Thursday, February 22, 2007

The Flat Tax We Already Have...

Tax breaks here. Sin taxes there. They all even out apparently. Boston University economists Laurence J. Kotlikoff and David Rapson have done a little research on the subject of tax burden and have discovered that we all hover around 40% for our all-inclusive tax rate. From the richest to the poorest, we all pay roughly 40% of our income in taxes. There's a table in the linked article showing tax rate based on income and age. The highest rate is 47% and the lowest is 32% but the rates do not strictly go up with income in any age bracket. For example, those making $200,000 per year pay less in taxes than those making $150,000 or $300,000.

Now this article does come from MSN Money which has all the economic prowess of an Archie comic book so I'm going to have to do a little digging into the source to figure out how thorough the study is and if it's interpreted correctly here but it does seem reasonable on the surface. If I had to wager, I'd wager sin taxes are a big cause for the equality. We all pay the same sin tax on a $30 bottle of scotch or a pack of smokes. It just hits those making less harder. The biggest surprise I saw in the study is that the all-inclusive rate is so low. I figured that after factoring all taxes, we'd be paying at least 50% of our income in taxes but no group even breaks 50% in the study.


Cousin Pat from Georgia said...

Tax breaks even out with sin taxes?

My head is still a little fuzzy, but that can't be right.

But if this is right, and we are all actually paying within 7% points of a flat rate based on our lifestyles etc, doesn't that destroy the Boortz/Linder argument that initiating the consumption tax would unchain American businesses?

Dante said...

Well, to be fair something evens out between rich and poor taxation. Sin tax was an example I could think of that sounds reasonable but has no factual basis.

15% is still a big gap, but it's no 30+% gap we have in the Federal income tax brackets. It appears this study ignores taxation of business so it doesn't necessarily "unchain American business" but it does certainly challenge calling a consumption tax a fair tax. Then again, I've never liked the word fair in business or politics. In those contexts, fair is usually a word used to help your argument when you have no good reason to get people to accept such an argument.