Flat isn't fair

        Regarding the discussion over "fair" in the larger conversation about tax. Fair is the term used by multi-millionaires like Steve Forbes when they are shilling for Flat Tax schemes. The word fair, to them means everyone pays an equal percentage. Perhaps a better way to look at "fair" would be that a taxation scheme should not unreasonably disadvantage any sector of the population at the advance of another.

     Steve Forbes  proposed that everyone should pay a flat 10% of income as taxes and all would be well with the world. Let's use reductio ad absurdum to show the point. After all isn't that "fair"?  On that basis, let's take an obviously  uncommon situation. Consider that a man with a $5 million income (read "The Big Short" if you think those people aren't around!) also consider the gardener who works for him at $9.00 an hour, which is, actually above minimum wage.

        The gardener works a solid  forty hour week and earns a whopping $18,000 annually, which sadly is considered above the federal poverty guidelines for a family of two, which is $15,930. But wait, there's more. Unless the employer is a scofflaw or the gardener is an independent contractor  who refuses to pay them, there is the issue of Social Security and Medicare taxes. For the hapless gardener, all of his pay is subject to FICA and Medicare withholding, so he is hit for a total of $1,377 off the top. He now has $16,623 left, on which a 10% flat tax will take him to $14,961, and deep into the poverty classification. Remember, he works hard, arguably harder than the employer, certainly with fewer perks and shorter lunch breaks.

        His employer, on the other hand , also pays FICA, but only on .23% of his income, because Social Security withholding maxes out at an income of $118,000  annually. So the "flat taxers" omit the dirty little secret, which is that the laborer earning $18,000 actually pays 6.2% of his wages for Social security, while his far wealthier boss actually only pays a measly 0.14% of his. Fair? What do you think Craig?  Well,  consider this: as a risk/reward exercise, the laborer pays 6.2% of his income for his entire working life, but will have his Social security income calculated based on his actual earnings. The millionaire will only pay 0.14 % of his , but will likewise have his Social Security based on his actual earnings.   

        Now let us consider the $5 mil guy. He "earns" $5,000,000 annually but stops paying Social security at $118,000, so he pays 6.5 times as much into FICA, but he earns 277 times as much! And he will reap much higher benefits, roughly 3 times as much.  Still fair? Huh?  As for Medicare, the rate is constant regardless of income, so they both pay the 1.45%  Medicare withholding. Adding all this up, the $5 mil guy pays FICA and Medicare a total of $77,347.  deduct an additional 10%  ("flat" remember), tax  and he is left to struggle by on only $4,430,388! Of course this assumes no off shore or tax dodge shenanigans to hide income.   So the issue is "whose life style is affected most by the 10%? flat tax? Is the impact "equal" or "fair"  I would submit that it is not. Even after both reach retirement, assuming the gardener and his wife both worked the same jobs for the same pay, they will barely be able to reach the poverty level - without children. Then, the rich man says "Well, he should have saved for his retirement!" Really? There simply is no marginal, or savable income at $18,000 per year. IRAs, flexible spending accounts, investments....? These are just letters and words to the average laboring person in America. And, remember , this doesn't even consider the cost of healthcare.

        A flat tax is inherently unfair for those who are already close to the margins an haven't been born, to use Kent's appropriate word, lucky, or not as intellectually gifted. People just like that built much of the infrastructure of this country while living in or close to poverty. We can do better, and a tax structure  steeply graduated at the top would help us to do so.

       Finally, to hear the whining of the trust fund candidates, you'd think we pay the highest taxes ever right now. Trump actually said we were "The most highly taxed developed country in the world." The graphic above shows just how ignorant he and many are.