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Why a Flat-Rate Tax is Unfair: A Quick Overview of America’s Wealth Inequality and Tax Structure

Originally Published on the Dailykos on May 14th, 2013

During the presidential election, many candidates in the Republican Party promised to enact a fair and such a simple tax system that it would fit on the back of a post card. Republicans, like many Libertarians, like to propose a flat-rate tax where everyone pays the same percentage of their income and that would be considered the “fairest way of taxation.”

The ideology of a flat-rate tax may seem perfect on the surface to many people, but when you look at it a little deeper and examine some statistics, you will find that a flat-rate tax is another scam that benefits the rich who will pay less taxes and will only hurts working-class people.

If you haven’t noticed already, America has the highest, and I mean highest, wealth inequality in the world. In 2007, the richest 1% of Americans owned about 35% of the nation wealth, and I can guarantee that in 2013, it is much higher. If you were to add the next richest 4% of Americans and take the wealth of the richest 5% of Americans, the amount of the nation’s wealth that they own climbs to about 62%.
From an ethical viewpoint, one must ask themselves, do the top 5% of Americans work so hard that they deserve 62% of the nation’s wealth? If all of the workers that they hired who created that wealth suddenly left, would those 5% of Americans be just as rich?    The reason why I explain this is that a flat-rate tax would work well if everyone made the same-amount or at least close to the same amount of income. However, since America has the highest wealth inequality in the world, our tax structure should reflect that.

We all hear about the deficit and ask what went wrong. What went wrong was this: We put in policies that allowed the wealthy to exploit the working-class and force so many into poverty. We cut taxes on the wealthy and as the working-class got poorer, we saw less taxable income from them as well.

The reason why a progressive tax structure works best is that it bases off someone’s ability to pay. For somebody that makes $25,000 dollars a year compared to someone that makes a million dollars, a tax rate at 10% is more damaging to their ability to survive off their income than someone who makes a million dollars. For example, after taxes (with a 10% tax rate), it is hard to survive on $22,500 compared to $900,000. (I created an example below)

 

An effective way would to tax those who make over 60% of the nation’s wealth pay based of those statistics, shouldn’t the people that own 60% of the wealth, pay 60% of the taxes? Even with a progressive tax structure, the wealthy can still survive and have money left over to invest.       In the image above, I gave the example of tax-rate of 0% on the working-class person that makes $25,000 dollars a year and a 50% tax rate on someone who makes $1,000,000 dollars a year. The person who makes $25,000 year may be able to survive and the person who makes $1,000,000 dollars, and pays 50% in taxes is still able to survive off of $500,000 comfortably.

Middle-class and working-class people are what stimulate economy because many are forced to spend the majority of their income on needs such as food and housing.  Allowing them to keep more of their income, allows them to spend more which will increase the economy and the nation’s GDP.

Realizing the wealth inequality and the fact that middle-class and working-class people are what stimulate the economy, it should be at no shock that as wealth-inequality increases, the strength of the economy weakens.

Until Corporations and their CEOs pay their workers a living wage, and give up part of their income, they should be responsible for making up the taxes that many people are no longer able to pay. Because many companies like Walmart, pay such a low-wage that the taxpayers are forced to subsidize Walmart’s greed through welfare, and then those big-shot CEOs go on TV and complain that they have to pay taxes and criticize those who rely on social services like welfare to survive. The average Walmart cost taxpayers $400,000 per store.

When it comes to the idea of a flat-rate tax structure, you must ask yourself. Is it fair for someone who makes less than 1% of the nation’s wealth to pay the same amount in taxes than someone who makes 40% of the nation’s wealth? My answer is simply no.

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Written by Alex Forgue

Profile photo of Alex Forgue

College Students majoring in Physics, political activist, and Editor and Founder of Merge Left.

Former organizer and Co-founder of College Students for Bernie.

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