# Here's Why a Flat Income Tax Cannot Work

It’s simple math. In 2020, taxpayers filed 157.5 million tax returns, reported earning nearly \$12.5 trillion in adjusted gross income (AGI), and paid \$1.7 trillion in individual income taxes.

If you divide the \$1.7T by the number of taxpayers you get \$10,793.65. That’s how much each person who filed a tax return in 2020 would have to pay. Fifty-eight million US households have an annual income of less than \$50K.

An FIT flat tax is a pipe dream.

It is simple math…but you missed something…

If you divide the \$12.5T Total AGI by the number of taxpayers, you get roughly \$79,365. That would be the average AGI per taxpayer using your numbers above.

So, those paying your average tax bill of roughly \$10,800 would have an average AGI of roughly \$79,400. Those making \$50k per year would be paying somewhere around \$6,800.

I do agree we will never get a flat tax policy because there is too much money involved in making it complicated. Imagine how much money would be saved in compliance costs by taxpayers and corporations with a flat tax…its tremendous. We can’t have that…

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My mistake, I should have divided the total tax collected by the total income reported. Then I would have come up with the average tax rate. In this case that would be 13.6% of each filer’s income.

So… I guess it’s not really a flat tax, but a flat rate tax. Like a fixed percentage of income for everyone.

Still… I don’t see that happening and I think taxing minimum-wage earners at a rate of 13.6% unfair to them. And a gift to the top 1%.

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Of course its a flat rate tax…a flat dollar tax would make no sense.

But again, you continue to be obsessed about what the top earners would pay…

Think of it as a hobby, then it won’t bother you so much.

There was a popular radio talk show host, Neil Boortz, who wrote a book on this very thing. This is 18 years ago.

It was a clearly thought out idea that addressed the many concerns that naysayers bring up. But it’s a WAY too radical idea for most folk. I don’t see how we could get it enacted.

Edit: I’m not trying to sell this book. Just showing you it exists. Edit2: I changed the link to a non-selling web site.

That is derived from a national sales tax platform…so not quite the same as a flat tax.

I like both approaches because they simplify the tax code, but neither will happen. There is too much money behind our overly complicated system. There are entire compliance industries built around it.

The key is…the ppl who WANT the flat tax … do NOT want the 1.7 T collected… they want the federal govt to ONLY collect tax for DEFENSE of the country… no Medicare, no matching funds for city/state infrastructure projects, no matching funds for school bus transportation, no matching funds for special education students, etc, no food stamps, no rental subsidies…very little money for Justice Dept, FBI, etc

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PS … no tax credit for home mortgage interest and real estate (local) property tax🤔

What do you base that statement on?

So, a 13.6% tax on someone earning \$50k is \$6k+. For some with \$500k earnings, it would be \$60k+ And for someone with in excess of \$1 million in earnings… How is that a gift?!

Here’s how it’s gift to the ultra wealthy:

Right now we have a \$32T debt.

Right now the average \$1M income earner is taxed at 26%. That leaves them \$740,000 after taxes to spend for the “essentials” in their life. The reason that they can enjoy that lifestyle is in large part due to the fact we have government that encourages the freedoms that allow that to happen. If you had a flat income tax of 13.6% that person would get a “gift” of \$124,000.

On the other end of the scale we have a single mother with five kids making minimum wage working 60 hours a week and making \$22,620 and paying zero FIT. If you apply a flat tax to that amount you reduce that to \$19,544.

Do you think that would be a fair thing to do?

For those Libertarians, here’s a read: “A Libertarian Walked into a Bear”

An interview with the author, for an overview: A Libertarian Walks Into a Bear: Author Matthew Hongoltz-Hetling on the Free State Project - Vox

Libertarians don’t make good neighbors.

A Libertarian Walks Into a Bear: The Utopian Plot to Liberate an American Town (And Some Bears): Hongoltz-Hetling, Matthew: 9781541788510: Amazon.com: Books

I think there’s a lot of Libertarians among those people who want to take the country back to those “good ole days” like it was when THEY were kids.

But one of the reasons those “good ole days” have such an attraction is that the “good ole days” we each remember happened when we were young and had not yet shouldered the burdens that come with adulthood and the realities of an ever-changing world.

The reality of life is that once the stroke of midnight tolls, the day is done. And you can’t go back.

Politicians will try to convince you otherwise, but they can never take you back, no matter what they promise, it won’t happen.

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I also believe that many Libertarians read Ayn Rand in their late teens and never outgrew it.
I remember reading her works when I was around 19-21. Interesting ideas, worth examining because it made me question my own ideas. I did not adopt her ideas, but they were interesting to think about in developing and understanding world views.
I view Libertarian Ayn Rand acolytes as people (mostly men) who never outgrew their late-teenage thinking based on her ideas.

Ayn Rand herself ended up on Social Security and Medicare in her old age…

Here are some excerpts from discussions on the old forums about the subject.

Edit: I just copied and pasted the html from my old file. I see that a lot of it does not translate in this forum’s platform. Sorry about that. Maybe someday I might have time to find out if there is a way to preview before posting. Also, this edit reminds me of the old Bulletin Boards 30+ years ago on very slow dialup – with an excruciatingly long delay as each character is typed.

My comment: Be careful what you wish for. Flat tax and the so-called “Fair Tax” proposals would mean that all your planning for the best tax treatment with pre-tax and post-tax retirement plans and other investments would be negated.

Below are some excerpts from old discussions of the problems:

The Linder/Boortz “fair tax” proposal has some fatal flaws. In the unlikely event it ever got out of committee, it would impose a much higher percentage of tax on lower-to-middle income taxpayers while giving a huge advantage and tax reduction to the very, very rich.

Even worse, it would destroy all the tax-advantages that have influenced retirement/investment planning that folks have made for the last several decades in retirement plans like 401(k)s and IRAs – and even investing in homes and setting aside money in savings accounts…

We’ve also had a number of discussions here on the forums over the years that Clark has been inconsistent in that he recommends Roth IRAs but at the same time has supported the “fair tax” presented by Boortz and Linder.

Among other problems, it would guarantee that you are double-taxed (or more) on all the money you withdraw and spend from existing Roth IRAs… You would pay the equivalent of FICA tax twice on virtually all retirement and investment plans such as 401(k)s and tax-deferred IRAs – and even on cash and any other assets you may have accumulated before the “fair-tax “ would be implemented.

Under the “fair tax “ any money you spend above the poverty level would be taxed again at the rate of 30% added-on (or 23% inclusive) at the register. This is despite the fact that you already paid the taxes on your income before you contributed it to a Roth, expecting the promise to never pay any tax on the withdrawals in retirement .

The “fair tax “ would also impose its embedded FICA tax on lots of other money that is not taxed for FICA now, and most likely a higher percentage of tax than was deferred in most folks’ 401(k) and other plans. That includes new equivalent -FICA taxes on withdrawals from savings and investments and retirement accounts; capital gains from investments and the sale of your home (and even the principal recovered from the sale of assets or your home. It would tax gifts, insurance payouts, etc, and other sources of income that are not taxed now. It would also eliminate the advantage of the lower long-term capital gains tax rate that is often a consideration in current investments. There is no provision in the proposal to exempt or exclude money from your Roth or any other tax-advantaged accounts being taxed again.[/indent]

IMO Boortz and others apparently were so wrapped up in protesting the current tax system that they didn’t care how badly their proposal would affect everybody who had ever accumulated any retirement savings or other assets under the old system.

Here’s how they addressed it, from The “FairTax Book “ page 169:[INDENT]

“ “I’m living on my retirement income . I paid income tax when I earned that money; why should I pay a national sales tax when I spend it “

That’s an excellent question, and we sympathize with those who feel the FairTax victimizes them by taxing consumption dollars that were already taxed when they were earned.

Do you get as good a deal as current workers, especially the poor? No, you don’t. There’s nothing we can do to change the fact that the dollars you are spending today were already ravaged by the income tax and payroll taxes.[/INDENT]

My own observation of the problem is that it would be the “fair tax” that is ravaging your money in the future – by taxing you twice for money you already paid in taxes before you put it in a Roth IRA, plus taxing extra money that is not taxed for FICA now. I fail to see how any well-informed voter or their representatives in congress would approve it.

Boortz and other advocates have gone so far as to state categorically that they don’t care about the ‘fat cats’ who already have any money.

Apparently they and anybody else who feels the system would be fair – don’t realize that unless they are flat broke now and don’t own any property or have any savings or investments that were accrued under the existing system, then they are those fat cats too … along with anybody else who has ever accumulated anything of value or any money that was already taxed, or else was reduced in tax, or which was not taxed at all under the current system.

No matter how much we might like to see the tax system changed, I don’t think very many voters are going to be willing to give up all the tax advantages they were promised and to be double-taxed or more on everything they’ve accumulated all their lives just to make it easier for folks just starting out under the new system as it has been proposed.

https://www.thebalance.com/what-is-the-fair-tax-plan-pros-cons-effect-3305765

– from an older thread —

Why not a flat tax of 20% up to \$500K, 25% \$500k-1 Mill and 30% above 1 Mill?

Looks to me you get all the advantages…am I wrong?

[/quote]

Some of my thoughts back then – same as now.

It’s not a flat tax if you have graduated steps. It’s just redefining the steps that we already have, and there’s still a need to define at what level the truly poor pay no tax at all.

Currently we have standard or itemized deductions, personal exemptions, and various tax credits for people who have very low income. These define the amount that is not taxed at all.

[COLOR=“#0000FF”][B][I][Added: Note that now we have a much larger standard deduction but no personal exemptions, and tax credits for children have changed]

[/I][/B][/COLOR]

Under the fair tax system proposal, there is a prebate that takes the place of the exemptions and deductions. So people who spend less than the poverty level still wouldn’t pay any tax.

(I don’t know if Herman’s simplistic and incomplete plan has any provisions for any exemptions or deductions.) [color=“blue”] [this was in reference to the late Herman Cain’s 9-9-9 plan][/color]

People need to face the facts that our tax system is based roughly on the same principle that caused Robin Hood to rob from the rich. Because the poor didn’t have any money.

A big difference in the US system – and IMO to some extent what makes the US so great compared to some countries – is that the majority of people who are lucky enough to have a lot have chosen not to let the poor, aged, and infirm die from disease or starve to death just because they are unable to take care of themselves.

True, there are abuses under the current system; and I think there are people who should pay more taxes who get away with it because of loopholes or because they break the law. But there will have to be exceptions and exemptions as long as we have any kind of capitalistic system.

And there will always be ways people will circumvent the system and cheat on their taxes. (The fair tax plan would just require new ways to avoid taxes by dealing in barter and black market goods, or by converting new stuff to used.)

No matter what percentages of “flat” taxes you choose, the poor still won’t have enough income to pay enough taxes on purchases to pay their fair share for everything we need to keep civilization running. The only people who do pay enough taxes to keep things running are the very rich and the corporations.

So any plan that increases taxes on the people who are already living from paycheck to paycheck with nothing to spare, and which greatly reduces the taxes paid by the rich folks and corporations who can afford it is not going to work.

I do believe there is a need for reform in both taxes and spending. But there are lots of reasons why the so-called fair tax and flat taxes won’t work.

[quote] I don’t care what they tax my investment income at, as long as it’s the same rate as others… and they keep their damn fingers off my VA Comp. I paid the tax on that with my blood.[/quote]Then you might not want to vote for the fair tax or for Herman’s 9-9-9 tax reform.

There is no provision in either the fair tax or the 9-9-9 tax to give you an exemption or deduction for any income you have that is not taxed now, or for any money you already have that was already taxed, or which would be taxed at a lower rate when you cash it out.

So if you spend any more than the poverty level, you would be taxed on your VA comp.

…And all the money you spend from any Roth IRA;

…And for any principal recovered from the sale of your home if you ever spend it;

…And for any profit from[

…And taxed again on all the money you spend from your 403B or Roth IRA;

…And for any principal recovered from the sale of your home if you ever spend it;

…And for any profit from appreciation of your home if you ever sell it;

…And for any money you spend after selling any other property or goods that you originally bought with after-tax money;

And for any insurance payments you may receive;

…And for any previously tax-paid money that you happen to have in the bank or investments or in your pocket or under the mattress if you wait to spend it after the new system goes into effect.

Retirement income and other non-wage income is not subject to FICA now, but there is no provision to give you a discount for the FICA equivalent when you are no longer working.

There would no longer be a lower rate for capital gains on investments.

There’s also a good chance that the flat tax on stuff you buy will be higher than the lower tax bracket a lot of folks would be in retirement under the current system.

When it comes to figuring out where we fit in the social fabric we find ourselves in, we look for common threads that are compatible with how we view ourselves. Then we weave those threads into a security blanket that makes us feel comfortable.

I’ve always felt that Libertarianism leaves a person with a security blanket too small and too thin to cover the needs of enough people. It’s a case of trying to over-simplify a complex problem in order to solve it. The simple answers, that won’t work, makes the resulting sales pitch sound good to a lot of folks.

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Gov’t can just keep printing money like they always do. No way 1.7 T will cover all the spending DC does.