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Monday, December 22, 2008

Flat tax proposals - Is this a proper rejoinder?

The next time you encounter someone advocating "a flat tax" a response is, "I will go along with a flat tax on your shareholdings, business capital, bond holdings, and bank accounts as long as you leave alone the graduated tax upon income and renounce the idea that capital gains income differs somehow from what's gained by the sweat of labor." After all, real property taxes are flat taxes, and are taxes on accumulated wealth, so why not likewise tax other accumulations of wealth; with tangible and intangible wealth treated alike? It would be a consistent system. Taxing real estate but not shareholdings seems to draw an artificial distinction, or am I wrong. Especially apart from the family home, rental real estate is taxed while bond portfolios are not. Each is held for the income stream it produces. They tax the income from a patent but not the patent itself. Is it only a question of ease of valuation, or is more at play? Taxing income from a blast furnace is done, but there is some offset allowed for "depreciation" of the blast furnace. As you age, your ability to labor lessens; so shouldn't a laborer depreciate his days on earth, limited just as is the useful age of the blast furnace? You tell me the answer. I only pose the question. An aging working person is as tangible as a working blast furnace, and blast furnace depreciation is not individualized but on some scheduled useful lifetime basis, just as life expectancy is a projected average. But intangibility, such as a book copyright is separate from and more hypothetical than the working person, the working blast furnace.