CAN A FLAT TAX BE A FAIR TAX? COULD BE...

One of the issues that falsely divides us in a variety of ways is the question of taxation. I'm not going to get into a critical discussion of supply side economics or the value of various incentives written into the tax code to the benefit of individuals or businesses. That way lies madness. I'm going to simply discuss how a flat tax on individual incomes can be structured to be easy and economical to enforce, progressive in its way, and equitable.

Why should this discussion divide us? If there's a cheaper and fairer way to fund our government, why shouldn't we be diligent in our exploration of it? There are three main reasons comprehensive tax reform has thus far failed to make progress. Briefly:

1. Folks at the edges of both political parties have championed a flat tax. When both Jerry Brown and Malcolm Forbes think that something is a good idea, there's gotta be a catch.

2. CPAs, lesser-credentialed tax accountants and preparers, purveyors of tax software, IRS workers, elected members of Congress on powerful committees, beneficiaries of those incentives and other goodies that have been written into the tax code over the years...all have either financial interests or positions of power to protect.

3. A flat tax is different. That means it has to be carefully explained. See below. Do you have the patience to read and understand the concept? Most don't. Sorry. Truth.

Here goes...

All income would be taxed and the definition of income would be broad and all encompassing - wages, tips, capital gains, bonuses, however it is that hedge fund managers get paid...whatever results in money in your pocket that wasn't there before. All gets reported. All gets taxed.

Now please, be patient with me. I'm going to make some assumptions and quote some statistics. Don't jump on me. For instance, I'm going to set the flat tax rate at 10%. It would probably be lower but I use 10% because that makes it easy to do the math in this sort of demonstration. I'm also going to set the poverty rate for an American family of four at $25,000. The feds actually set it a bit lower for 2014 but again, for the sake of the math...

We begin by deciding on the exclusion, that portion of income that is yours to keep in its entirety, that's not taxed. Think of it as the standard deduction in the current tax system. And let's say that we set the exclusion at 200% of the federal poverty level. Therefore, a family of four with a total income of anything up to $50,000 (twice the federal poverty rate of $25,000 for that family) will pay no taxes. Zilch. Two wage earners making $12 an hour each working full time, earning something over $40,000 total, will pay no income tax. As a percentage of total income, the effective tax rate: 0%

Now let's assume that the Mom and Dad in that family of four are social workers with a bit of seniority. They could be earning $50,000 each, making the family income $100,000. Exclude $50,000. That leaves $50,000 taxable. At 10%, the tax bill would be $5,000. As a percentage of total income, the effective tax rate: 5% (5,000/100,000 = 0.05).

Dad is an executive vice-president of a profitable local company earning a salary of $200,000. Mom is one of those $50,000 social workers, making the total family income $250,000. Exclude $50,000. That leaves $200,000 taxable. At 10%, the tax bill would be $20,000. As a percentage of total income, the effective tax rate: 8% (20,000/250,000 = 0.08).

A hedge fund manager makes $2,000,000 in 2014. Don't ask me how. His wife makes martinis. (OK. I'm a sexist pig. Roll with it.) His kids make Ecstasy in the pool house. Exclude $50,000, leaving a taxable income of $1,950,000. A 10% tax bill comes to $195,000. As a percentage of total income, the effective tax rate: 9.75% (195,000/2,000,000 = 0.0975).

Do you get the picture? It is indeed a progressive tax even though it's called a flat tax. The higher the income, the higher the taxes paid in both dollars and as a percentage of total income. Strictly limit deductions and other adjustments to taxable income. Move the exclusion as the poverty rate moves. Move the tax rate as necessary to cover the cost of government. Get rid of billions of dollars worth of tax preparation costs to the consumer annually. Slash the budget of the IRS. Figure your taxes on a postcard. What's not to like? If you understand the concept, what are the arguments against a flat tax? That it's too simple? That it's not progressive enough? What...?

Currently, about half of federal revenue comes from individual income taxes. About 10% comes from businesses taxes - down from close to 50% about 60 years ago. Lobbying pays dividends. This points out a major problem with a flat tax scenario. How do you apply a like, simplified structure to the self-employed, small businesses, and corporations? A topic for another day...

COPS OR DEMONSTRATORS - GUNS OR BUTTER: FALSE DICHOTOMIES

We have become tribal and, in the process, become binary. Ones or Zeros. Yes or No. Pro or Con. We define each other through simple answers to complex questions. Such thinking, dividing ourselves in this way, is not in our own best interests.

That's not to say that there are no absolutes. I am not one of those who believes that being human means to think in shades of gray, that everything is relative, that there is no right or wrong, no good and no evil. I have my red lines. Red lines are healthy. They require us to think critically and make rational, informed judgements. But today I'm talking about the false dichotomies, questions that look as though they can be answered simply but that are in truth designed to force us to abandon critical thinking in favor of tribal fervor.

GUNS OR BUTTER

The Vietnam War shaped much of my geopolitical thinking. It seemed to me that it was foolhardy to think that, as the new kids on the block, Americans could do better in southeast Asia than the French, who had been in the business of colonialism for quite awhile. I have never had reason to doubt that simple analysis. Afghanistan, anyone? And today there are more hotels listed in Hanoi on the popular travel website TripAdvisor than are listed in Chicago.

At the time, when the War on Poverty was competing for funding with the Vietnam War, Guns or Butter? became a popular question to ask. It was not a new question. Eisenhower perhaps laid it out most starkly: "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed."

Your answer marked you. Guns? Warmonger. Butter? Peacenik.

But with respect to Ike, the dichotomy is a false one. Putting aside the question of the fairness of the current tax code when it comes to funding our government and putting aside the waste/fraud/abuse in both the Pentagon and the Department of Health and Human Services when it comes to spending our tax dollars, we are a rich enough country to afford sufficient quantities of guns and butter to both defend ourselves vigorously and feed ourselves comfortably. Regardless of the current binary situation in Washington, we needn't cut the budget of the Pentagon in order to properly fund HHS. It is not a zero sum game, though game we have apparently allowed it to become in our march toward tribalism.

Our elected officials simply need to make sane judgements regarding our tax code and our spending priorities, in our decisions concerning war and peace, untainted by the influences of campaign funding and temptations of wealth and power. Simple, right?

COPS OR DEMONSTRATORS

Questions regarding our system of criminal justice are among the most emotional of the moment. Male black Americans are in statistically dangerous territory when it comes to being stopped by the police, charged with a crime, found guilty of a crime, and/or incarcerated. Such constant and contentious contact with law enforcement inevitably leads to frustration and violence on both sides. There are two factors at work here, neither of them pretty.

First, racism exists. It exists at all levels of our society. Don't argue. It does. This is one of those red lines that I talked about. Racism exists. Denying that racism exists is either racist itself or just stupid. Police and the court system are not immune.

Second, police cause crime, particularly in impoverished and segregated black communities. That's not to suggest that all police, or most or even a plurality, are criminals. Not at all. But 50 years ago, Malcolm X predicted the scenario that's being played out today. He pointed out that even then, when an incident occurred in Harlem, however minor, swarms of police responded, multiples of the number that would respond to similar incidents in other parts of the city. But more aggressive policing did not and does not lead to a community feeling a sense of safety. On the contrary, communities feel threatened. In the face of an increasingly militarized police, the threatened communities either exhibit the self-destructive rage of the powerless or feel the need to take steps, however futile, to protect themselves. Hence the demonstrations and the misdirected violence, both inner directed and directed toward law enforcement.

As the demonstrations and the level of violence and the ever more shrill reporting in the media of that violence mounts, we get the false dichotomy question: Do you support the cops or the demonstrators?

Cops? Racist. Demonstrators? Anarchist.

Now that's just stupid. We are a nation of laws, laws that protect individuals from the bad acts of other individuals. We need strong, active, skilled policing. Who else you gonna call? Ghostbusters?

But because we are a nation of laws, we are also protected from bad actors who act in the name of the government. And that includes cops. In the words of John Marshall, the first Chief Justice of the US Supreme Court: "The government of the United States has been emphatically termed a government of laws, and not of men. It will certainly cease to deserve this high appellation if the laws furnish no remedy for the violation of a vested legal right."

It is possible, logical, and downright American to support our police forces while condemning excessive behavior by individual police officers.

So where does this leave us? I submit that we are left with the necessity of viewing any number of issues that have been presented to us with less binary, more critical thinking. Israel or Palestine? Carbon-based or renewable? Flat tax or progressive rates? There are many such issues that have been used by cynical manipulators to divide us. It's time to look at each with fresh eyes. Stay tuned for a discussion of the flat tax versus a progressive rate tax code.