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Flat tax?
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I was reading a discussion on Facebook in response to an article posted about the widening income gap between the very rich and the rest of us, and someone posted (authoritatively) that a flat tax was the solution.

I've heard a lot about the so-called "flat tax" and couldn't see how it would be a solution, but had to admit that it makes a certain amount of egalitarian sense to me. Everyone paying the same rate regardless of income? It seems that it's what we strive for with deductions and exemptions and progressive taxes - fairness to all wage earners. I suppose there is something sort of communist about the idea of the rich paying vastly more than others simply because they are rich, but then again we aren't talking about the world George Harrison was talking about in his song "Taxman", where he said "One for you, 99 for me" or whatever the line is exactly.

A friend once said (jokingly) that the progressive rate was a way to prevent the masses from rising up and killing all the rich people as they sleep. Thomas Jefferson and Adam Smith both have quotes attributed to them recommending progressive taxation as a good and necessary thing.

Anyway, if I'm understanding what I'm reading, a true flat tax is a tax on all income from the first penny to the last, with no distinctions between sources of income. In a true flat tax, businesses would have to figure out what their true profit was, as would self employed people, but the rest of us Americans would just write down what we were paid via employment, investment and interest, and multiply it by the flat tax percentage rate, and the tax form is done. Send your check to Uncle Sam.

Steve Forbes, in his presidential bids, campaigned on incorporating a flat tax and repealing the 16th amendment. In Forbes' version, there would be an exempt amount of personal income so the lowest earners would not pay taxes. Then it would kick in at 17%, and everyone would be taxed at that rate on all of their earned income. Forbes would not tax capital gains and dividends and interest.

Coincidentally (or not really), Forbes was someone who was wealthy (due to his father's hard work at building a publishing empire), and whose current income comes completely from investments and capital gains and such. In his own flat tax proposal, he and others like him would benefit the most! Or so it appears to me.

I'm led to believe that Arlen Spector's and Richard Armey's proposals were quite similar to this.

Since all these guys are no longer going to be paying taxes, and neither are the bottom few percent of wage earners, I guess it's up to us working stiffs to cover for them. That seems to be the focus of the flat tax proposals that are out there so far. Increasing, not decreasing middle class tax burdens, or crippling government by reducing tax revenues enough that we wouldn't even be able to pay for the military! (gasp!)

Any serious reform needs to start with an accounting of what is the absolute minimum that our government needs to perform its functions. We probably have to work on figuring out what exactly those functions are. No two people seem to agree.

(Everyone agrees that defense is one of the functions, but at what level? And if Social Security and Medicare aren't two of the functions, will someone other than me please inform the senior citizens of that fact?)

Then figure out just how much you need to take per dollar earned and not earned in this country. There's your percentage. Work from there.

Even Adam Smith said this about earned income:

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. ... It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." (from his work An Inquiry into the Nature and Causes of the Wealth of Nations, from Book V, Chapter 2, Article I

That from the seminal thinker on capitalism. Seems to argue, years before Marx, that perhaps there are levels of wealth that can fairly be taxed at a higher rate, and levels of wealth that shouldn't be taxed at such a high rate, then some level of income that provides for basic subsistence and perhaps should not be taxed at all!

Or maybe I'm just turning into a commie like Adam Smith in my later years.


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