The Political Problem with A Flat Tax

Rand Paul has proposed a flat tax.  Commenters have argued that the problem with a flat tax is that it is a hard sell to the middle class because it provides limited benefits to them.  We think there is another specific group that will be unhappy about the proposal: retirees.

If the flax tax eliminates social security taxes then the retirees lose a benefit.  Our taxes essentially were cut in half by retirement while our gross income went down a bit and our disposable income went up.  How come?  A big part of it was social security taxes on income disappeared.  Social security is not taxable in our state and only partially taxable by the federal government.  Benefits are still not taxable and they went up while saving for retirement went down.  We also hit 65 and got an extra exemption each.  Our average rate on Gross Income including federal income tax and FICA (state taxes are discussed previously but not included in the computations below):

Both retired 12.89%
One Retired 20.75%
Both Retired 22.29% (for this computation retirement income was assumed subject to FICA)

Part of the impact is higher income prior to retirement but it is also true that some of the retirement income is excluded from Gross Income.  A proposal for 17% with some exemption does not look to be in our financial interest.  It was when at least one of us was working.  Retirees tend to vote and have relatively high interest in political discussions.  I can write the opposition ad: Rand Paul wants to tax seniors.  You’ve spent your life paying taxes now Rand Paul wants to raise them on you and cut them on (pick your least favorite group).  We think that will play well to people who vote.


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