Henry's advice to labor

Max Sawicky sawicky at epinet.org
Fri Jan 22 07:23:45 PST 1999



> . . .
> A flat income tax, with a large exemption such as the $40,000 suggested by
> Henry, is very progressive up to a high level--if the tax rate is 25% the
> effective rate on an income of $50,000 would be 5%, on $100,000 15%, and
on $300,000 21 2/3%. It would never become actually flat, but for multimillion incomes would be asymptotic, approaching 25%. . . .

As somebody else said, the issue is compared to what.

For virtually the entire population
> the effect would be progressive, compared to the present system. This is

If the 'what' is the Federal income taxes (personal and corporate, plus AMT's) and payroll taxes, simulations of the effect would probably find a flat tax to be more regressive.


> much more strongly the case for the payroll tax, which is actually
> regrssive because of the cutoff on taxable wages, but would be progressive
> if the cutoff was eliminated and an exemption for the first few thousand
> dollars instituted. A VAT would be a very progressive tax, and probably
> the best of all in efficiency and unavoidability, if the entire VAT on an
> amount equal to the cost of a basic health and decency consumption level
> was refunded to every individual--including the unemployed, welfare
> recipients, prisoners, etc.

A VAT with a demogrant is not a VAT anymore. It's just an upside-down flat tax with an exemption. Probably worse than a flat tax because more of the VAT would fall on consumption. The VAT is keyed to transactions so there would be more upward pressure on the price level and an impact on consumers. The flat tax is keyed to individual wages and business firm income net of investment spending, which decreases the likelihood of a price effect (e.g., the burden would be on workers and owners of capital).

cheers,

mbs



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