| May 20, 2005 Flat Tax Folly by Kevin Morford, insurgent49 The right wing wish list includes many proposals for policy change that would harm ordinary working people. One of their perennial favorites is a change to a “flat tax” (as opposed to the current progressive tax) on income. Steve Forbes, heir to the Forbes Magazine fortune, has made this idea the primary focus of his repeated campaigns for president, and many other conservative leaders have also endorsed this proposal. If Steve Forbes reminds you of a snake oil salesman from the 19th century, it may be because he is selling an idea which is so bad that he and the other proponents of the flat tax have found it necessary to pitch it to the public by claiming it will provide an imaginary benefit which simply does not exist. The existing progressive income tax is based upon the idea that the lower your income is, the lower the percentage of your income that you should pay as a tax. The theory is that people with lower incomes need to keep more of their money just to pay for necessities such as food, shelter and health care, while people who make more money have more disposable income. Another part of the theory is that people with higher incomes receive a greater benefit from government services, which are paid for with the income tax, and so it is fair that they pay a higher percentage of their income as a tax. The proponents of the flat tax argue that everyone should pay the same percentage of their income as a tax. They want a person who earns $5,000 per year to pay the same percentage as a person who earns $50 million per year. One of the primary arguments they offer in support of this proposal is that it would allow you to file your income taxes on a form the size of a postcard. Steve Forbes has articulated this claim in presidential debates. Simpler and shorter tax forms are certainly an attractive idea, but the claim that a flat tax would let you do this is simply wrong. The forms for a flat tax would not be any shorter than the existing forms for the progressive income tax. There are two steps necessary to calculate your taxes under either form of income tax. First, it is necessary to determine the amount of your income that is subject to the tax. Determining the amount of your taxable income is the vast majority of the work you do in filling out your income tax forms, and that process is exactly the same, regardless of whether the tax to be imposed on that income is progressive or flat. The second step is to determine the amount of the tax that is owed based upon the amount of taxable income. That step involves looking up your tax in a tax table and, based upon the amount of your taxable income, filling it in on your return. That step also is not shortened by the flat tax proposal. Different tables would be used for a flat tax, and different amounts of taxes would be owed, but there would be no difference in the procedure followed by the taxpayer. The claim that a flat tax would allow you to file your income taxes on a postcard is a lie perpetrated by the proponents of the flat tax. There is a very real difference between the progressive income tax and the flat tax. The difference is that, under a flat tax, people with high incomes would pay less and people with low incomes would pay more, compared with what they currently pay. Exactly where the dividing line would be between paying more and paying less depends upon the specifics of the proposal being talked about. But under almost all proposals for a flat tax, the vast majority of the tax savings would go to multimillionaires like Steve Forbes, and the vast majority of the increased tax burdens would fall on ordinary working people in the lower to middle portions of the income spectrum. Right wing proposals for a flat tax are simply another step in a decades long historical trend which has shifted taxes away from wealthy taxpayers and onto middle income and lower income taxpayers. In 1918, five years after the 16th amendment was passed authorizing the income tax, the top tax rate on the people with the highest incomes was 77 percent. Since that time, the top tax rate on the wealthy has fluctuated, but generally trended downward. Today the top rate is 35 percent and is imposed on people who are not necessarily even millionaires. Each time the top tax rate on high income earners has been reduced, the percentage of total income taxes paid by those in the middle and lower income levels has been increased. Other progressive taxes such as the estate tax and the capital gains tax have also been changed since 1918, so that they fall less heavily on the wealthy. During that same period of time, other forms of taxation have been created or increased which are regressive in nature, so that they fall more heavily on the lower or middle income taxpayers than they do on the wealthy. The net result is that the wealthy now pay a far smaller percentage of their income as taxes than they did back in 1918, and middle income taxpayers pay a far higher percentage than they did then. A flat tax would shift even more of the tax burden onto low and middle income taxpayers, and away from the wealthy. But the flat tax proponents already know that fact. That is their real goal. The postcard size tax return is just the come-on to get you to buy the snake oil. Kevin Morford is a political activist and an attorney in private practice in the Anchorage area. He can be reached at kmorford@insurgent49.com. |
-
Columnists -
|
||||||
| Copyright
2005
Insurgent Media. All Rights
Reserved. in-sur-gent (in sur'jent), n. 1. a member of a group which revolts against the policies of its leadership. |
|||||||
