From: weverka@csn.org (Robert T. Weverka)
Newsgroups: alt.politics.elections,bit.listserv.politics,talk.politics.theory
Subject: Flat Tax lowers taxes on poor
Date: 10 Apr 92 12:57:17 GMT
Distribution: usa
Organization: University of Colorado, Boulder

Why has the call for a flat tax rate been taken up by liberals?

The reason we find some liberals against flat tax and some conservatives for
flat tax, is that they don't realize that the current system is regressive.  The
liberals fear that flat tax will increase the taxes on the poor.  Since the
current system is regressive, a flat tax will do just the opposite.
The current tax rates put some of the poorest people in the highest brackets.
This is counter to the widely held beliefs about the system.  By itself, the
federal income tax is progressive.  When all the wage taxes are included the tax
rates are reggresive.

The federal income tax has increasing rates with increasing income.  Income
below the standard deduction and exemption figure is taxed at 0%.  Income above
this is taxed in the 15%, 28%, and 31% brackets.  There are thousands of pages
of taxe code which modify this system.  Most of these detailed tax rules apply
to only a few of the people.  There are only two additional taxes which effect a
significant portion of tax payers.  These are Earned Income Credit, and Social
Security tax.

Social Security tax is collected on the wages from $1 to $53,400 at a rate of
15.3%.  The tax rate falls to 2.9% for income from $53,400 to $125,000 and above
this the Social security tax bracket falls to 0%.  In its original conception
this tax was not considered unfair, since the more one paid into the tax, the
more one collected at retirement.  The money collected for Social Security was
to be used only for Social Security payments to retired people.  This is no
longer the case.  Social Security collections are now lumped with total federal
income in calculating the federal budget and the federal budget deficit.
Earned Income Credit is a negative tax rate on income between $1 and $7100.
Until this year, its rate was identical to the Social Security rate and it
offsett the burden of the Social security tax on the poorest of the poor.
Earned Income Credit is recaptured at a rate of 12% on income between $11,250
and $21,250.

All total these taxes put poor people in a 42% bracket while rich people
are in a 31% bracket.  This is before adding in loopholes available to the 
rich

Here are the majority of federal taxes paid by families of four in two income
brackets.


                     Current System    Flat Tax    Current System    Flat Tax
Gross Income                $20,000     $20,000           $60,000     $60,000
Deductions
Standard deduction           $5,700
Rent/Mortgage                            $7,200           $20,000     $20,000
Exemptions (from '91 1040)   $8,600                        $8,600
                            _______    ________         _________    ________
Net Income                   $5,700     $12,800           $31,400     $40,000

Taxes
Earned income credit          -$151
Social Security              $3,060                         $8362
(15.3% of Gross Income)
Federal tax                    $859      $1,664             $4714      $5,200
                            _______    ________         _________    ________
Total Tax                    $3,768      $1,664           $13,075      $5,200


Businesses pass on the cost of value added tax to the consumer by raising
prices.  If the $20,000 family spends all of the after-rent money and this is
taxed at 13% the additional tax burden is $1,664.  Even if we don't include the
current taxes passed on to consumers by businesses, the total taxes paid by the
low income family is less under flat tax than under the current system.
If the $60,000 family spends $40,000 after-mortgage money each year on items
that are burdened by value added tax, the additional taxes are only $5,200.
This is still less than the current system.
Newsgroups: alt.politics.elections