Dean Baker on the latest sighting of a flat tax proposal:
The Meltdown Lowdown, by Dean Baker: ...Senator Lamar Alexander tried to upstage Senator McCain with his own April Fools' tax prank. He wants to give every taxpayer the option to either pay the tax owed under the current system or to pay a 17 percent flat tax. For most taxpayers this would not be a very good deal. The poorest people who pay Federal income taxes fall into the 10 percent bracket, meaning that their income (above the taxable threshold) is only taxed at a 10 percent rate. Slightly higher income taxpayers will fall into the 15 percent bracket.
A couple with two kids will not reach the 25 percent bracket unless their income is over $80,000. Even then, most of their income will be taxed at the lower 10 percent or 15 percent rate. The 25 percent tax rate only applies to the income that is over the cutoff, not the family's entire income. To have an average tax rate of more than 17 percent a couple with two children would have to earn more than $100,000. Needless to say, Senator Alexander's tax plan is not going to save your typical schoolteacher or firefighter any money.
While Alexander's plan wouldn't save ordinary folks money it would be fantastic for the rich. Imagine that you're one of those investment banker types that lost billions on bad loans and helped to push the economy into recession. Since it's been a bad year, your salary might have been slashed to a paltry $5 million or so. Under the current tax system, you might owe in the neighborhood of $1,500,000 in taxes. But, under Senator Alexander's plan, you could save about $700,000. That's almost enough money to make a difference even to an investment banker.
The idea of giving even more taxpayer dollars to incompetent investment bankers is pretty funny, but that's not even the best part of Senator Alexander's prank, in comedy it's all in the delivery and Alexander excels in that department -- he said that his plan is "designed to be revenue neutral." No one pays more, some rich people pay a lot less, and we end up with just as much money. Now that's funny. ...