Can someone explain to me why a flat tax is bad for the middle class?

[Amy6627]

I am having a discussion with a reasonable conservative who thinks that a flat tax would work and not unjustly tax the middle class and poor if the assets of the rich are tax in conjuction with a flat tax.

Thanks, Amy

[Profprileasn]

1. I don't think

A flat tax on income is unfair. Tax code is way to complicated. Even the Secr. of treas. messes up.

[DJ13]

2. the flat tax is regressive

The big problem, of course, is that the flat tax is regressive. In other words, its one-size-fits-all approach abandons the traditional notion that wealthier people have an obligation to pay more in taxes, if for no other reason than because they can afford it.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2007/04/11/BUG2KP63OU1.DTL&type=business
The flat tax: It's simple, alluring / But one-size-fits-all idea faces skepticism, too

[SmileyRose]

3. Most plans I've seen tax ONLY paycheck income

since the richest people in America don't get paid on paychecks then they would end up paying no federal taxes. Now if the overall assets (net worth) of the top 5% are also taxed at that rate, not JUST what they liquidate to live on, then it MIGHT work.


I've seen a plan by a group of libertarians who want a consumption tax (national sales tax) in place of ALL federal taxes. Doctor and hospital bills would be exempt and filing forms for rents or mortgages for a primary residence below so much in value would be exempt. We would set a dollar amount on what we decide it costs to obtain the basic necessities of life in America (poverty level) and everyone in America would get a prebate check every month for what the sales tax would be on that much consumption. Since the poor spend 100% of their income on just the basic necessities they they would still pay no tax. It's intended to be revenue neutral and not change anything about spending for social programs. It just changes the way taxes are collected to eliminate all the loopholes and corporate lobbying favors that Congress engages in.


Edit to add, IMHO the simplest way to solve what everyone seems to want (except the corporations and the top 3%) is to do away with ALL federal taxes except a progressive flat tax on all sources of income with earners under 200% of the poverty level paying nothing. Give us 4 or 5 levels. Make it marginal if you want - but get rid of every single solitary deduction and loophole. Just a simple formula, ALL your income for a given year was this much and your tax is that percentage.

[sinkingfeeling]

4. I don't want a 10 to 12% increase in income tax rates, while losing the only deductions I, as a

single person, can take. While I'm pretty much in the $75K to $100K bracket, with my home mortgage and charitable contributions deductions, I'm able to pay an actual rate of about 17% to federal income tax. Without the deductions and an estimated 28% flat tax rate, I'd be paying almost $10K more.

[RDANGELO]

5. disposable income

The middle class and especially the poor spend a higher percentage of their income on essentials like housing and food. A more progressive tax system would theoretically give them a lower tax rate ,thus giving them more disposable income adding to quality of life. This also helps the economy with the buying of consumer goods.

[JHB]

25. Real-life Disposable Income

The term "disposable income" has a specific meaning in finances: the income left over after taxes.

What you talk about is what I usually call "real-life disposable income", which is looser, but also more in line with how people live their lives. As you note, the poor spend most of their income on essentials. As you go up the ladder, there's generally and improvement in the quality of the essentials, and more of it can arguably be classed as luxuries than essential, but it still goes to things that are basically what we'd call "working- to middle-class" lifestyle.

But eventually, there's a point where everything really is "disposable": it either goes to luxury items or towards making more money (or towards buying politicians, but that may count towards the previous point). We can argue about what that point is (and it varies from place to place), but it does exist.

Think of progressive taxation as actually being a flat tax on real-life disposable income. We keep it simple and from prying too much into peoples' business by using income-based brackets.

[NewJeffCT]

6. well - ask yourself this

why does this seem to be an idea that is popular mainly with very wealthy Republicans?

Ask yourself this - who does a flat tax benefit more - the person making $20,000 a year and paying 20%, or the person making $2 million per year and paying 20%? Who needs the money more? And, if you give the lower wage earners a tax break, you need to raise the overall flat tax rate to compensate... which would then hurt the middle class, unless you then give them a tax break as well. Of course, then you have to raise the overall flat tax rate to well over 30%, and (gasp) you're back to a progressive income tax.

And, if you keep it truly flat, you either place a huge burden on the middle class, or you drive the deficit way beyond what we have now...

a few articles:
http://www.acandidworld.net/2008/10/28/1-equal-%E2%89%A0-equitable-2-flat-tax-suck/

http://www.encyclopedia.com/doc/1G1-56830828.html

http://winningargument.blogspot.com/2004/09/flat-tax-is-bad-idea.html

http://www.poormojo.org/pmjadaily/archives/001903.html

[stopbush]

7. Let's say the flat tax was 10% of income.

A millionaire would pay $100,000 in taxes and keep $900,000 a year. Not bad.

A person trying to live on $20,000 would pay $2,000 and keep $18,000. Life just got a lot harder.

What if the tax rate was 90%? The millionaire would pay $900,000 a year in taxes and keep $100,000. Most Americans wish they made $100,000 a year.

The guy making $20,000 a year would pay $18,000 in taxes and keep $2,000. That guy will die of starvation in 3 months.

Then, there's the question of WHAT gets taxed. Is it only income? What about money made other ways than getting paid for doing work, like selling expensive properties at a huge profit?

A progressive system taxes the rich more because they can more easily afford to pay more. It gives a break to those in the middle and the bottom because to tax them at the same rate as the rich means that they will never be able to raise their standard of living. Simple things like a college education that the rich take for granted would be unheard of for the middle class.

Ever notice how the ONLY people who promote a flat tax are millionaires and billionaires? That alone ought to tell you something.

[closeupready]

26. Perfectly elegant explanation.

end of thread. :hi:

[Bread and Circus]

8. It all boils down to discretionary income. Poor people have none, middle class some but not enough,

and the rich have too much.

A flat tax kills the poor and the lower working and middle classes because of lack of discretionary income. If you are rich, you might have to hold off on that third yacht. If you are poor or working class, any tax is biting into your ability to feed and clothe your kids.

[On the Road]

9. Look at It in Terms of Results

1) The somewhat less progressive tax structure since Reagan resulted in a greatly widening divide between rich and poor, just like during the Gilded Age before income was taxed. The result of a "flat tax" would be increasing this gulf even farther. By a lot.

The result is a banana-republic-style economy. Low growth, high profit; low wages, high unemployment. If you do not want that outcome, you should not support a proposal that will bring it about.

2) I have heard it claimed that if you look at all taxes and government fees from federal down to municipal, the tax system is already flat. This is due to state and local taxes, such as sales tax, being regressive. Unfortunately, I don't have a link and cannot substantiate, but the basic point seems to be well taken.

3) Effective tax rates on the rich are nowhere near the highest nominal income tax bracket due to greater reliance on capital gains and legal avoidance methods. Warren Buffet famously said that his secretary had a higher effective tax rate than he did, and that it wasn't fair to her.

4) The hidden piece of many flat tax and tax simplification proposals is that they remove many of the restrictions on defining taxable income. The cat-and-mouse game between the IRS and tax attorneys and accountants has resulted in a very complex set of guidelines on defining income. They may not be sufficient, but without them, a large number of wealthy people may legally be able to avoid taxes altogether. IMO that's the hidden agenda.

[denverbill]

10. Because unlike freepers, I don't want my taxes to go up.

Think about it. If under the current system, the top 1% pay 40% of the taxes, and you suddenly change their tax rate from 35% to 15% (or whatever the latest greatest number is) then there is no way in hell the tax will be revenue neutral. That means the actual rate would need to be around 25% to break even. Now nobody in the middle class pays 25% of their income in taxes right now. Not in Federal (non-FICA) taxes anyway. My wife and I made around 140,000 gross last year but our Federal tax bill was 13,000. That's less than 10%. Why? Because we contributed tax free to 401ks, have 2 dependent children, deducted our mortgage interest, etc.

Why in the hell would anyone want their taxes to go up so the filty rich can pay 1/3 as much as they do now? It's insane. Check your taxes from last year. What percent did you pay? Do you really want to eliminate tax credits for dependents? How much more are you willing to pay so the rich can get an enormous tax break?

[SmileyRose]

12. Wait

My husband and I had a gross around $45,000 last year and since our house is paid off (no interest deduction) and we don't make enough to be able afford to hide into tax free savings (nothing against those who can) then my tax percentage was higher than yours????

How is that progressive?


Please understand, I'm not attacking you at all. I'm just pointing out that our current tax code is so full of loopholes and special deductions, I'm seeing what we have is not progressive AT ALL. When Warren Buffet is having a fit because he pays less in percentage than his secretary then we seriously DO NOT have a pregressive system now.

[muriel_volestrangler]

13. Deducting mortgage interest isn't really part of a progressive tax system

but it's good for a large part of the middle class, so it stays.

Britain got rid of it, bit by bit, during the 1990s; while some grumbled while it was happening, I think it was a good move. One thing it does is simplify tax collection - a lot of people here don't have to fill out a tax return at all, since their situation is predictable in advance. All their tax can be deducted from their pay packets.

[zipplewrath]

16. The devil is in the details

It is progressive, but there are serious "holes". You get a similar "deduction" using the "standard deduction" that I get from my interest deduction. One of the bigger "holes" is that Buffet is being taxed on "capital gains" at 15%, you're probably around 22%. THAT'S the unprogressive part.

Oh, by the way, depending on just how small your tax free savings are, you can probably invest in that too. IRA, Roth IRA's, 401K, and tax free bonds are all available to "the little guy". Little being somewhere around a couple of grand to get started.

[wuushew]

21. Are you sure you are paying a higher effective rate?

I am looking at the IRS tax tables as I type.

[hfojvt]

22. part of the reason yours is higher

is that you have no kids. Two kids creates $7,000 in exemptions and $2,000 in tax credits.

It's not accurate to say that what we have is "not progressive AT ALL" because it generally is progressive.
Here are the tax rates from 2005, on average

top income - rate as % of AGI
5000 - 3.5
10,000 - 2.4
15,000 - 3.4
20,000 - 4.7
25,000 - 5.8
30,000 - 6.6
40,000 - 7.1
50,000 - 7.9
75,000 - 8.6
100,000 - 9.7
200,000 - 13.3
500,000 - 20.2
1,000,000 - 23.9
1,500,000 - 24.6
2,000,000 - 24.6
5,000,000 - 24.4
10,000,000 - 23.6
more - 20.9

here are the rates from 1996
5,000 - 3.0
10,000 - 4.9 (this is the rate for income from 9,000 - 10,000)
20,000 - 7.4
25,000 - 7.9
30,000 - 8.7
40,000 - 9.8
50,000 - 10.9
75,000 - 12.1
100,000 - 14.7
200,000 - 18.2
500,000 - 25.3
1,000,000 - 30.1
more - 30.9

[denverbill]

24. Warren Buffett had a fit because Bush cut the capital gains/dividend tax rate.

I totally opposed that tax cut, and it doesn't benefit me (much) or anyone I know. I think it sucks to pay 15% rate on capital gains, but 28% on wages. Why do people who do nothing except play the stock market pay less than people who work for a living? Why does someone who makes $10,000,000,000 in capital gains pay 15% while I am in the 28% marginal bracket? No progressive supports that. Only the nuts on the right support it.

And I'm all for making the system more progressive. Personally I don't think anyone who makes less than $50,000 or even $75,000 should pay any federal taxes at all, and any lost revenue from that should be shifted to people making over $500,000 and shifted mostly to people making over $10,000,000/year.

I don't love the current system. But the idea that a 'flat tax' will be better is crazy. You would pay a higher rate, I would pay a much higher rate, and the only people would would benefit are the ones who make such enormous amounts of money that they don't even need the extra cash.

[LiberalFighter]

11. I currently pay about 8 to 10% on my federal taxes after deductions and exemptions.

Under "Fair Tax" I would be paying about 17%.

Keep in mind that if your income is between 32,550 and 78,850 with a tax bracket of 25% it does NOT mean the person has all of their taxable income taxed at 25%.

Rather the first 8,025 of taxable income is 10%
Taxable income above 8,025 and below 32,550 is 15%
Taxable income above 32,550 and below 78,850 is 25%

Someone with taxable income of 40,000 would pay $6,344 which is 15.86%.

Someone with taxable income of 42,000 would pay $6,844 which is 16.29%.

Taxable income is AFTER all deductions and exemptions are applied.

[SomeGuyInEagan]

19. That is an important point most Flat-taxers leave out of the argument ...

... in an effort to make a 17 (or 19 or 21) percent flat tax sound better. We ALL - regardless of total taxable income - pay only 10 percent of the first $8,025 of taxable income and then 15 percent of taxable income more than $8,025 up to $32,550, etc. (trusting your numbers).

It is convenient to making a flat tax argument to leave that little fact out ("You make $45,000 a year ... you are in the 25 percent tax bracket! A 19 percent flat tax is better for you!" ignoring that only about $13,000 is taxed at 25 percent).

I do favor a progressive tax but would love to see the current code cleaned up.

[LiberalFighter]

23. How progressive? Below is a history from 1932 to 2008 with number of tax brackets and highest tax.

(Year) (Tax Brackets) (Highest Tax Rate) (Amount Taxed)

1932 (54) 63% -- $1,000,000

1936 (33) 79% -- $5,000,000

1939 (33) 79% -- $5,000,000 (WWII started)
1940 (31) 79% -- $5,000,000
1941 (32) 81% -- $5,000,000

1943 (24) 88% -- $ 200,000

1945 (24) 94% -- $ 200,000 (WWII ends)
1946 (24) 91% -- $ 200,000

1952 (24) 92% -- $ 200,000 (First time Head of Household Tax Rate)
1953 (24) 91% -- $ 200,000

1964 (26) 77% -- $ 200,000
1965 (25) 70% -- $ 100,000

1978 (26) 70% -- $ 101,600
1979 (16) 70% -- $ 107,700

1982 (13) 50% -- $ 42,800
1983 (14) 50% -- $ 54,700
1984 (15) 50% -- $ 81,200
1985 (15) 50% -- $ 84,510
1986 (15) 50% -- $ 87,626
1987 (5) 38.5% -- $45,000
1988 (4) 28.0% -- $113,300
1989 (4) 28.0% -- $117,895
1990 (4) 28.0% -- $123,570
1991 (3) 31.0% -- $41,075
1992 (3) 31.0% -- $43,250
1993 (5) 39.6% -- $125,000

1995 (5) 39.6% -- $128,250
1996 (5) 39.6% -- $131,875
1997 (5) 39.6% -- $135,525
1998 (5) 39.6% -- $139,225
1999 (5) 39.6% -- $141,575
2000 (5) 39.6% -- $144,175
2001 (5) 39.1% -- $148,675
2002 (6) 38.6% -- $153,525
2003 (6) 35.0% -- $155,975
2004 (6) 35.0% -- $155,550
2005 (6) 35.0% -- $163,225
2006 (6) 35.0% -- $168,275
2007 (6) 35.0% -- $174,850
2008 (6) 35.0% -- $178,850

[dysfunctional press]

14. ask them how they'd feel about a flat tax that exempts the first $35-50K in income.

and taxes capital gains and earned wages equally.

[LiberalFighter]

27. I be all for that!!!

[Happy Little ELF]

15. you mean the Sales Tax Only option that Neil Boortz pushes?

Poor people spend 100% of their money and would thus be taxed on it.
Rich people save most of theirs and then invest it again to make more money, thus using the money several times before Never being taxed, esp if they tried to roll back capital gains tax rates.

If Boortz is FOR IT, we should be AGAINST IT.- simple rule to live by

[hfojvt]

17. very easily done

as I calculated below, a flat tax would save rich people about $112 billion a year. If it is revenue neutral, then somebody else needs to pay $112 billion more to make up for the cut that the rich people get. That would be the middle class.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x2593043

[Spike89]

18. Because life is complex

The tax code is complicated because keeping a capitalist economy from quickly spinning out of control and morphing into a corporate hell is just one of the goals. Although there are other ways for the government to promote/reward beneficial behavior, (and discourage negative behavior) none are as effective as the tax code. As progressives, we really should be wielding the power much more than we ever have. It isn't just tax rates, it is determining what expenses are and aren't deductible. I wouldn't care if a millionaire paid a tiny tax bill, if to minimize his tax liability he created a bunch of jobs, invested heavily in green energy, education, or medical research. Those things might offset the "loss" of tax revenue from that individual.

The thing about wealth is that it is almost impossible to get (and difficult to keep) without the infrastructure. There fore, the rich, who benefit the most, should pay the most. Seriously, I get some benefit from a publically educated populace, but the owner of a large company gains much more because he/she doesn't have to train every employee from the ground up. I benefit from good roads (but even there, I put most of miles either going to and from my job, or shopping). The rich person benefits from lowered transportation costs, an expanded workforce, consumer access to their stores, etc. Of course, they also get the same basic benefits I do too). Even defense spending is overwhelmingly of benefit to the rich. For the most part, another country/entity doesn't want to invade us to take my house or car--most wars are fought over the holdings of the wealthy, i.e., the military is mostly protecting our resources and corporations.

Every productive member of the society should pay some taxes, it is good social policy. However, we're so far away from a fair system because we hardly ever look at who really benefits from government and assess the taxes on that basis. We get distracted by the surface (heck, even welfare benefits the rich disportionately in that they desperately need to avoid a large class of truly desperate poor who are likely to revolt and riot).

The flat tax is much more regressive that it appears and would actually hasten the destruction of this society.

[Redbear]

20. My favorite example is this one in how it affects quality of life

Person A makes 50k per year and spends 45K of it on housing, food, transportation, clothing and medical care. They save 2k a year for retirement and have 3K per year for entertainment, vacation, etc.

If you charge him or her a 15% flat tax ($7,500), they will have to do with out all of the entertainment, vacations, all of the retirement savings, and at least some of their necessities.

Person B makes 300K per year and spends 90K of it on housing, food, transportation, clothing, and medical care. They save 50K a year for retirement. Invest 50K a year and still have 110K a year for entertainment, vacations etc.

If you charge him or her a 15% flat tax ($45,000), it has no affect on their housing or other necessities, no effect on their retirement savings, no effect on their investments, and they still have 65K per year for entertainment, vacations, etc.