Since higher tax rates on the Wealthy encourage tax avoidance ?

[light200763]

Since higher tax rates on the Wealthy encourage tax avoidance would'nt a Flat Tax be more Progressive in a way since the Wealthy would have more of a reason to want to pay taxes with a lower tax rate should'nt Democrats/Liberals be happy with this ?

April 1996
The Reagan Tax Cuts: Lessons for Tax Reform

http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm

[Philhelm]

No, but eliminating income tax and having a sales tax (if they must) would be progressive, and much more moral.

[Warrior_of_Freedom]

taxes are so ridiculous I have no motivation to work in the taxable bracket

[Zippyjuan]

After Reagan saw the impact those tax cuts were having on the deficit (it was growing more rapidly) he did reverse his position on taxes and signed more tax increase bills. Part of the increases came from reducing deductions (and thus expanding the tax base). Tax deductions mostly benefit those with lots of money since they are more able to take advantage of them. In the end, many of the higher end income households wound up paying more- not less- in taxes due to Reagan.

http://money.cnn.com/2010/09/08/news/economy/reagan_years_taxes/index.htm

After Reagan's first year in office, the annual deficit was 2.6% of gross domestic product. But it hit a high of 6% in 1983, stayed in the 5% range for the next three years, and fell to 3.1% by 1988. (By comparison, this year it's projected to be 9% but is expected to drop considerably thereafter.)

So, despite his public opposition to higher taxes, Reagan ended up signing off on several measures intended to raise more revenue.

"Reagan was certainly a tax cutter legislatively, emotionally and ideologically. But for a variety of political reasons, it was hard for him to ignore the cost of his tax cuts," said tax historian Joseph Thorndike.

Two bills passed in 1982 and 1984 together "constituted the biggest tax increase ever enacted during peacetime," Thorndike said.

The bills didn't raise more revenue by hiking individual income tax rates though. Instead they did it largely through making it tougher to evade taxes, and through "base broadening" -- that is, reducing various federal tax breaks and closing tax loopholes.

For instance, more asset sales became taxable and tax-advantaged contributions and benefits under pension plans were further limited.

"What people forget about Ronald Reagan was that he very much converted to base broadening as a means of reducing deficits and as a means of tax reform," said Eugene Steuerle, an Institute Fellow at the Urban Institute who had helped lay the groundwork for tax reform in 1986 and served as a deputy assistant Treasury secretary during Reagan's second term.

There were other notable tax increases under Reagan.

In 1983, for example, he signed off on Social Security reform legislation that, among other things, accelerated an increase in the payroll tax rate, required that higher-income beneficiaries pay income tax on part of their benefits, and required the self-employed to pay the full payroll tax rate, rather than just the portion normally paid by employees.

The tax reform of 1986, meanwhile, wasn't designed to increase federal tax revenue. But that didn't mean that no one's taxes went up. Because the reform bill eliminated or reduced many tax breaks and shelters, high-income tax filers who previously paid little ended up with bigger tax bills.



These laws made it harder to evade taxes. It was not that lower rates encouraged more "participation".

[Brian4Liberty]

A simple, lower, flatter tax should be preferable to the middle and lower classes. Guess what, those groups do not make the rules.

[Zippyjuan]

No, but eliminating income tax and having a sales tax (if they must) would be progressive, and much more moral.
A sales tax would mean tax increases for most people. Fortysix percent of taxpayers end up owing no federal taxes presently http://www.huffingtonpost.com/2011/06/28/46-percent-of-americans-e_n_886293.html and would have to pay them with a national sales tax.

Retail sales, according to this St Louis Fed chart, http://research.stlouisfed.org/fred2/series/RSXFS run about $350 billion a month which would translate to $4.2 trillion a year. If you wanted to replace the current revenue from the income tax (about $1.3 trillion http://en.wikipedia.org/wiki/2009_United_States_federal_budget ) you would need a national sales tax of 30%. This includes food items.

Since people at lower incomes spend a larger portion of their income on goods than those at higher incomes, they would end up paying a higher total tax rate on total income than those at higher incomes which would make a sales tax a regressive one. This also assumes you get rid of all tax deductions- which also favor the rich more.