AN OPEN LETTER TO BUDDY ROEMER
Here is an open letter critiquing Buddy Roemer's flat tax plan for bad numbers from someone who really
wants him to be President. I can't get it to his campaign. Roemer Fans, HELP!!

Dear Buddy,

Barack Obama has been very quiet on the subject of flat tax plans. He's sandbagging, waiting to see
how vulnerable his opponents make themselves. And if the Republican party selects a candidate with a
flat or "fair" tax plan similar to those proposed, they will be very vulnerable indeed.

This is because
2012 is not the year for a 25% to 40% tax cut for the rich! The mood of the country
suggests that the voters are so fed up with the rich, that they would reelect Obama rather than give the
rich any more tax breaks!

Obama has the numbers that show the big tax break for the rich hidden in these flat or "fair" tax plans
already. Obama got the numbers from Thomas L. Hungerford, who released an article, "An Analysis of
the "Buffett Rule", for the Congressional Research Service on Oct. 7, 2011.

This article shows what percent of income people in various income brackets pay in taxes. I wrote a
report on the tax breaks for the rich in the tax plans of Perry, Cain, Romney, and Gingrich. See No. 135,
"The 2012 Taxes Smackdown." I critiqued them, but had a lot of complimentary things to say about you. I
ended with:

"I like Buddy Roemer's ideas on taxes for several reasons. First, it's unlikely to do much harm, since it
leaves the majority of the federal government's income intact. (Since government spending will likely
exceed revenue by at least $1.5 trillion in 2012, there must not be less revenue.) Second, it's likely to
generate more revenue from corporations even with a reduction in the corporate tax rate to 15%. (I
suspect that over the years there have been a lot of special interest deals.) Third, repealing tax breaks
for overseas corporations will slow (and maybe even stop) the loss of jobs overseas. Finally, dropping
the corporate tax rate will stimulate economic growth in America. It's all good." (No. 135, "The 2012 Taxes
Smackdown").

I was shocked when I heard about your flat tax plan, then encouraged because it didn't seem to be the
result of much thought, and I suspected that you didn't personally author it.
I really think you are the
best hope for America, and I hate the idea of you screwing up
. Anyway, the flat tax part of your plan
seemed to be hastily cobbled together, and obviously not by a person who had studied mathematics. It's
simply not worthy of a successful bank founder who has an MBA from Harvard.

As expressed on "Americans for Roemer," your whole tax reform plan follows:

"Buddy Roemer’s plan would set the size of federal government to about 18 to 18.5 percent of GDP –
currently it is at about 25.5 percent.
"Income taxes would be simplified to a flat tax, with an individual exemption of $50,000.  A flat tax of 17
percent would be paid on all income beyond that.  This means that individuals making $50,000 or less
would pay no income tax, while those making more than $100,000 would have an effective tax rate of 8.5
percent.
"Elimination of the Alternative Minimum Tax, the Earned Income Credit and most deductions would be
key to this plan, to simplify and standardize complicated tax laws.
"Unlike other plans that have been put forward, this plan would have no national sales tax, which would
have devastating effects on the economy, particularly for the poorest Americans who spend a higher
percentage of their income.
"As president, Buddy Roemer will work to close all tax loopholes for corporations and ensure that the
tax system is fair for everyone in it." (americans4roemer.com/tax-reform/).

The only part of this tax reform plan that I have a problem with is:

"Income taxes would be simplified to a flat tax, with an individual exemption of $50,000.  A flat tax of 17
percent would be paid on all income beyond that.  This means that individuals making $50,000 or less
would pay no income tax, while those making
more than $100,000 would have an effective tax rate of 8.5
percent."

First, the individual deduction should be accompanied by a dependent deduction and it is also too high.
Second, the 17% tax rate compared to Thomas Hungerford's numbers shows your flat tax generates
about a 40% tax break for the rich.
Third, the math in the final sentence is wrong, it is only persons earning exactly $100,000 that will have
an effective tax rate of 8.5%, persons earning more will have a progressively higher rate.
Fourth, since your plan is cutting taxes on both low and high income earners, it will generate
substantially less federal income than the current income tax.

All in all, you, Cain, Perry and Gingrich have given Obama a stick to beat you with. Romney has begun to
back away from earlier support for flat taxes. What does another flip-flop matter to Romney?

I was content to simply criticise the rest of the Republican pack, but Buddy Roemer, you are special. I've
studied the economic problems of America for about a year and a half. You are the solution. For you I
will run the numbers and try to estimate a flat tax system that will produce about the same revenue as
our current tax system. With your loophole closing and cost cutting, America should slowly be turned
around. I'm for saving the country!

In devising a tax plan, I'm going to insure that the rich
do not get a tax break. And I'm going to try to
make sure there is enough revenue. The calculation is complicated, if you don't want to follow it through
go to the bottom of the page below the chart to see MY TAX PLAN.

The first question is: What do the rich pay now? The relevant tax figures are based on Adjusted Gross
Income, which is gross income from all sources, reduced by personal deductions and itemized
deductions for charitable contributions, state taxes and mortgage interest.

The range of tax rates for adjusted gross incomes of $350,000 to $1,000,000 were 25% to 34%. The range
of tax rates for adjusted gross incomes of $1,000,000 to $5,000,000 were 24% to 35%. Adjusted gross
income over $5,000,000 had a tax rate range of between 23% and 36%. (Thomas L. Hungerford, "An
Analysis of the "Buffett Rule"," Congressional Research Service, Oct. 7, 2011, p. 11, see Table 3A).

Note that the variance in percentages within each category seems to come from special treatment of
some sources of income, for example, some income is taxed at a lower rate as capital gains, some
income derives from tax exempt bonds, etc.

There are several things to know about these figures. First, Hungerford used a 2006 data base, which is
old, but should be reasonably similar to today's tax base. Second, the figures include both income taxes
and payroll taxes, so 1.45% of the portion of Adjusted Gross Income derived from wages is included in
the figures, and 6.2% of the first $ 94,200 derived from wages is also included for Social Security. Third,
the ranges quoted above are not exact. The bottom of the range is actually an average of the tax rate
for the lowest 10% of tax payers in the range, the top of the range is the average of the top 10% of tax
payers in the range. On the other hand, at least 90% of tax payers fall within the range figures, so the
ranges are a fair guideline.

(For these high-end income tax payers ($350.000 and up), I assumed that most of their income did not
come from wages, so the effect of SSI and Medicare taxes on the total taxes they paid would be small,
perhaps averaging 1% or less. For this reason, I made no adjustment to Hungerford's figures to remove
SSI and Medicare taxes.)

I'm going to start with a flat tax rate of 35%. With a 35% flat rate, taxes paid from 23% to 36% of Adjusted
Gross Income, which is the range for tax payers earning $350,000 and up, would generally be about the
same, the tax bracket for this income range is 35% now. Note that the Bush Tax Cuts of 2002 and 2003
contained 3% to 4% tax rate reductions for wealthier tax payers. The 35% flat tax rate would set in stone
the Bush era tax cuts. Getting further revenue from tax payers earning over $350,000 would be a matter
of closing
all the loopholes. Don't forget, these tax payers can afford good tax advice.

Now, let's consider those tax payers earning less than $350,000. For those tax payers, payroll taxes for
Medicare and Social Security, which are included in Hungerford's figures, have a much larger effect on
the total taxes paid for several reasons. Lower income tax payers presumably get more of their income
from wages. Approximately the first $100,000 of annual wages in subject to a 6.2% Social Security tax and
all wages are subject to a 1.45% Medicare tax. These numbers are included in Hungerford's figures and
must be removed so that I can compare my model (see chart below) to his figures and get meaningful
results.

Here are Hungerford's figures for tax payers with less than $350,000 in income. Excluding the top 10%
and the bottom 10%, tax payers earning less than $100,000 paid almost 19% of their adjusted gross
income in income and payroll taxes. The bottom 10% of taxpayers earning less than $100,000 paid less
than 9%, the top 10% paid over 26%.

The tax rates for adjusted gross incomes between $100,000 and $350,000 ranged between 18% and 33%.
Average taxes for the lower end of this group were 25%. Average taxes for the upper end of this group
were 29%. (Thomas L. Hungerford, "An Analysis of the "Buffett Rule"," Congressional Research Service,
Oct. 7, 2011, p. 11, see Table 3A).

I adjusted Hungerford's figures to remove SSI and Medicare taxes. My results were as follows: On
average the bottom 10% of tax payers earning less than $100,000 paid just over 1% of their adjusted
gross income in income taxes. On average, the middle 80% of taxpayers earning less than $100,000 paid
11% of their adjusted gross income in income taxes. On average the top 10% of tax payers earning less
than $100,000 paid 19% of their adjusted gross income in taxes.

I had combined two brackets of Hungerford's tables into a single bracket, $100,000 to $350,000, for
clarity. I went back to his original tables for my best "guesstimate" of what his figures implied about the
incomes I chose for my chart (see below). I concluded that the disparity in the data bases was so great
that I had to work with the averages alone.

For tax payers earning $110,000, my guesstimate was 18% (25% less 6% SSI and Medicare less 1% low end
adjustment). For tax payers earning $150,000 my guesstimate was 22% (25% less 5% SSI and Medicare
plus 1% high end adjustment). For tax payers earning $200,000, my guesstimate was 24% (29% less 4% SSI
and Medicare less 1% low end adjustment). For taxpayers earning $250,000, my guesstimate was 26%
(29% less 3% SSI and Medicare).

Deductions determine the tax burden of these lower income tax payers. The current standard
deductions are much lower than the $50,000 your plan mentions. The deductions range from $5,800
single to $11,600 married in 2011. In order to have some sort of parity with the rich, the poor and middle
class should have a deduction big enough to cover the cost of Medicare and Social Security, which is
about 7.65% of their pay. State income taxes should also be considered, they can run as high as 10%.

I arbitrarily chose a standard deduction of $20,000 individual, with $10,000 for every other member of the
household, just to see where the numbers would lead me. Then I chose four income brackets under
$100,000 and four over $100,000, and ran the numbers for single people, married people and families
with one child and 2 children.





















Just a glance at the individual rates reveals that a standard deduction of $20,000 individual, with $10,000
for every other member of the household is too low. Because the increase between columns is $10,000,
the Married column has the figures for a $30,000 deduction, the Married, Child column has the figures
for a $40,000 deduction and the Married, 2 Children has the figures for a $50,000 deduction.  

In adjusting Hungerford's figures, I came up with the following: Under $100,000: lowest 10% pay 1%
income tax, middle 80% pay 11% income tax, top 10% pay 19% income tax. Over $100,000: $110,000 pays
18% tax, $150,000 pays 22% tax, $200,000 pays 24% tax, $250,000 pays 26% tax.

In America in 2010, the average household has about 2 1/2 people. I have to either round that figure up
or down. I'm going to assume that most families with a lot of children aren't paying income taxes, so I'm
going to round it down to 2. That means that whatever deduction best fits Hungerford's figures (as I
adjusted them), will be the deduction for a two member household. A study of the chart confirms that
the closest match for the percentages I estimated from Hungerford's figures is found in the Married
Child column with its $40,000 deduction.

MY TAX PLAN

I believe that a flat tax plan with a 35% rate and a $30,000 individuals and a $10,000 dependent deduction
would provide about the same tax rates for persons earning under $100,000 as our current tax
structure. The same tax rate and deductions would raise the tax rate for persons earning over $100,000
by about 4%. (This is regrettable, but expiration of the Bush tax cuts would raise their tax rate 2%
anyway.)

In my opinion, higher deductions than these would endanger the scraps of fiscal stability remaining in
America during this time of economic uncertainty and government overspending.

Anyway Buddy, I hope you will change your flat tax plan to take out the tax break for the rich and to
insure tax parity for the lower middle class. With my fervent hope that you are our next President,

Amo Paul Bishop Roden

P.S. I'm sure you noticed that I estimated and assumed a lot while arriving at my tax plan. (So did
everyone else.) Note that the effects of every flat tax plan that is proposed can be easily checked using
the 2012 electronically filed returns. Simply have the computers create a data base as the returns arrive
with Social Security Number (to avoid duplication and catch corrections), gross income, amount in
various categories of income (investments, wages), number of dependents, special exemptions, total
taxes due, etc. This data base can be used to fine tune the effects of flat tax plans on different income
levels and overall revenue.
Income
Taxes with $20K,   
 10K deductions    
  
Single



Married



Married, Child



Married, 2
Children
$30,000
$3,500 (12%)
0
0
0
$50,000
$10,500 (21%)
$7,000 (14%)
$3,500 (7%)
0
    $70,000      
$17,500 (24%)
$14,000 (20%)
$10,500 (15%)
$7.000 (10%)
$90,000
$24,500 (27%)
$21,000 (23%)
$17,500 (19%)
$14,000 (16%)
$110,000
$31,500 (29%)
$28,000 (25%)
$24,500 (22%)
$21,000 (19%)
$150,000
$45,500 (30%)
$42,000 (28%)
$38,500 (26%)
$35,000 (23%)
$200,000
$63,000 (31%)
$59,500 (30%)
$56,500 (28%)
$53,000 (26%)
$250,000
$80,500 (32%)
$77,000 (31%)
$73,500 (29%)
$70,000 (28%)