Herman Cain’s bizarre 9-9-9 plan would replace
much of the current tax code with a 9 percent individual income tax and a
9 percent sales tax. He calls it a “flat tax.”
Next week Rick Perry is set to announce his own version of a flat
tax. Former House majority leader Dick Armey – now chairman of Freedom
Works, a major backer of the Tea Party funded by the Koch Brothers and
other portly felines (I didn’t say “fat cats”) — predicts this will give
Perry “a big boost.” Steve Forbes, one of America’s richest
billionaires, who’s on the board of the Freedom Works foundation, is
delighted. He’s been pushing the flat tax for years.
The flat tax is a fraud. It raises taxes on the poor and lowers them on the rich.
We don’t know exactly what Perry will propose, but the non-partisan
Tax Policy Center estimates that Cain’s plan (the only one out there so
far) would lower the after-tax incomes of poor households (incomes below
$30,000) by 16 to 20 percent, while increasing the incomes of wealthier
households (incomes above $200,000) by 5 to 22 percent, on average.
Under Cain’s plan, fully 95 percent of households with more than $1
million in income would get an average tax cut of $487,300. And capital
gains (a major source of income for the very rich) would be tax free.
The details of flat-tax proposals vary, of course. But all of them
end up benefitting the rich more than the poor for one simple reason:
Today’s tax code is still at least moderately progressive. The rich
usually pay a higher percent of their incomes in income taxes than do
the poor. A flat tax would eliminate that slight progressivity.
Nowadays most low-income households pay no federal income tax at all –
a fact that sends many regressives into spasms of indignation. They
conveniently ignore the fact that poor households pay a much larger
share of their incomes in payroll taxes, sales taxes, and property taxes
(directly, if they own their homes; indirectly, if they rent) than do
people with high incomes.
Flat-taxers pretend a flat tax is good public policy, for two reasons.
First, they say, it would simplify paying taxes. Baloney. Flat-tax
proposals don’t eliminate popular deductions. (I’ll be surprised if
Perry’s plan eliminates the popular mortgage-interest deduction, for
example.) So most tax payers would still have to fill out lots of forms.
Second, they say a flat tax is fairer than the current system because, in Cain’s words, a flat tax “treats everyone the same.”
The truth is the current tax code treats everyone the same. It’s
organized around tax brackets. Everyone whose income reaches the same
bracket is treated the same as everyone else whose income reaches that
bracket (apart from various deductions, exemptions, and credits, of
For example, no one pays any income taxes on the first $20,000 or so
of their income (the exact amount depends on whether the person is
married and eligible for tax credits like the Earned Income Tax Credit
of the Family Tax Credit.)
People in higher brackets pay a higher rate only on the portion of
their income that hits that bracket — not on their entire incomes.
So when Barack Obama calls for ending the Bush tax cut on incomes
over $250,000, he’s only talking about the portion peoples’ incomes that
exceed $250,000. He’s not proposing to tax their entire incomes at the
higher rate that prevailed under Bill Clinton.
Republicans have tried to sow confusion about this. They want
Americans to believe, for example, that if the Bush tax cut ended, small
business owners with incomes of $251,000 a year would suddenly have to
pay 39 percent of their entire incomes in taxes rather than 35 percent.
They’d only have to pay the 39 percent rate on $1,000 – the
portion of their incomes over $250,000.
Get it? We already have a flat tax – flat within each bracket.
The real problem is the top brackets are set too low relative to
where the money is. The top-most bracket starts at $375,000 a year.
People with incomes higher than that pay 35 percent – again, only on
that portion of their incomes exceeding $375,000.
This is absurd. It means a professional who’s making, say, $380,000 a
year pays the same income-tax rate as a plutocrat pulling in $2 billion
or $20 billion.
Our current flat tax at the top is treating the nation’s professional
class exactly the same as it treats super-rich plutocrats. My doctor
pays the same rate as Steve Forbes.
Actually, it’s worse than that because the plutocrats get most of
their income in the form of capital gains, which are taxed at only 15
percent. That’s why America’s 400 richest people – who earned an average
of $300 million last year, and who have more wealth than the bottom 150
million Americans put together – now pay at a 17 percent rate
(according to the IRS).
The Republicans’ push for a flat tax masks what’s really going on.
Remember: The top 1 percent is now raking in over 20 percent of the
nation’s total income and owns over 35 percent of the nation’s wealth.
Under almost anyone’s view of fairness, these are grotesque portions.
They’re especially large relative to what they were as recently as
thirty years ago, when the top 1 percent raked in under 10 percent. And
these huge portions at the top continue to increase.
Meanwhile, the top tax bracket is now 35 percent — the lowest it’s
been in three decades. Between the end of World War II and 1980 it never
fell below 70 percent.
Simple fairness requires three things: More tax brackets at the top,
higher rates in each bracket, and the treatment of all sources of income
(capital gains included) exactly the same.
Not only fairness demands it, but also fiscal prudence. A truly
progressive tax would bring in tens of billions of dollars a year from
the people at the top who are in the best position to afford it.
Regressives are pushing the flat tax as a smokescreen. They’d rather
not have anyone talk about the unfairness and fiscal absurdity of the
Rather than merely oppose the flat tax, sensible people should push
for a truly progressive tax – starting with a top rate of 70 percent on
that portion of anyone’s income exceeding $5 million, from whatever
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He writes a blog at www.robertreich.org. His most recent book is Aftershock.