Conservatives are always pushing for a "flat tax." It sounds so simple: One easy rate, so we all pay the same, easy to calculate... Get rid of deductions and lower the tax rates. So simple, but it turns out it is a simple trick, a scam to enrich the 1%, like so much else that conservatives are selling. Don't fall for it -- it means taxes will go up for the 99% of us who aren't really, really rich. See if you can guess what happens if you are in the top 1%. Or, just scroll down and see the the chart.
What We Have Now
We have what's called a "progressive' tax system. This means as you make more you pay more taxes. The first "bracket" of XX dollars you make is taxed at a low rate. The next XX dollars are taxed at a higher rate, and so on. Many people think if you "go into a higher bracket" you pay more on all the money you make, but that is not how it works. If a bracket starts at $1 million, and you make $1 million plus $1 you only pay the higher rate on the $1 that is in that bracket. Yes, that means that a 5% increase on taxes over $1 million would mean that person pays a nickel. Yes, all that screaming by Republicans is over a nickel. Screaming is what they do best.
The reason we have a progressive tax system is because we have a democracy. People who make more do so because of the investment in government that We, the People make. We, the People pool our money collectively and use it to build the infrastructure that lets people make so much money. That's the roads, schools, police, courts, etc. -- the whole system -- that provides the foundation for our businesses to go out and compete in the world. And when our businesses do well, we ask them to pay back a dividend to the rest of us for enabling that to happen.
No Deductions
Conservatives always call for getting rid of deductions, because they are complicated. Get rid of deductions, they say, simplify the system, and you can lower tax rates. Here is the game they are playing. Suppose you have a small business, a grocery store. Suppose you buy $100,000 in inventory and sell it for $130,000. If you get rid of deductions that means the small grocery owner pays taxes on $130,000 because that is the income of the store.
If you say the business owner should be allowed to "deduct" the amount paid for inventory, we're back to deciding which deductions to allow. So we are right back where we started, except now the conservatives have lowered tax rates (at the top) and their big corporate sponsors will be gaming the system to give themselves more and more and more deductions just like they already do.
What Happens With A Flat Tax?
Conservatives object to the idea of the rich paying back more. They say that taxes are theft -- government confiscating money that people have earned, ignoring that our democracy enabled them to earn it in the first place. They call taxation "redistribution" of wealth. Of course, as AlterNet's Joshua Holland points out, redistribution is the core job of government. He points out that when government collects taxes and builds a sidewalk that everyone can walk on -- or homeless people can sleep on -- that is redistribution. Courts, schools, police, ports, airports -- all of it is redistribution of wealth.
So conservatives call for a "flat tax." Most notably Republican presidential candidates Rick Perry and Herman Cain are calling for various forms of this. This means everyone pays the same tax rate as everyone else, regardless of income. Because this is about scrapping democracy's progressive tax system, this necessarily means that the rich will pay a lot less. Guess who pays more to make up for that? A good example of this effect is the 9-9-9 tax plan.
The 9-9-9 Plan
The Tax Policy Center takes a look at Republican candidate Herman Cain's "9-9-9" tax plan, in a post titled, Herman Cain's 9-9-9 Tax Plan
Herman Cain's plan would eliminate the current individual income tax, corporate income tax, payroll tax, and estate and gift tax and substitute three taxes imposed at a 9 percent rate: 1) a 9 percent "national sales tax" 2) a 9 percent "business flat tax", and 3) a 9 percent "individual flat tax."
They have a table here that shows how people's taxes would change under the 9-9-9 plan. Jared Bernstein made a chart illustrating these numbers in his post 9-9-9 in One (Really Long) Graph.
So here you have it: the change in tax liabilities, compared to current tax policy, under 9-9-9, for different income groups, in one incredibly unsettling graph.
In the following chart the blue lines that are above zero illustrate how much more most of us will pay. The red lines below zero show how much less the rich and really rich will pay. The blue lines -- representing taxes on most of us -- go up. The red lines -- representing taxes on the top few -- go ... well, see for yourself.
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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http://www.huffingtonpost.com/2010/11/28/health-care-tax-break-deficit_n_788852.html
Job-Based Health Care Threatened
"WASHINGTON — Job-based health care benefits could wind up on the chopping block if President Barack Obama and congressional Republicans get serious about cutting the deficit.
Budget proposals from leaders in both parties have urged shrinking or eliminating tax breaks that help make employer health insurance the leading source of coverage in the nation and a middle-class mainstay.
The idea isn't to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions.
[snip]
Repealing the tax break would raise several hundred billion dollars a year, depending on how it's done. Many economists believe employers would boost pay if they didn't provide health care..."
Anyone who thinks employers would boost pay to compensate is delusional.
o employers' job-based health care deduction
o home mortgage deduction
1) Nothing in life is fair, nor will it ever be.
2) It may not be fair for a billionaire to pay 5% in federal income tax, but it is also not fair for the majority of the country to not pay any federal income tax either.
Whatever anyone else says, the 51% of households not paying federal income tax need to start paying federal income tax. You can't have a democracy in place when a majority are reaping the benefits without paying the price, it just doesn't work.
How about instead of deriding those in the bottom 40-odd % for not paying a net Federal Income tax at the end of the year - we figure out a way to get them a living wage sufficient that they can net high enough income to pay a net Federal Income tax at year's end?
How about we tax capital gains as actual income - at least over a certain minimum level?
How about we remove the income cap on SS and Medicare taxes?
How about we enforce the AMT?
The day I make a million+ per year in taxible income,... that's the day I smile knowingly that although I know my marginal top tax rates are high - that I live in a country that has helped make it possible for me to do so well financially.
When all the money, and all the power are concentrated in the hands of a select few - your democracy has ceased to be a democracy and is now an oligarchy.
Having said all that, why is it that historically far more people paid federal income tax than they do today? Even back in olden times the lower classes paid something. Now they pay nothing. Now, not only do the truly poor pay nothing, but the lower middle class pay nothing and even sometimes the truly middle class get a pass.
Why would you remove the payroll cap? Payroll taxes are specifically levied to pay for a benefit program. If you remove the cap then you essentially make those over the current cap pay more and more for the same benefit. Think of auto insurance. Your neighbor with the ten DUI's and wrecks gets the same policy for the same premium? Is that fair? No.
You don't think AMT is enforced? LOL. Tell that to the lil' AMT line on my taxes last year that resulted in my writing a check for another 80k.
You realize a 1mm annual income is not the top 1%, it is the top .01%, right?
You present a false dichotomy.
Fact is - we need to do both.
I don't know what is fair, but I do know that the current 16,000 page tax code is neither fair nor-simple. No government should require the estimated 6 billion hours of their citizens time to comply with the tax code. How can it be fair that a $2,000,000 house with an 80% mortgage gets 10X the benefit of a $200,000 house with the same 80% loan? If they want to encourage home ownership why not have no deduction but send every homeowner a $5,000 check each year. Just one of thousands of issues with the current code. But....not to worry...it is very likely there will be tweaks and we will be left with more of the same.
The U.S. hasn't declared war since December 8, 1941.
We never had children.
Let's look at the caps. A person who retired in 2011 at age 66 and paid into OASDI and HI at the maximum amount for 45 years from age 21 to age 66, would get a OASDI Benefit Check of $2,366 per month. That same person paid into OASDI from the years 1966 to 2010 for a maximum contribution for OASDI ranging from $254.10 in 1966 to $6621.60 in 2010 and totaling $129,851.39. The last month before retiring he would have paid into OASDI $551.80 out of a monthly income of $8,900.
To be clear:
Dec 2010 PAID $551.80 Total payments made $129,851.39
Jan 2011 GOT $2,366.00
If the same person had paid the same contributions into an account earning 7.2% interest, compounded annually, would have in the account at the end of 2010 $418,828.69. The monthly dividend on the same 7.2% interest would be $2,512.97.
I just wanted the actual numbers out there to be absolutely clear. When you suggest eliminating the cap on payroll taxes, are you also suggesting eliminating the cap on benefits? Or would you recommend that the contributions keep going up while the benefits stop at $2,366? What is fair?
What I continue to remain amazed about is the fact that so many individuals who are likely to never become millionares support that positon.
ALL income is subject to Social Security and Medicare with no caps.
Single filer gets a $75,000 exemption; joint filers get a $150,000 exemption.
Interest on municipal and State bonds is exempt only for direct public investments. Economic development bonds etc. are not exempt.
No deductions, no dependents, no tax credits, ALL income is counted the same.
A flat rate of 50% levied on everything over the exemptions.
The 90% demographic is about $150,000 (0%). The 98% demographic is about $350,000 (0 - 29%). The 99% demographic is about $850,000 (29 - 41%). Over $850,000 is 41 – 49.9%. All of these plus 7.65% for SS and Medicare.
Yea.... back to mars with you junior.
*snark*
1) If you make 10 million or more, you pay 50 percent federal income taxes.
2) No deductions/exemptions/personal allowances.
3) If you make 20k or less, you don't pay any federal income taxes.
4) If you make more than 20k, you do (even if it's a mere pittance).
5) Corporations ONLY get tax credits if they hire Americans full-time for at least 2 years (unless a person is fired for gross misconduct/committing a crime).
6) No more marginalized rates. If you make 10 million, you pay 5 million in federal income taxes.