Joseph Salerno on the Punitive Flat Tax

Recently, paediatric neurosurgeon Benjamin Carson raised the ire of President Barack Obama by criticizing the progressive income tax during his speech at the American National Prayer Breakfast. Meanwhile, Professor Joseph Salerno, writing at the Circle Bastiat, explains the punitive nature of proportional income taxation, i.e. the flat tax:

Of course the so-called “flat tax” is not really a flat tax at all because it extracts a much higher dollar amount from those earning higher incomes than from those who earn low incomes. For example, if everyone is taxed at the same flat rate of, say, 10 percent, then the individual earning $1 million per year must pay taxes of $100,000 whereas the individual earning an annual income of $50,000 pays only $5,000. The former is thus forced to pay a price twenty times higher than the latter has to pay for the same rotten government services. How is this not a punitive tax?

When comparing these individuals’ level of taxation, it is critical to understand that the relationship may be expressed as either an absolute or relative difference. The absolute difference is calculated via subtraction whereas the relative difference is expressed as a ratio.

Because both individuals in Professor Salerno’s example have a tax rate of 10%, proponents of proportional taxation will often assert that there is no difference between the two. However, if clarity, not obfuscation, is the goal, it is important to consider the actual data. In doing so, it is obvious that the individual who pays $100,000 is shouldering more of the tax burden than his compatriot who pays $5,000.

How would economic productivity be affected if individuals paid a price for all goods and services on the market in proportion to their income? What if individuals paid progressively higher prices as income levels rose?

If these approaches are nonsensical for voluntary transactions on the free market, why are they considered appropriate for government?

Continue reading Professor Salerno’s article here.

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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