Richard Nixon proposed a flat tax. He wanted to charge everyone a certain percentage, for the sake of discussion we will say 15%. If you made $100,000
you would pay $15,000 and if you made a million dollars, you would pay $150,000. A very simple and equitable concept. Now, theoretically we have a
graduated tax that has people who make more pay a slightly higher percentage. Theoretically, the top earners pay around 35% and lower earners pay 10%,
with different levels in between; but, there is something else at work and that is tax deductions.
When we begin reading the tax code we discover all kinds of deductions; but, the vast majority will never apply to wage earners. The average person
deducts for being married, having kids, charitable deductions and their house payment. There are some others you may use such as medical expenses over
a certain amount; but, there are very few that the average wage earner gets.
Now, lets look at what wealthy people can deduct. It is a little known fact that if you produced a Broadway play and it lost money, you could deduct
the money you lost on producing the pay dollar for dollar. That tax deduction may or may not still be in effect; but, it at least survived into the
1980s. Many people saw the play or the movie "The Producers", that was part of the scheme. The producer involved took money from rich old ladies,
financed the show at well over a hundred percent, the play fails and the old ladies don't get hurt because it is a straight deduction. How many of us
can really afford to put on a Broadway play and why should that deduction be better than the deduction on your house payment?
The vast majority of the tax code deductions really only apply to businesses and the wealthy. In addition the rate for how you earned your income is
different. The tax rate paid on investments is lower than the tax rate paid by someone making $80,000 a year. If you go to a flat tax on all earnings
and eliminate all deductions, the average person would actually pay less; but, the wealthy would be forced to pay the same percentage of their income
as the rest of us.
The issues are not as complicated as some would like to make them. The reason the tax code is so complicated is so that the rich will not have to pay
the same percentage as the rest of us, they pay less. Often people attempt to focus on income that is only derived from employment; but, that is to
ignore all other income streams. The tax on investment income is less than the tax on wages. If you win the lottery (and lets face it, investments are
nothing more than gambling) you are taxed as if it was income from employment.
It is not enough to focus on the taxable percentage when the tax code is primarily focused on deductions that only apply to those who make the most
and are not available to the rest of us. The tax code is overly complicated so that the majority of us will not understand who is really paying
edit on 24-10-2012 by AQuestion because: clarification