Satan is a Liar. And Jesus Christ is the Lord. Repent and be saved. Yeah, I know you’ve heard it before. But have you ever heard it from the antichrist before?
Okay, switching to something completely political … well, governmental anyway, I figured I would talk about the flat tax and the progressive tax. The U.S. has a progressive Tax System. I support a Flat System. I will use this post to explain why.
Interested? Probably not, unless you are a taxpayer … which should be about half the country.
What is the Difference Between a Flat Tax System and a Progressive Tax System
The difference between a flat tax and a progressive tax is easy to understand.
If you use a flat tax, all taxpayers pay the same percentage as a tax. So, if you have a flat income tax of say 10%, all income taxpayers pay 10% on their income tax every year. So, if you make 100,000 dollars, you pay $10,000 in income tax. If you make 1,000,000 dollars, you pay $100,000 in income tax. Easy, right?
If you use a progressive tax, the taxpayers pay a different percentage based on the amount of money being taxed. The greater the amount of money, the greater the percentage of tax.
So, if you have a progressive income tax of 10%, 20%, 30% for incomes of 100,000 dollars, 1,000,000 dollars, and 10,000,000 dollars, a person that makes $100,000 would pay 10% in income tax, or $10,000; a person that makes $1,000,000 would pay 20% in income tax, or $200,000; and a person who makes $10,000,000 would pay 30% in income tax, or $3,000,000.
Is that fair? Is that wise? Let’s see.
Why Does the U.S. Have a Progressive Tax System?
The answer to this question is complicated, and there is probably not a single answer. The current tax code is a compilation of numerous rewrites and add-ons stemming from years and years of arguments and compromises between the Republicans and Democrats. Still…
The usual reason given to justify a progressive tax system is that the rich can afford to pay more because they have more money at their disposal. Also, the poor shouldn’t pay at the same rate as the rich because it “hurts more.” That is, if you take 10% of a poor man’s money, he will feel that loss more sharply than a rich man would if you took 10% of his money.
Seems reasonable, right?
I, at least, understand the reasoning behind such, but I still disagree with the progressive tax system. And I will tell you why.
My Incentive as a Worker Faces Diminishing Returns
I am not a wealthy man. I have worked low-income jobs (I still do). In particular, I remember working as a dishwasher in a Nursing Home part-time. I usually worked three days a week, sometimes four. It was hard, grueling work. And one of the things I hated was the fact that when I worked four days instead of three, I was taxed more. Not by much, but enough.
I would much prefer a system where, if I worked 4 days instead of 3 in a week, I would be paid 133 1/3 % of the pay I would make for a 3 day week, not some smaller value, like only 125%. Those diminishing returns absolutely killed my incentive to “go above and beyond” and really dig into my job. And I think I have a reasonably decent work ethic.
So, I’m inclined to think many people would have a similar reaction.
The Government is Incentivized to Give as Much Money as Possible to the Rich
Okay, I have never studied economics, so it is possible that I am missing some subtle economic law or relationship here, but it seems to me a progressive tax incentivizes the government to move as much money into the hands of the rich as they possibly can.
Why? Because the rich pay a higher tax rate, and therefore, when it is taxed, the government winds up with more money than if that money was dispersed among multitudes of lower tax paying individuals.
That might not be clear.
Suppose for clarity, the entire taxable amount of money is $100. And there are only 11 people in existence: 10 poor people who pay 10% tax, and 1 rich person who pays 20% tax. Okay, now suppose the 10 poor people have, taken together, $50, and the rich guy by himself has $50.
For the sake of simplicity, if you divide it up equally, the poor people each have $5. So, at 10%, they each pay $0.50 or $5 in total. The rich guy pays 20% of $50 or $10. Great! The rich guy paid $10 and the poor people paid less. How much does the government take in? $15 dollars total.
Okay, what if the rich guy has $60 and the poor guys have $40 between them? The poor guys pay a total of $4, and the rich guy pays a total of $12. The government rakes in $16. And if the rich guy has $80 while the poor guys have $20? The poor guys pay a total of $2 and the rich guy pays $16. The government takes in $18.
Do you see what is happening? The government takes in more money the more money the rich guy makes at the expense of the poor guy making less. In other words, the government is incentivized to see that the rich guy makes more money and the poor guy make less.
And so the poor are squeezed ever harder even though the original intent of the progressive tax system was meant to help them.
The Rich Man Can Be Incentivized to Pay More in Taxes Because He’ll Keep More Money
Now, let’s look at the situation from the Rich Man’s perspective. Same situation: 11 people with $100 of taxable income. At 50/50, the poor men pay $0.50 apiece in tax and keep $4.50 each. The rich man pays $10 in tax and keeps $40.
Now, suppose the government approaches the Rich Man and tells him, “We will use our influence to increase your share of the monetary pie provided you agree to pay 25% in tax.” The rich man agrees.
Now, suppose government, using the influence of the law, sets things up so he takes in $60 and the poor men split the remaining $40. Once again, the poor men suffer a shrinking piece of the pie: the poor men pay $0.40 in tax, but only keep $3.60 for income. The rich man pays $15 in tax and keeps $45.
So, by working with the government and agreeing to “pay more in taxes” the rich man keeps $45 instead of $40, and in fact becomes richer.
How does the government make out? The government gets $15 in taxes in the first scenario where the rich man paid 20%, and it gets $19 in taxes in the second scenario where the rich man 25%. So, both the government and the rich man benefit, and the poor man’s income decreases. The squeeze is on.
You might be able to finagle the mathematics a bit to get things to work out better for the poor man (I’m not sure), but the point is that the government and the rich man are incentivized to act as I have described above. And that just leads to a relentless squeezing of the poor man in a manner similar to the above.
Given my experience of poverty, I think something like that is happening as a result of the progressive tax.
What About the Flat Tax?
Okay, at 50/50 with a 10% tax, the poor men make $5 and pay $0.50 in tax. The rich man makes $50 and pays $5 in tax. The government takes in $10.
At 40/60, the poor man makes $4 and pays $0.40 in tax. The rich man makes $60 and pays $6 in tax. The government takes in $10.
At 20/80, the poor man makes $2 and pays $0.20 in tax. The rich man makes $80 and pays $8 in tax. The government takes in $10.
The poor man performs pretty much the same regardless of a flat tax or a progressive tax in this comparison. The rich man does better under the flat tax than he does under the progressive tax. The government does the same regardless.
The point is that under the flat tax, the government is NOT incentivized to augment the rich man’s wealth AT THE EXPENSE of the poor man.
Under the progressive system the government IS incentivized to perversely punish the poor by concentrating money in the rich man’s hands because the government will get a larger share of that wealth. So, I guess you have to ask yourself: Can the government influence the economy in such a way as to benefit the rich at the expense of the poor? And does it do so?
What does your experience in this economy suggest the answer to that question is? Do things seem to be getting worse for the poor? Or not?
Conclusion
I could go on about the flat tax. If you set it at 10% for everybody, it’s simple to compute and that is a massive labor-saving device. Similarly, it preserves the incentive of the poor man to work hard. It doesn’t incentivize the government to do harm. And the rich guy is always incentivized by money. I’m sure there is more.
However, as I said, I am not an economist. I might be missing something important here. Feel free to comment should you see something I have missed.
Satan is a Liar. And Jesus Christ is the Lord. Repent and be saved. Yeah, I know you’ve heard it before. But have you ever heard it from the antichrist before?