The truth about the Flat Tax

October 26, 2011
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We’ve heard a lot about flat taxes lately, with the GOP race heating up. The flat tax, in principle, sounds fair. After all, if we are all taxed at say, 10%, each would have a proportion equal to their income, right?

Let’s look at an example. We’ll use nice, round numbers to keep things easy to digest and assume the chosen income tax rate is 10%. The following is the breakdown for what you’d expect to pay at different income levels:

 

Basic flat tax example
Figure 1: Basic flat tax example

Pretty simple and fair, right? Maybe, but it isn’t quite that simple.

Flat taxes are based on standard income. In general, investment income is often taxed at lower rates than regular income, provided it is considered to be a qualified dividend. A qualified dividend, simplified, is a payout from an investment that is considered to be a long term investment. This lower rate varies but is typically lower than the income tax rate and is one of the reasons why some extremely wealthy Americans are able to pay lower tax rates than their less wealthy counterparts.

Most of the wealthiest Americans are company owners and heavy investors, which gives them the opportunity to choose how to route their income. For example, as a business owner, I can choose to pay myself a small salary but pay very high annual dividends, thus diverting the majority of my income to qualified dividends, which are generally taxed at a lower rate.

How’s this work? Let’s use another very simple example to illustrate. Let’s assume now that qualified dividends are taxed at a 5% interest rate and all other aspects of the prior example remain true, with the exception that the top two earners in our scenario have shifted where their revenue derives from in order to minimize taxes owed:

 

Example using dividend income.
Figure 2: Example using dividend income.

It is important to note that paying a lower tax rate doesn’t mean paying less taxes. As we see in the example above, wealthier individuals still pay more in gross taxes, however their proportion of income paid in taxes is a much lower percentage than their less wealthy counterparts, which is what Warren Buffet pointed out recently.

In short, the tax code is very complex. By diverting funds through different investment and holding strategies, accountants are able to reduce, and sometimes eliminate, taxes all together.

A flat tax could work. However, what most flat tax plans fail to account for is where the majority of income comes from. If 90% of the revenue individuals receive come from dividends, it would make sense to tax that revenue as income, not as investment payouts. But still, it isn’t that simple – for example, how should retirees that have no income except from dividends be taxed? Would it make a difference if these retirees have annual dividend payouts of only $30,000? What if their annual payout was $3,000,000? It isn’t cut and dry.

Regardless of your political orientation, don’t take any political plans at face value. When you hear a 30 second clip on the news or read 2 paragraphs you don’t have enough information to fully understand a complex and well planned change to a very complex institution.

Don’t support policies blindly. Research and understand what you are supporting.


Play Fridge Plans

January 3, 2011
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For Christmas we were looking at a refrigerator to go with our kids’ play stove/microwave/sink combo. We looked around a bit and kept finding that they were way more expensive than they needed to be and would still take some work to get them to match the set we have.

So my wife started looking around and came across http://ana-white.com/, which had plans for a pretty simple play fridge. The one she had was a little bit too small and didn’t quite match what we have already, but seeing the plans made me realize how easy it was to put together a simple set of plans that did match what we have.

So I drew up some plans, which are available from the link below. The fridge turned out great. It matches the existing set in size, color, and style. The kids love it. The total cost was around $50 but would have been even less had I not gone to a home store for all my lumber.

Here are some pics (click for full sized image):

You can download the step by step plans here:
Play Fridge Plans

If you found these plans useful, please consider making a small donation. The ad revenue for this site doesn’t quite cover rent.


Web based drawing canvas (no HTML5)

November 9, 2010
6 Comments

I have a need for a web based drawing tool, much like Microsoft Paint – just a simple canvas that allows me to draw on it. I’ve searched around a bit and have found that the majority of the tools are Flash based and the ones that are not are lacking in one way or another.

So I decided to create a simple, purely web based drawing tool. This works in all browsers and even works on my iPad (although I have to click each square to form the drawing on the iPad since dragging simply moves the screen). The canvas, with a drawing, is shown in Figure 1.

It uses some simple JavaScript and CSS to achieve the effect. The grid lines, border, and cell size are all controlled by CSS. Just click or click and drag to draw. Do the same while holding down the SHIFT key to erase (draw in alternate color). I chose to use the SHIFT key combination for color 2 to avoid conflict with context menus when right clicking and OS specific uses for ALT and CTRL.


Figure 1: Picture of a drawing done on “Canvas” (demo link below).

Everything is encapsulated inside the Canvas object, so it is really easy to use. All you need is a DIV, a little bit of CSS, and the couple lines of JavaScript below.

Here’s how to use it:

// Creates the canvas - just make sure you have a DIV with an id of "drawingArea"
// The last parameter of false allows editing - set to true for read only
// Note that these are squares - actual square size is set via CSS
var myCanvas = new Canvas("drawingArea", 60, 40, false);

// This will change the drawing colors
myCanvas.setFillColor("#CCCCCC"); // #000 by default
myCanvas.setEraseColor("#555555"); // #FFF by default

// This will resize the canvas, preserving what portions of the drawing it can
myCanvas.resize(100, 10); // 100 wide by 10 high

// This will save the contents of the canvas down to a JSON string
var myData = myCanvas.save();

// This will load a drawing from a JSON string
myCanvas.load(myData);

You can view a working demo here.

You can find the JS file here:
http://www.mcdonaldland.info/files/canvas/canvas.js

Note that you’ll also need the JSON2 JS file as well:
http://www.mcdonaldland.info/files/canvas/json2.js

An improvement idea:
When mouse moves fast, lines have gaps in them. It would be pretty easy to write an algorithm that figures out empty squares between two points and fills them in. Alternatively, it wouldn’t be too difficult to handle this without tables by tracking the mouse location within the DIV then drawing points/lines.

Feel free to use this as you see fit. I just ask that you:

  1. Leave the copyright information at the top of the JS file in place.
  2. Don’t sell the code or any product that has this code as the core feature without my consent.

Enjoy!