A High School-Level Guide to Tax Reform


In 2012, the US federal government brought in a staggering $1.2 trillion dollars in income tax revenue – enough to buy 8,000,000 Ferraris. Surprisingly, though, for all the talk of the “99 vs. the 1%,” the rich paid for the vast majority of that number.

Yup. According to the National Taxpayer’s Union, the top 1% of earners paid over a third of all the income taxes in America. The top 5% paid for 68% of all incoming taxes, and if we zoom out to look at the top 25% of income earners, we find that they pay a whopping 87.3% of the country’s tax bill. The bottom half of earners, on the hand, pay 2.25% – basically nothing.

Why on God’s green earth are these numbers so out of whack? A look at how we pay our taxes sheds some light on the subject.

“We are the 1%… and we pay your taxes.”

Our current tax structure is progressive. This means that people earning more money are asked to pay more taxes. On the surface, this system looks pretty good because people who have more money can obviously afford to give more of it to the government. But progressive taxation is fundamentally flawed in a number of ways.

First, while the idea of the rich paying more than the rest sounds fair, we don’t need to look far to see that the poor benefit far more from entitlement spending, which makes up the biggest chunk of the federal budget. Is it fair to ask wealthy Americans to pay for programs they’ll gain nothing from? In a similar vein, a progressive tax also puts a damper on productivity, because workers have to give up more of their wages to the government as they earn more money. I call this the “achievement tax.” And of course, since a progressive tax requires a separate tax rate for each level of income, it’s extremely complicated (read: expensive) to enforce.

So how do we correct these shortcomings? We could try flipping our payment plan around, asking less of people who produce more. This would basically guarantee that the people who benefit the least from government programs like food stamps or Medicaid would have to pay the least for them. It would also remove the “achievement tax” successful people face when they bring in more money. Since this is the opposite of the progressive tax we use now, we could even refer to it as a “regressive” tax. On paper, it too looks fair.

But a regressive tax is disingenuous because it obviously places a greater burden on the poor. How can you justify that politically? It certainly doesn’t seem any more fair than the setup we have now – rather, it just shift the unfairness to a different group of people. Worse, a regressive tax is just as complicated to enforce as its progressive brother, so it doesn’t really solve any problems with collection.

Where does that leave us? Believe it or not, there is a middle path – one that leads to fair, effective and easy-to-collect taxes. It’s a proposal so obvious, it’s blinding… Just charge everybody the same tax rate!

Unlike a progressive or regressive tax, this flat-rate (or just “flat”) tax treats all income groups equally. It doesn’t punish the poor or the rich, and dramatically simplifies decision-making for households and businesses. The Heritage Foundation explains the mechanics of the idea succinctly:

“[The] flat tax means simply that everyone would be taxed at ‘just one rate.’ The flat tax eliminates inequalities in the current tax code by treating all taxpayers – and income – equally. With the exception of exemptions based on family size, all income would be taxed, but only one time. For fairness and simplicity, there would be no deductions, credits, preferences, or loopholes.”

The nice thing about this structure is that it makes collection a breeze – and therefore über-cheap. You really don’t need a lot of complicated accounting maneuvers to multiply your income by, say, 17%. Maybe that’s why 27 countries have already adopted the flat tax, and 5 more (including Greece) are considering it. In fact, some projections estimate that a transition to a flat tax could even lead to an increase in federal revenue – along with a decline in the number of IRS agents needed to enforce the tax code.

Let’s face it, folks – do we really need any more of a reason to jump on the flat tax bandwagon than that?

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Posted in The Modern Conservative
2 comments on “A High School-Level Guide to Tax Reform
  1. Mike and Helen Young says:

    Very informative. Thanks!

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