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By Peter Burrows 4/23/25
One of the worst ideas the Trump Administration has come up with is to eliminate income taxes for those making $150,000 a year or less. This might make short-term political sense, but in the long run it will make controlling the size of the government even harder than it is now.
It would mean only 7 percent of US citizens would pay 100 percent of the income tax. The other 93 percent would pay zero percent and have no incentive to reduce government spending or oppose future tax increases. It's bad enough now, with the bottom 93 percent paying only 24 percent of all the income tax revenue while the top one percent pays about 40 percent. That's worth repeating: the top one percent pays 40 percent of the total.
Ironically, when Bernie Sanders, or some other demagogue, rants about "tax cuts for the rich," there's some truth in that because it's "the rich" who are paying most of the taxes, certainly more than their "fair share.
Such demagoguery surrounding the income tax has been going on for over 100 years, almost since it was authorized by the Sixteenth Amendment in 1913. At the time, less than 1% of Americans had to pay the tax. If you are thinking something along the lines of "camel-nose-tent," me too.
I'm also reminded of something noted almost 200 years ago by French philosopher and historian Alexis de Tocqueville: "A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it." Voters are thus more likely to vote for tax increases because, after all. the tax doesn't hit thee or me, only the guy behind the tree, to paraphrase an old saw.
In the long run, Trump's tax could motivate people with high incomes – who are not necessarily rich -- to find other places to live where success isn't penalized, or to do things to reduce their taxable income, such as buying tax-free bonds instead of "plowing another field."
Much depends upon the actual rate at which income is taxed. A top rate of 25-30% is probably not high enough to motivate very many people to avoid paying taxes. Currently, the top rate is 37% which kicks in for joint returns over $751,000 in income. Paradoxically, more revenue might be raised from those taxpayers if the tax rate was LOWERED from 37%.
This is something that's also been known for over 100 years. Here's what Calvin Coolidge said in 1924: "The first object of taxation is to secure revenue. When the taxation of large incomes is approached with this in view, the problem is to find a rate which will produce the largest returns. Experience does not show that the higher rate produces the larger revenue ---"
President Kennedy said something similar in 1962: "It is a paradoxical truth that the tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now." President Reagan's tax cuts were justified with the same reasoning.
In 1974, economist Art Laffer famously sketched on a napkin a simple graph showing this trade-off between tax rates and tax revenues, which became known as the Laffer Curve. Still, almost 60 years later, the idea that you can increase tax revenues by increasing the tax rate on high incomes doesn't seem to have sunk in. This means that it is inevitable, with 93% of the income earners paying no income taxes, that some demagogue will campaign – and win – calling for higher tax rates on "the rich."
I wish Trump would have instead called for a flat tax on ALL incomes. Flat tax proposals have been around for years, but such a tax has such powerful opposition that it's never had a realistic chance of becoming law. With Trump as President, however, and with Trump actively supporting it, a flat tax proposal would at least get a good hearing in Congress.
While it wouldn't get through THIS Congress, it could start a discussion that might mean a future congress would enact a flat tax. It's a discussion well worth having. A flat text has three very attractive features: 1) Almost all income earners would have a stake in how the government spends our money, "skin in the game," so to speak. 2) It would dramatically simplify tax preparation: "1040 on a postcard." 3) Such simplification would mean the IRS doesn't have to be nearly as big as it is.
A key feature of a flat tax is that only standard deductions are allowed for individuals: one for the filer, one for the spouse, and a standard deduction for every dependent. No other deductions are allowed. That would mean no deductions for charitable donations, religious contributions, interest on your home mortgage, 501(c)(3)s etc. None. Nada.
As you can imagine, a flat tax doesn't get a lot of support from real estate agents, charities, tax preparers or anybody who's income depends upon tax deductible contributions or a complex tax code. Those on the left will also argue that we need a progressive tax code to ensure that the rich pay their "fair share," as if 40 percent from the top one percent isn't enough.
In fact, another attractive feature of a flat text is that the "fair share" lie would be easier to refute. Here's an example of how that would work:
Assume standard deductions for a couple filing a joint return of $10,000 each and $5,000 for each child. A couple with two children would thus have $30,000 of deductions. On an income of $40,000, they would therefore have taxable income of $10,000. If their income is doubled to $80,000, their taxable income is $50,000. Summary: 2X the income but 5X the income tax. I think that would sound "fair" to most people.
As desirable as a flat tax may be, we'll never get one without a Constitutional amendment imposing term limits for Congress. As it is, too many in Congress want to get re-elected above all else, and they'll follow the dictates of the tax lawyers, the charities and all the nonprofits such as Planned Parenthood, the Sierra Club Foundation, BLM, even the Metropolitan Opera, and on and on.
I'm afraid we're stuck with a needlessly complex and unfair income tax. I'm disappointed that Trump hasn't done anything to fix it, but maybe President Vance will.
