We make those choices now. We’re subsidizing people now with the standard deduction. A person who makes minimum wage makes $14,500/year; the standard deduction is $13,850; taxable income is $650, tax is $66. Under my plan $14,500 would be taxable at 20%, tax would be $2,900. I’d rather that the minimum wage rise to $9/hour so that that person would earn $18,000, pay $3,600, end up with $14,400 after tax, but without such adjustments the standard deduction would become a credit for wage-earners.
I said nothing about benefits or money for people not in the workforce. I referred to EITC, had in mind wage subsidies. I recommend Edmund Phelps’s ‘Rewarding work’. (Rewarding is a gerund, not a participle.); he won the Nobel Memorial prize in economics, holds a named chair at Hahvahd. It’s short and non-technical.
What that misses is how much greater wealth has become in relation to income.
Japan holds a bit more than a trillion, China comes next with a bit less, both less than 3%
Under your 20% flat tax plan without deductions, taxes on the median household income ($80,610 in 2023) will increase by 182% MFJ, by 68% single/MFS, and by 140% HoH. If those taxpayers have children, you’ve raised their taxes significantly more. A good friend of mine has 5 kids and makes $140K/yr. Your 20% flat tax raises their MFJ taxes by 524% (or $23,518). Even if you tax wealth to increase overall government revenue, you’ve crushed the middle class in the process. But, hey, a lawyer making $1M annually will see a nice tax cut of 30% MFJ (or $85,321), so that’s a nice perk for them.
There’d be credits and subsidies. And 20% was just a number to use; last I remember, the annual budget was about 18% of total AGI, so I used 20 for a sample calculation. Huge amounts of income go untaxed via the stepped-up basis, putting money in foundations, perhaps other gimmicks. Including those would drop the flat rate. I haven’t done the research to figure that out. Is a lawyer making $1M really getting all that in wages? I suspect otherwise.