Flat Taxes

Posted by: on Apr 16, 2004 | 5 Comments

Around this time of year, I always get in little tiffs with friends over “flat” taxes. Natch, the “fairness” club is hauled out early and often.

Kevin Drum’s got it right: (in reference to this article in the National Review.)

But what really gets me is how they always present these things as if we need a flat tax because the tax code is too damn complex. Well, the tax code is too damn complex, but the least complex thing about it is the part where you look up your adjusted gross income in the tax table to figure out how much you owe. The complex part is figuring out your adjusted gross income in the first place, something that has nothing to do with whether the tax rate for millionaires is higher than the tax rate for those at the poverty line.

It is columns like this that cause me to lose patience with the tax jihadists on the right. It is dishonest to pretend that flattening tax rates has any connection to simplifying the tax code. It is dishonest to pretend that a flat income tax is “fair” while conveniently forgetting to suggest the same for Social Security taxes. It is dishonest to pretend that “income” is the same for everyone while failing to even mention capital gains, tax shelters, corporate perks, deferred compensation, pension contributions, stock options, or the thousand other options the wealthy have for making money that doesn’t quite count as “income.” It is dishonest not to mention that simple arithmetic guarantees that any flat income tax proposal would raise taxes for practically every middle class family in the country.

Semi-related: Back in December, this Plastic article really drove the point home with me about what’s wrong with our current (er, uh, Republican) tax policies (which aren’t flat, but getting there):

(I’m quoting a comment from “esmense” in it’s entirity… it’s worth the read)

The basic misunderstanding about taxes is that they are a transfer of money between individuals. From “the rich” to “the poor.” From “the productive” to the “unproductive.”

But, in reality, what taxes are is a transfer of resources between generations.

The reason this is misunderstood is because most people overlook one extremely important fact; in most societies, and most especially in broadly middle class societies (as ours once was, although it is becoming less so), the factor that most explains disparities in wealth is age.

Older people, in general, are richer than younger people. They earn more, and they possess more assets, including income producing assets.

The reason for this is obvious

5 Comments

  1. michael
    April 17, 2004

    Ugh, that NR article..I feel like the GOP has touched me inappropriately, again. Blah blah blah, pat catchphrases, blah blah, specious comparison, blah blah blah, sneak helping of bullshit statistics, blah blah blah, broken simile, blah blah, don’t be like the FRENCH!
    Heritage Foundation expert, feh.
    I still say the problem is not that the tax system is broken, I suspect it’d work fine..if everybody got the same rulebook.

    Reply
  2. Steve
    April 19, 2004

    There is only one problem for you. A flat rate tax with a deduction is a progressive tax in that the effective tax rate increases with income.
    Also, all taxes impose distortions on the economy (well okay with lump sum transfers you can sometimes avoid distortions, but such transfers tend to be hugely unpopular). The question is how much do these distortions “cost” and will a system that isn’t as progressive be better when you take such distortions into account.
    What you are ignoring is that most flat rate tax proposals have very large standard deductions (e.g., the Hall and Rabushka proposal had a $25,500 deduction for a family of four). For young people with lower incomes this could very well mean a reduction in taxes, espcially since such people typically do not own homes and get that sizable known as mortgage interest.
    Your entire post strongly hints that you have not read flat rate tax proposals. I think before you criticize something you should familiarize yourself with it first.

    Reply
  3. schmeeve
    April 19, 2004

    I haven’t read all of them, no. But I will tell you this much — anything that exempts capital gains and interest income is utter bullshit.
    If I’m a rich dude, I’m gonna take all my compensation in stocks, bonds, and corporate perks and end up owing less tax than that $80,000-a-year household of 4 “across the tracks.” Thinking Bill Gates is going to pay $212M in taxes a year under a flat tax is ludicrous. He’s simply going to shift to “non-income” compensation, as will everyone else in a position to do so — the super rich, in other words.
    Even Robert Hall and Alvin Rubushka, the two professors at Stanford whose proposal you’re referencing, have admitted that lower taxes for the rich will have to be made up by higher taxes on upper-middle income folks. Those making $80,000 to $200,000. This lack of focus on the middle is disingenuous.
    I’m no tax expert, but I ain’t talking outta my ass either. 🙂

    Reply
  4. Nitish Tewary
    September 28, 2004

    How is X Tax theory different from that of Hall-Rabushka proposal of Flat Tax.
    Can anyone please provide me with a detail of Dr. Bradford’s proposal and the difference of the proposal from flat tax rate.
    NITISH TEWARY

    Reply
  5. Anonymous
    September 28, 2004

    Is this what The Hall-Rabushka flat tax is?????
    In the early 1980s, Robert Hall and Alvin Rabushka of the Hoover Institution developed a consumption tax system that achieves some of the administrative advantages of a value-added tax (VAT) relative to a sales tax, while also partially addressing concerns that consumption taxes impose a relatively heavier tax burden on lower-income taxpayers. The Hall-Rabushka system is often called the

    Reply

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