Next week Rick Perry is set to announce his own version of a flat
tax. Former House majority leader Dick Armey -- now chairman of Freedom
Works, a major backer of the Tea Party funded by the Koch Brothers and
other portly felines (I didn't say "fat cats") -- predicts this will give
Perry "a big boost." Steve Forbes, one of America's richest
billionaires, who's on the board of the Freedom Works foundation, is
delighted. He's been pushing the flat tax for years.
The flat tax is a fraud. It raises taxes on the poor and lowers them on the rich.
We don't know exactly what Perry will propose, but the non-partisan
Tax Policy Center estimates that Cain's plan (the only one out there so
far) would lower the after-tax incomes of poor households (incomes below
$30,000) by 16 to 20 percent, while increasing the incomes of wealthier
households (incomes above $200,000) by 5 to 22 percent, on average.
Under Cain's plan, fully 95 percent of households with more than $1
million in income would get an average tax cut of $487,300. And capital
gains (a major source of income for the very rich) would be tax free.
The details of flat-tax proposals vary, of course. But all of them
end up benefiting the rich more than the poor for one simple reason:
Today's tax code is still at least moderately progressive. The rich
usually pay a higher percent of their incomes in income taxes than do
the poor. A flat tax would eliminate that slight progressivity.
Nowadays most low-income households pay no federal income tax at all --
a fact that sends many regressives into spasms of indignation. They
conveniently ignore the fact that poor households pay a much larger
share of their incomes in payroll taxes, sales taxes, and property taxes
(directly, if they own their homes; indirectly, if they rent) than do
people with high incomes.
Flat-taxers pretend a flat tax is good public policy, for two reasons.
First, they say, it would simplify paying taxes. Baloney. Flat-tax
proposals don't eliminate popular deductions. (I'll be surprised if
Perry's plan eliminates the popular mortgage-interest deduction, for
example.) So most tax payers would still have to fill out lots of forms.
Second, they say a flat tax is fairer than the current system because, in Cain's words, a flat tax "treats everyone the same."
The truth is the current tax code treats everyone the same. It's
organized around tax brackets. Everyone whose income reaches the same
bracket is treated the same as everyone else whose income reaches that
bracket (apart from various deductions, exemptions, and credits, of
For example, no one pays any income taxes on the first $20,000 or so
of their income (the exact amount depends on whether the person is
married and eligible for tax credits like the Earned Income Tax Credit
of the Family Tax Credit.)
People in higher brackets pay a higher rate only on the portion of
their income that hits that bracket -- not on their entire incomes.
So when Barack Obama calls for ending the Bush tax cut on incomes
over $250,000, he's only talking about the portion peoples' incomes that
exceed $250,000. He's not proposing to tax their entire incomes at the
higher rate that prevailed under Bill Clinton.
- Advertisement -
Republicans have tried to sow confusion about this. They want
Americans to believe, for example, that if the Bush tax cut ended, small
business owners with incomes of $251,000 a year would suddenly have to
pay 39 percent of their entire incomes in taxes rather than 35 percent.
Wrong. They'd only have to pay the 39 percent rate on $1,000 -- the
portion of their incomes over $250,000.
Get it? We already have a flat tax -- flat within each bracket.
The real problem is the top brackets are set too low relative to
where the money is. The top-most bracket starts at $375,000 a year.
People with incomes higher than that pay 35 percent -- again, only on
that portion of their incomes exceeding $375,000.