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2010: should we consider flat tax?
In a democratic society, we abhor inequality on principle alone. We suggest that all are equal under the law. One person, one vote. Why should our economic model be any different, any less democratic? We are all given equal access to our public services, and so the question is raised — why should some people have to pay more in taxes for equal access to what is publicly provided?
The first inclination is to suggest that everyone should pay the same amount for the same access. This is the flattest tax one can propose. However, it does not take long to realize that dividing out the Federal tax budget by the number of taxpayers would result in taxing a large portion of the lowest earning population more than their income.
And so, the equality of tax argument quickly accedes that a flat tax would not refer to a specific dollar amount, but would refer to a specific percentage of income. This is the heart of the flat tax argument. Everyone contributes thirty percent of their income, and in this way the equality of taxation is accomplished.
But the clear problem with a flat tax, though it sounds reasonable on its surface, is that lower income households need to apportion nearly all of their income to necessities like housing, food, utilities, and transportation. Whereas high income households have money beyond their essential needs. And it is this extra income, or discretionary money, that is targeted for a higher tax percentage because it can be more easily afforded. That is what is referred to as a progressive tax.
