No one likes paying taxes. But would a flat tax make more of us tolerate the task more?
Republican presidential hopefuls Herman Cain and Rick Perry are betting their path to the White House is along a flat tax route.
A tax system in which all taxpayers pay the same percentage rate obviously would be simple. And if the flat tax is implemented in its purest form, all existing tax deductions and tax credits would be eliminated, making filing that much easier.
But the issue of tax fairness, which is one of the drivers behind the Occupy Wall Street protests, is another thing.
Obviously individuals with higher incomes would pay more tax. However, they have more discretionary income.
The rest of us tend to walk a finer line when it comes to money to spare, be it for an occasional splurge or to pay Uncle Sam.
And the poorest folks usually use up all of their income to meet their needs, what my grandmother called living hand to mouth. Sure 10 percent of $20,000 is “just” $2,000. But that’s $2,000 that a family depending on the full $20,000 needs to pay for or buy utilities, transportation costs and groceries.
Meanwhile, a person making $200,000 would owe $20,000. But they still have $180,000 left compared to $18,000 for the taxpayer at the other extreme of the earning scale.
Yes, this example is simplistic. That’s the point.
As much as we’d all like to make taxes simpler, personal financial and tax situations never are.
The Tax Policy Center, a Washington, D.C., tax and economic policy think tank, conducted a distributional analysis of Herman Cain’s 9-9-9 plan and found that it would raise taxes for 84 percent of the population, primarily affecting low- and middle-income families.
Cain and other flat tax proponents say they’ll offer exemptions for lower-income workers, although the former Godfather’s Pizza CEO isn’t offering any specifics yet.
Some flat tax plans of the past proposed retaining popular tax breaks, such as the mortgage interest deduction. But when you start adding back tax breaks, there goes the simplicity factor.
Then there’s the rate itself. For illustrative purposes, I chose 20 percent, but Treasury Department calculations in 2005 found that a flat rate of 34 percent would be needed to replace the income tax — and that included leaving the payroll tax in place.
The top income tax rate in our current progressive tax system — that is, tax rates start at 10 percent and increase as taxpayers earn more money — is 35 percent.
Of course, some say that the flat tax is simply a back-door way to spending cuts. If you institute a flat tax at a rate too low to adequately fund the federal government, then Congress would be forced to make spending cuts.
Politicians wouldn’t be that sneaky, would they?
Do you support a flat tax? At what rate? Would you surrender your current tax breaks for a flat tax?
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