Tuesday, August 30, 2011

Flat Tax vs Fair Tax

Top Federal marginal income tax rate from 1913 to 2011
When everyone pays the same percentage tax it is
called flat. Sales taxes are flat. Federal income tax rates on wages are progressive - those with higher wages pay a higher percentage. Panderers everywhere demagogue the notion that a flat tax is fairer than a progressive tax. But is it?

Paying taxes is a pain. Shouldn’t a fair tax inflict a similar degree of pain on all? Low wage earners are more likely to spend their last dollar of income on necessities while high wage earners are likely to spend it on luxuries. Is it fair to tax income needed for essentials at the same rate as income going toward luxuries? Clearly flatter tax rates hit the less fortunate harder.

From 1932 to 1980 federal income tax rates were highly progressive (top rate 63% - 94%) and peacetime budget deficits were small. Then President Reagan cut taxes, made them less progressive (top rate now a relatively low 35%), and thus mainly benefited high income individuals. Deficits grew. The second President Bush doubled-down on Reaganomics with additional tax cuts. Deficits exploded. Eventually the economy tanked, homes and retirement accounts plummeted in value, unemployment spiked. The net result was trillions of dollars of wealth redistributed from the middle class to the already rich.

Those who conflate flat taxes with fair taxes are attempting to swindle the middle class. The unwary may confuse flat with fair, but since federal income tax rates have become flatter only the rich have faired well, while the middle class has been left behind. That isn't fair.

submit to reddit Share on Tumblr

No comments:

Post a Comment