Want A Flat Tax System? We've Got It!

It's tax time,  an annual moment for those seeking reform of the income tax to voice their complaints.  Proponents of a "flat tax" argue that we should simplify the tax code by eliminating deductions and putting everyone in the same tax bracket, so that everyone pays the same tax rate.  And some Republicans in Congress lately have argued that it's unfair that roughly half of American households pay no federal income tax at all.  

One misleading aspect of the income tax debate is that the effects of other taxes are frequently ignored.  The American tax system, like nearly every aspect of American public policy, is extraordinary complex.  We have a lot of different taxes--sales, property, corporate, income, Social Security, Medicare--at at least three different levels, federal, state and local.

What happens if you sum up the effects of all these taxes?  Citizens for Tax Justice has done so, and found that the effective rates are pretty flat across income levels, with households in the top 20% paying about 30% of their income in taxes, people in the next 20% paying about 28%, people in the middle 20% paying 25%, and people in the bottom 20% paying 17%.   Two charts that tell the story are here.

Households in the bottom half of the economy may not be paying income taxes, but they have other taxes to contend with.  Sales and Social Security taxes hit them much harder than those at the top.  Property taxes can hit middle-income people particularly hard.  So the next time someone advocates a flat tax for income, keep in mind that, overall, we are pretty close to a flat tax system already, just not the simple one proponents imagine. 


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