Thursday, November 29, 2007

Only the Rich Believe a Flat Tax is Fair

Last night, Republican candidates for President discussed the “fair tax.” To them, fair taxes are some form of flat tax. Nonsense … There is nothing fair about a flat tax.

These fair-taxers should re-open their economics textbooks and read the section on the marginal-value-of-the-dollar. The theory is simply this: Each dollar you have is worth slightly less than the previous dollar. Stated another way … a check for $5,000 means one heck of a lot to someone making $20,000 per year, but is almost meaningless to someone making $1 million per year.

Years ago, our income taxes were fully graduated and fair. The biggest earners paid over 90 percent on the top dollar they made, while the lower middle class paid a fraction of that on every dollar they earned.

As an example, lets look how a flat tax and a graduated tax would effect three families (2 adults, 2 children, and an elderly parent); the Smiths earn $20,000 per year gross, the Jones $100,000, and the Bushes $1 million per year.

Survival spending, for the basic human rights of shelter, nutrition, health care, education, and care for the elderly, can be equated to the poverty level. Even though the poverty level is grossly under calculated, for argument sake, we’ll still use the rounded figure of $20,000 per year.

Flat Tax

A low, and easy to use, flat tax would be 25 percent.

The Smiths would pay $5,000 on their $20,000, leaving them with $15,000. The Smiths come up short. They’re $5,000 short of $20,000 they need to even survive. Assuming they can find a way to get by, they couldn’t handle any emergency. If the car breaks down, they’re done; there’s no way to get to work so they can pay the rent.

The Joneses would pay $25,000, leaving them with $75,000. Less survival spending, they have $55,000 to spend on a better life. The Joneses can afford a new car, a bigger house, and possibly even send their kids to college someday. They can even afford to put the elderly parent in nursing home, if necessary.

The Bushes have $750,000 left over after paying their flat tax. They have enough money to buy a mansion, send the kids to an elite private school and Yale, and have a live-in nurse for the grandparent, with funds left over.

Graduated Tax

Now, let’s look at a simple graduated tax of zero on income up to $20,000, 25 percent up to $100,000, and 50 percent on income above $100,000.

The Bushes would now pay $470,000 in taxes, leaving them $530,000 for ‘expenses’. Perhaps their house would have to be room or two smaller and the kids would have to go to the local elite prep school instead of Exeter. But, the difference in the Bushes’ lifestyle is unrecognizable.

The Joneses would actually pay a little less in taxes, only $20,000. Their lifestyle wouldn’t change at all.

The Smiths, on the other hand, would see a tremendous improvement in their lives. The difference between $20,000 and $15,000 is huge. They now have enough to live on and, with some wily money management, they could protect themselves against an emergency. Maybe the kids could even go to vocational school. And, just as an aside, their children would be more likely to be become tax payers than entitlement recipients.

A Graduated Tax is the only Fair Tax

No measure of fairness can be based on dollar values. Fairness can only be determined by outcome. Our tax system was originally designed so that each American would pay their fair share. Our current system of taxes has already become too flat and now, the rich want to shift even more of the tax burden to those who can’t handle it.

If we allow a flat tax, Karl Marx could turn out to be right … the workers would rise up and smite the leaders.

Thursday, November 15, 2007

He who asks the questions … answers the questions.

Libdrone and MadameX asked the question: What’s the biggest obstacle to electing the right presidential candidate? In this age of quick mass media, I believe it’s a lazy and sensationalistic press, eager to be led. Whoever frames an issue wins the debate. The following are a few examples of lazy, sensationalistic reporting.

The SCHIP issue was framed by the Whitehouse as medical care for children in families with incomes 200 percent higher than the poverty level. No media organisation has asked the right question; whether the poverty level is correctly calculated.

In a 1999 interview on CNN Al Gore said “during my service in the United States Congress, I took the initiative in creating the Internet,” explaining his sponsoring of a bill that provided funding for research that eventually became the internet. His opponents accused him of claiming to have invented the internet. Which story do you suppose the media ran with, the story requiring some research work, or the simple, sensational, and false story? Of course, the media reported, and continues to report, that Gore said he invented the internet, accusing him of being a serial exaggerator.

The easiest story for a lazy media is “here he goes again.” Democrats are supposed to effeminate and dishonest and Republicans are supposed the be tough and moral. Consequently, stories about republicans having affairs and stealing candy from babies get ignored because they don’t fit the mold. Stories about Democrats failing to tip a waitress or getting a hundred dollar haircut become the news feed of the day, month, or even year. The story about Rudy Giuliani fighting terrorists on Sept 11, 2001 is played and replayed every day. Never happened. Rudy gave speech after speech, but any hamster could have done that on “9/11.”

Every election cycle, the most thoughtful presidential candidate falls off the radar early in the process because the media ignores issues in favor of stories about personal habits. I almost feel sorry for Paul Tsongis, Joe Biden, Dick Lugar, and George H.W. Bush (Pre-Reagan incarnation, in 1980). Big media coverage went, instead, to Ross Perot who pushed our political debate into the gutter with stupid platitudes like “it doesn’t take a rocket scientist.” Ross …. obviously, it does.