The United States of Flat-Tax-Land

We've got barely more than a year until the keys to the White House are up for grabs again, and in my following of the news a peculiar meme has once again emerged among the vying Republican candidates. Not only emerged, but held aloft - the flat tax. I remember it primarily from the presidential campaigns of Steve Forbes, who kicked around the idea in 1996 and 2000 before being crushed into fine powder. Today its main standard bearers are Herman Cain, who first brought it to the table in a big way through his 9-9-9 plan, and Rick Perry, who seems to have a greater affinity for the number 20.

The flat tax represents a stark departure from the income tax codes in place throughout the Western world, commonly seen as byzantine mazes that are impossible for any one person to understand and which were purposefully designed to confuse people into paying as many taxes as possible. Personally, I use computer assistance programs to prepare my taxes, so I'm not too sure about that. By contrast, proponents of flat taxes like to say it would be simple enough "to fit on a postcard." So this weblog has more than enough room! Under a flat tax, filers pay one specific, particular rate - Rick Perry's optional flat tax, which is a weird as hell way to try going about implementing one, would be a firm 20%. That is, aside from a few specific, enumerated deductions, you pay 20% of your income in taxes and that is that, no matter how much you make. That's it at its core.

Today more than twenty countries around the world have flat taxes in place, though disproportionaly focused around the Eastern Bloc and concentrated in the former Soviet Union, with Russia leading more than half of the ex-Soviet states in the establishment of flat tax systems. Whether these taxes are responsible for economic growth is a difficult thing - after all, correlation doesn't equal causation, and a lot of the flat tax countries are only twenty years removed from communism. It's too bad there's no real laboratory for economic science.

Flat tax supporters make a lot of noise about how fair it is. But, the more I think about it, the more it becomes obvious that that's not really the case at all.

That tax wasn't flat, but the sign was pretty ragged.

If the concept of a flat tax is simple, let's run with it to the degree that my conception of the concept will allow. Take the example of... Examplevania, a small republic that has thrown out its old financial jargon and instituted a 20% flat tax code. For the purposes of this hypothetical, and to keep things simple - because, you know, simplicity is one of the reasons why everyone is so agog over the flat tax - Examplevania does not have any substantial deductions. Rick Perry's plan, by contrast, allows "$12,500 per person and mortgage interest, charitable donations, state and local taxes for those earning as much as $500,000 a year." Let us also assume, for the purposes of this hypothetical, that Examplevania has no sales taxes; presumably it's sitting on its own tar sands or something. Now let's look at five Examplevanians chosen purely for their annual income, from the high strata of society to the lowest.

Examplevanian #1 earns $304,000 per year. Taxes of 20% work out to $60,800.

Examplevanian #2 earns $152,000 per year. Taxes of 20% work out to $30,400.

Examplevanian #3 earns $76,000 per year. Taxes of 20% work out to $15,200.

Examplevanian #4 earns $38,000 per year, putting him or her squarely in the lower middle class or upper working class. Taxes of 20% work out to $7,600.

Finally, on the ground floor of this particular ladder, Examplevanian #5 earns $19,000 per year, most likely in some soul-crushing customer service job with a monolithic, uncaring company. Their taxes of 20% work out to $3,800 over the course of the year.

Now, on the face of it, you may be tempted to say that it's fair - isn't it? Everyone is paying the same percentage of their income, paying what they can toward the maintenance of the state and of civil society. This is where people can easily trip up; by focusing in on the rate of tax itself, rather than what's left after the taxman has gone off again.

So let's look back in on our Examplevanians. Once the return's in the envelope, Examplevanian #1 is out more than #4 and #5 combined make in a year, but is still left with $243,200. Examplevanian #2 has $121,600 for booze and exotic vacations, and Examplevanian #3 has $60,800 left over.

As for #4 and #5? #4 ends up with $30,400, and #5 is left with $15,200 to get them through the year.

The percentage is the same, but even the same percentage carries more weight on smaller numbers than it does larger. The difference between $200,000 and $300,000 of liquid capital boils down to differences in comfort - whether Examplevanians #1 and #2 will visit this or that gourmet restaurant, take this Caribbean cruise or that Alaskan one, and so on. It's a question of quality.

For Examplevanian #5, it's something quite different. Look again at that number, $15,200. For an entire year, that's it - and that works out to $1266.66 per month. I know cities where rent alone is more than that per month; hell, while I was pricing apartments in Toronto before moving out west, a $1000/month single-bedroom apartment was cheap - and living in rented basements will only scoop a couple of hundred dollars off the top of that. That doesn't even factor in food, transportation, or emergencies. What's more, this is only considering the Examplevanians as completely independent, responsible only for themselves - what happens when you bring family in? What happens when Examplevania's economy collapses, and Examplevanian #5's soul-crushing clerking job is the best they can find to support not only thesmelves, but others?

It's poverty any way you slice it, but what makes it worse is the idea that this is somehow more "fair." The more important thing, the thing to really consider, is how is this equal?

Now that the money's parcelled out, what happens? That depends a hell of a lot on the national character of Examplevania. If it's one that accepts a robust social safety net that includes good health coverage, unemployment assistance, inexpensive or free public transit, and other such programs - that recognizes the responsibility of citizens to contribute to the construction of an equal and harmonious society - Examplevanian #5 still isn't living the easy life, but at least is living easier. If it takes more after the "fuck you, got mine" ethos that appears to be dominant in the modern Republican Party, well... I suppose #5 could try to get a second job selling bootstraps.

The biggest problem we have to deal with today, I think, are the institutionalized, systemic inequalities that exist throughout the West in general and in the United States in particular. Chasing flat taxes isn't going to fix this; after all, many of the flat tax proponents have made it clear that it's just part of a goal to drastically draw down government spending as a whole. We need something better.