News cast this AM mischaracterized market reaction

Paraphrasing…”The stock market has fallen over 400 points in the last two days over fears of government gridlock and the impending fiscal cliff.”

The impending fiscal cliff was impending last week, Monday, Tuesday…what happened between Tuesday and Wednesday?

All polls and expectations were that Democrats would retain control of the Senate and Republicans would retain control of the House, which is exactly what happened. So status quo. The iffy element was the Presidential race, which was nearly a toss-up heading into election day.

If there is to be gridlock, it would be with Pres. Obama and the sitting Congress, especially with respect to the impending fiscal cliff:

• The Obama (née  Bush) tax cuts expire Dec 31 unless something is done by Pres Obama and the sitting Congress. The election has changed nothing about that situation.
• The Obama payroll tax cut expires at the same time, again unless something is done by Pres Obama and the sitting Congress. And again, the election has changed nothing about that situation.
• Many of the Obamacare taxes take effect on 1 Jan 2013, once again unless something is done by Pres Obama and the sitting Congress. And once again, the election has changed nothing about that situation.  
• Finally, because Pres Obama and the sitting Congress failed to enact the requisite $1.2 in spending cuts required by the debt limit legislation, Pres. Obama and the sitting Congress will face the automatic spending cuts to defense, Medicare, and many other spending programs. Those cuts take effect 15 Jan 2013, before the new Congress is sworn in, so yet again, the election has changed nothing about the situation.

It seems to me that the only thing that has changed is that before the election, there was a good chance that Pres. Obama would lose. Wednesday morning, he has won his re-election and cemented in four more years of his administration. Surely this is what the market is reacting to, not some fear of government gridlock?

Venezuelan Voters not Deterred by "Undue Burden"

A growing number of states have passed voter ID laws requiring voters to present a state-accepted form of identification. In each an every case, Democrats have challenged the laws and in almost every case have lost those challenges--the recent stay in the Pennsylvania case is one "victory" for the left, albeit a minor one as the law will go into full effect following the upcoming elections.

These laws are meant to prevent voter fraud of several kinds. The least important of these is so-called "in-person voter fraud" or "voter impersonation". More important, however, is the ability to filter out illegal immigrants from voting as well as citizens who's residence (per their ID) conflicts with the voter registration indicating that they should be voting in another district or even another state.

Democrats' primary response to these laws is a cry of racism. For some reason "people of color" are purportedly more likely to be impacted, because they are poor, uneducated, and more likely not to have a driver's license. It's never been clear to me how poor, uneducated white people are not going to be impacted equally, but maybe they all have driver's licenses?

Bear in mind that, recognizing that not all citizens possess current and valid forms of ID, states passing these laws have a number of provisions for free IDs, so there is no "poll tax" implication. Also, anyone who still has not managed to obtain an ID before Election Day can still cast a provisional ballot, which effectively gives them more time to get ID or simply swear an affidavit.

With all of the public discussion, with all of the free IDs available, it seems to me that the problem here is that some people simply cannot be bothered to make the slightest effort to ensure their vote will be counted.

The Supreme Court has rejected the arguments regarding undue burden:

There is no question about the legitimacy or importance of the State's interest in counting only the votes of eligible voters. Moreover, the interest in orderly administration and accurate recordkeeping provides a sufficient justification for carefully identifying all voters participating in the election process.

For most voters who need them, the inconvenience of making a trip to the [Indiana] BMV, gathering the required documents, and posing for a photograph surely does not qualify as a substantial burden on the right to vote, or even represent a significant increase over the usual burdens of voting.

And yet, the fight continues state-by-state, with Democrats making the same tired--and rejected by the Supreme Court--arguments.

I say all of the above so that the following offering of a counterpoint is more stark.

Recently Venezuela held an election, an election that is widely considered to be rigged to favor the current President-cum-dictator-for-life Hugo Chavez. Elections in Venezuela allow expatriots to vote, by appearing in person at a Venezuelan consulate.

There are some 20,000 U.S.-based Venezuelans, many who left their home country to escape the predations of the Chavez government, living in the Southeast. Earlier this year, the consulate in Miami was closed after the US State Department expelled the consul after she was implicated in an Iranian plot for a cyber-attack against the U.S.

Voters only recourse was to make a trip to New Orleans, the next closest consulate.

Thousands of U.S.-based Venezuelans flocked to New Orleans by bus, car and airplane to vote.

Venezuelans around the world also came out to vote en masse: An anti-Chavez Venezuelan television station showed people traveling to a consulate in Germany to vote, and others voting in Panama.

Sequera said the closure did not deter the thousands who turned out, chanting "Venezuela" and waving their nation's flags from cars. A street party unfolded as voters left the convention center, where votes were cast because New Orleans' consulate couldn't handle the crowds. Vendors sold food and drinks to the cheering crowd.

"We're tired of the situation at home, and we've come together to make a stand for change," he said.

Alexandra Viamonte...moved to the Florida at age 17 because she saw few opportunities for higher education in Venezuela. So she moved in with an aunt while studying English and medical technology. She married a man originally from Cuba, and together they have five children. However, most of her extended family remains in Venezuela, and she fears their fate if Chavez wins another term.

Chavez, however, underestimated the resolve of voters in the U.S.

"He thought that we wouldn't drive almost 900 miles to vote, but he was wrong," she said. "We have the opposition we needed."

[http://www.chron.com/news/article/Venezuelans-to-vote-for-president-in-Louisiana-3926136.php]

As expected, Chavez has "won" the election, but I was encouraged by the attitude of these people who had to make a very long trip to cast a vote in a rigged election, especially when compared to people who would rather complain, cry racism, and file suit than make a trip to the local DMV for a free ID.

Obama Ad: Simply False

An Obama ad running now belies logic…

“But chances are you pay a higher tax rate than him.”
“Mitt Romney made twenty million dollars in two thousand ten but paid only fourteen percent in taxes…probably less than you.”

The implication here is that the viewer of this commercial is *likely* to pay more than 14% in federal income taxes. On some forums, I'd have to explain the difference between "chances are" vs "there's a chance" as well as "probably" vs "perhaps" (not to mention the difference between "imply" vs "infer"), but I think most people understand the distinctions.

Knowing something about the distribution of taxes, I was incredulous. So I hopped onto the IRS website to check the most recent data (2009). According to the IRS, the average effective tax rate paid by the lower 99% of the nearly 140 million tax returns was only 8.43%.

But funny things happen to number when you average in cumulative blocks like that. For example, if there are ten people in a room, where nine have $1 in their pocket and one has $100, it is accurate but uninformative to say that the average is $10.90. So I checked the CBO site too.

The CBO reports the data differently than the IRS, breaking down tax returns by income quintiles (and a few sub groups). According to the CBO, the lower four quintiles have effective income tax rates of -6.6%, -0.8%, 3.0% and 6.0%, respectively. That is, 80% of all tax returns have effective tax rates below 6%. According to the CBO data, you'd need to be in the top 10% by income before your effective tax rate hits 15%.

It seems to me that the odds of a viewer of that ad paying more than Romney's 14% is about 1 in 10 or thereabouts--hardly rising to the level of "chances are" or “probably” when comparing Romney’s 14% effective rate to the effective rates of the a random person watching the ad.

If you think what Romney paid was too little, argue that point. But stop making false statements.

My family's effective income tax rate last year was 21.36%. That's about 5% higher than the Obama's tax rate, and we made less than half of what the Obama's reported. It would be wrong for me to put out an ad saying "Chances are you paid a higher rate than Pres. Obama." even if it happened to be true for me.

Food stamps vs Corporate Welfare

A common question lately has been juxtaposing the food stamp costs against the most recent Cato report on "corporate welfare" e.g., "$80 billion-a-year food stamp program or corporate welfare $100 billion a year?"

This is a false dichotomy, which frames the question as a an either/or issue, ignoring other alternatives. Of course, this is a common tactic of the logic-challenged.

I ask: "How about cutting or even eliminating both?"

I've long been on record here and elsewhere that I believe in the "beggars can't be choosers" school of thought. While I don't want anyone to starve, neither do I think that I should be required to effectively hand over cash so that the hungry can shop for whatever goodies they feel like--from roasted rabbit with butter, tarragon and sweet potatoes even up to fast-food! How about making food-stamp program a voucher for rice and beans and vitamins?

Then we can cut corporate welfare at the same time.

• According to that Cato report the single biggest item in the corporate welfare list is FHA mortgage subsidies at $15.739B. Cut 'em.
• Second largest is National Institute of Health, Applied R&D at $13.845B. Let big pharma do their own research. Cut it.
• Third biggest is Farm Services Agency, which as far as I can read their documentation is farm loans, at $11.863B. Cut 'em.
• "Energy supply and conservation" is another big one, at $9.834B. I can only guess at what they spend their money on, but I wouldn't be surprised to find Solyndra in that pile. Cut 'em.
• Advanced Technology Vehicles Manufacturing Loan Program, $4.834B. Call those loans, then cut the program.
• Foreign Military Financing, $5.2B. Cut it.
• Small Business Administration (loans programs as far as I can tell), $3.157B. Cut em.
• NASA, Applied R&D, $2.799B. Cut it.
• Broadband Technologies Opportunity Program, $2.227B. Cut it.
• High-speed rail, $1.251B. Cut it.

Below this you start getting into a few billion here and a few billion there. Cut it all!

Funny, though, there's no line item here "Shovel money into Wall Street coffers." I was convinced by liberals that this was the primary use of corporate welfare.

The FairTax is not regressive (part II)

A few years ago, when I first learned about the FairTax, I was curious about how ti compared to the current tax code, especially with respect to progressivity. So I did some spreadsheets...

In 2004, federal income taxes paid as percentage of income:

Group, Income Limit, Effective Tax Rate

Top 1%     >$328,049 23.49%

Top 5%     >$137,056 20.67%

Top 10%    >$99,112  18.60%

Top 25%    >$60,041  15.53%

Top 50%    >$30,122  13.51%

Bottom 50% <$30,122   2.97%

The 2005 US Poverty Line for family of 4: $19,350, so the FairTax prebate would be $4450.50.

Using those numbers, and adding a slots for very low income of $10,000 and a very high income of $1M, let's look at Fair-Tax, assuming all income is spent on Fair-Taxable stuff:

Spending 100% of income: (income, net FairTax paid, effective rate)

Income	FairTax	Effective
$10,000.00	-$2,150.50	-21.5%
$19,350.00	$0.00	0.0%
$30,122.00	$2,477.56	8.2%
$60,441.00	$9,450.93	15.6%
$99,112.00	$18,345.26	18.5%
$137,056.00	$27,072.38	19.8%
$328,049.00	$71,000.77	21.6%
$1,000,000.00	$225,549.50	22.6%

Clearly, the really poor had negative tax rate, because the prebate is based on poverty level income, so someone earning income below the poverty line will receive prebates that are larger than the taxes they actually paid. People exactly at poverty-line had 0% tax rate, as expected. The rich people who spend all their income pay a pretty high rate 22.6%, approaching the 23% limit as expected.

Jacking up savings, since saving (not spending money) is how to "manipulate" the FairTax. Note, savings rate is around 1% on average in US; experts recommend at least 10%.

Spending 99% of income, saving 1%:

Income	FairTax	Effective
$10,000.00	-$2,173.50	-21.7%
$19,350.00	-$44.51	-0.2%
$30,122.00	$2,408.28	8.0%
$60,441.00	$9,311.92	15.4%
$99,112.00	$18,117.30	18.3%
$137,056.00	$26,757.15	19.5%
$328,049.00	$70,246.26	21.4%
$1,000,000.00	$223,249.50	22.3%

Spending 95% of income, saving 5%:

Income	FairTax	Effective
$10,000.00	-$2,265.50	-22.7%
$19,350.00	-$222.53	-1.2%
$30,122.00	$2,131.16	7.1%
$60,441.00	$8,755.86	14.5%
$99,112.00	$17,205.47	17.4%
$137,056.00	$25,496.24	18.6%
$328,049.00	$67,228.21	20.5%
$1,000,000.00	$214,049.50	21.4%

 

Spending 90% of income, saving 10%:

Income	FairTax	Effective
$10,000.00	-$2,380.50	-23.8%
$19,350.00	-$445.05	-2.3%
$30,122.00	$1,784.75	5.9%
$60,441.00	$8,060.79	13.3%
$99,112.00	$16,065.68	16.2%
$137,056.00	$23,920.09	17.5%
$328,049.00	$63,455.64	19.3%
$1,000,000.00	$202,549.50	20.3%

Spending 75% of income, saving 25%:

Income	FairTax	Effective
$10,000.00	-$2,725.50	-27.3%
$19,350.00	-$1,112.63	-5.8%
$30,122.00	$745.55	2.5%
$60,441.00	$5,975.57	9.9%
$99,112.00	$12,646.32	12.8%
$137,056.00	$19,191.66	14.0%
$328,049.00	$52,137.95	15.9%
$1,000,000.00	$168,049.50	16.8%

If people actually saved at this rate, Social Security would not be necessary...

At 10% savings rate, the poverty-line family would put away $2380 annually (10% of $19350 is $1935), plus get $445 in excess prebates due to their frugality, so it's almost as if they saved $2000 and the government (other taxpayers) "matched" them $500. If they invested that $2380 annually at 5% each year for 40 years, they'd accrue $302,655. They could then withdraw more than $15000 each year almost indefinitely, assuming the remaining principle continues to earn 5%.

The FairTax is not regressive (Part I)

An oft-heard claim about the FairTax is that it is regressive. I do not believe this is the case, human nature being what it is. For most people it is true that the more they make, the more they spend. The structure of the FairTax is such that if this is true, then the FairTax is a progressive tax.

Fair-tax.org: A regressive tax is one where the rate of tax decreases as the ability to pay increases.

Wikiepedia: A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

These definitions seem to agree.

The Fair-Tax is not regressive. Overall, the FT is progressive, in that it is designed so that as income increases so does the effective tax rate, asymptotically approaching 23% as income increase, by assuming that annual spending is proportional to annual income (setting aside Bill Gates $1 income against billions of dollars of liquid assets in his net worth).

Yes, that is an assumption, but it is an assumption that is true for the vast majority of people, including high-income people. If that assumption is violated by an individual--a high-income miser--then in that case that individual can create an instance of a "regressive" case where that individual has managed to pay less, as a percentage of income, than normal lower-income taxpayers.

But that no more makes the FT regressive than does someone who legally structures their income and assets such that they avoid paying income taxes makes the current federal income tax regressive. That is, the income tax structure we have assumes that higher incomes (wages, rents, royalties and capital gains) will result in higher income taxes, but it is possible to have high income and pay little in the way of taxes,  for example by investing heavily in AMT-bypassing municipal bonds.

One recent IRS report counted 2,680 filers with incomes of $200,000 or more claiming they owed no taxes at all, up from just 85 in 1977. Those people do not make the current progressive--by presumption and design--Federal income tax regressive. Nor would high-percentage savers (i.e., people exercising avoidance of the Fair-Tax!) make the progressive--by presumption and design--Fair-Tax regressive.

However, we are unlikely to see people making $100,000 or $1M or more *not* spending money in proportion to their income (wealth). Consider this article ("DISENTANGLING THE WEALTH EFFECT:
A COHORT ANALYSIS OF HOUSEHOLD SAVING IN THE 1990s"), which is quite dense, but the charts and graphs at the end indicate that not only is America's savings rate (the difference between what is earned vs what is spent) very low across the board, it is *lowest* at higher income levels. 

In the U.S., household net worth rose substantially in the latter half of the 1990s and the personal saving rate decreased rapidly. Researchers have not reached a consensus about just how these two events are linked, or how to interpret the negative correlation between wealth and the saving rate over a longer time span. The movements in net worth and the saving rate are consistent with a direct view of the wealth effect, in which an increase in wealth directly causes households to increase their consumption and decrease their saving.

Previous macroeconomic research indicates that the aggregate data on consumption, income, and wealth are consistent with a significant and direct effect of wealth on consumption, whereby consumer spending eventually rises on the order of 3 to 5 cents for every extra dollar of wealth that is recognized by households and sustained over a period of time.

We show that the groups of families whose portfolios were boosted the most by the exceptional stock market performance over the latter half of the 1990s are the same groups whose net saving flows fell the sharpest from 1995 through 2000.

In addition, our study verifies that essentially all of the increased spending apparent in the aggregate data can be attributed to an increase in the propensity to consume out of income undertaken by the richest households in the U.S.

So, it seems that for higher-income, wealthier individuals, once they reach a certain level and have their nest egg--that's when they go out and buy yachts and Rolls Royces.

It therefore seems that the underlying assumption for the progressiveness of the FairTax is well-founded.

Also, note that FT would do away with several highly regressive taxes: the current Social Security/Medicare payroll deduction system is a very regressive tax, placing a heavy burden on low/middle-income taxpayers and a similar burden on the self-employed.

Exploring something else about regressive taxes: The regressivity of a particular tax often depends on the propensity of the tax payers to engage in the taxed activity relative to their income. In other words, if the activity being taxed is one more likely to be carried out by the poor and less likely to be carried out by the rich, then the tax is regressive.

Since the Fair-Tax is designed to tax the act of spending money on goods and services above the minimum requirements for adequate survival--the poverty line--which is an action that is, by definition, only carried out by the more well-off. That is, the poor, by definition do not have money to spend on "luxuries"; but under the FairTax, those same poor people have a net tax rate of 0% (or less!).

It certainly also seems that people who have more money, are also likelier to have a "propensity...to engage in the taxed activity relative to their income".

Public Citizen, Citzens United

Recall that the Citizens United case hinged on the fact that a 501(c)(4) corporation produced a movie that had a political purpose, in this case a documentary "Hillary: The Movie" that was intended to highlight Mrs. Clinton's shortcomings at a time when she was running for president.

I subscribe to some liberal sites, and as a result get regular emails from them. I recently received an email from PublicCitizen.org. Now, PublicCitizen.org is also a 501(c)(4), who's primary purpose lately seems to be opposing the ruling handed down in the Citizens United case.

The email from Public Citizen was urging me to donate money to support their production of a documentary that highlights how bad the Supreme Court's decision in Citizens United was.

That's right: a 501(c)(4) corporation made a movie with the express political purpose of protesting the Supreme Court decision that a 501(c)(4) corporation could make a movie with an express political purpose!

Quote from the email "Support Public Citizen’s fight against runaway corporate power with a contribution of $40 or more today and get your own copy of “The Story of Citizens United” on DVD."

As for the notion of "runaway corporate power" it doesn't exist (yet?). We've seen in the spending profiles at OpenSecrets.org that corporate spending comes in way behind unions in that regard.

19, pregnant, and illegal?

[I failed to publish this draft blog entry last summer. Oops.]

In the AJC this morning (Thursday, June 16, 2011) was an essay (http://www.ajc.com/opinion/some-immigration-reform-legally-979256.html) by a pastor, Steve deClaissé-Walford, who was concerned that the growing animus directed toward illegal aliens is sometimes misdirected. He cites the case of Nati (as the author calls her), an illegal alien who was brought here by her parents 12 years ago. Nati is now 19, pregnant, and facing deportation.

According to the pastor, we are supposed to feel sorry for Nati and set aside the law. His reasoning, as near as I can tell, is that she should be allowed to stay in this country because she had no choice in coming here, has been here for 12 years and legally attended school here. And did I mention: pregnant?

Pastor  deClaissé-Walford tries hard to paint a specific picture of Nati specifically and young illegals in general:

Overnight, they go from being carefree teenagers to people haunted by the ever-present specter of arrest and deportation. What is a young person in this situation supposed to do? Do they “out” themselves with the likely consequence of forced repatriation to a culture they know little or nothing about, a country that speaks a language with which they may be totally unfamiliar? Or do they keep the secret, in constant fear of being discovered, living ever after in the shadow of the threat that the very fabric of their lives may be destroyed through one false move?

Call me cynical, and I am, but let me cast a different light on poor Nati’s situation.

Nati was caught for a traffic violation (headlight issue) and "The next thing she knew, she was in jail.”  According to the article "She gave a false name, hoping to conceal her status." But going to jail is what usually happens to people who lie to police--be they an illegal alien or citizen. Lying to police was simply the penultimate charge against her, as she was also driving without a license and had the original traffic violation.

As a part of immigration law, under section 287(g), local law enforcement soon determined that she was an illegal alien and turned her over to federal authorities.

Despite the pastor's attempt to portray Nati as a scared, innocent young woman, there are several issues that belie that carefully crafted image. First, as the pastor does mention, is the fact that Nati is pregnant. That cynic in me is forced to wonder about that:

• is the pastor OK with the out-of-wedlock pregnancy? 
• is the father a citizen or is he also an illegal?
• is the pregnancy a deliberate attempt to create an "anchor baby"?
• is Nati (and the mysterious father) financially prepared to raise a child or will the child first breath be accompanied by government checks?

What the pastor fails to mention is that before her May 2011 arrest, young Nati had already had at least two other brushes with law enforcement before this episode. She was previously arrested on two separate occasions for shoplifting (May of 2010 and February of 2011). Those arrests were as an adult and a matter of public record, but it impossible to know if she was ever in trouble with the law as a juvenile. However it is clear that Nati is no angel.

It was wrong for Nati’s parents to decide to break a score of US, state, and local laws—many on a daily basis—in the dozen years they have eluded law enforcement in this country.It’s a shame that Nati has chosen to become pregnant, apparently out of wedlock. It’s a shame that Nati’s family was not located soon after their temporary visa expired, because clearly then none of this would have happened. Nati's "situation" is entirely one of her parent's making.

Another question in my mind is now that they've identified Nati as an illegal immigrant why have her parents not also been located and face deportation as well? Also, why was her status not determined in either of her previous arrests?

Problems with a "flat tax" on income

Whenever taxation is discussed, someone inevitably will posit "What we need is a 10% flat tax on all income, no exclusions, no deductions..." or a close facsimile of this statement.

More famous people like Steven Forbes and more recently Herman Cain, with his "999" plan,  have advocated some variation on this theme. My problem with Forbes-like "flat tax" and even Cain's 999 plan is that it does not eliminate the income tax compliance costs (and sheer invasiveness) for individuals or corporations nor does it effectively reduce the complexity of the tax code.

A “flat tax” sounds nice. All your income taxed at one flat rate. What could be simpler? But a flat tax simply removes the progressive structure (different rates for different income levels and/or types of income). This has two problems. First, much of the tax code exists simply to define what constitutes "income". Second, if anything is deductible, such as charitable donations, then much of the tax code will continue to be required to define exactly how this should work. Mountains of paperwork and 10s of thousands of pages of tax code will be involved in defining what is deductible, etc. just as it does today. Armies of accountants and attorneys and IRS agents will remain in place.

If you want to say "All income is taxable income" that's fine. But it probably won't work.  The current tax code recognizes that not every penny that lands in your pocket represents "income". For pretty good reasons, the tax code endeavors to distinguish between gross income, net income (adjusted gross income) and taxable income (AGI less deductions).

As an example, if every penny that lands in your hands is taxable, then when Grandma gives little Johnny a birthday card with $10 in it, Johnny must file a tax return and account for that $10, and Grandma may be required to file a correspond 1099MISC to document that she transferred monies to Johnny. Failure to do so on either party's part obviously is tax evasion and a clear failure to comply with the tax code. If this situation is undesirable, then exclusions must be written and further, the definition of “gift” must be codified so as to avoid certain abuses that would inevitably occur.

Now consider the nature of a gift exclusion that allows small amounts to be gifted without a need to report as income on the part of the recipient (or file a 1099MISC). First, how small is small? $10, $100, $1000, is that indexed to inflation? Can Grandma give $1000 *and* Grandpa give $1000 each? How often can a gift be given? Or is the limit a cumulative annual amount? If it's $10, then lots of people will have to file 1099 and cause way more work than it's worth. If it's $1000, a lot of people will start black-marketing "gifts": e.g. maybe I can convince my boss to "gift" me the maximum amount every year? Etc. Etc.

If I loaned $750 to someone, who paid me back $1000 (i.e. repay $750 and pay $250 in interest), the $1000 check is not all income to me right? Income in this case would be $250, the interest paid, the other $750 is simply returning my money.  What if I loaned my brother $5000, with a contract, interest payment and everything, then 5 years later decide that he doesn't have to pay it back? Is that a gift? Have I violated the gifting rules? Is that loan income to him? Is it a loss for me? Can I use it to offset other income? Etc. Etc.

What about a lottery winner, say $1000 on scratch off. Surely that's all income? But current tax law says that if he spent $750 buying tickets, the net gambling income is only $250. It cost $750 to "earn" $250. What if he won $1000 but lost $10,000? Current tax law says too bad on $9000, but he owes no tax on the $1000 winnings. Current tax law looks at your gambling income as if you were playing a long poker game: win or lose hands during the game, doesn't matter, what matters is what you have at the end of the game (tax year).

If my house burns down and the insurance company writes me a check for $100,000 is that income? What if the insurance pays more than I paid for the house? But what if it pays less than the house is worth?

More rules will be needed to clarify these situations too. That’s just defining “income”…and those are the easy examples.

If anything is deductible, say charitable donations, then another mountain of pages are required to spell out exactly how the deduction works, valuations to be used, etc. It’s easy enough to track cash donations (but current tax code has a lot of rules on those too, e.g. my donation to my alma mater is 80% deductible if I buy season football tickets, but 100% if I don’t). What is my deduction for used stuff given to Goodwill? Fiar market value? How is that determined? What valuation should be used for the Monet painting someone inherited from their grandfather’s estate when they donate it to a museum?

Think of the pages and pages of rules needed to define these elements, and the record-keeping needed to comply.

Unless you really mean a flat tax applies to all income regardless of source and nothing is deductible, then defining the various things that constitute gross income, net income, and taxable income will consume a large portion of the tax code and will continue to chew us up in compliance overhead. Futher even if you do mean all income, including Grandma's $10 gift to little Johnny bear in mind the thousands of 1099MISC forms that will need to be filed. The benefit of a “flat tax” in this situation is negligible.

Individuals spend more than 6 billion hours doing their personal taxes (at minimum wage that's more than $40B, at $25/hr that's $150B) resulting in about $2T in revenues. The corporate tax code is far, far worse. Corporations spend around $300B just complying with the corporate tax code, to generate approximately $300-500B in revenues.

A half-trillion dollars spent just figuring out how much taxes are owed? To collect about $2.5T?

For every $1 it takes in as tax revenue, the government forces the economy to produce $1.20 and produce reams of paperwork to track, report, and justify the taxes owed and paid. That's hugely, grossly inefficient, not to mention invasive and a huge drag on the productivity of the economy.

A "flat tax" does nothing (or virtually nothing) to correct this situation.