Where will inflation stop?

In reply to 93EXCivic :

In other words, the best remedy for inflation is inflation.

ProDarwin said:

Since we are throwing around looney tax ideas :)  here is mine:

1)  replace brackets with a simple algebraic equation.  You earn X income and have Y dependents, you plug it in and pay the amount specified.

2)  There are no deductions.  No tax breaks.  No non taxable income.  no AGI.  No long term capital gains.  You pay taxes on your income, period.

 

There, the personal income tax code can now fit on an index card in a giant font.

IRS job gets easier.

Legal and legal-ish Wealthy tax "evasion" goes away.

Your tax dollars don't support anyone else's non-profit causes

H&R block, Turbotax, etc. cease to exist

The advantage of my system is there is no longer need for a tax code ( which sole goal is to hide tax breaks so average citizens don't realize what a rotten deal they are getting) 

 No longer any need to file taxes.  The sole function of the IRS is enforcement. 

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

SV reX said:

Boost_Crazy said:

In reply to frenchyd :

Frenchyd, there are many aspects of a flat tax that I find appealing, but your proposal will not do what you think it will do. First, 2% is way, way under the average income tax rate. It would mean dramatic cuts and shrinkage of the federal government to a fraction of it's current size. That's too much for even most small federal government advocates. For comparison's sake, the the average net income tax rate is around 13%. So giving you the benefit of the doubt that 2% was just an example and you want to keep the government the same  size, you need need everyone to pay a flat tax of 13%. But here is an example of current net tax rates (2019 numbers)...

All taxpayers 13.29%

Top 1% 25.57%

Top 5% 21.98%

Top 10% 19.89%

Top 25% 16.73%

Top 50% 14.55%

Bottom 50% 3.54%

So your proposal just about quadruples the federal taxes for the bottom 50% of earners, and cuts the taxes of the top 1% in half. Moreover, your proposal is on money spent, not income. High income earners don't spend all of their money. Lower income earners not only spend all of their money, but often borrow to make purchases. So they will be taxed on more than they even make! 

 

 

This is one of the cleanest arguments against the flat tax in this thread, and I appreciate it.   However, I think it is too simplistic, and overlooks a lot.

There is no need to match the income tax percentage RATE.  What needs to be matched is the REVENUES COLLECTED.  I know that sounds like splitting hairs, but it's really not...

In order to assess the viability of the idea, an analysis would have to be made of consumer spending, not government spending.  Once overall purchasing trends are understood, a percentage can be applied to THAT to generate the needed revenues.

Obviously, wealthy people spend much more money than poor people.  So, a flat tax generates an automatic increased load on the wealthy, simply because they spend more.  It doesn't translate as a percentage.  It translates as gross revenue.

Wealthy people don't ever pay 25.57% on their income.  That's the highest bracket, but their actual average taxes are less (because they pay smaller percentages on the smaller brackets).  More importantly, they ONLY pay tax on their TAXABLE income.  After deductions, etc, this is not a very large percentage of their gross income.  In a flat tax scenario, they would be paying tax on ALL of their purchases, not just the small percentage deemed "taxable income".

You mentioned borrowing... High income earners borrow lots of money for purchases too!  Buy a boat?  Pay a federal sales tax.  Buy a Lear jet?  Pay a federal sales tax.  Regardless of whether it is borrowed money or not.

It's also possible a flat sales tax would apply to more industries.  Frenchy mentioned stocks (don't think this would work, and capital gains are already taxed for every sale, but the idea is on the table).  Sales tax on medical treatments?  Foreign exports?  Real estate?  Raw goods?  Services?  There are a lot of question marks...

It's easy to offer relief to lower income earners.  Just define some essentials (like food) that are not taxable.

I am also a fan of how a flat sales tax would enable capturing tax revenue from illegal activities.  Organized crime doesn't pay any income tax.  But they generate $2.7 trillion dollars in revenue.  Wouldn't it be fantastic to be able to collect taxes on all of their purchases?

Tourists (who pay no US income taxes) would help pay for the costs of running our country with every purchase.  This would bring in revenue from people who are currently not taxpayers.

Another by-product... a whole LOT of very intelligent people (like accountants, CPAs, IRS workers, and the bookkeeping staff of every company in the country) who are currently burning energy trying to calculate tax rates, or plan tax strategies would no longer be needed for these routines.  Their talents and energy could be diverted to other productive enterprises.

I am not qualified to calculate how the math would actually work.  I have no idea if 2 or 3% would work, or if it would need to be 13%.  But I know it's not as simple as taking the average income tax percentage and applying it to everyone.

My opinion is that aversion to federal flat sales tax ideas is much more driven by politics than by math.  When people say "OMG, the poor will pay more in taxes!", LOTS of poor people run to the polls to vote against it.  When people say "OMG, wealthy people won't have any deductions!", LOTS of wealthy people flex their political muscles to exert pressure against it.

I like the idea.  I think it has merit.  Just don't know about the details.

I failed to spell out details for the sake of brevity. 
  Just touching a few.  
 Is 2-3% really too little?  How much do car companies buy making their vehicles?   They aren't paying any taxes now. On purchases.   That's all shifted to lower income when they buy that car.   
   Incidentally.  Taxing purchases is good motivation to move production back to America.  If they buy raw material and produce things in America instead of buying them from overseas their tax bill goes down.   Look at Air Bags for a classic example. 
  I also mentioned buying stocks/ bonds/ other investments including whole companies.  What's 2% of  Elon Musks Tesla? Or 2 % of Microsoft?  
  Same with borrowing money.  Charge 2% for that.  
    I recognize the value of government trying to achieve social benefits  with tax breaks. But that's a slippery slope. 
  There are other ways of achieving those goals.    Taxes need to be both simple to understand and low.   Governmental policy doesn't achieve that.  By trying to satisfy everyone no-one feels good.  
  Now tax buying stock instead of taxing profits from stock. 
     When a person buys stock he pays a fee to do so.  Win or lose the fee is paid.  Same with taxing stocks, bonds, and other investments .  The government shouldn't be in the business of underwriting losses.  
   Besides the whole psychology of buying is I want,  it costs, I can afford that. 
     While taxation is the government is taking my money.  
  Whole lot better way to collect the needed income.  
  One final point about the stock market.   
Do you know how high speed trading works?  Since we have to buy from a broker the broker has a advantage. We just can't beat.  
   If the broker had to pay 2% with every transaction  the playing field would be more leveled.  
 

 You mentioned those in the income tax field.  Well,  smart people have high value.   Perhaps those jobs that are going unfilled would have some more applicants. 
 ( which does society gain with? More people involved in taxes or business? ) 

RX Reven' said:

In reply to 93EXCivic :

In other words, the best remedy for inflation is inflation.

I mean...

https://www.cnet.com/personal-finance/taxes/california-inflation-relief-payments-who-is-eligible-when-checks-will-go-out/

Isn't that exactly what they are doing in Cali? It's insane.

SV reX said:

Boost_Crazy said:

In reply to frenchyd :

Frenchyd, there are many aspects of a flat tax that I find appealing, but your proposal will not do what you think it will do. First, 2% is way, way under the average income tax rate. It would mean dramatic cuts and shrinkage of the federal government to a fraction of it's current size. That's too much for even most small federal government advocates. For comparison's sake, the the average net income tax rate is around 13%. So giving you the benefit of the doubt that 2% was just an example and you want to keep the government the same  size, you need need everyone to pay a flat tax of 13%. But here is an example of current net tax rates (2019 numbers)...

All taxpayers 13.29%

Top 1% 25.57%

Top 5% 21.98%

Top 10% 19.89%

Top 25% 16.73%

Top 50% 14.55%

Bottom 50% 3.54%

So your proposal just about quadruples the federal taxes for the bottom 50% of earners, and cuts the taxes of the top 1% in half. Moreover, your proposal is on money spent, not income. High income earners don't spend all of their money. Lower income earners not only spend all of their money, but often borrow to make purchases. So they will be taxed on more than they even make! 

 

 

This is one of the cleanest arguments against the flat tax in this thread, and I appreciate it.   However, I think it is too simplistic, and overlooks a lot.

There is no need to match the income tax percentage RATE.  What needs to be matched is the REVENUES COLLECTED.  I know that sounds like splitting hairs, but it's really not...

In order to assess the viability of the idea, an analysis would have to be made of consumer spending, not government spending.  Once overall purchasing trends are understood, a percentage can be applied to THAT to generate the needed revenues.

Obviously, wealthy people spend much more money than poor people.  So, a flat tax generates an automatic increased load on the wealthy, simply because they spend more.  It doesn't translate as a percentage.  It translates as gross revenue.

Wealthy people don't ever pay 25.57% on their income.  That's the highest bracket, but their actual average taxes are less (because they pay smaller percentages on the smaller brackets).  More importantly, they ONLY pay tax on their TAXABLE income.  After deductions, etc, this is not a very large percentage of their gross income.  In a flat tax scenario, they would be paying tax on ALL of their purchases, not just the small percentage deemed "taxable income".

You mentioned borrowing... High income earners borrow lots of money for purchases too!  Buy a boat?  Pay a federal sales tax.  Buy a Lear jet?  Pay a federal sales tax.  Regardless of whether it is borrowed money or not.

It's also possible a flat sales tax would apply to more industries.  Frenchy mentioned stocks (don't think this would work, and capital gains are already taxed for every sale, but the idea is on the table).  Sales tax on medical treatments?  Foreign exports?  Real estate?  Raw goods?  Services?  There are a lot of question marks...

It's easy to offer relief to lower income earners.  Just define some essentials (like food) that are not taxable.

I am also a fan of how a flat sales tax would enable capturing tax revenue from illegal activities.  Organized crime doesn't pay any income tax.  But they generate $2.7 trillion dollars in revenue.  Wouldn't it be fantastic to be able to collect taxes on all of their purchases?

Tourists (who pay no US income taxes) would help pay for the costs of running our country with every purchase.  This would bring in revenue from people who are currently not taxpayers.

Another by-product... a whole LOT of very intelligent people (like accountants, CPAs, IRS workers, and the bookkeeping staff of every company in the country) who are currently burning energy trying to calculate tax rates, or plan tax strategies would no longer be needed for these routines.  Their talents and energy could be diverted to other productive enterprises.

I am not qualified to calculate how the math would actually work.  I have no idea if 2 or 3% would work, or if it would need to be 13%.  But I know it's not as simple as taking the average income tax percentage and applying it to everyone.

My opinion is that aversion to federal flat sales tax ideas is much more driven by politics than by math.  When people say "OMG, the poor will pay more in taxes!", LOTS of poor people run to the polls to vote against it.  When people say "OMG, wealthy people won't have any deductions!", LOTS of wealthy people flex their political muscles to exert pressure against it.

I like the idea.  I think it has merit.  Just don't know about the details.

There are ways of underwriting social goals without  making the tax system so complex.  
    Health care?   Food,  shelter, I'll assume you would like a  floor on those?  
 We will still get FICA statements, P&L statements on investments.  Etc. In other words our income is known.  
       Use those as a floor so anyone who earns less than X is entitled to receive  support.  Make that progressive so there is motivation to get off it.   The real needy will get the required help  but there isn't a hard line  so above  X you're on your own.  Make slightly over X and your support is reduced some.  
       

In reply to tuna55 :

I think he meant that in some ways inflation may end up killing itself as the cost of things go up people have less money to spend thus slowing down inflation.

GameboyRMH said:

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

Oops you don't understand what no exceptions means.  When rich people buy Companies or stocks or other investments.  They aren't paying any tax now.  
  The country would collect the 2%.  
     Plus leisure of the rich tends to be more expensive then the poor who may not be able to afford vacations etc.  

GameboyRMH said:

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

You do bring up a interesting subject I hadn't given proper amount of thought.  
 How do we deal with out of country spending?  
      If it occurs in the US it's easy to write the laws to catch that.  And if they extract it from a US account the process would be similar. 
    But what about the Uber rich who keep various foreign accounts to Evade  American taxes ?   
 Right now they are getting away with it.  I can't think of any way to prevent it off the top of my head.  

frenchyd said:

GameboyRMH said:

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

You do bring up a interesting subject I hadn't given proper amount of thought.  
 How do we deal with out of country spending?  
      If it occurs in the US it's easy to write the laws to catch that.  And if they extract it from a US account the process would be similar. 
    But what about the Uber rich who keep various foreign accounts to Evade  American taxes ?   
 Right now they are getting away with it.  I can't think of any way to prevent it off the top of my head.  

Nothing stops the USA from setting up financial costs for foreign spending in the USA. Just will and effort to plan it right. The idea is that any acquisition of anything CAN be subject to VAT or tarriff or fee. I think the core debate should be mostly revolving around the social goals the country wants to encourage and to close any loopholes.

Home ownership is encouraged by several tax related deductions/credits at Fed and State levels. Yes there are other incentives but we are talking taxes etc right now. So do we want to support just one primary residence and what mortgage value limit? My older daughter asked me once why do people get to buy up all the houses and rent them? In her mind that just inflates prices and prevents someone like her from having a chance to buy houses. So maybe we should shift the taxation rules to result in higher costs to buy rental properties to encourage the right societal behaviors. In Detroit area, in the 2005-2009 years(may have been longer just my knowledge of timeframe) Chinese investors were buying up any home on a gamble that those areas would be gentrified. It got so bad that the local news reported that organizations that help lower income people buy homes were getting locked out of any home buying and had to steer people to renting longer. Just a localized view of a very specific issue but if a foreign person or business buys a house in the USA what should be paid to the USA for the USA to support its own citizens in obtaining a home? But then if, as does happen these days, a family flew to the USA specifically to have their child on USA soil so that they are a citizen. Then once they turned 18, that child is now the legal owner of all parts of that family's business in the USA. So now a USA citizen is spending millions of foreign generated wealth in the USA. Fair? maybe yes maybe no. But definitely legal. They are trying to manage this in Canada now by requiring banks to document the generating source of funds for more reasons that just sanctioned countries and people. I don't know the details but I think civil rights abuses and embezzlement must be vetted by the originating country or something like that before the funds over a certain amount can be used to purchase real property in Canada. 

The tax code will never be extremely simple because it would have to cover all of these situation clearly.

But to the original topic. I think to both expect inflation to be controlled or prevented but also for the Fed to have a simple solution is just not possible if we want to keep the other liberties and structures of the USA intact. IT will be complicated and it will sometimes get out of hand in any direction, like the traction circle of a race cars we will exceed the boundaries to learn the boundaries and take action to manage the loss of traction. 

GameboyRMH said:

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

I'll jump in only to say, it might be a lower percentage of income, but it is a lot of money that gets spent. If I spend $150,000 on a vacation, but have the income to justify it, and you spend $3500 on a vacation, somehow my $3,000 is not enough vs your $70 (assuming frenchys 2% rule)?

tuna55 said:

RX Reven' said:

In reply to 93EXCivic :

In other words, the best remedy for inflation is inflation.

I mean...

https://www.cnet.com/personal-finance/taxes/california-inflation-relief-payments-who-is-eligible-when-checks-will-go-out/

Isn't that exactly what they are doing in Cali? It's insane.

BUT... NOBEL PRIZE-WINNING ECONOMISTS!

Back on the "most of this inflation is really just corporate price-gouging" front, my dad's company is now flying into a panic because a shipper just spontaneously quadroupled shipping costs between Florida and the Caribbean. It's not the 1~2 order of magnitude increase trans-pacific shipping has seen, but it's still bad.

Duke said:

tuna55 said:

RX Reven' said:

In reply to 93EXCivic :

In other words, the best remedy for inflation is inflation.

I mean...

https://www.cnet.com/personal-finance/taxes/california-inflation-relief-payments-who-is-eligible-when-checks-will-go-out/

Isn't that exactly what they are doing in Cali? It's insane.

BUT... NOBEL PRIZE-WINNING ECONOMISTS!

California lifer here and...

I think this going to hurt more for a while.  Back in the early 80's the main thing the Fed did to  "fine tune" the economy was adjusting interest rates.  IIRC, fed rates were high enough to drive savings account rates high enough to be much better at keeping up with inflation.

Nowadays, with inflation being redefined (hedonic substitution, anyone?), the Fed buying bonds like crazy, and keeping interest rates low for as long as possible, in order to keep the party going, it's impossible to keep up with inflation with savings, or even bonds, so everyone has to invest in the stock market (or hopefully appreciating assets like real estate) in order to just stay even.  And the Fed has run out of other levers to pull, so interest rates are it, unless they come up with some new "innovation".

However, since supply chains are still screwed, there is pretty much nothing the Fed can do about that, except try to reduce demand.

Poof, I am in charge of the fed. (Joe, if you are reading this, do not actually nominate me as chairman)

The fed is intended, among other things, to be the lender of last resort. For that to happen, interest rates as a policy knob must be able to turn in both directions. Once I get the rates to a place, assuming it's still possible, to keep inflation from growing and also keep away a recession, then stop. Then I institute two new policies.

1: When growth has been seen on [metrics] for [duration] interest rates go up by 25 basis points during the next quarter automatically.

2: If the fed ever feels lead to drop rates below 2%, trigger congress and the executive to act immediately to avoid a recession.

I am not deeply steeped in federal reserve policy, nor am I completely in favor of the idea of a federal reserve bank. The federal reserve is not intended to make the economy run, they are to, in the immortal words of the vaunted economist Waylon Jennings "Flatten the hills and straighten the curves".

Advan046 said:

frenchyd said:

GameboyRMH said:

frenchyd said:

      The rich would pay the most  because they would buy the most.  They would want to buy the most because they would buy things like stocks, bonds, companies, luxuries.    

There is a misconception here which is the fatal flaw in your plan. The rich actually spend the least as a percentage of their income, and have the easiest time spending (and keeping) money outside of their home jurisdiction.

You do bring up a interesting subject I hadn't given proper amount of thought.  
 How do we deal with out of country spending?  
      If it occurs in the US it's easy to write the laws to catch that.  And if they extract it from a US account the process would be similar. 
    But what about the Uber rich who keep various foreign accounts to Evade  American taxes ?   
 Right now they are getting away with it.  I can't think of any way to prevent it off the top of my head.  

Nothing stops the USA from setting up financial costs for foreign spending in the USA. Just will and effort to plan it right. The idea is that any acquisition of anything CAN be subject to VAT or tarriff or fee. I think the core debate should be mostly revolving around the social goals the country wants to encourage and to close any loopholes.

Home ownership is encouraged by several tax related deductions/credits at Fed and State levels. Yes there are other incentives but we are talking taxes etc right now. So do we want to support just one primary residence and what mortgage value limit? My older daughter asked me once why do people get to buy up all the houses and rent them? In her mind that just inflates prices and prevents someone like her from having a chance to buy houses. So maybe we should shift the taxation rules to result in higher costs to buy rental properties to encourage the right societal behaviors. In Detroit area, in the 2005-2009 years(may have been longer just my knowledge of timeframe) Chinese investors were buying up any home on a gamble that those areas would be gentrified. It got so bad that the local news reported that organizations that help lower income people buy homes were getting locked out of any home buying and had to steer people to renting longer. Just a localized view of a very specific issue but if a foreign person or business buys a house in the USA what should be paid to the USA for the USA to support its own citizens in obtaining a home? But then if, as does happen these days, a family flew to the USA specifically to have their child on USA soil so that they are a citizen. Then once they turned 18, that child is now the legal owner of all parts of that family's business in the USA. So now a USA citizen is spending millions of foreign generated wealth in the USA. Fair? maybe yes maybe no. But definitely legal. They are trying to manage this in Canada now by requiring banks to document the generating source of funds for more reasons that just sanctioned countries and people. I don't know the details but I think civil rights abuses and embezzlement must be vetted by the originating country or something like that before the funds over a certain amount can be used to purchase real property in Canada. 

The tax code will never be extremely simple because it would have to cover all of these situation clearly.

But to the original topic. I think to both expect inflation to be controlled or prevented but also for the Fed to have a simple solution is just not possible if we want to keep the other liberties and structures of the USA intact. IT will be complicated and it will sometimes get out of hand in any direction, like the traction circle of a race cars we will exceed the boundaries to learn the boundaries and take action to manage the loss of traction. 

I'm going to jump right into the middle of your response.  
 Your daughter can't buy a house because wages haven't kept up with inflation for well over 40 years. The fundamentals Food, clothing, shelter  are suffering for Americans.  
       China which is approximately the size of America.  But has 1 billion 400 million people to our mere 330 million.  On top of that roughly 2/3 of China is not live able.   ( background ). 
      In China people don't own the land. the government does.   They " buy"  an apartment for many times what a similar Condo would sell in America for  but only have a 70 year lease.   
    A typical suburban home with a yard is a rare treat in China.  Uber expensive.   
     Instead they are  buying land here in America which they think is insanely cheap.  Chinese think longer term than Americans.   Short term is 20 years, long term is a couple of generations or more.  
 So the Chinese see American property as a steal.  Oh, the name of the corporation may sound American  but follow the principles.  
      Japanese too see American  property as a good investment. As do many Europeans if they can get over their fear of our gun violence. 
    In summation, your daughter is bidding against much of world.  A world who has not remained in wages of the 1970's. 

tuna55 said:

RX Reven' said:

In reply to 93EXCivic :

In other words, the best remedy for inflation is inflation.

I mean...

https://www.cnet.com/personal-finance/taxes/california-inflation-relief-payments-who-is-eligible-when-checks-will-go-out/

 

Isn't that exactly what they are doing in Cali? It's insane.

It was my understanding that California collected a lot more in taxes than they had budgeted for the year, so they were giving it back to the people. It may not help the inflation problem but I dont see that as a bad thing over all.

In reply to gearheadmb :

Minnesota is doing the same but not with that name. Mostly giving it to covid frontline workers. 

They give $750 to some front line workers but there are income limits which I was above.  As would be most teachers, medical staff, policemen, etc 

In reply to frenchyd :

I googled what the annual sale of stock amounts to. 
 It's $23,192,148,690,000 so .02 would be annual tax income of $463842972000That was in 2019 the last year I could find. So it might be a bit higher by now.  Roughly 46 billion. Just from stock.  
    I'm trying to figure out the total value of purchased items.    Food, clothing, real Estate sold in a year. If it's GDP  it's 20.49 trillion and .02  would be $4 trillion plus  

      Total revenue for the US in 2021 is3.863 trillion   So over 4 trillion would  not only meet needs but pay off some debt  

  Just .02 Federal VAT !     Instead of income tax   

In reply to frenchyd :

You realize we pay capital gains tax on stock now, right?

In reply to SV reX :

at the time of sale, yes.  he's talking about at time of purchase.

In reply to SV reX :

replace "me" with "Him"

frenchyd said:

In reply to frenchyd :

If it's GDP  it's 20.49 trillion and .02  would be $4 trillion plus  

Total revenue for the US in 2021 is 3.863 trillion   So over 4 trillion would  not only meet needs but pay off some debt

      

20.49 trillion times 0.02 equals 0.4098 trillion not 4.098 trillion.

I couldn't quickly find 2019 and 2020+ is obviously highly distorted due to COVID so 2018 taxes collected (trillions).

Fed:         3.33

State:     1.04

Local:    0.44

Total:    4.81