The Flat Tax–Fair vs. Equal

Imagine you’re in the checkout line at the local store. You have your cart of groceries and you are watching the clerk scan the items of the person in front of you. You realize all of their items are ringing up at different prices. Their gallon of milk is $2 whereas you pay $3. Same gallon of milk. The same loaf of bread you pay $3.50 for is only $2.25 for them. When you question the price difference, the clerk responds the price you pay is based on your income. You make more, so the store is charging you more because you can afford to pay more. What would be your response? Would you feel lucky that were able to afford the higher tax?

I suspect if the things we buy were taxed like our income, we’d scream inequality and unfairness. But when it comes to income, so many argue it’s ok for someone earning more money to pay more of their share. I don’t see how this is either fair or equal. What if we used ability as our guide for other things. Take the Olympics. What if ability was used as a determining factor in calculating results. Well so and so country has a very limited training budget, so they get a 2 second head start in the 100 meter event. Or when Oakland plays New York, Oakland is spotted a 7 point lead because they have a much smaller budget than New York.

Here’s another way of looking at it. You want fair and equal: everybody starts on the same line, at the same time and must cross the same finish line. There’s no grading on age or gender or your income. If you want equal rights and to be treated equally, then there are no breaks. I’m not making anywhere near $1 million a year but those that are shouldn’t have to pay more because they make more. We fight for equal rights except if you make more than the average salary. You cannot say I’m for equality but only for a certain group. Why isn’t it that we take what it costs to run the country, divide that by the number of those living here, and that’s what each person owes? Overly simplified but the current system makes no sense and obviously isn’t working. Our government talks of fair share and equality for all, but then in the next sentence says those making $1 million deserve to pay more.

“If you make more than $1 million a year, you should not pay less than 30 percent in taxes”

“If you make under $250,000 a year, like 98 percent of American families, your taxes shouldn’t go up”

I understand the point of view but I don’t consider this fair and equal. And I know on so many levels, a flat tax sounds unfair. But is equal burden = equal share? Maybe the government should really call this equal burden. For some, the burden would be harder and for others, it would easier. And maybe we’re ok with using some sort of equal burden but then that is what it should be called: those who have a higher income have a higher responsibility. Or maybe we should really go with use tax. You are taxed on what you use and consume. Those who use and consume more, pay more and those who use and consume less, pay less.

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3 thoughts on “The Flat Tax–Fair vs. Equal

  1. A flat tax favors the rich (which is why they’re pushing so hard to get one passed). If the rich, say the $1M/yr+ folks pay less in taxes, where does the rest of the tax revenue come from? Those less able to pay. The middle class and working poor.

    Also, in this hypothetical world that you’re talking about where we’re all starting on the same line, where is this line? North of 20% if the government wants to be anywhere close to solvent. How’d those flat taxes work in former (mostly poorer) Soviet Union countries? (which is about the only place in the world that considered it) Not so well without a corresponding VAT. Why do you think that Western Europe hasn’t given it a shot yet?*

    Clean up the tax code? yes.
    Close tax loopholes? yes
    Stop all of the corporate welfare? absolutely.
    Flat tax for everyone? nope.

    * with the exception of Iceland at a reality-based 35.7%. I’m betting that flat tax supporters in the US couldn’t stomach that number.

    • In a hypothetical world where every taxpayer pays the same flat tax, then there is no “If the rich, say the $1M/yr+ folks pay less in taxes…” In the eyes of the government, each citizen is equal and pays the same tax. Why shouldn’t the tax revenue be spread evenly across all citizens? How does that favor the rich? I think it favors the rich in perception only because they can afford to pay more, and are paying more now. But in an even flat tax world there would be no discrimination.

      I agree that most supporters couldn’t stomach a flat tax. Though when people shout fair and equality, they seem to be arguing fair for only the 98% and not fair for all 100%. That is not fair.

    • I agree that Flat tax would be fair if everyone had the same starting point. If everyone was given the exactly the same opportunities to make it in life then it would be fair to tax them all equally.

      The reality is that people do not get the same opportunities. Some are privileged and some grow in hard circumstances. In the progressive taxation system the successful (read: those making more money) have an implied obligation to help those who are not privileged and are trying to come up. The intent of the progressive tax system is not to penalize the successful, but rather “give back” some excess. For example, the system taxes the first 50K @ the same rate for everyone, the second 50K at the next higher rate for everyone and so on. Only the amount above a threshold, say 250K is taxed at a higher rate.

      Now, are these thresholds and rates perfect? Hardly. I understand the outrage when you see people benefiting from this while squandering away the opportunities.Such is life, not all humans take personal responsibility. But, the spirit is right in my opinion. Until we find a system where opportunities can be equalized I would rather err and let some get a free ride if it helps some underprivileged get out of their rut and become successful.

      KR

      PS: I came back to your website because I am running Boston next week and I wish you were there to pace me! Your pacing helped me immensely in CIM in December.

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