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.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
The tax code be more fair, but tax fairness is not the reason for the mess we are in. This is what the Tea Party recognized but writers like Reich just do not get it and continue to spread the class warfare message. Robert attacks the Tea Party on a daily basis and aligns it with the GOP, however the Tea Party was formed out of frustration with both parties and has voted incumbents of both major parties out of office, not just Dems. Robert seems like a smart guy, if he just put pen to paper and did some real analysis instead of just spouting facts that he thinks will inflame his audience he just might understand why many of us will refuse tax reform until we see real spending reforms.
More importantly, consider that the federal government provides things like national security, medicare and social security, all of which provide equal benefits to all, regardless of income level. Therefore, a flat tax at the federal level is much more justified, as benefits are flat or even regressive (more going to those with lower income). http://bit.ly/rVqQXZ
Your logic also fails on the notion that everyone gets equal benefit from federal expenditures. If the united states fails, I lose far less than do Msrs Buffet and Gates. I have much less use for the courts, our our international treaties. I don't even use airports on a semi frequent basis. Then on the big social programs, Social security is funded by a regressive tax and those who payed in less get less. The only study I've seen shows ss/medicare transfers wealth to wealthy white women because they live the longest.
The point of the regressive FICA tax is to protect that program from the liars and thieves, you can still see them skulking about eying that big pot of money, but the facts are simple even if the tax code isn't. Social security is funded, completely for quite some time, and with small adjustments can be good indeffinitely again. Any attempt to abscond with the money should and probably would result in...as ponzi boy perry said some ugly treatment.
Oh and I can assure you revenue won't soar, they are being crafted to be "revenue neutral"
Your glib, "some will pay more some less" is a sad way to gloss over the fact that most Americans will pay significantly more, the same Americans who have lost ground for 30 years, all so that a few rich Americans, people who have become considerably richer over the last 30 years, can become - even richer.
Ideally taxation is nothing more than the communal agreement to fund public works, public order and the military of nation and state. Fair intelligent taxation policy is used to incentivize markets and deter / levy bad behavior. It's been 30 years of lobbyist and political tinkering that has created the current Frankenstein tax system that most experience as un-just.
People often think ALL of their income is taxed at one rate if they fall into that income bracket... which isn't the case. The tax code simply needs a good scrubbing and overhaul to eliminate all the means of corruption and shortcuts.
First, simplify paying taxes. Ask for a Flat-tax proposal which does eliminate deductions. (eliminate mortgage-interest deduction, for example.) No one pays any income taxes on the first $20,000 or so of their income
Second, make flat tax fairer than the current system; tax ALL income no matter where made and treat corporations as individuals [again no deductions Include income in the form of capital gains
The truth is the current tax code does not treat everyone the same -- you pooh-poohed "apart from various deductions, exemptions, and credits, of course". Taxes and their treatment is political power. It's lobbistists organized around tax breaKs; exemptions and deferred incomes. Everyone whose income reaches the same bracket is not treated the same where's my deferred income; my businesses tax break or corporate welfare.
If you want to means test anything make it health insurance or social security.
Reich's comments are the smoke screen.A flat tax can be made fair, Reich and the Democrats are too lazy to come up with a reformed flat tax. Beat the Republicans at their own game - take notes from great leaders.
Tax reform is critical to this country. It can control lobbyists and political powers.
There is no reasonable equity of distribution under the current INCOME tax system. What's more, the Tax Code has become a "tinkerer's paradise" for 53% of the lobbyists who game it in Washington DC. It's a lucrative business, and the U.S. TAXPAYER pays for ALL of it in higher prices (i.e., a hidden tax which is incomprehensible to the average working person).
See http://people.bu.edu/kotlikoff/Comparing%20Average%20and%20Marginal%20Tax%20Rates%2010-17-06.pdf
You can keep a "flat tax" from being grotesquely unfair, but by that time it's no longer flat. Tax reform is a fine goal, but in our current political environment it's not going to happen.
Need it? Want it? Doesn't matter. Republicans are blowing smoke trying to get noticed, and their ideas about "fair" include massive tax hikes for ordinary people to pay for massive tax cuts for Rich folks. This has been true at least since Reagan.
They don't intend to pursue the nonsense their spewing, let alone what you're talking about.
The other group (B) recognizes that they have only $300/month to spend after putting $100/month in their savings account thus applying discipline to their lifestyle for independent living (as opposed to "dependent" living). The bottom line; we all must learn to live within our own means and take responsibililty for ourselves...not government.
(some Foxnews distractions)
Payroll tax...7.5%
State income tax...4.5%
State sales tax...6%
This adds up to 18% of my income
Cain is trying to DOUBLE my tax by adding
Federal income tax ...9%
Federal sales tax ...9%
This an additional 18% (a DOUBLING of my taxes)
And he wants MY VOTE?
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ... The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."
They're CRIMINALS
This wasn't "difficult." It bordered on criminal.
As for the necessity of this act, I suggest that long-term problems are better resolved with long-term solutions, and that a focus on job creation would produce immediate increases in tax revenues.
I agree, though, that we need tax reforms, and fail to see how more than a single term in office can be justified.
So, here are a few questions:
1. Who get's to determine what is "fair" when mandating tax laws?
2. What is the point of collecting tax revenue when our Government spends more money than our collected tax could ever pay for. (The IRS, just by itself, costs the taxpayer just over half of the collected revenue yearly. Talk about inefficiency and a wasteful governmental program!)
3. How does extra taxation on the Rich help? Wouldn't the net effect be increased costs for the less affluent; being that the Rich who provide goods and services to the less affluent would see the tax as reduced profits? (...just think Walmart Family pays millions more per year in tax... prices would surely rise at your local Walmart)
4. ....And, most people understand - especially in the continually down economy - that reducing costs and "frivolous spending" make for a sound financial budget. America is so very far in debt that any taxation without cost reduction is futile.
Your assertion -- and it is nothing more than an assertion -- that progressive taxes are "very foolish" is based on no reasoning or data whatsoever. Here's why such taxes make sense: 1) Avoiding concentration of wealth and advantage. This is the fundamental principle of the American Constitution – fragmentation of power and avoidance of tyranny (that includes economic tyranny). 2) None other than Adam Smith argued that "the rich should contribute to the public expense, not only in proportion to their revenue, but something more." The reason is, it's easier for the rich to pay extra tax, and because they have more money to begin with, they can make more money more easily; they are therefore excessively advantaged and a progressive tax balances out that advantage.
Also, consider your point 2: What is the point of collecting tax revenue? Think about this. How do you pay for the police, military, bank insurance, fire departments, schools, roads, border patrols, etc.? Do you propose to privatize all of these things?
Your point 3: Do you think prices would rise there if Waltons (or WM shareholders) had to pay more tax? The company would lose its low-price advantage versus other mass retailers.