by Chris Conn

Created on: July 03, 2008   Last Updated: November 22, 2010

Don't forget that absolutely NOBODY pays tax on every penny that they make in income. One of the first things to note even on the 1040EZ tax form is that $8,750 is not taxed at all (if you are single), or $17,500 (if you are married. Go ahead and look at the 2007 1040EZ form, line #5. http://www.irs.gov/pub/irs-pdf/f1040ez.pdf So that means that the minimum wage worker is taxed at 10% on his first $7,825 of earned income, according to the 2007 IRS tax tables: http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Here's some analysis on both sides of the story.

Basic assumption for this analysis:
- Basic standard deductions used, no mortgage interest write-off, etc. Married individuals.
- Flat tax of 15% after first $15,000 because there has to be some level of poverty that shouldn't be taxed, right?

Progressive Tax method:
Median income approximately $45,000/yr.
Taxes paid: $3,856 (based on taxable income of $30,900)

Flat tax method:
Median income approximately $45,000/yr.
Taxes paid: $4,500 (based on taxable income of $30,000)

Now, here's another scenario. The only change is that household income is twice the median household income.
Assumption: Income for both scenarios is $90,000

Progressive Tax method:
Taxes paid: $11,829 (based on taxable income of $75,900)

Flat tax method:
Taxes paid: $11,250 (based on taxable income of $75,000)

Now, here's a final scenario. The only change is that household income is 6 times the median household income.
Assumption: Income for both scenarios is $270,000

Progressive Tax method:
Taxes paid: $57,576 (based on taxable income of $237,500)

Flat tax method:
Taxes paid: $38,250 (based on taxable income of $255,000)

Now, for in-depth examination of the flat tax scenarios above:
The folks that made double the median household income were able to keep $579 in comparison to what they pay now. But the married folks that made closer to the median household income were lucky enough to PAY an additional $644 MORE due to the flat tax.

However most "amazing" is that at the higher income rates, you'll notice that they actually pay less tax than they would currently. Heck, the single folks in this tax bracket would get to keep an extra $29,081! But the married folks would only get to keep and an extra $19,326 of their hard earned money!

Now, I don't know about you, but I'd be all for the flat tax, if I were making more than the median household income. After all, I'd get to keep A LOT more of what I made, in comparison to the folks at the bottom who would get to pay MORE!

Now, of course if we allow deductions, that changes the entire scenario. This is true whether it is a flat tax or the current progressive tax! And even the folks that earn money at the lower end of the spectrum can take advantage of the deductions using the current progressive tax system.

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