I’ve been mulling over whether a flat tax is fair or should we have a progressive tax. There are two dimensions of fairness to consider, which deal with economics and social justice. Economically, a bottom line is whether a flat tax generates enough revenue to run the Federal Government. You really can’t cut your way to budget balance. Our dialogue should be about the role of Government and the priorities of public spending (and how cost effective our spending is).
Is a flat tax economically fair? A flat tax with a threshold, say $30,000 with no loopholes is on the face of it fair for everyone. Everyone pays their “fair share”. Problem….not everyone is paid the same way and there are many details and devils to consider when filing on a post card. Most Americans get a paycheck. Rich people don’t get their wealth/ income from a paycheck. They may get a nominal paycheck. For example, Warren Buffett’s paycheck is $100,000. Rich people are paid in stocks and other such capital gains. They benefit from owning stuff. Warren Buffett socks millions a year away in the bank, but it’s not considered taxable income. It’s considered capital gains. Buffett’s cleaning lady (and you) pay about 30% in Federal income tax. Buffett pays 15% capital gains tax. Corporation don’t have to pay their execs any income as far a paycheck is concerned. Is our current system fair?
Some proposed flat taxes eliminate all other Federal taxes (capital gains, inheritance, payroll). Are Buffett’s capital gains considered taxable income? Got me. On the face of it, Buffett would pay $20,000 on a 20% flat tax. He’s currently in the 35% bracket. Under some plans, he would lower his income tax rate AND not have to pay capital gains, depending on how the law is written. Who bets how it’s written might give more benefits to the rich?
So economically, there’s a lot of unknowns and potential un-fairness involved. Let’s look at the moral/ social justice dimension. Is there shared sacrifice, hardship and suffering within society? If a reformed tax code increases the suffering of most Americans, is that fair? I’m not saying it necessarily will produce increased suffering. If the privileged few are not called on to share in national sacrifice under a new tax system, is that fair? The cleaning lady who makes $30,000 has to pay $6,000 in a 20% Federal flat tax. Buffett makes $100,000 and pays $20,000 in Federal flat taxes, while still socking away millions a year. On whom and on which demographic does this flat tax produce more hardship within a family? Who could really use that money more?
Ok, so lump in capital gains and flat tax everything. Buffett may make $1,000,000,000 a year and would pay $200,000,000. Is that fair economically? More so. What about the social justice dimension? Is 200 Mil a hardship for Buffett’s family, comparable with the hardship in the cleaning lady’s family?
Look, nobody likes to give up their money, particularly rich people. If you don’t believe it, just play golf with some and observe how they will cheat over a $20 bet. I don’t begrudge the pain of giving money away to Government. But we as a nation are addicted to more social services than we are willing to pay for. We want the emergency responders and the teachers and the trash collectors and the road fixers, We just resent paying for them. This article puts the concept of a flat tax and paying a “fair share” for shared services into a simple light (perhaps too simple). Our laws should be written for the common good, not the good of the few, or the good of the powerful. Determining the public good can make ideas like a flat tax problematic to conceive or justify. What are your thoughts?
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