Arkady
President
It's actually surprisingly easy to estimate whether you, personally, would pay more with a flat tax or with our current tax structure. The short answer is that if you earn six figures, you'd do better with a flat tax, and if you don't you'd do better with our current code.
See here:
http://www.econdataus.com/efftax05.html
If you look at the "Total Effective Tax Rate" chart, for the most recent year, you'll see the average total effective tax rate is 17.6%. So, for a flat tax to collect the same revenue as our current system, that's about where the rate would have to be set. You'll also see that currently the fourth quintile (those between the 60th and 80th percentiles of income) pays a little less than that --17.4%. So, for an average person in that quintile (in other words, an average "upper-middle class" person), a switch to a 17.6% flat tax would be a small tax hike of 0.2 percentage points. For the middle-middle class (those in the middle quintile), it would be a significant tax hike of 3.4 percentage points. For the lower-middle class (those in the second quintile), it would be a crippling 7.7 percentage point tax hike, and for the lower-class (bottom quintile) it would be an unthinkable 13.3 percentage point increase.
So, as a basic rule of thumb, if you're in the bottom 80% of Americans (the lower and middle classes), you're better off with our current system, whereas if you're in the top 20% (the upper class), you're better off with a flat tax. The exact cross-over point would depend on various factors (do you have lots of write-offs like children, a mortgage, and charity? -- the more write-offs, the more likely you'd be hurt by a flat tax), but it occurs around an income level of just over $100,000 per year:
http://www.census.gov/hhes/www/cpstables/032011/hhinc/new05_000.htm
By the way, currently about 14.3 million Americans live above the poverty line but below 125% of the poverty line (the "near poor"). Raising their taxes by 13.3 percent would drop their after-tax income by that amount, which can be expected effectively to throw over half the "near poor," or about 7.6 million Americans, below the poverty threshold. As such, instituting a flat tax would elevate the effective poverty rate from 15.1% to somewhere around 17.6%, at least in terms of expected social impact. The last time we had poverty that high was 1964, before the War on Poverty got underway. In other words, such a flat tax would effectively finish the reversal of those strides, taking us back half a century, to a time of widespread poverty that most Americans can't even remember. And the impact on the very poor would be even harder to contemplate -- recreating the kind of abject, third-world-style poverty that existed in that earlier era:
http://ows.edb.utexas.edu/sites/default/files/users/mbush/poverty 1960s pic 2.jpeg
See here:
http://www.econdataus.com/efftax05.html
If you look at the "Total Effective Tax Rate" chart, for the most recent year, you'll see the average total effective tax rate is 17.6%. So, for a flat tax to collect the same revenue as our current system, that's about where the rate would have to be set. You'll also see that currently the fourth quintile (those between the 60th and 80th percentiles of income) pays a little less than that --17.4%. So, for an average person in that quintile (in other words, an average "upper-middle class" person), a switch to a 17.6% flat tax would be a small tax hike of 0.2 percentage points. For the middle-middle class (those in the middle quintile), it would be a significant tax hike of 3.4 percentage points. For the lower-middle class (those in the second quintile), it would be a crippling 7.7 percentage point tax hike, and for the lower-class (bottom quintile) it would be an unthinkable 13.3 percentage point increase.
So, as a basic rule of thumb, if you're in the bottom 80% of Americans (the lower and middle classes), you're better off with our current system, whereas if you're in the top 20% (the upper class), you're better off with a flat tax. The exact cross-over point would depend on various factors (do you have lots of write-offs like children, a mortgage, and charity? -- the more write-offs, the more likely you'd be hurt by a flat tax), but it occurs around an income level of just over $100,000 per year:
http://www.census.gov/hhes/www/cpstables/032011/hhinc/new05_000.htm
By the way, currently about 14.3 million Americans live above the poverty line but below 125% of the poverty line (the "near poor"). Raising their taxes by 13.3 percent would drop their after-tax income by that amount, which can be expected effectively to throw over half the "near poor," or about 7.6 million Americans, below the poverty threshold. As such, instituting a flat tax would elevate the effective poverty rate from 15.1% to somewhere around 17.6%, at least in terms of expected social impact. The last time we had poverty that high was 1964, before the War on Poverty got underway. In other words, such a flat tax would effectively finish the reversal of those strides, taking us back half a century, to a time of widespread poverty that most Americans can't even remember. And the impact on the very poor would be even harder to contemplate -- recreating the kind of abject, third-world-style poverty that existed in that earlier era:
http://ows.edb.utexas.edu/sites/default/files/users/mbush/poverty 1960s pic 2.jpeg
