Fair Taxation With Representation

Much has been bandied about in the news these days about a Flat Tax. Proponents (the right-wing, of course) say that simplifying the (admittedly complex) tax code would be good for everyone.

Actually, it's pretty bad for about 50% of Americans, but hey, we already know that the Republicans are the lapdogs of the wealthy, which is the 15% of Americans a flat tax would actually benefit.

The idea behind a flat tax is to tax everyone the same percentage of income. If everyone had basically the same income, that isn't an unwarranted idea. But obviously incomes vary from a few hundred dollars to a few hundred million dollars annually. That kind of disparity in income is why a flat tax doesn't work. You can see how this works in my blog about how taxing the wealthy more and the poor less will stimulate the economy.

A flat tax means everyone pays the same rate, but it doesn't impact everyone the same way. Someone who is taxed at 10% earning $25,000 is losing a hell of a lot more of their spending power compared to someone who is taxed at 70% earning a million dollars. Let's face it, there aren't a lot of millionaires out there starving on $300,000 of income per year while there are people out there starving on a $22,500 annual income. Making a flat tax of 20% means the millionaires are taking home $500,000 MORE and the poor are taking home $2500 LESS.

This is called robbing from the poor and giving to the rich.

Not exactly a good way to manage the economy by taking money away from the multitudes who will likely spend it and giving it to the few who don't.

But if people are looking for simple, then how about this: One formula. No deductions, exemptions, alterations. And it is applied for the average income of the household. The average income is the total income of the household divided by the number of people living there, and each person pays for their share of the income.

If you have two people and one income for the household, the income is averaged for each person. Let's say you have two people who live in a household whose income is $34,000 between the two. You divide that by the two people to give an average income of $17,000 each. Each person files for a $17,000 income regardless of who got the income.

A family of four? Same thing, only each person would be paying taxes on $8500 dollars instead - a much smaller tax burden.

This doesn't mean that everyone has to file a tax return, of course. There would one form for each person to be listed by name, SSN and such, a simple formula to calculate the taxes on the average income and then multiply that tax times the number of people listed in the household.

One page, maybe two depending on how large of a household we're talking about, with extra pages to list more people added.

Income would be defined as, "If you get it in that year and you can use it, it's income". This means interest earned in IRA's or bank accounts and any increase in the value of investments over which you have control of deposits and withdrawals would be income. You can't write off a loss.

On the bright side, since you were taxed on the money you used to put into an IRA (No deductions, no loopholes) or buy an investment, and were taxed on the IRA and investment earnings, you aren't taxed separately for taking that money out and spending it. You've paid taxes for the returns you received already. It's like a bank account and you pay taxes on the interest and earnings.

The tax formula itself would have to be worked out by someone with better math skills than I, but I imagine it would be something simple that increases with the increase in income, yet stays below the cumulative amount that would be paid if filed as one person's income. I expect it will be a logarithmic table or a place you can go online and enter your averaged income for the tax you fill in and multiply by the number of people in the household for the total tax burden.

If you have one person with $34,000 in income and 8 people with $34,000 in income between them, those 8 people in one household should pay less in taxes together than that one person in one household.

This takes care of the deduction for kids and other such standard deductions.

As for the other deductions, you're out of luck. No tax shelters. You pay taxes on interest You pay taxes on investment gains. You don't pay taxes on principle since that was your money to begin with.

Whatever the formula is (and if there's a math guru out there who can use a person's income as a specific basis for an increasing tax rate as described here, let me know), and whether it's put online for the convenience of tax payers or something they can do with a pocket calculator (A whole new cottage industry would be an app for it or a stand-alone electronic device), the idea is to simplify the codes and do it in a way that doesn't so grossly advantage the rich.

Flat rate taxes are the wet dream of the wealthy and the nightmare of the poor. The tax codes can be simplified by many other means that don't involve this kind of inequity.

Of course, there will be a lot of tax prep agencies put out of business by this, but in life, there are no guarantees - especially with regard to employment.