Some American politicians have recently come out in favor of a flat tax, citing the complexity of the current tax system.
The main benefit of a flat tax is removing filing loopholes and allowing for a constant, known quantity of money to be owed by each individual and corporation. Its proponents say that a flat tax will increase economic growth by giving companies more money to spend.
However, the flat tax has an ugly underside. The United States has a long history with regressive taxation- that is, the more money you make, the less you pay- and applying a flat tax to income would make every taxation scheme in America regressive.
Regressive taxes mean that income disparity is widened, and income disparity results in a whole slew of unpleasant things; it’s correlated with high infant mortality, low life expectancy, and civilian unhappiness.
Consider two people, one making twenty thousand dollars a year and the other making two hundred thousand. If both are taxed at twenty percent, person A owes $4000. Person B, on the other hand, owes $40,000. This may seem fair on the surface. After all, the richer man is paying more.
However, consider what’s left over. Person A must pay their rent or mortgage, buy food and gas, pay for their insurance and feed their family on only $16,000 a year. Person B can do all that with $160,000, ten times that amount.
In addition, a flat tax means less money for the government. This means less money for road repairs and retirement funds, healthcare and infrastructure. You may argue that private companies can fill the gap- and they can, for a price. But who will foot the bill for repairing a highway but the government? Certainly no one else would be willing to pay for such an unprofitable venture.
If there is to be a return to the most prosperous days of the United States, the days when income mobility was high and a living wage was easily accessible, the flat tax must be rejected. Return to the taxation rates of the 1950s that allowed for public works and public services.
In the 1950s, the highest marginal tax rate was 91%. This meant that if you made, say, $400,000 in 1955 (an absolutely ludicrous amount of money for the time- the average family income was approximately $10,000), the first $4000 would be taxed at 20%, the next $4000 at 22%, the next at 26%, and so on and so on until we reach $400,000- after which all earnings are taxed at 91%.
This progressive taxation had the effect of both leaving enough money for people to live on and allowing the funds to build one of the most prosperous, shining societies in the world; something that has now fallen by the wayside, as the 2011 top marginal tax rate was only 35%, beginning at $379,151, and the effects of income inequality on the American citizen are getting harder and harder to bear.