Montana Viewpoint: A flat tax for fat cats

Jim Elliott

In the 1920s the writer F. Scott Fitzgerald wrote, “The very rich are different from you and me.” This statement inspired Ernest Hemingwy to respond, “Yes, they have more money.”

The very rich have a lot more money now than they did in the 1920s and most of them want to have even more. In order to have even more, they don’t like paying taxes, and so, because America is now run by the very wealthy, the trend is for our elected leaders to cut upper-end income taxes. Not to be outdone by President Trump’s Big Beautiful Bill, which cut taxes for gazillionaires, Governor Gianforte wants to create a “Flat Tax,” which will lower the top rate of 5.65% percent to 4.9% for everyone.

The reasons for this are that more money in the hands of the wealthy will create more jobs. That’s nice, except at the current population growth there won’t be anybody to work the jobs. But that’s OK, because it’s only a reason to lower taxes so that the wealthy will have more money, and what’s wrong with that?

In our Great State and Nation we have had what’s called a progressive tax code. That means that those with lower incomes pay a low rate of taxes and those with higher incomes pay higher rates. These are called marginal rates because they apply to different income levels, which have defined upper and lower margins; for instance, the first $30,000 of income might be taxed at, say 0%, the next $30,000 at 3%. The next $30,000 at 5%, and on up. This means that as income grows it is taxed more heavily.

In 2023 the top 5% of income earners paid 59.3% of federal income taxes, according to the National Taxpayers Union Foundation. Is that fair? I’m here to argue “yes”, and it’s because of the “value of the marginal dollar.” That theory holds that the more money a person earns the less the value of a dollar matters. Money has two values, the nominal value on the face of the bill and the psychological value in the owner’s mind. For a person living on 20 bucks a day, an extra dollar means a lot, for someone living on $200 a day, the extra dollar is nice, but not crucial, and to someone with the ability to spend $1,000 a day, it’s not even pocket change.

I have read numerous ways of how to explain this clearly and have not been impressed.

When I first started these columns in 1990 or so I realized that if I couldn’t explain something to myself I couldn’t explain it to anyone. Now, with more years under my belt, trying once again to understand the problem, I hit upon it early this morning; it is similar to how we view time as we age. When we are young, with the whole world and maybe 60 years before us, time is cheap. As we age and realize we have less time to live, it becomes more valuable, and when we are real old, time is precious and to be savored.

Reverse that, and you have an explanation of the value of the marginal dollar.

Progressive tax rates are a method of equalizing the sacrifice of paying taxes across income levels. A flat tax across all income levels is harder on low-income people than the wealthy.

So, are the very rich different than you or me? Yes, they have more tax lawyers.