Headlines and the real story

In today's Bee there is a headline - "Once derided, 'flat' tax now nearly reality" - The original story is from the LA Times.

As used by its supporters a flat tax has two meanings. They are either a) a tax system with very simplified rates where a single rate is attached to all taxpayers or b) a simplified system where taxes are applied to a broad base without lots of credits, deductions and other preferences.

The premise of the headline is false on its face. The tax system is not flat but riddled with complex and odd items. The rate system has not changed substantially since the 1986 Tax Act or the Clinton tax act with the exception of the enhancement of the AMT. Two items that hit home most are the increasing importance of the Alternative Minimum Tax and the shadow bracket. Yes, indeed there are fewer brackets but the system is far from flat. To the extent that it could be described as flatter, it remains (contrary to critics of simplified taxation) quite progressive. The story points out that for most taxpayers their highest federal burden is the Social Security tax which is flat on income up to about $90k.

But here are some facts that the article does not include -
#1 - 43 million taxpayers are entirely excluded from the income tax (a third of all single taxpayers, a bit more than 20% of all married and two thirds of all head of households are in this status). The number has increased from 18% in the early 1980s. For those taxpayers the flat rate is zero.
#2 - Reliance on dividends and capital gains tends to grow with age. That is to be expected as people who accumulate wealth for their old age begin to use that wealth. Low income seniors tend to have more dividend than capital gains income but that rises as incomes rise (so old people with wealth also have more capital gains). For those taxpayers the Bush reforms allow them to keep more of their gains with a single rate.
#3 - Single taxpayers are about a third of the total filings and they have a smaller income than married taxpayers. (Think two earners)
#4 - A majority of Americans support a simpler income tax. 2% think the income tax is fine the way it is. While 77% believe it should be completely overhauled or have major changes. Evidently, most Americans have not seen the simple system that the article wants us to believe has begun to happen.
#5 - The top 1% of all taxpayers have 16.77% of all AGI (adjusted gross income) and pay 34.27% of all income taxes. The top 5% have 31.18% of all AGI and pay 54.36% of all taxes. (By any stretch of the imagination that is a very progressive system.)

But late in the story the payoff lines come out. Near the end of the article it states "No such system was adopted or even seriously considered." (It then goes on to claim that the change in capital gains and dividend taxation comes close to the ideal.) The article states " The health of the economy as a whole has not translated into gains for most workers." And "for most Americans whatever nominal pay increases (not specified) they have received in the past three years were more often than not offset by higher costs for things such as health care." (no data included on any part of this assertion) It then quotes an assistant special education teacher from Concord who comments (again without data) "The rich absolutely do not pay enough in taxes." OK, so the real point of the story is that a) the economy with the changes that Bush wrought have not been successful - they have screwed the middle class, b) the rich don't pay enough tax, c) the rich don't pay enough tax and if we had a flat system they would pay even less. Wouldn't it be fun to see the LA Times or the Bee do a straight news story?

By the way Tax Freedom Day is this year on April 26 - that is the day that most Americans quit working to pay their taxes.