|Steve Forbes Likes Flat Tax|
Herman Cain has given us 9-9-9. This week sometime, Rick Perry is going to announce the details of his plan for a flat tax. He keeps nattering on about simplicity. He wants to “scrap the 3 million words of the tax code,” he snarls, to great harrumphs of approval.
We don’t yet have the details on Perry’s plan, but it will certainly be, because all flat-tax proposals are, a gussied-up way of stealing money from the working and middle classes and handing it to the rich. Why is all too straightforward. Have a look at this list of current marginal tax rates. You’ll see that rates change at various levels, which everyone knows, but what everyone forgets is that even if you make more, within any given income range, you pay that rate. If you make $100,000, you are in the 28 percent bracket, but you’re not paying 28 cents on every dollar you earned, which is what most media shorthand would lead you to believe. You’re paying in accordance with the rate scale in the above link, each chunk of salary taxed at the appropriate marginal rate.
This means that what a person actually pays can be hard to figure, but this calculator gets us most of the way there. A $50,000 earner (married filing separately, as all these examples will be) pays 17.25 percent. A $100,000 earner pays 22 percent. A $250,000 earner pays 29 percent. A $500,000 earner pays 32 percent. And a $1 million earner pays 33.5 percent. Remember—I told you I was celebrating complexity!—these dollar figures are taxable income, i.e., after deductions.
If, however, there were an 18 percent tax on income—most flat-tax proposals are in that range—everyone would pay, duh, 18 percent. According to the above calculator, the 18 percent rate is paid now by a person whose taxable income is $56,000. So under an 18 percent flat tax, everyone above $56,000 would be getting a tax cut. And obviously, the farther away from $56,000 you go, the larger, in real and percentage terms, your cut. And I hope the obverse has already occurred to you: yes, the lower earners would be in for sizable tax increases. For example, a $25,000 earner would go from paying 13.3 percent to the said 18 percent, which is a 35 percent increase, while our $1 million earner gets a 46 percent decrease. And Kim Kardashian, forget about it. She’d pay a fraction of her current rates.
And it’s hard to explain why progressivity in the tax code is good policy, but it is. Even if you reject the moral argument that Kardashian should give more back to society than a waitress, there is the very practical argument that a progressive income tax code makes up for other more regressive forms of taxation—the payroll tax and sales taxes, notably. The waitress pays payroll taxes on her entire income, while a $1 million earner pays it on just one tenth of his (roughly), and of course the waitress spends far more of her income on sales taxes. The income tax helps even these things out, as has long been understood.
If we were starting a country of a few hundred thousand people from scratch, with minimal income disparities and other equities that America doesn’t have (national health care), a flat tax might be OK. But in the real context of the United States, it is an obscene transfer of wealth. Rick Perry may be such a bubblehead that he doesn’t understand all this, but you can be sure that the people who sold him on the flat tax understand it.
Simplicity is for simpletons: a handy slogan for the ruling class that wants more of your money. Don’t be that simple.