Thursday, June 15, 2006

What is a Fair Tax?

Critics of both the Flat Tax and the Fair Tax seem to think both are unfair. Mainly they think they are unfair because the "rich" should pay more than anyone else. But on the other hand, the poor should "contribute something".
Generally, the critics support either no tax at all (good luck with that), or a graduated tax like we have now. Some people refer to this as a "progressive" tax. And it is. Not that it fosters any kind of progress, but because the rate progresses from low to high the more taxable income a person has.
And for the liberal, that is as it should be. What escapes their thinking is that under either system, the really poor get to keep all they earn, and the more a person earns, the more he pays in taxes.
Let's say that we have a flat tax of 15%. Let's further say that every person living in a household gets to exempt $10,000 from taxation. So then, a family of four earning $40,000 would pay zero (0%) tax. A family of four earning $80,000 would pay $6,000 (7.5%) in taxes. A family of four earning $2,000,000 would pay $294,000 (14.7%) in taxes. Notice that the percentage is graduated even under a flat tax.
Sounds fair to me, but the rub is that the first family only winds up with $40,000, the second family winds up with $74,000 and the third family winds up with $1,706,000. To the liberal, that is grossly unfair. Never mind that the third family probably employs a staff and so contributes to their well-being also. Never mind either, what amount of productivity each family has. Only equality of results matter to the communist - er, socialist - er, liberal.
Walter Williams focuses on a different fix: Limit spending to 10% of GDP. (Good luck with that, too.)

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