[lbo-talk] Progressive taxation vs flat tax

[Shane Mage]

>Shane Mage wrote:
>
>>But the same applies to VAT as to "flat" income tax.  The "large
>>exemption" would take the form of a "flat" rebate of the entire
>>VAT on the subsistence level of consumption expenditures.  Just
>>as with income tax the level of progressivity varies with the size
>>of the exemption, so with VAT the level of progressivity varies
>>with the level of consumption defined as "subsistence"--with
>>the advantage that a large majority of people would directly
>>benefit from continual increases in the living standard socially
>>defined as "subsistence."
>
>In 1995, the CBO did an analysis of the crackpot flat tax + VAT that 
>Jerry Brown proposed in 1992. Here's the table with my intro 
><http://www.leftbusinessobserver.com/Jerry-Brown.html#CBO>:
>
But that gravely defective proposal did *not* provide for a
rebate of the sales tax on subsitence-level consumption
spending!!!


>After all the above articles were published, the Congressional 
>Budget Office (CBO) analyzed the Brown tax proposals - without 
>mentioning Brown by name - in a staff memorandum dated April 1992 
>("Distributional Effects of Substituting A Flat-Rate Income Tax and 
>A Value-Added Tax for Current Federal Income, Payroll, and Excise 
>Taxes"). These numbers have to be regarded as about as definitive as 
>can be expected; though Citizens for Tax Justice does excellent 
>work, the CBO is far better staffed, and their models are as good as 
>they get.
>
>The plan is indisputably regressive. CBO makes this important point: 
>"Families in the bottom one-fifth pay relatively little in combined 
>income and payroll taxes compared with other families. Many 
>low-income families actually receive subsidies from the income tax 
>rather than pay taxes because of the earned income credit. [This has 
>since been expanded significantly. - Ed.] Thus, low-income families 
>would receive little tax relief from eliminating income and payroll 
>taxes. In contrast, in any given year, many of these families spend 
>much more than their annual income, financing such spending by 
>borrowing or selling assets. These families would pay a significant 
>portion of their income in value-added taxes."
>
>Here is a summary of the estimated distributional effects by income 
>quintile. The tax rates were set to assure no change in federal 
>revenue (assuming no behavioral changes as a result of the radical 
>reform of the tax code - a heroic assumption, but the only plausible 
>one analysts can make).
>
>
>
>Effect of Brown-style tax plan, by income group
>
>               income after tax          effective tax rates*
>
>              __________________   _________________________________
>quintile      avg      % change   1992 actual  after change  change
>poorest     $ 6,700     -21.7%        7.7%        27.7%       +20.0
>second       14,800     -11.0        15.2         24.5        + 9.3
>third        23,100     - 5.3        19.1         23.4        + 4.3
>fourth       32,400     - 1.3        21.7         22.7        + 1.0
>richest      70,300     + 6.8        26.7         21.7        - 5.0
>all          29,200       0.0        23.1         23.1          0.0
>
>
>*Effective tax rates are the taxes people actually pay as
>a percentage of pretax income, in contrast with statutory
>rates, which are the numbers on the books that no one pays.
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