Why the flat tax is a wretched idea

There is a difference between equality and equity. Equality is what we strive for but will probably never achieve. And rightfully so - some folks have advantages and some don't. I, for example, will never be a great ballerina. And that's okay. Equity is putting everyone on the same playing field and then letting them work their way up or down. This is one of the things that always amuses me about the whole Cold War/Commies vs. Capitalists fight. Both systems are sort of obsessive about equality. In capitalism it is assumed that equality exists, so the market is the mechanism through which a person can prove themselves. In Communism equality is imposed because the assumption is that equality cannot exist without some outside control.

I am a big fan of equity. If two people are trying to make money and one inherits 1 million dollars while the other is working from the savings of a $35,000 dollar a year job we will never actually know who is the better businessman/woman/whatever because the chap w/ all the money has such an advantage. This is the thinking behind progressive taxes - putting a slightly higher burden on those with the advantage in an effort to give those without advantages a chance to close the gap.

And all of this leads me to the actual subject for today: the flat tax. The flat tax assumes equality of opportunity cost. This, as any high school economics student can explain, is utter nonsense. First, money does not drive the market. Opportunity cost does. Opportunity cost is simply how much opportunity purchasing an item will cost you. For example, if I have 1,000 dollars I can technically afford $900 dollars in rent. I just have to give up things like fuel, electricity, and work clothes. That $900 dollars is very expensive to me. If a colleague has $5,000 dollars they, too, can afford $900 dollars in rent, and still have plenty of cash for things like food, air conditioning, and gasoline. While we are treated equally in that we are charged the same, clearly my rent has a much, much higher opportunity cost than that of my colleague.

A flat tax is "equality" at its worst. The response to this is that the tax is proportionate to income, so it is fair. Once again, this is ignoring the basic economic premise of opportunity cost.

A woman makes $100 a year. She pays $35 in rent, $25 for food, $25 in bills, and $15 dollars for the 15% tax. She takes the bus to avoid fuel costs and works a minimum wage job so she does not need work clothes. She makes just enough in a year to pay her expenses - unless she ever has to go to the doctor or something ridiculous. That tax is affordable, but eliminates any opportunity for health expenses or education.

Her boss makes $1000 a year. She her mortgage comes to about $130 dollars a year, she spends $100 on food, $100 on fuel, $80 in bills, $35 for car payment, and $35 for clothing expenses. Then she pays another $150 for taxes. She puts $50 dollars in savings. At the end of the year she has money left over for entertainment and can look forward to paying next year's tax out of excess. Eventually her money will build up, so that the 15% tax becomes less and less expensive. Her taxes are completely affordable, giving her excess cash reserves for entertainment, savings, and acquisitions.

The head of the company makes $10,000 a year. He has a yearly housing cost of $1000, $500 on food, $300 on fuel, $100 for a car, $100 for clothing, $300 in savings, $200 in preventative health care, $200 for education and professional development, and $300 on a vacation. Then he pays $1500 in taxes. At the end of the year he has spent less than half of his income.

This is equality in action - treating people as equals when they are clearly not does not make things fair. It feeds the cyclical financial problems that so many face. The idea of a flat tax assumes that everyone has equal resources, therefor the burden is the same for everybody. What fool genuinely thinks that?