MAKING SENSE -- August 23, 2012 at 9:41 AM ET
Is a Progressive Flat Tax an Oxymoron?
A protestor wears stickers on his face during a tax day demonstration April 17, 2012 in New York City. Photo by Justin Sullivan/Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Our apologies for not getting a Q-and-A up yesterday. Health issues knocked us out for day. Here is Thursday's query:
Name: Tina Jackson
Question: What stops the United States from implementing a flat tax? It could be progressive depending on income, so that it doesn't hurt people with less income.
Paul Solman: A progressive tax would not be a flat one, by definition. A "flat" tax gets its name from its lack of progressivity: one flat rate for everyone.
But I think I know where you're coming from, Tina. The argument for a flat tax is that it's simple. And the fact is, a progressive tax can be simple indeed.
Here is a link to entire 1040 return, complete with instructions, when the income tax was first made permanent in this country, back in 1913.
Fairly simple, wouldn't you say? Income from all sources minus deductions, exemption ($3,000 single; $4,000 married couple) and any withholding payments already made. And then, if you netted between $20,000 and $50,000, a 1 percent rate; between $50,000 and $75,000, 2 percent; and so on, all the way up to a top rate of 6 percent on net income over $500,000.
To put this in perspective, measuringworth.com translates those amounts into current income of at least $500,000 to over a million for the lowest bracket; at least $11 million and above for the highest. In other words, in the beginning, only the wealthiest Americans were targeted for any income tax at all.
Bottom line, this was a progressive tax and it was pretty simple. The great Cornell economist Bob Frank has made a similar point with respect to the "consumption tax" he has pushed for years, and explained here several years ago.
As usual, look for a second post early this afternoon. But please don't blame us if events or technology make that impossible. Meanwhile, let it be known that this entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.