The "Progressive" Flat Tax

Robert M. Neil uarn at MCK-UAII.MCK.NCSU.EDU
Tue Sep 30 12:22:49 MDT 1997


Rush was talking today about the debate about single rate vs.
national sales tax and lamented about how it didn't seem to be
getting through to John Q. Public.

I think I have the answer.

First, the problem is that when people hear the words "flat tax,"
it sounds like rich people will pay the same tax as the not-so-rich
 - hence the class envy. Although consciously everyone knows that
someone who makes 10 times more than you will pay 10 time more tax,
subconsciously it seems like you're paying the same tax as someone
who makes 10 times more than you.

The answer is public education, but the packaging should emphasize an
aspect of the flat tax which I have not heard anyone (including the
Maharushie himself) elucidate: it's almost perfect progressivity!
THAT'S RIGHT, THE FLAT TAX IS PERFECTLY PROGRESSIVE FOR ALL TAX
PAYERS. In fact, it is only NOT progressive for folks who don't pay
taxes. The trick is that the tax does not kick in a $0 of income.
Rather, it kicks in at some number significantly higher than $0 and
that initial deduction becomes a smaller percentage of total income as
income rises.

Let me illustrate...suppose we have a system which provides for a
single tax rate of 15% and has a $7500 personal exemption with no
other deductions. Consider three families of under this system: the
Smith family has a household income of $35,000, the Jones family has a
household income of $75,000, and the Gates family has a household
income of $1,000,000. Each family deducts $30,000 in personal
exemptions (4 x $7,500) from family income to get taxable income.

The following table compares the tax bills of the three families:

===========================================================
FAMILY     FAMILY      TAXABLE      TAX          TAX
NAME       INCOME      INCOME       PAID         RATE
===========================================================

Smith     $35,000      $5,000       $750         2.1%

Jones     $75,000      $45,000      $6,750       9.0%

Gates     $1,000,000   $970,000     $145,500    14.6%
===========================================================

As you can see, the system is progressive...everyone pays a higher
PERCENTAGE of income in tax than ALL OTHER TAXPAYERS who make less
(even $1 less).

So, when Richard Gephardt or some other liberal demagogue type
challenges the flat tax on fairness grounds, conservatives can point
out that the single rate tax system is far, Far, FAR more progressive
than the current, corrupt, complicated and UNFAIR system we have now.
Lott, Gingrich, Armey, and the rest of the GOP leadership ought
better to get off their duffs and get the job done!

Forbes '00!

Robert



===============================================================
Robert Neil
Computing Consultant II
Urban Affairs - NC State University, Box 7401
Raleigh NC 27695
---------------------------------------------------------------
"A candle may light the way in the darkness, but NUCLEAR POWER
 means we can have cold beer while we watch the Superbowl." CS
===============================================================



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