The Flat-Tax Fraud

Herman Cain’s bizarre 9-9-9 plan would replace much of the current tax code with a 9 percent individual income tax and a 9 percent sales tax. He calls it a “flat tax.”

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 benefitting 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 course).

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.

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.

This is absurd. It means a professional who’s making, say, $380,000 a year pays the same income-tax rate as a plutocrat pulling in $2 billion or $20 billion.

Our current flat tax at the top is treating the nation’s professional class exactly the same as it treats super-rich plutocrats. My doctor pays the same rate as Steve Forbes.

Actually, it’s worse than that because the plutocrats get most of their income in the form of capital gains, which are taxed at only 15 percent. That’s why America’s 400 richest people – who earned an average of $300 million last year, and who have more wealth than the bottom 150 million Americans put together – now pay at a 17 percent rate (according to the IRS).

The Republicans’ push for a flat tax masks what’s really going on.

Remember: The top 1 percent is now raking in over 20 percent of the nation’s total income and owns over 35 percent of the nation’s wealth. Under almost anyone’s view of fairness, these are grotesque portions. They’re especially large relative to what they were as recently as thirty years ago, when the top 1 percent raked in under 10 percent. And these huge portions at the top continue to increase.

Meanwhile, the top tax bracket is now 35 percent — the lowest it’s been in three decades. Between the end of World War II and 1980 it never fell below 70 percent. 

Simple fairness requires three things: More tax brackets at the top, higher rates in each bracket, and the treatment of all sources of income (capital gains included) exactly the same.

Not only fairness demands it, but also fiscal prudence. A truly progressive tax would bring in tens of billions of dollars a year from the people at the top who are in the best position to afford it.

Regressives are pushing the flat tax as a smokescreen. They’d rather not have anyone talk about the unfairness and fiscal absurdity of the current system.

Rather than merely oppose the flat tax, sensible people should push for a truly progressive tax – starting with a top rate of 70 percent on that portion of anyone’s income exceeding $5 million, from whatever source.

 

* This article was sourced from http://robertreich.org. (Rights retained by author.)


About The Author

Robert Reich author of Wall Street Occupiers and the Democratic PartyRobert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The Work of Nations, Locked in the Cabinet, Supercapitalism, and his most recent book, Aftershock. His "Marketplace" commentaries can be found on publicradio.com and iTunes. He is also Common Cause's board chairman.


Recommended Book

Aftershock by Robert ReichAftershock: The Next Economy and America's Future (Vintage) by Robert B. Reich (Paperback - Apr 5, 2011) In Aftershock, Reich argues that Obama's stimulus package will not catalyze real recovery because it fails to address 40 years of increasing income inequality. The lessons are in the roots of and responses to the Great Depression, according to Reich, who compares the speculation frenzies of the 1920s–1930s with present-day ones, while showing how Keynesian forerunners like FDR's Federal Reserve Board chair, Marriner Eccles, diagnosed wealth disparity as the leading stress leading up to the Depression.


Hollywood Goes Big On Climate Change With Year Of Living Dangerously

Hollywood Goes Big on Climate Change with "Years of Living Dangerously"

It’s being billed as “the biggest story of our time.” This weekend viewers of Showtime, the US cable channel, will be watching…
Continue reading
The Vicious Cycle of Concentrated Wealth and Political Power

The Vicious Cycle of Concentrated Wealth and Political Power

If wealth and income weren’t already so concentrated in the hands of a few, the shameful “McCutcheon” decision by the five…
Continue reading
Cooperation And Why Your Movement Can't Go It Alone

Cooperation and Collaboration: Why Your Movement Can't Go It Alone

by Kristin Moe. Is it climate change, which makes droughts more severe and more likely to persist? Is it the labor policies that…
Continue reading
The Remaking of a Counterculture: The Barefoot Teacher

The Remaking of a Counterculture: The Barefoot Teacher

by Cecile Andrews. I read a quote from Thoreau, and his words stopped me cold: "We are all schoolmasters and the universe is our…
Continue reading
When It Comes To Discussing Climate The Facts Are Not Enough

When It Comes To Discussing Climate, The Facts Are Not Enough

Can the U.N. Intergovernmental Panel on Climate Change most recent report or a star-studded Showtime mini-series change the way…
Continue reading
Is Misinformation About The Climate Criminally Negligent?

Is Misinformation About The Climate Criminally Negligent?

Accurately understanding our natural environment and sharing that information can be a matter of life or death. When it comes to…
Continue reading
Forget The Cost – Tackle Climate Change Anyway

Forget The Cost – Tackle Climate Change Anyway

Forget the cost of mitigating climate change, say two researchers. It’s impossible to work out how much it will be – and whatever…
Continue reading
How Cities Can Share for the Benefit of Their Citizens

How Cities Can Share for the Benefit of Their Citizens

by Jessica Conrad. “People are starting to ask, ‘What can we do together that we can’t do by ourselves?’” Perhaps not…
Continue reading
GMOs, Silver Bullets and the Trap of Reductionist Thinking

GMOs, Silver Bullets and the Trap of Reductionist Thinking

GMOs seem to polarize people more than almost any other topic, including evolution or climate change. And the debates around GMOs…
Continue reading
The Year of the Great Wealth Redistribution

The Year of the Great Wealth Redistribution

One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked…
Continue reading
What If The Global Economy Worked Like Nature?

What If The Global Economy Worked Like Nature?

What happens when demand outstrips supply for natural resources needed to make everything from mobile phones and microwaves to…
Continue reading
How Ya Gonna Keep ’em Down On The Organic Farm?

How Ya Gonna Keep ’em Down On The Organic Farm?

Though it’s certainly easier to find local, sustainably grown meat and produce in America than it was 20 years ago, the deck…
Continue reading
Greenland Ice Sheet Is Melting At An Accelerating Rate

Greenland Ice Sheet Is Melting At An Accelerating Rate

Warming in the Arctic has now reached the northernmost sections of the Greenland ice sheet. After a long period of stability…
Continue reading
Drought Impact: California Goes Nuts For Water

Drought Impact: California Goes Nuts For Water

While recent rainfall has brought welcome relief to California, the amount of precipitation has not been nearly enough to put an…
Continue reading
Going Off Grid

Tesla Could Help Customers Take Their House Off Grid

The potential of consumers to go off-grid in a major way in the US depends on a number of factors. The falling cost of solar we…
Continue reading
To Live Longer We Have To Change Outdated Ideas Of What It Means To Grow Old

To Live Longer: Change Outdated Ideas of What It Means To Grow Old

The fact of an ageing society isn’t new; it has been proceeding quietly across all developed countries for 174 years: data on…
Continue reading
Architect of No Child Left Behind Law: “I Was Wrong”

Architect of No Child Left Behind Law: “I Was Wrong”

UPDATED - In her new book, Diane Ravitch — one of the leading thinkers behind the controversial Bush-era law — explores how the…
Continue reading
Do-be-do-be-do: Think Quantum, Be Creative

Do-be-do-be-do: Think Quantum, Be Creative

by Amit Goswami, Ph.D. The primary ongoing question of your life is: are you going to choose same-old, same-old, or are you going…
Continue reading
Put Your Money Where Your Mouth Is: Financing Our Foodshed

Put Your Money Where Your Mouth Is: Financing Our Foodshed

by Woody Tasch. In a way, nothing could be simpler. I can still hear Carol Peppe Hewitt saying at a Slow Money na­tional…
Continue reading
The Great American Middle Class Economic U-Turn

The Great American Middle Class Economic U-Turn

Do you recall a time in America when the income of a single school teacher or baker or salesman or mechanic was enough to buy a…
Continue reading
You Don't Have to Be a Karate Champ to Prevent Street Crime

You Don't Have to Be a Karate Champ to Prevent Street Crime

While crime rates have dropped dramatically in most US cities over the past two decades, there has been a recent uptick in…
Continue reading
Global Community and Universal Responsibility: It is Always Possible

Global Community and Universal Responsibility: It is Always Possible

by The Dalai Lama (with Fabien Ouaki). None of us can afford to assume that somebody else will solve our problems; each of us…
Continue reading
post office not for sale

Fighting Another Attempt to Privatize the US Postal Service

As far as Mark Dimondstein is concerned, the members of the Postal Workers are going to be out in the streets even more than they…
Continue reading
Middle School, Misfits, and The Milky Way: Living on the Edge

Middle School, Misfits, and The Milky Way: Seeing Life from the Edge

by Dianne Monroe. I carried with me through life this lesson I learned in Middle School – the practice of viewing a culture,…
Continue reading
The Global Warming Canary In The Arctic Ice Melt

The Canary In The Arctic Ice Melt

Ice in the Arctic continues to retreat. It’s long been established that Arctic ice is on the retreat but it’s the pace of change…
Continue reading
Peaceful Revolution? Gandhi’s Four Paths to Get There

Peaceful Revolution? Gandhi’s Four Paths to Get There

by Madhu Suri Prakash. The Indian leader saw nonviolence as an active and powerful thing — not just the absence of war. Gandhi…
Continue reading

guided-to-drive-south by David Schock. One morning I awoke and realized I had absolutely no plans for the day. The gallery was closed until the weekend, and I was open to...Read More
facing-your-fears-life-death-aging by Denise Linn. Each fear is like a small subpersonality inside of you demanding to be heard. One 'fear-being' might chatter, 'Don't go outside. It's...Read More
once-upon-a-mine-the-legacy-of-uranium-on-the-navajo-nation by Carrie Arnold. On a low, windswept rise at the southeastern edge of the Navajo Nation, Jackie Bell-Jefferson prepares to move her family from their...Read More
your-brain-has-been-lying-to-you by Nancy du Tertre. Did you know that you actually “see” the world upside down? Well, you do. You just don’t know it because your brain has...Read More
how-to-manage-stress by Dawn Groves. Life doesn't have to be a process of ongoing damage control. There are many things we can do to keep stress from eroding our health and...Read More
fat-free-and-natural-seven-food-labeling-tricks-exposed by Sandra Jones, The Conversation. If you’re confused by food labels, you’re not alone. Marketers use a variety of tricks to make foods seem...Read More
seeing-things-from-a-different-perspective-what-if-i-chose-it by William Fergus Martin. Those who recover the best from painful events are those who find something meaningful in the experience. The exercise below...Read More
the-facts-are-not-enough Can the U.N. Intergovernmental Panel on Climate Change most recent report or a star-studded Showtime mini-series change the way people talk and think...Read More
doing-the-right-thing-at-the-right-time-the-sequencing-catalyst by Loral Langemeier. Sequencing is the idea that the right steps at the right time get you where you want to go. Often, people understand where they are...Read More
the-raging-war-within-lower-self-vs-higher-self by Michael Jones. The battle between the Lower Self and the Higher Self is an internal battle, fought every day in the minds and hearts of all men...Read More
hollywood-goes-big-on-climate-change-with-years-of-living-dangerously It’s being billed as “the biggest story of our time.” This weekend viewers of Showtime, the US cable channel, will be watching the first of an...Read More
the-vicious-cycle-of-concentrated-wealth-and-political-power If wealth and income weren’t already so concentrated in the hands of a few, the shameful “McCutcheon” decision by the five Republican appointees...Read More