[shortstuffsushi]

What would the flat tax actually tax though, income? Wouldn't they just dodge that then by not having income? Sure, for you and me it would make it easier -- my W2 says I made exactly 100k, here's exactly 50k of it, period. For people who have a flexible income, why report any amount that would make you pay in?

[gambiting]

Don't have income tax at all, tax every transaction 20%, like a flat rate VAT except that you can't claim it back on your business expenses. Simplify the entire tax system without having loads of brackets, exemptions and special cases - if you sell goods or services, 20% of that is paid as tax, end of story.

I mean, I am not an economist, I have no idea if that would work or not(probably not)

[MichaelBurge]

The big problem there is that it encourages companies to grow as big as they possibly can, because "internal" transactions aren't taxed.

So Amazon would own the entire supply chain: Manufacturing widgets, selling widgets, storing widgets, shipping widgets, handling returns, etc. They already sort of do this, but if you add a 20% tax at each hop they would eliminate the remaining hops as fast as they possibly can or buy the hops.

And you could never start a small business, because everyone who'd want to buy from you would save a ton of money doing it themselves. By not taxing business transactions, it's zero additional cost to have someone else do something for you, so it makes it possible to grow a small business.

In particular, grocery stores with a 2% margin would be hit hard.

[tici_88]

The idea is to have everything taxed at the same rate: income, dividends, capital gains, whatever. So every source of 'money coming in' gets treated and taxed the same way.

By having a flat tax it doesn't make sense to shift 'money in' under different categories because all gets taxed the same rate.

So for example, income, capital gains, dividends would all be taxed at 10% or 15% or whatever.

[ch4s3]

Then why not hold stock, realize no gains by not selling it, and take out a loan with stock as collateral. Or, you could leave it all in a company that you own, draw no income and have the company pay for your housing, meals, travel, etc.

[aianus]

> Then why not hold stock, realize no gains by not selling it, and take out a loan with stock as collateral.

You can already do this today. Eventually you will need to sell and pay the taxes, eg. if interest rates rise and it's no longer worth it or when you die and have to pay the loans off.

> Or, you could leave it all in a company that you own, draw no income and have the company pay for your housing, meals, travel, etc.

If your company pays for your personal expenses like housing, it's taxable as income. Lots of SV companies pay for their interns' housing and the rent was always listed on their W2's.

[ch4s3]

>If your company pays for your personal expenses like housing, it's taxable as income.

Sure, but it can be a strategy to reduce taxable income. My point is that people at the top end are highly incentivized to avoid taxes and will find ways to do so. I'm not making any policy prescription, tax policy is hard and I don't claim to know what's optimal or even necessarily better.

[aianus]

Explain how you're reducing taxable income? The taxes on the free rent are the same as the taxes you're saving by reducing your company profits with the extra expense.

[ch4s3]

If you own a company and would take a salary of 1 million you get taxed on that 1 million. If instead the company pays 70k that year for rent on your condo, 35k on the lease of your vehicle, and another 20k on food and you draw no salary, so your taxable personal income is 125k. You keep the other 875k in the company until you can find more preferable tax treatment for that money.

Obviously this is a terribly contrived example, but it is somewhat descriptive of the type of strategy used to reduce taxable income. Things are obviously more complicated when you have numerous types of income from domestic and foreign sources.

[ameister14]

Wouldn't that remove the incentive for investment over speculation?