Flattened Taxpayers

Eventually pretty much every political discussion I have with today’s right-wing comes down to people thinking magical thoughts about a flat tax. It’s almost a Godwin’s Law of political discussions.

For example, I was just told by somebody on Facebook that if we had a flat tax of 10% that we’d not only pay for the Federal government but also raise enough money to pay for State, County and Local governments and all the assorted other taxes, fees and special assessments that go around and still have money left over from that 10% tax to pay down the deficit.

Since I try to be efficient, rather than type up the same discussion time after time I figured that it was time to just put it into a blog post and send them the link whenever the subject came up.

So. Let’s go there.

To start with let’s look at it from just the basic arithmetic. No discussion of fairness or national goals or purposes of government, let’s just do a cold-eyed look at the numbers…

Before we do the math, let’s define what we’re talking about. To have a real "flat tax" we’re talking about a single fixed rate for taxation on all income. We’ll let the math determine about how much that should be later but let’s first agree that we’re talking about taxing all income in the United States at a single rate. Now if that sounds simple, great. By agreeing that’s what we mean, we have, however, taken virtually every "flat tax proposal" offered up in the last 30 years out of the running since they almost always say "well, we don’t mean taxing businesses at that rate" or "well, we don’t mean taxing businesses income, we want to tax your income but their profits" or "well, investment is important so profits from investments shouldn’t count" or "inheritance income shouldn’t really count". Usually, they include all of those in there so the "Flat" in their “Flat Tax” only applies to working people with little to no income from investments or trust funds. But, so be it, we’ll go with a real flat tax since that is what they expect you to think they mean.

And, to simplify things and keep the discussion easy, let’s skip the hyperbole about removing all taxes at all levels by a single Federal tax. That would mean that states and counties and cities would all have to tax at the same rate and our multi-tier system doesn’t allow for that and I don’t feel like fighting a civil war over states rights (for the first time, actually, but that’s another discussion).

So, we’re down to a simple tax on all income inside the United States that would pay for the United States government.

That is what most people think of when they hear "flat tax" even if it’s not what they ever are told to support if you actually read the proposals. Now it’s time to look at the numbers. Now, bear with me, this is actually simple 3rd Grade arithmetic. No fancy high-level math needed, no complexities of econometrics or monetary supply modeling. Just simple long division.

To figure out the rate all we have to do is take the amount of the US Federal Budget and divide it by the Gross National Product of the United States. Do that and we get what percent of all income needs to go to the federal government.


Here goes…

The current budget is: $3,796,000,000,000  and, yes, that’s a lot of zeros but they’ll divide out so don’t worry about them.

The current Gross Domestic Product is: $15,596,000,000,000

We’ll cancel out the zeros and so we get 3,796 divided by 15,596

That gives us a flat tax of 24.3%

That won’t pay down the debt or pay for other levels of government but it is a flat rate that would produce a balanced Federal budget.

Now, remember, before you get too happy about that, realize that is 24.3% of your Gross Income. That means no standard deductions, no deductions for mortgage interest, no exemptions for kids, no deductions for medical bills, no deductions for money you give to charities. No nothing coming in “before taxes”, just roughly 1/4 of your gross paycheck.

Now if you still support a flat tax, you get to sell the idea. Remember that this is double the rate that Governor Romney paid in the one year he’s willing to talk about and he’s complaining his taxes are too high at half of what a flat tax proposes. And that rate is many, many, many times more than most large corporations pay if they pay at all and remember we’re going to have to tax them on their gross income this time to keep it flat. And they’re going to have to give up all their deductions, too. Speaking of deductions, non-profits, charities and churches will also have to pay 24.3% of their gross income as well.

For anyone saying “well, that’s true under Obama but not with a Republican in office…” or, “well the economy is broken now but in the past it would have been  10%”, here are some comparative numbers…

Event Flat Tax Rate
When Bush II left office 24.7%
When Bill Clinton left office 18.2%
When Bill Clinton entered office 21.4%
Highest under Jimmy Carter 21.7%
Highest under Nixon/Ford 21.4%
Highest under Kennedy/Johnson 20.5%
Lowest under Kennedy/Johnson 18.5%
Highest under Reagan/Bush I 23.5%
Lowest under Reagan/Bush I 21.2%
Highest under Eisenhower 18.8%

Brief Side Note: Yes, this does mean that the current “Obama Budget” is smaller than what Bush II had when he left office. Yes, Bill Clinton’s budget really did cost 3% less of the GDP than the best Reagan/Bush I were able to do (and was a 22% smaller government than their largest) and yes, Bill Clinton really did leave office with the smallest Federal Government in 35 years and one of the smallest since the days of Harry Truman. Those are topics for another day, though.

OK. So now we can have a conversation about whether this is a fair plan or whether it is a good plan or whether it’s good for the goals of the nation. But at least now we’re using actual numbers.

So the next time a politician says “If I’m elected we can pay for the government with a flat tax of 9%” or a SuperPAC advertises that they can pay for government with a 17% flat tax and still give you a standard deduction (both of which happened this year and surprisingly didn’t get met with the proper response of laughter and embarrassment) you’ll know that either they can’t do 3rd Grade arithmetic or they’re just hoping you can’t.


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5 Responses to “Flattened Taxpayers”

  1. I Won’t Pay for Your Star Trek V Collector’s Plate | Mike's Rants Says:

    […] in a series of posts to answer questions I’m tired of explaining over and over again. See Flattened Taxpayers for the […]


  2. jamesklogue Says:

    Thanks for the simpletons version of the workings of the 10% flat tax.


  3. Some Answers on the “Rebel Flag” and Reality | Mike's Rants Says:

    […] in a series of posts to answer questions I’m tired of explaining over and over again. See Flattened Taxpayers for the first and I Won’t Pay for Your Star Trek V Collector’s Plate for the […]


  4. dgtangman Says:

    I’m seriously disappointed in the math here. Most significantly, equating GDP to gross revenue (income, in the case of individuals) underestimates the revenue base to be taxed by roughly a factor of 2. GDP is an approximation to the total value of goods and services to the final consumer. If the flat tax were applied to all corporate revenue, then most finished goods would be taxed multiple times. By that definition a flat tax of about 13% would suffice to balance the Federal budget, using 2016 figures. It would also cause serious disruption to the economy, of course, since it changes the business incentives related to taxation dramatically.

    Taxing corporate profits, rather than revenue, makes a lot more sense. Just to consider one example, if gross revenue were taxed at 13%, your grocery bills would immediately go up by about 15%, since the grocer has to pay 13% of your total bill for the flat tax. But the impact would, of course, be a great deal more than 15%, since everything the grocer buys would also be 15% more expensive.

    Taxing non-profit organizations is almost a non-issue, although not in their eyes – total donations to non-profit organizations in 2016 totaled about 1% of combined business sales and personal income.

    Taxing just corporate profits and personal income the numbers are now about $22 trillion income vs. $4 trillion budget, so a flat tax of about 18.2% would balance the Federal budget with no need to tax gross revenues or non-profits, but without the crazy quilt of exemptions and deductions of the current tax code.

    I don’t like your math, but the folks who think 10% would do it are clearly deluded.

    Liked by 1 person

    • mikegalos Says:

      No question I oversimplified. The point was to show how a flat tax does NOT work at least at the numbers that keep getting spread by politicians. Where to tax business gross revenue or what part of that revenue should be taxed and the same issues on individual income and the costs needed to do make that income are a fascinating topic and absolutely worth long discussion.

      Liked by 1 person

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