Flat Tax in Russia; Economy Growing Fastest In Europe; Tax Revenues Up

[MMMMMM]

This is the first I've heard of it so here is one link only. More to come I guess.

(excerpt)

"The new Russia is turning into quite a place. Russian President Vladimir Putin may be a former KGB apparatchik and he may sometimes act more like a czar than the head of an emerging democratic state, but he and those around him are an interesting bunch.

Thus, while policymakers in this country have been struggling for years over the question of how we might reform and simplify the tax code, Putin's government looked the question in the eye and opted for a 13 percent flat tax. The results since its implementation have been dramatic. The Russian economy, in spite of all the problems it faces, is growing faster than any in Europe. What's more, tax revenues are up so markedly that the Kremlin seems to be seriously considering lowering what already is Europe's lowest marginal rate even further."

(end excerpt)

http://conservative.org/columnists/keene/031021dk.asp

[andyfox]

The author provided no citations. Since the Russian economy was flat on its back, it makes sense that it is probably growing faster than any in Europe. It also makes sense that tax revenues are up. Whether or not the implementation of the flat tax has anthing to do with this, is open to question. It's certainly worth study though.

We already have a flat tax in this country. While the income tax is progressive, the payroll tax is a regressive tax and when all the other taxes people pay are added up, people in different income brackets pay about the same percentage of their income in overall taxes.

My sense is we'll eventually end up with some sort of VAT/consumption tax.

[elwoodblues]

If it works in Russia, it must work here.

[Jim Kuhn]

What is a payroll tax?

[ACPlayer]

Yes, but pretty soon the payroll taxes will disappear as the federal deficit renders soc sec bankrupt and no will pay or get any.

Then we will not have a regressive payroll/fica tax anymore.

[andyfox]

Social Security tax. Unlike the income tax, it's assessed on the first dollar of income. Once you get to a certain income, I think around $80,000 you don't pay any more. It's about 10% at $80,000. So a person making $80,000 a year pays an $8,000 tax. And a person making $800,000 also pays an $8,000 tax. [My numbers might be slightly off here, but they're in the ballpark.] So the $80,000 earner pays 10% but the $800,000 earner pays 1%. Thus the more money one makes the lower the tax rate.

[adios]

"We already have a flat tax in this country. While the income tax is progressive, the payroll tax is a regressive tax and when all the other taxes people pay are added up, people in different income brackets pay about the same percentage of their income in overall taxes."

Sorry Andy that's wrong. I'm sure you're including things like sales taxes and state income taxes. I submit it makes a great deal of difference where you live regarding how much one pays with those taxes. As far as social security being a regressive tax (I'm glad we're calling it what it really is) that's true but it's also true that low income wage earners can offset those regressive taxes with the earned income credit.

[adios]

Your numbers are a little low on the income side and a little high on the amount side. For 2003 the magic numbers are $87,000 and 6.2%. Currently the amount of social security you can receive at age 62 1/2 is based on what you've paid into the social security system. There is a maximum amount you can receive so if you contribute more to social security than what you will receive in retirment benifits you lose the amount you've contributed. That's more or less the reason there is a cap on the income that social security payments are assessed for. Additionally there is a 1.45% assessment for medicare which is assessed on all income. The trend has been that the $87,000 number has been steadily rising and I excpect that the percentage taken for medicare will also rise. Social Security is an entitlement masquerading as a retirement plan.

[andyfox]

Yes, I'm including all taxes people pay. In 1995, two-thirds of American families paid more in FICA taxes than in income taxes.

Indeed, where one lives makes a difference. But the result of all taxes is that people making vastly different incomes pay very nearly the same amount of their incomes in taxes.

[andyfox]

Thanks, Tom.

An example of what I'm talking about: In 1991, President Bush 41 and his wife reported adjusted gross income of $1,324,456. They paid $194,594 in federal income tax: 14.7%. Their Social Security tax payments were $15,370. This brought their total federal tax payments to $209,964 for a combined tax rate of 15.9%.

In that same year, 12.3 million individuals and families filed tax returns on which they reported adjusted gross income of between $30,000 and $40,000 and paid income tax. Their average income tax bill was $3,679, 10.6% of income (median income that year was $35,939). But they paid $2,437 in Social Security taxes, bringing their total federal income tax payments to $6,116, a combined tax rate of 17.6%.

Thus the working middle-class family with an income of $35,000 paid federal taxes at a rate 1.7% higher than the President and his wfe, whose income was more than $1.3 million.