In the Kansas Legislature this week, there has been a lot of noise about "fixing" the state's revenue problem with a flat tax bill. Because, the extremist argument goes, a flat tax is a fair tax!
But it isn't. And this is important. This is an important distinction to understand: equal does not mean equitable. What is equal is not always what is fair. Everyone paying the same tax rate, say 4.6%, is not fair, much as it hits all the "fairness" buttons. Instead, it hurts low income Kansans disproportionately. Separate tiers, with low rates for low incomes, and high rates for high incomes, have a much fairer impact.
Let us illustrate this in a couple of ways.
Your kids do chores. You pay them in cookies, because you're an awesome parent.
Your kindergardener picks up her dinner plate, and earns two cookies. Your third grader picks up the rest of the table, loads the dishwasher, and feeds the dog. For this he earns ten cookies. Your kindergardener isn't too happy, but understands that more work gets more cookies. That seems fair to her.
Then, because you need cookies to get through the night, you levy a 50% flat tax on your children (not such an awesome parent anymore, eh?). Your third grader will have five cookies left. Your kindergardener will have one. Just try to explain to her how that is fair.
A progressive, tiered tax system would levy a smaller tax on kids who earn fewer cookies. You might take a bite from one of her cookies, and still take half your third grader's cookies.
A percentage sounds fair, of course, since it's the same percentage for everyone. Make more, pay more. Make less, pay less. Right? But when you start with less, that percentage leaves you with even less. If you have $20,000, ten percent off the top leaves you with only $18,000. But when you start with $100,000, ten percent off still leaves you with $90,000. You can still do all the things you need to do with that much money.
This is the crux of the matter. People who make less money have less wiggle room in their budgets. Taking a lot in taxes leaves them with even less to make ends meet. People with a lot of money have a lot of money left over, even after paying a lot of taxes. They can pay for all their necessities, plus a vacation.
We can takes this to an absurd degree: if a flat tax is fair, then flat, percentage prices for basic necessities should be fair, too. What if everyone spent the same percentage for the same groceries? Milk would cost a poor person $5 a gallon, but a rich person would pay $25 for the same gallon. Or a car. Middle income people would pay 50% of their income for a $25,000 car. Rich people, if percentages are fair, would pay $125,000 for the very same sedan.
Ridiculous, right? Indeed.
With actual dollars
So, let's look at how it works with real numbers. The amount being proposed in the Kansas legislature is a 4.6% flat tax. For this example, let's take Sen. Ty Masterson's waitress in Andover, KS. (He infamously argued against tax reform earlier this session by decrying the $25 increase it would have had on a single mother waitress he saw once.) Average servers in Andover make $18,000 a year.
On the other end of the scale, let's take a real estate business owner with a building company on the side. Let's say he makes about $150,000 a year.
With the proposed 4.6% flat tax, Masterson's waitress would pay $828. Our real estate builder would pay $6,900. No question the rich guy pays more in taxes. But our waitress is left with $17,172 to live on. And our businessman is left with a paltry $143,100. Who is getting the better deal from the flat tax?
And how would these two Kansans fare under HB 2178, the excellent tax reform plan passed by both chambers of the Kansas legislature, but vetoed by Governor Brownback? This plan offered three tax brackets (up from two in current law). For single filers, the brackets were $15,000 or less, up to $50,000, and over $50,000. For married couples filing jointly, the brackets were $30,000 or less, up to $100,000, and over $100,000. (Here's the text of the proposed law.)
Our waitress, a single mother, would have fallen in the second tax bracket. She would have paid $562.50. Our businessman, in the top bracket, filing jointly, would have paid $7,692.50.
Here is how it breaks down:
Waitress - currently would pay $486
Under rejected tax reform would pay $562.50
Under flat tax proposal would pay $828
Businessman - currently would pay $6,330
Under rejected tax reform would pay $7,692.50
Under flat tax proposal would pay $6,900
Flat taxes are not fair, and this flat tax is even worse
To recap. Flat taxes affect those with less to a greater degree, leaving them with even less to live on. To boot, the flat tax plan being passed around the Kansas Legislature hits lower and middle income Kansans even harder than the tax reform plan rejected by conservatives for "hurting the middle class!"
To be sure, taxes are complex, and deductions, credits, etc. can affect tax burden. But with the Earned Income Tax Credit currently under attack by extremists in the Kansas Legislature, there are no tax refuges left to the lowest earners in Kansas. Meanwhile, there are still many options for those making lots of income to reduce their burden even more.
Bottom line: don't believe anyone who tells you they fight for low or middle income Kansans if they try to sell you a flat tax.