We Have a Flat Tax

The thing is: We already have a flat tax. It’s called the Social Security tax. For more than half of us, it’s actually a bigger bite than the income tax. And, amazingly, it’s not just flat. As Michael Dukakis and others have pointed out, it’s downward sloped. Above a certain level, you don’t have to pay it.

For someone who earns $20,000 a year, it’s a flat 7.65%. For someone who earns $1 million a year, it works out to just one half of one percent. (Double both those percentages if you’re self-employed.)

The tax is 7.65% on the first $62,700, or about $5,000. Then it stops. On $1 million income, it’s still about $5,000 — one half of one percent.

Actually, it’s no longer quite so stark. A few years ago the ceiling was removed on the taxable Medicare portion of the Social Security tax. That portion (1.45%, or 2.9% if self-employed) now applies to every dollar we earn.

But the bulk of the tax cuts out at $62,700.

And we don’t pay any Social Security tax on investment income. So here is a tax that a family of four scraping to get by on a $20,000 income pays, but that a nonworking millionaire earning $185,000 a year on his investments does not.

Now, I know the reasons for this. I know the historical background. I know that Social Security benefits top out at a certain level, so it’s not fair to have a high-income person pay more for his or her benefits than a lower income person.

But I also know that America is not guaranteed a bright future; we have to make it happen. We have to find the resources to balance the budget (or come fairly close), yet build a nation of well educated, skilled, reasonably harmonious, happy healthy citizens — or else slide gradually into the sort of economy with some superrich at the top, a small merchant class in the middle, machine-gun toting guards at the edges of our gated communities, and everyone else outside, scampering out of the way as our limos drive through the crowded streets.

To find the resources we need, we may have to look to those who have the resources, whether it’s done through charities and orphanages or through a graduated income tax.

And now that Social Security is such a huge part of the national tax structure, attention might rightly be paid to the notion that it’s not only not graduated, it slopes downward. The more you make, beyond $62,700, the lower the percentage you pay.

I know I’m swimming against the tide here. But there are an awful lot of people working very hard to make ends meet, unable to save anything, who in an earlier era, working this hard, would have been more comfortably middle class.

If we drive the great middle-middle class into the great lower-middle class and the great lower-middle class down to the poverty level, at some point the votes might be there to raise tax brackets on the rich back up to counterproductive, vengeful levels — like the 70% rate that prevailed until 1980.

If we think it’s OK for a family earning $35,000 a year to pay a flat 7.65% in Social Security tax — tough, but necessary — then perhaps a family earning $400,000 would be able to afford it, too.

Tomorrow: Einstein