Tax Reform for the 21st Century
I’ve been working through a meaningful discussion on taxation in America over the past few days, and my penchant for pain and political discussion brought it to the surface this afternoon at lunch with my parents.
As we sat and talked, I mentioned this possible flat/fair tax hybrid plan to both of them. As we discussed it, I got more pushback from my father on the realistic ability to get something of that magnitude passed in both houses of Congress.
Imagine this scenario: every American pays the same percentage in taxes. Madness, I know. Let me explain.
At face value, it’s unfair. A liberal asked me the other day why I felt a fair/flat tax hadn’t already passed. I replied that it was simple. I gave the following example:
- Two families live and work in Nashville. These families both have working parents and two children in public school.
- Family one brings in $150,000 per year. Family two brings in $50,000. This is the gross amount (before tax).
- If the “fair/flat” tax rate is 10%, family one pays $15,000 per year and family two pays an equal share (by percentage) at $5,000 per year.
- The problem? Family one likely lives more comfortably than family two. Giving up 10% and having $135,000 left over compared to $45,00o is a big difference.
- This is the challenge. Family one is able to do considerably more than family two with the leftover income. It appears unfair. Why not make family one pay more? They can easily pay an additional $5,000 without a massive impact. Not the same for family two.
- The main concern? Necessity spending. Requiring family two to pay 10% leaves them only $45,000 with which to house, clothe, feed the family. Paying 10% for family one leaves $135,000 for those same needs. Clearly family one should be able to easily meet those needs as compared to family two. In fact, they can meet their own needs at 3x the level family two could.
- Food: as in grocery spending and other, but not including restaurants, etc.
- Shelter: rent and mortgage, but not household spending like furniture, big-screen televisions, etc.
- Clothing: this is tougher to gauge, but it seems that an excessive clothing spend would be obvious.
- Transportation: whether bus, bike, train, car, any spend traceable to required travel (school, work, etc.) should be excluded.