Consumption taxes, like Value Added Tax (“VAT”) and sales tax, tend to be the same for all consumers. E.g., if sales tax is 10% and I buy a beer for a dollar, I pay $.10. The guy down the street buying the same beer pays the same $.10, even though he may be making only half of what I make. And if Warren Buffett or Bill Gates bought that same beer, they too would pay $.10 in tax.

Now, let’s say all four of us consume about the same dollar amount of goods (Warren and Bill don’t really feel like buying yachts this year — they don’t know where to put another one …). And, just to keep things simple, say we each consume $10,000 worth of goods. With a straight 10% sales tax, Bob (the guy down the street) pays $1000, I pay $1000, and Warren and Bill each pay $1000. If Bob makes $20,000/year, he is paying 5% of his income in sales tax.

Ouch.

I could be making twice as much as Bob, so I would be paying only 2.5% of my income in sales tax.

And Warren and Bill each pay such a small portion of their incomes in sales tax, that they just don’t care.

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In the United States, passive income from dividends, etc. has a straight tax of 15%. Personally, I see this as double taxation because the corporation paying out the dividend has already paid income taxes on the profits that produced the dividends.

The dividend tax should be abolished.

Yet, the dividend tax does serve as a counterbalance to corporations that receive tax incentives, government subsidies, patents based on government funded research, depreciations, etc. Unless we reform the corporate tax structure to eliminate such corporate welfare, I guess we’re stuck with the dividend tax. Such a reform, I might add, should be enacted along with a reduction in the base corporate tax rate — it is currently inflated in order to partially offset welfare.

In the meantime, the American worker does pay the bulk of taxes — taxes on earned income (wages) include a 15% payroll tax for FICA (on paper, employers pay half of this, but that’s just rolled up into their cost of keeping a person employed). To add insult to injury, this 15% payroll tax is only paid on the first $100k (or so) of an individual’s earned income. If you earn $150k, you do not pay 15% on the “extra” $50k. That’s $3750 for you and $3750 for your employer, straight into your pockets.

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If the plutocrats running the system really wanted it to be “fair”, they would chuck the current structure out the window, assess the dollar amount needed to run the country with all programs fully funded and intact, figure out what percentage of the GDP that amount was, add a percentage point or two to give a break to people who really can’t afford to pay income taxes (and to save for a rainy day) and charge everyone else, individuals and corporations alike, that percentage figure in tax.

That’s the idea behind the straight tax.

Notice that the tenth man never complained about paying more than half of the bill…