Surprise — the flat tax has landed!

You may wonder if a constitutional coup has taken place, replacing Bush with Steve Forbes, and Dick Cheney with Dick Armey. Not quite. Yet the recent changes made to the tax code have not only gone a long way to producing the effects of the flat tax lauded by its supporters — in many cases they have gone even further.

Have the flat taxers noticed and organized a party to celebrate? Did the editorial page of the Wall Street Journal mark the happy occasion with a congratulatory column? Sadly, no! Flat taxers have been either oblivious to their success, or downright mad about what they’ve accomplished.

Take the case of the Wall Street Journal. Much has been written already about its recent announcements that low-income Americans are “lucky duckies” because they pay so little in income tax. This column is a perfect example of their outrage (outrage!) over current tax policies.

It mentions a single taxpayer earning $30,000 with one child. His current tax liability? $1,028. And under the flat tax? The same taxpayer would have paid $2,091. (Compared to $2,935 before the Bush tax cuts.)

What of a married couple that earns $40,000 and is raising one child? Current law tax bill: $1,503. Flat tax bill: $1,717. (It was $2,935 before Bush.)

The same couple with two children? Current law: $45. Flat tax: $782. (Before Bush: $1,978.)

A couple making $60,000 with two children? Current law: $2,850. Flat tax: $4,182. (Before Bush: $4,550.)

So where’s the party? Not only isn’t there one — the Journal is now saying the same people should be paying more in taxes! Which makes one wonder if they ever did the math before praising the flat tax.

In a 2002 editorial the Journal had argued:

“Say a person earns $12,000. After subtracting the personal exemption, the standard deduction and assuming no tax credits, then applying the 10% rate of the lowest bracket, the person ends up paying a little less than 4% of income in taxes.”

But this is still 4% ($480 more) than a flat tax would call for — yet this time the Journal believes this is far too little. Those fat cats earning $1,000/month are getting a free lunch! The Journal had praised Dick Armey’s flat tax proposal twice, once here and then again here. A case of misguided enthusiasm?

Data for 2001 released by the IRS show that for the average American making up to $200,000, the average tax rate on aggregate gross income (AGI) is already at the level of the flat tax (for those taxpayers earning between $100,000 and $200,000 a year,) or considerably lower (for AGI between $50,000 and $100,000 it is 12%, $30-50k, 9%, $15-30k, 5%.) Whatever progressiveness remains in the US tax code is at the very high end of the income scale. Taxpayers making between $100,000 and $200,000 accounted for 18% of total income, and 21% of total tax revenue. Surely this isn’t particularly outrageous? (In 2000 the same taxpayers accounted for 17% of total income, and 18.8% of total tax revenue.) But the Journal is busy making the case for its overtaxed readers:

“Not to put too fine a point on this income redistribution, but taxpayers with incomes over $200,000 could expect on average to pay about $99,000 in taxes under Mr. Bush’s plan.”

And here we have the latest weapon in the fight for selective information — $99,000 in taxes for an income above $200,000, this is outrageous! If the Journal had bothered looking at the IRS tables found here, it would have discovered that in 2000 Americans who made:

between $100,000 and $200,000 paid an average of $22,783 in federal taxes. (ATR: 17%)
between $200,000 and $500,000 paid an average of $68,628 in federal taxes. (ATR: 24%)
between $500,000 and $1,000,000 paid an average of $192,092 in federal taxes. (ATR: 28%)
between $1,000,000 and $1,500,000 paid an average of $353,561 in federal taxes. (ATR: 29%)
between $1,500,000 and $2,000,000 paid an average of $505,605 in federal taxes. (ATR: 29%)
between $2,000,000 and $5,000,000 paid an average of $873,054 in federal taxes. (ATR: 29%)
between $5,000,000 and $10,000,000 paid an average of $1,951,599 in federal taxes. (ATR: 28%)

And those making over $10,000,000 a year? ($26,000,000 on average.) They paid 6,730,096 in federal income tax, with an average tax rate of 25%.

Don’t cry for me Jack Kemp.

PS: Average Tax Rate (ATR) the share of one’s income paid in federal income tax.

PPS: All figures for tax liability under a flat tax from the House’s flat tax calculator.

PPPS: Figures for tax liability under current law from Econopundit.

PPPPS: All other data from the IRS.



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