The ‘Regressives’ Flat Tax Plans

Posted by AzBlueMeanie:

Herman Cain's "Plan 9-9-9 From Outer Space" would replace the current tax code with a 9 percent individual income tax, a 9 percent corporate tax, and a 9 percent sales tax. Cain calls it a "flat tax." (It's actually more akin to a "value added tax," or VAT Tax).

This week, Governor Goodhair Rick Perry of Texas will introduce his own plan for a "flat tax." Dick Armey, the titular head of FreedomWorks, the billionaire bastard Koch brothers' Tea Party front group, predicts this will give Governor Goodhair "a big boost."

Steve Forbes, one of America's richest billionaires — he earned it the old-fashioned way, he inherited it from his daddy — who serves on the board of FreedomWorks foundation, also thinks it's a great idea. Forbes has been pushing this flat tax nonsense for many years since he ran for president in 1996 and 2000 on the "flat tax."

Former Labor Secretary Robert Reich writes, The Flat-Tax Fraud, and the Necessity of a Truly Progressive Tax:

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.

Vice President Joe Biden recently addressed this Republican obfuscation when he taught math to Republicans in this segment of The Last Word.

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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.

It's not just Tea-Publican candidates for president who are promoting this fraud. Rep. Steve Court (R-Mesa), the sponsor of HB 2636 (the Tea-Publican "flat tax") in the last legislative session intends to bring his regressive tax bill back in January. Tea-Publicans believe in 'flat tax' fantasy:

If Arizona shifts to a one-size-fits-all income tax, it would raise taxes for 88 percent of Arizona filers while cutting them for the 12 percent with a taxable income of more than $100,000 a year, a legislative analysis shows. Arizona flat income tax a hike for many:

House Bill 2636 would increase the tax burden on lower- and middle-class taxpayers while giving the wealthy a tax cut.

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For the JLBC's breakdown of the impact HB 2636  (You can read the entire JLBC analysis here) and how this "flat tax" will affect you:

By asserting the fiction that his "flat tax" bill is revenue neutral, Rep. Court can get the Tea-Publican super-majority of the Arizona legislature to enact his bill without having to refer this radical tax plan to the voters for their approval. At least, this is the plan of supporters for the Tea-Publican "flat tax."

It will take strong public opposition to defeat this "flat tax' bill. Sen. Paula Aboud (D-Tucson) will be taking her "Axe the Flat Tax!" Forums back out on the road in November to educate voters on how this radical Tea-Publican "flat tax" bill will negatively impact their family finances. (See the Political Calendar for dates and locations). To learn more, visit Axe The Flat Tax.