Reply #52: No, it does not [View All]

[TechBear_Seattle]

Under the current progressive income tax structure, the filer calculates "disposeable" income, ie the amount left after paying for necessities, and pays tax only on that. The base tax rate is based on the amount of disposeable income, with a larger disposeable income resulting in a higher tax rate. The final amount of tax can be further adjusted to allow for individual financial circumstances.

Now, take two households, both with gross incomes of $50,000. Household A is a single, healthy person who rents. Household B is a married couple with 2 kids, a mortgage and medical bills arising because the wife was in a car accident and (like most Americans) the family did not have medical insurance and was thus forced to pay all expenses out-of-pocket.

Household A has a calculated disposeable income of $42,000. He pays $7,171 according to the 2005 tax tables, which is about 17% of his disposeable income or 14.3% of his total income.

Household B has a calculated disposeable income of $17,000. They pay $2,189 according to the tax tables, which is about 13% of their disposeable income or 4.3% of their total income.

Now, suppose a 10% flat tax on total income, without regard to whether or not it is disposeable. With both families, that is a tax of $5,000. Household A saves $2,171. Household B's taxes go up by $2,811, more than twice what they pay now.

The financial situation for Household B is far more common than the financial situation for Household A. In general, most people would see their taxes go up than go down, and those people would be the Americans least able to afford to pay higher taxes.