Reply To: Rand Paul's Flat rate Tax?
Well, in theory, it’s a good idea, but I see a couple of problems. One, the market for houses and condos for sale will drop through the floor. Without the deduction for mortgage, most people considering a first home purchase will look at the costs of borrowing, the fact that one assumes the onus of repairs that are taken care of in rentals, and the lack of flexibility in mobility to outweigh the advantages of owning. As the value of real estate falls, the property taxes collected by states and municipalities will fall, as they did during the last crash, forcing these taxing bodies to raise taxes to the limits of whatever levies they are allowed, or cut education, roads, and other services that property taxes cover.
Two, it will hit the lower-income people hardest, even though in theory it is income neutral. Example: You are a $10 an hour worker. a 10% tax only takes $1 from you, but boy, that HURTS! Your are a $100 an hour worker, and a 10% tax takes $10 from you. Hurts a whole lot less. I have been, at different times in my life, both a $10 an hour worker and a $50 an hour worker. I didn’t notice expenses at $50 that hurt like heck at $10, but those expenses, like medical expenses, insurance on home and life, and transportation, did not change as my income changed.
I have other examples, but this is a long post even for me.