Yesterday I read an editorial talking about taxes and why we should change the tax code to make it simpler. So far, so good. Then they proceeded to complain about a flat tax and a tax on consumption as being unfair to the poor. They almost echoed the "tax cuts for the rich" screed of the Democrats. They actually said that a flat tax would hit the poor more than the rich. And they said it with a straight face.
During the Presidential campaign, I kept waiting for the Republicans to interject a little sanity to the discussion, but it never happened. Rich and poor are generic terms, but they are descriptive of what people have. The only tax that is determined by what you own is a property tax. The discussion was about income tax, which taxes what you earn, not what you have. Moving from an income tax to a tax on consumption would be a dramatic shift in tax policy and, since it taxes what you spend, not what you have or what you earn, could hit poor people harder than rich people.
But let's look for a minute at the flat tax. It would have some level of income at which the tax kicks in (let's say $20,000 for a family) and some rate at which all income above the threshold would be taxed (let's say 15%). So, here is the low income family, scraping by on $20,000. Zero percent of the income goes to taxes. Or let's look at a family earning $50,000. They would pay $4,500 or 9% of their income on taxes. How about the really productive family earning $300,000? They would pay $42,000 or 14% of their income in taxes. Notice that for those three families, the one earning $300,000 pays in 90.32% of all taxes, the medium income family pays in 9.68% of all taxes, and the low income family pays no tax at all. Does anyone really think that this system favors the rich over the poor?
Obviously, this is a simple example. How do we establish the income below which you get a free ride? How about $10,000 per wage earner and $5,000 per non wage earner in a household?
what do you think?