by Tom Koecke

Created on: February 06, 2008

Though it sounds like an equitable idea that everyone should pay their "fair share" for the cost of government, establishing a "flat tax rate" on income would be devastating to the economy, and would put an unfair burden on poor people, especially the working poor. While my libertarian friends cringe at such economic injustice as taxing people at different rates, we must consider that we are dealing with a system in place. If it is to change for the better, it must change for purpose. Establishing a flat tax rate serves no better purpose, and works against the system in place as contrary force.

In other words, until government changes what it does, the flat tax pits the proverbial immovable object against the unstoppable force. It is not counter-balance; it is recipe for disaster.

GRADUATED RATES AND REDISTRIBUTION

The current taxing system applies higher rates to greater amounts of income. Through the net effect of the graduated system and some tax credits, most notably Earned Income Credit, many people actually pay less than zero percent by getting back more than they paid in. The Earned Income Credit applies to low-income people who have earned regular income, and who also have children. The credit often times, though, does not result in more back than paid in, but does serve to reduce the overall tax liability for low-income, working parents.

It is in the targeting of those we intend to help that we must keep focus. For example, the tax rebate given to all taxpayers does spur some spending. However, if people who earned $500,000 last year did not get one, there would be more available to people who need it without increasing the cost. If the threshold were reduced to $150,000, there would be significantly more going to those who need it the most. If the total amount rebated was given to poor people, all of the rebate money would begin circulation in the economy. Any money rebated that does not begin circulation is counter-productive to spurring the economy.

The graduated rate for taxation is based upon "net income," which is another factor to consider in tax legislation for its economic benefit. A person who earns $1,000,000 with no expenses will pay "more than twice" the amount in taxes as someone who earns $1,000,000 and has $500,000 in expenses, because the rate increases as more is earned.

It is in those "expenses" through which "supply-side economics" should be applied, because the "trickle down theory" is substantially flawed.

TRICKLE DOWN AND SUPPLY-SIDE

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