My rant about the Problems with “Fair Tax”

So, I cheated a bit with the Fiction Friday thing this week by recycling something older, and I may do installation number two of the same tomorrow, or I may feel like writing the next installation of Lost and Found… I haven’t made up my mind yet. I’ll figure it out after work, I suppose…

So here goes, the rant about Fair Tax.

Apple pie with a slice missing
Time for pie again!

Not all dollars are created equal. A dollar to someone who has only one is everything they have, while a dollar to someone with 100 is not as big a deal. And a dollar to someone with millions of dollars isn’t much at all.

The current taxation system charges everyone but the very impoverished the same percentage of taxes on the first bracket of income they earn. I don’t know what the numbers are these days, I confess’s  because I use the Turbo Tax calculations. I’m lazy, it’s easier than sitting down at a table and calculating it out, and frankly, less prone to human error with my current work schedule.

Let’s just say that the bottom income tax bracket is 15%, and that the amount applies for individual income up to $30,000. I’m also going to assume in this scenario that no children or other family members are involved – just one individual living on their own.

For the individual living on a meager $12,000 – they will have to pay rent, utilities, groceries, regular medical expenses (including any insurance premiums) etc. Let’s assume that the smallest room one can find in a given town is $250 – or roughly 25% of their income. Let’s further assume that person has to pay $100 in utilities. Add $50 for cell phone or land line… Assume they need internet for their job, at $50 a month. We’re up to almost half the monthly income. This person takes public transportation at $50/month for the pass, to save on insurance and car payments. $300 in groceries shouldn’t be too much, eh? We’re up to $850, now let’s add the $100 they have to pay for basic insurance. Hmm… $50 left? Assuming that nothing unexpected pops up… Mr. 12k doesn’t pay taxes because Mr. 12k is below the poverty level… Mr. 12k has saved 5% of his $1000/monthly income, if he’s lucky.

Now, your person making $24,000… Double the money – is still in the same tax bracket – the under 30k bracket. Mr. 24k doesn’t want to live in the illegal basement apartment, because he’d rather live in a legal unit, and that means $500/month. So his rent doubled along with the salary. However, Mr. 24K’s utilities? They are about the same – $100. Also, he has the same $50 for the cell and $50 for the internet.

Mr. 24k still doesn’t have a car, but he’s saving up his hard earned money. So he pays the $50/month bus pass. He’s up to $650… He only eats a little better than the man earning half as much – he’s going to spend $400 in groceries, because he can. Mr. 24k pays the same $100 for basic insurance… So we’re up to $1100. Since he’s not below the poverty level, he pays 15% of his income in taxes, or $150. That brings us up to $1250. He has $650 left over to save, or spend, or whatever. And he has a pretty decent apartment, so he’s pretty happy.

Now, Mr. 60k… He’s doing REALLY well for himself, for a single guy. And as such, he feels like he should have a nice house. His payments on said house are roughly $1200/month – yes, more than double the other guy, but he’s making more than double his income, after all… Having a bigger place, his utilities are a bit higher. He pays $200/month. He’s upgraded the cell phone – $75/month.

He has high speed internet and added the luxury of cable with his internet – he’s now spending $250 on his cable internet, the fastest, best available in the town.  Now, he’s up to $1725/month. Mr. 60k has a pretty nice car, and he’s paying $600/month for the car, plus another $100 for insurance. Plus, there’s gas and maintenance, so we’ll tack on another $125/month. $2450 a month… But hey, he makes $5000 every month. So we’re not up to spending half his salary yet… Mr. 60k likes his food, and he spends a generous $600/month to eat well. $3050… Add in his more inclusive health insurance, he pays $200/month. $3250…

Now, here’s the kicker… Mr. 60k is “rich,” so he pays higher taxes. On the first 30k, he pays the same 15% rate as Mr. 24k… 15% of the first 2500 is $375 a month… For the second 30k, he pays 25%… $625. So, all total, his income tax for the month comes out to $1,000. Poor guy… Because after that he has only $750 left to “play around with.” However, he’s living in a MUCH nicer place…

Let’s double this again… Mr. 120k. 120k is very well off. As such, he is going to be paying ridiculous taxes, right? let’s see how much of his monthly income of $10000 he’ll be paying compliments of the graduated tax system… His first $2500 is taxed at 15%, and he’ll be paying $375. His second $2500 is taxed at 25%. That will cost him another $625. His third $2500 is taxed at 30%, or $750… And that last $2500? That’s at the very top income tax bracket of 35%. (That was THE HIGHEST tax bracket when I was in law school…) That $2500 will cost him $875. So, all total, he’s going to pay $2625 in taxes each month. Poor guy, that seems like a lot… He’s down to only $7375/month left to spend.

So, after his taxes, he starts out with $2325 more than the guy making half what he makes, not including that dude’s taxes. Okay… he works harder, he deserves more, right? (that’s debatable, but we won’t get into that…) He’ll get a nicer house… We’ll even double it to $2400. Now he has $4975… Do you think he’ll spend twice as much on food as the guy who made half as much? $1200 a month on groceries for one person? Doubtful. Unless he’s a glutton… Does he need to consume twice as much in utilities? Probably not… unless he’s living in a big place all alone. So let’s only increase those to $800 and $250… Now he’s down to $3925. $300 in insurance… $3625 left. He’s paying $800/month for his car plus insurance. $2825 left… His gas and repair is a little higher at $200/month, just because his car is a pricier car to repair. Okay, now he’s down to $2625. Let’s assume, for the sake of argument, that he has loans from his education that the other three don’t have, that cost him $1000 a month, and that they are non-deductible. Now he has $1625 left to spend, just to play, or to save and collect interest.

But he’s living in a great, big beautiful house, and he has a nice luxury car.

Double this again.

Think about 20k a month. At what point do you reach a ceiling on your housing expenses, or at least stumble into the territory where you’re buying much more house than you will ever need? At what point do you have the best car money can buy? What about the utilities? Is this guy going to need to double the food expenses? Even going out to eat all the time?

Now… For the fair tax…

Both Mr. 12k and Mr. 120k have to buy food. Is food taxable when there is no income tax? What percent of each of their incomes will be spent on food?

Let’s get down to clothing… Let’s say it’s all taxable at 10%, and that Mr. 12k has to buy a $20 pair of pants. He’s now going to pay $2 in tax for said pants. He makes $1000 for the whole month, and he only had $50 after all of his necessary expenses. So, after that purchase, he has $28 left.

Mr. 120k has to buy a $200 pair of pants for work. (His dress code is a bit fancier…) Tax makes it $220. Now, remember, Mr. $120k no longer has to pay that $2625 in taxes, because we’ve decided income tax isn’t fair. So, he now has $4250 left, even after all of his luxurious spending on accommodations. The pants bring him down to having $4,030. They started out with Mr. 120k making 10 times as much as Mr. 12k, but somehow, after the “fair tax,” and necessary expenses, Mr. 120k has over 175 times as much as Mr. 12k. Before, when it was income tax, Mr. 120k was paying 25% in taxes, and Mr.12k, who barely makes enough to survive in his illegal basement room in the ghetto was paying no tax. Now, Mr. 12k is paying .2% (it’s low, but it’s more than he was paying) and Mr. 120k is paying the same .2%. Sounds fair, right? Except…

In the real world, earning ten times as much doesn’t mean having to spend ten times as much on necessary items. When all is said and done, the result of the “fair tax” is that the poor man has less than 3% of his income left at the end of the month, after living in abject poverty, while the wealthy man has 42.5% left of his.

I leave it to you to decide how fair this is.

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8 thoughts on “My rant about the Problems with “Fair Tax”

      1. OK, thank you. For some reason I thought those proposing a national sales tax were calling it the value added tax like the one they have in Europe and I thought it was being proposed to replace the current income tax system here. My take on what you are saying is that it is regressive and thus unfair, which seems logical to me.

        Liked by 1 person

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