The perception (and reality) is that the few are burdened by an under achieving American economic condition.  When less than half of income earners are pulling the load for a larger whole, we have an equitable imbalance.  It is this imbalance that has spurred a call for "fairness” of a flat tax.  Many feel a flat tax will allow all Americans to pay their fair share.  If a flat tax of 15% were applied to everyone, all people would pay the same, predetermined tax rate.  On the surface, a flat tax is a panacea to America’s tax ailments.  Unfortunately, the surface is easily scratched.

The call for a new sense of fairness under a flat tax only changes the impact taxes have on different financial demographics.  Take for example a young mid-twenties, divorced mother of two who is both employed and going to college; a typical American in many senses.  It is this more average and unassuming American that is most harmed, most often overlooked, most understood and most persecuted when it comes to changes in the tax code.  First, this demographic best displays how income taxes are used by citizens.  Let’s say this divorced mother of two made roughly 22K in 2010.  Using the current and more complicated tax code, this person could see a tax return of close to 10K; which many now find wrong.  What is missed is that these tax returns are not always wasted on irresponsible extravagance; they are placed into savings to make ends meet and cover emergency expenses throughout the year.  Success in the year is defined by bringing forth a positive balance of the previous year’s income tax return.

If this American beat the odds and made slightly more in 2011, say 26 to 28K, the return would be some 2 to 4K less.  This is fine because bringing a positive balance forward from the previous tax year is designed to offset the reality of getting smaller tax returns in the future.  And this is what is overlooked when shifting to a flat tax; tax returns are the first to become a thing of the past.  On top of that, more than 50% of Americans will pay taxes for the first time.  Do the math not using a calculator, but common sense.

A person making 22K and saves a tax return has a disposable income of closer to 30K (if not better if credits are properly applied).  Like it or not, the impact of flat tax becomes extremely real, extremely quickly.  The 22K income earning mother of two literally goes from a disposable income of up to 32K down to 18K in less than 12 months’ time with a flat tax of 15%.  Ideologically, this is fair in that all are levied with the same tax rate which 15% seems to be the preferred benchmark.  Problem is; 15% will hardly suffice in terms of supporting government as it currently operating.  Twenty eight percent is more realistic.

Applying a 28% flat tax to this person means they suffer an immediate disposable income decrease of 50% in that the flat tax would reduce the take home income to roughly 15K.  However, this leads to another often over looked aspect of a flat tax in that current proposals refuse to address; the fact that on top of a flat tax Americans will still pay into SS, FICA and Medicare / Medicaid.  This increases a 28% flat tax to 32 to 34%.  The literal translation for someone earning 22K a year is reduced to $14,520.00 in the name of fairness.

While we can argue the semantics of income tax returns being used for supplemental income over a forth coming tax year, the reality of income tax returns’ usage should be evaluated when contemplating a flat tax.  Lost in translation is the flat tax is a direct attack on lower income levels, and an unwise one.

Fewer than half of Americans pay taxes, forcing more than half to now pay taxes while disposing of the income tax return economically imperials more than 50% of a nation which has a suffering economy; 70% of which is driven by consumer spending.  Maybe it’s just me, but I see this as unwise.