I have been toying around with the idea of a free money allowance as a prebate for a unified flat income tax. The numbers are interesting, if a bit disheartening. I had hoped to push a 25% flat rate with possibly a higher rate for the really rich. (As long as Warren Buffet, George Soros, and Hollywood vote Democrat it is fair to say the really rich could use a bit more taxes.) Alas, it looks like a higher rate would be needed to break even for the well off.
Anyway, I think you will find the current tax rates to be instructive. I took five of the federal income taxes collected on working class. (I omitted unemployment insurance.) Then, I did a bit of algebra in order to to treat employer portions of FICA and Medicare as part of salary in order to be able to compare a single flat tax with the current array. For tax filers who simply take the standard deduction and personal exemptions, the following tax rates hold.
For single taxpayers:
| Nominal Income | Total Income | Payroll Tax | Income Tax | Total Tax | Average Rate % | Marginal Rate % |
|---|---|---|---|---|---|---|
| 14500 | 15609 | 2219 | 1209 | 3427 | 22.0 | 28.1 |
| 25000 | 26913 | 3825 | 2784 | 6609 | 24.6 | 28.1 |
| 30000 | 32295 | 4590 | 3534 | 8124 | 25.2 | 28.1 |
| 40000 | 43060 | 6120 | 5269 | 11389 | 26.4 | 37.4 |
| 50000 | 53825 | 7650 | 7769 | 15419 | 28.6 | 37.4 |
| 60000 | 64590 | 9180 | 10269 | 19449 | 30.1 | 37.4 |
| 75000 | 80738 | 11475 | 14019 | 25494 | 31.6 | 37.4 |
| 100000 | 107650 | 15300 | 20687 | 35987 | 33.4 | 40.2 |
| 200000 | 209522 | 19043 | 49912 | 68955 | 32.9 | 35.4 |
| 300000 | 310972 | 21943 | 82912 | 104856 | 33.7 | 35.4 |
| 500000 | 513872 | 27743 | 151366 | 179110 | 34.9 | 37.4 |
| 1000000 | 1021122 | 42243 | 326366 | 368609 | 36.1 | 37.4 |
| 2000000 | 2035622 | 71243 | 676366 | 747609 | 36.7 | 37.4 |
| 5000000 | 5079122 | 158243 | 1726366 | 1884610 | 37.1 | 37.4 |
For a couple without children:
| Nominal Income | Total Income | Payroll Tax | Income Tax | Total Tax | Average Rate % | Marginal Rate % |
|---|---|---|---|---|---|---|
| 14500 | 15609 | 2219 | 720 | 2939 | 18.8 | 23.5 |
| 25000 | 26913 | 3825 | 1818 | 5643 | 21.0 | 28.1 |
| 30000 | 32295 | 4590 | 2568 | 7158 | 22.2 | 28.1 |
| 40000 | 43060 | 6120 | 4068 | 10188 | 23.7 | 28.1 |
| 50000 | 53825 | 7650 | 5568 | 13218 | 24.6 | 28.1 |
| 60000 | 64590 | 9180 | 7068 | 16248 | 25.2 | 28.1 |
| 75000 | 80738 | 11475 | 9318 | 20793 | 25.8 | 28.1 |
| 100000 | 107650 | 15300 | 15538 | 30838 | 28.6 | 37.4 |
| 200000 | 215300 | 30600 | 42200 | 72800 | 33.8 | 40.2 |
| 300000 | 317593 | 35186 | 74372 | 109558 | 34.5 | 35.4 |
| 500000 | 520493 | 40986 | 142753 | 183739 | 35.3 | 37.4 |
| 1000000 | 1027743 | 55486 | 317753 | 373239 | 36.3 | 37.4 |
| 2000000 | 2042243 | 84486 | 667753 | 752239 | 36.8 | 37.4 |
| 5000000 | 5085743 | 171486 | 1717753 | 1889239 | 37.1 | 37.4 |
And for a family of four (with no child tax credits applied; I am not up to date on the latest law on this score):
| Nominal Income | Total Income | Payroll Tax | Income Tax | Total Tax | Average Rate % | Marginal Rate % |
|---|---|---|---|---|---|---|
| 14500 | 15609 | 2219 | 0 | 2219 | 14.2 | 14.2 |
| 25000 | 26913 | 3825 | 1040 | 4865 | 18.1 | 23.5 |
| 30000 | 32295 | 4590 | 1540 | 6130 | 19.0 | 23.5 |
| 40000 | 43060 | 6120 | 2973 | 9093 | 21.1 | 28.1 |
| 50000 | 53825 | 7650 | 4473 | 12123 | 22.5 | 28.1 |
| 60000 | 64590 | 9180 | 5973 | 15153 | 23.5 | 28.1 |
| 75000 | 80738 | 11475 | 8223 | 19698 | 24.4 | 28.1 |
| 100000 | 107650 | 15300 | 13713 | 29013 | 27.0 | 37.4 |
| 200000 | 215300 | 30600 | 40156 | 70756 | 32.9 | 40.2 |
| 300000 | 317593 | 35186 | 71963 | 107149 | 33.7 | 35.4 |
| 500000 | 520493 | 40986 | 140198 | 181184 | 34.8 | 37.4 |
| 1000000 | 1027743 | 55486 | 315198 | 370684 | 36.1 | 37.4 |
| 2000000 | 2042243 | 84486 | 665198 | 749684 | 36.7 | 37.4 |
| 5000000 | 5085743 | 171486 | 1715198 | 1886684 | 37.1 | 37.4 |
As we can see, the marginal rates get up to 28% rather quickly, and peak at a bit over 37%. Dick Armey’s call for a 17% flat tax is a huge giveaway to the rich compared to current law.
I crafted a flat 40% tax plan which merged all these taxes which comes out as a tax cut for everyone short of around $200K/year/individual by having a $12,000/year prebate. Not sure how this would come out for the treasury, but if we count the prebate against all welfare and Social Security benefits, we could get most people off those other programs.
Of course, those who game the system pay less than the rates above. For example, state income taxes alone take many high income earners above the standard deduction. Throw in mortgage interest and property taxes and my estimate for the professional class (doctors, lawyers, full professors, engineers, etc.) is low. Furthermore, pay in the form of health insurance is not taxed. (Or is that was? I am not up on the details of Obamacare.) And professional class workers can defer income through 401(k) plans, HSAs, etc.
So my evil plan may be a wash for professionals. But even if it is a wash monetarily, it eliminates the need to play the government’s game to keep your cash. Those who want to save to start a business instead of save for retirement. We could expect a mini boom in entrepreneurship. Furthermore, employing others would much easier. One simple tax to collect. Multiply by 0.4 and send it in.
What think ye?