TheArmoTrader

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Why The Flat Tax Doesn’t Make Sense

I really dont feel like writing a long, heavy post so Im just going to post the numbers and you decide on yourself. Just know one thing, Taxes=revenue. cutting taxes= losing revenue. Its not rocket science. Cutting taxes does not equal more revenue somehow magically.

Current Revenue of the United States (FY 2012 estimated based on 2011 #s) is 2,173 Billion.

Current Revenue from Income Taxes is 1,154.5 billion.

The top 1% (whose tax rate is 35%) make up ~38% (2008 number,higher now since they own greatest % of wealth as of 2010) of that, or 438.52 billion.

Making a “Flat Tax” of lets say 19% would cut that income tax revenue from JUST the top 1% to $238.05 billion.

The Top 5% (income over 160k) pay 58.72% (2008 #,higher now) of the revenue generated by income taxes, or ~$677.40 billion. You cut that to 19%,the top 5% only ends up paying $370 billion.

The top 10% (income over 113K) pay 69.94% (2008 #,higher now) of the revenue generated by income taxes, or $807.80 billion. You establish a flat tax rate of 19% and the top 10% ends up paying only (estimate here) $455.5 billion.

You just took 400 billion out of our revenues. Have you seen this pie graph?

You would make the deficit about 2 TRILLION. And let me tell you ONE thing. Dont tell me lowering tax revenues would increase economic activity and thus make up for any immediate lose revenue. IT WONT. If you have not realized, people are GREEDY. Its in our human nature (Thats why capitalism is the BEST system out there for us). They are only going to do as much is needed to make a profit they are comfortable with. Why would someone who is making a million/year and running a succesful business go out there with the extra money s/he is now getting and either expand their business or hire new workers? They (majority) likely wont. And even if a majority did, that likely will still not be enough to cover up the extra defecit (on top of the current one) you would cause by establishing a flat tax rate.

Even besides the fact that that a flat tax doesn’t make sense economically, it also doesn’t make sense ethically. The current tax system (which isnt great btw) taxes DISPOSABLE income. A flat tax on everyone would create a distribution of wealth….to the rich. A 19% tax (which we all know would create huge deficits) to someone making $40,000/year is NOT the same as 19% tax to someone making $1 million. Supply side economics DOES not work. The rich do not ‘trickle down’ money down to the poor. This doesnt mean the rich dont create jobs. They do. But this doesnt mean we have to lower their taxes to create more jobs. It doesnt work that way.

And the argument that the current tax system (progressive) punishes hard work,risk taking and entrepreneurship is BS. We’ve had MUCH higher rates in the past, yet the nation has grown. Check the rates in the 1950s and 1990s (two eras of great growth). The (top marginal tax rate) was higher then now. How could a nation grow so dramatically with so many people “scared” of taking risks? It could and did, thats why. Its a case of Negative punishment vs Positive Reinforcement here. Opponents of my argument will argue this is negatively punishing them (taking away money). That is wrong. Why? Because if people know they will pay X amount of taxes to the government (which doenst DIRECTLY benefit them), they would try to think of some way of not paying it right? We all do (deductions,write offs). By going out and hiring people, updating machinery/infrastructure, expanding business,etc they could use these to write off some taxes. What do the aforementioned actions do? Create economic activity. NOW, I know all businesses dont need to update/hire/expand all the time of course, but there will always be a good portion who do. That is positive reinforcement.

AND before you go all crazy, I am NOT saying lets make the top marginal tax rate to levels during Reagan’s early years to 50% (although the way were are going, we might need to). But by just letting the bush tax cuts expire for JUST the top 2% (letting it go back to Clinton era rates,when the economy was BOOMING), it would generate $~700 billion over the next 10 years (or $70billion/year). Yeah, nothing to cover our deficit but hey its a start AND DO you have a better idea on how we can cover our $1.65T deficit?

AND one last thing. CUTTING spending will NOT COVER OUR DEFICIT. Unless you plan on cutting a ton, and I mean A TON of spending (Defense by 60%,drastic cuts to Medicare, Medicaid,education,etc), there is no WAYYYYYYYYYYYYYY we can cover our mess just through cuts. We have a REVENUE problem AND a spending problem. Not just a spending problem.

Please I would Like to hear your thoughts. And please, for goodness sake, bring up some facts and numbers if you plan on arguing. Dont just say, ‘Im paying the 2nd highest marginal tax rate and im not looking to hire’. Thats not a fact, thats an opinion. I would love to have a fact-based debate.

This turned out to be longer then I thought haha.

Sources

http://www.moneychimp.com/features/tax_brackets.htm

http://www.ntu.org/tax-basics/who-pays-income-taxes.html

http://www.ritholtz.com/blog/2011/04/our-absurd-budget-debate/

http://www.usgovernmentrevenue.com/US_per_capita_revenue.html