Excerpt from Chapter 11 of Nobody's Fool
"Vanquishing the Great Rift in our Political System"

At this point we will wade into the center of what government is all about.  It can be summed up in one word: Taxes.  Regardless of location, party denomination or political structure, just as an army reputedly "travels on its stomach," a bureaucracy travels on its citizens' billfolds, and everyone who enters government service sooner or later comes to share this attitude.  Left to the devices of the officials, there is no limit to the amount to be collected, and any attempt by the payors to minimize the tribute will be met with the usual warnings of dire consequences that never end.  In California, home of the famous (or infamous) Proposition 13, the initiative measure which in 1978 cut property taxes by half and limited future increases to 2 percent per year, the tax beneficiaries to this day blame every malady except the sinking of the Titanic on the passage of that proposition.  The fact that the state and all its political subdivisions are literally awash in money does not dampen the enthusiasm of many to rescind that law.

As the intent of the various collectors to shear the public is clear, so is the attitude of the shorn.  It requires no great awareness to understand that your money is taken.  For this reason, the politicians must regularly genuflect to the concept of tax relief, and an endless variety of proposals are periodically floated to convince the citizens that their best interests are uppermost in the minds of their leaders.  Think back, if you will, to the spectacle of Congress and the president falling all over themselves with conflicting tax reduction plans prior to the 2000 national elections.  The called-for relief stressed the conventional palliatives including marital deduction reform, capital gains elimination, and general rate slashing.  As predictable, the sound and fury following the election came to mostly nothing, short of ballyhoo over how each citizen might best spend a $300 per head governmental gift.

One of the more fascinating suggestions that surfaces from time to time is the idea of a "flat tax."  As the concept is actually taken seriously, it is worth discussing.  Income tax in the United States is assessed and collected in what are known as "brackets," of which six presently exist for the average taxpayer.  As a person's annual taxable income rises, the rate at which it is taxed increases with the higher bracket.  For a single individual the current rates are shown below.

     Taxable Income           Tax Rate (%)

$      0 -   7,150           10

   7,150 -  29,050           15

  29,050 -  70,350           25

  70,350 - 146,750           28

 146,750 - 319,100           33

 319,100 - no limit          35

A tax system with a wide percentage variance between the lowest and the highest brackets is referred to as progressive.  The proponents believe it is fair that those with the larger incomes pay a greater percentage of that income in taxes.  Over the years since enactment of the sixteenth amendment to the Constitution, when in 1913, income tax became the law of the land, the number of brackets and the applicable percentages varied widely.  Initially the tax set a flat 1 percent on incomes over $3,000 for individuals ($4,000 for married couples) with an additional 6 percent surtax on very high incomes.  By the conclusion of World War II in 1945, numerous brackets existed, the lowest, between $750 and $2,000, taxed at 23 percent, with income over $200,000 at 94 percent.  Thereafter the top rates periodically dropped.  As a result of the Tax Reform Act of 1986 during the Reagan administration, the progressive feature of the tax became the least observable since the 1920s.

If the number, size, and tax rates of the brackets constituted the sole variables, income tax analysis would be a simple matter.  However, it is by the granting of various exclusions, exemptions, deductions, and credits that the taxation of income takes on its true character, and it is through the use of these devices that the effective rates are distorted into a bewildering array of meaninglessness.  What truly matters is the percentage of gross income remaining in the hands of the mass of Americans after the tax collector gets his.  From the standpoint of the citizen, things are not getting better.  At its inception in 1913, only 2 percent of the U.S. population paid any income tax whatever.  On the eve of World War II in 1941, the effective rate on the 82 percent of Americans with taxable income under three thousand dollars remained at single digit levels.  After that the escalation proceeded with no respite.  Taking into consideration state and federal taxes, social security and Medicare contribution from both employee and employer, and payroll deductions such as disability and the like, the average middle-income American today gets to keep about half of that earned.

This brings us now to the flat tax which, at its simplest, is the taxing of all income from whatever source, with no exemptions or exclusions, at a single rate.  This concept is propounded from time to time by various political candidates in the hope that its simplistic approach will somehow capture the hearts and imaginations of the beleaguered tax-paying voters.  Its supporters include representatives of both major parties, where variations on the specific details are introduced in order to satisfy one or another special interest group.  Though popularized by Republican Stephen Forbes in both his 1996 and 2000 presidential bids, a decade earlier Oakland Mayor Edmund G. (Jerry) Brown, Jr., a former Democratic governor of California, championed it with an equal lack of success.  Over the years the flat tax concept has remained a durable issue for those candidates utilizing the Christopher Columbus approach to electioneering: just discover an issue and land on it.

My objection to the flat tax is its offer of tax simplification.  For the taxpayer willing to understand and utilize the system, complexity is desirable, and the more, the better.  Complexity, by its very nature, creates opportunities for creativeness—"loopholes," if you prefer that description.  It also complicates the tax collector's ability, sometimes to the point that the entire process bogs down in a mass of self-contradictory rules and procedures.  Ease of administration of a tax system normally results in maximum revenue to the collector, whereas complexity works in the taxpayer's best interest.  It is my fervent belief that the sole hope for the citizen is a perpetuation of the presently existing labyrinth of tax laws.  Only a system that provides an element of indecipherability will allow the knowledgeable taxpayer some maneuvering room.