income household into an area where investing/saving money is a practical impossibility since the cost of living is relatively high for that household, putting the long term welfare of that household at risk. However, that is only conjecture on my part and I currently have neither the data nor time to properly construct a model where such an inference can be safely made.

(as an aside, I'm curious enough to want to try and make a better model... though economics is defiantly not one of my strengths. If anyone has some links to resources I could look at, I'd appreciate that. If it looks like something I can get a handle on, I'll see about talking to some of the econ faculty here and see what I can come up with.)

[thunderous_funker]

Originally posted by SimeyTheLimey:
The tax code does ignore the difference between LA and Wicheta. The federal rates are the same wherever you are.

Which is one of the reasons I find the current system so utterly unworkable. We are debating alternatives, aren't we?

And unless I'm completely mistaken, the endless complexities of itemizations and deductions does provide wiggle room for cost of living differences.

[Lerkfish]

Originally posted by thunderous_funker:
Which is one of the reasons I find the current system so utterly unworkable. We are debating alternatives, aren't we?

And unless I'm completely mistaken, the endless complexities of itemizations and deductions does provide wiggle room for cost of living differences.

though not adequately.

The people hardest hit by regional differences in costs of living are obviously the lower income brackets, as usually those in middle class or higher have their wages proportional to regional differences.

The problem, though is a difficult one: regional differences can be so narrow as to be difficult to manage or even assess properly. For example, if you lived in one side of a very large city like Los Angeles, your cost of living would differ dramatically with the opposite side, depending on various factors of rent and local taxes. It would be such an unwieldy behemoth to administer once you started trying to compensate for regional COL differences.

About the only halfway fair way would be to do a proportional deduct on the amount of your rent or mortgage, but even then you'd have a nightmare sorting out those who are over mortgaged or just lucky enough to get a rent controlled apartment.

[BlackGriffen]

Originally posted by Krusty:
The "concept" isn't what's hard, its actually getting the desired results from the investing/trading class. I think that 50 years ago, reducing the tax burden on investors/traders typically resulted in good things for the economy (new investment/more jobs). Nowadays, its not necessarily so. We are currently seeing how this is playing out in a post-NAFTA, global economy. Stock market is up, employment in the US stays bleak and real wages have fallen. Problem is, investors/traders are going to invest in their own self-interest , NOT in the interest of the US economy as a whole. So we are seeing the typical increase in investment since the tax cuts: we're just seeing it being invested outside the US. When we see profitable companies hiring 2500 people, its very often been 3000 in India and -500 in the US.

What you're are describing is just regular 'ole supply-side economics: "Give more money to a tiny investing class and they will do good things for the US economy." Unfortunately they're not doing that this time. Its more lucrative for them to invest outside the US (via outsourcing), so that's what they are doing. Personally, I favor "demand side" or "consumer side" economics -- a little more money in the hands of hundreds of millions of American workers is FAR more likely to have a huge domestic impact than a lot more money in the hands of the small capitalist/investing class that may not spend a dime of that extra dough in the US.

Well, for not being hard, you've managed to misunderstand one of the words I used. By trade, I don't mean on the international level, I mean on the individual level. What most people call "consumers" I would call "traders."

Oddly, despite misunderstanding me, you were right anyway. Given tax cuts to consumers who spend it on cheap foreign goods doesn't help the economy as much as if they had bought locally produced goods. Much the same way as an investor who invests in production overseas helps the economy by making cheaper goods available, but not as much as someone who invested locally would.

Eventually, though, if we manage to even out some of the laws (like environmental protection, labor protection, etc), it will all balance out in the end. It will just take a while, and should be kept to a gradual pace to make the transition as painless as possible.

BlackGriffen

[itai195]

Originally posted by Lerkfish:
The people hardest hit by regional differences in costs of living are obviously the lower income brackets, as usually those in middle class or higher have their wages proportional to regional differences.

I think this is true. In areas with a high cost of living, the people most affected are generally in the lower income brackets and service level jobs. I'm not sure the tax code is the right place to rectify cost of living differences for those people. The 'living wage' concept sounds more reasonable.

[SimeyTheLimey]

Originally posted by thunderous_funker:
Which is one of the reasons I find the current system so utterly unworkable. We are debating alternatives, aren't we?

And unless I'm completely mistaken, the endless complexities of itemizations and deductions does provide wiggle room for cost of living differences.

There is a limit to how much a federal tax system could try to level individual cost of living expenses. You couldn't really do it strictly by region. You would quickly run into constitutional problems -- equal protection, federalism, and so forth.

The tax laws are used to make transfers to people on limited incomes. That's not directly compensating for the cost of living, but it does provide relief to the poor. The best known example would be the Earned Income Credit.

Deductions don't directly compensate for the cost of living and in fact, that would be contrary to the theoretical underpinning of the whole income tax system. The reason it is an income tax and not a consumption tax is that the cost of living (called consumption) is not deductible.

The exception is the qualified housing deduction -- AKA mortgage interest deduction. That allows homeowners to deduct some major housing expenses. That could be connected to the cost of living, but you can't assume that more mortgage interest means a higher cost of living. It could just be a bigger house. Also, renters don't get to take that dediction at all. That kind of blows the help the poor justification. The actual reason is that it is a subsidy for home ownership.

So basically in sum, the federal income tax system taxes you by income. It doesn't take account of your costs of living.

[thunderous_funker]

Originally posted by Lerkfish:
About the only halfway fair way would be to do a proportional deduct on the amount of your rent or mortgage, but even then you'd have a nightmare sorting out those who are over mortgaged or just lucky enough to get a rent controlled apartment.

I don't mean we need a system that considers the cost of fresh produce or a bus pass.

If we only included rent/mortgage that would address the bulk of my concern. And I don't believe that having such a deduction would require undo oversight or regulation. First of all, how a flat tax minus rent/mortgage possibly compare to the issues of policing the current system? Peice of cake. Secondly, real estate regulates itself quite nicely. I don't think there is a lot of frivolously high rent, even in places like LA. Yes, the rent is incredibly high, but not frivolously so. Its not arbitrary, I mean. In fact, the rates are quite consistent and predictable along geographic and usual socio-economic boundaries.

The current tax code allows people to hide all kinds of income in their house. This change would simply grant that same fairness to renters and those who don't have million dollar homes (high enough value to make it an effective tax shelter).

[Lerkfish]

Originally posted by thunderous_funker:
I don't mean we need a system that considers the cost of fresh produce or a bus pass.

If we only included rent/mortgage that would address the bulk of my concern. And I don't believe that having such a deduction would require undo oversight or regulation. First of all, how a flat tax minus rent/mortgage possibly compare to the issues of policing the current system? Peice of cake. Secondly, real estate regulates itself quite nicely. I don't think there is a lot of frivolously high rent, even in places like LA. Yes, the rent is incredibly high, but not frivolously so. Its not arbitrary, I mean. In fact, the rates are quite consistent and predictable along geographic and usual socio-economic boundaries.

The current tax code allows people to hide all kinds of income in their house. This change would simply grant that same fairness to renters and those who don't have million dollar homes (high enough value to make it an effective tax shelter).

ok, I think we're talking two differen things here, maybe. Should renters be granted a deduction alongside with property owners? Interesting idea...maybe.
But the other issue of whether it can be properly administered is more of a spaghetti tangle than you'r intimating, I think.
for one thing, there's no direct correlation between a person's income and the size of house they pay mortgage on. It has more to do with individual needs and taste. For example, Family A making 50K might own a 50k house OR they might overmortgage themselves and buy a 125K house. If you make the deduction proportional to the house, you risk rewarding the second group unfairly.
then, the tax loophole would be to buy the largest house possible and reap the benefits on April 15. I'm not sure that's really an improvement. And, regionally, it would overbenefit house owners in areas like Los Angeles, San Franciso, etc. and unduly underbenefit people in Alaska or utah...just as examples.
In other words, what the market will bear is going to vary by more than just the local COL. there are two many other variables that affect housing prices.