Tuesday, December 13, 2011

Cognitive dissonance

The big news today was apparently the Newt Flat Tax Scheme; and that it would “benefit the rich” because their tax rates would drop from 35% to 15%. This is a bogus argument – the rich don’t pay 35% on their income. For one thing, that’s a marginal rate, not an effective rate – they pay that rate on their income over a certain threshold; look at a tax table sometime. And weren’t we all complaining that Warren Buffet (say) pays an effective rate less than his secretary? If Warren Buffet’s tax rate is lower than his secretary’s, he benefits less from a 15% flat tax than his secretary. It’s likely that he would prefer to stay off the flat tax due to the lack of deductions outside the personal one.

A flat tax with only a personal deduction will not benefit the ultra-rich, because they have enough money to be able to afford decent tax planning. It will notably benefit the middle class, who have enough money to worry about their tax rate, but not enough to be able to afford a shelter. It neither helps nor harms the poor, as in either situation they don’t pay enough income taxes to matter (the payroll taxes are another matter, but those are notably regressive for other reasons).

And I thought we all wanted to support the middle class?

No comments:

Post a Comment

Please keep it civil