By Travis H. Brown |
It's a bit of a trick question, isn't it? Because in the United States, even if we decided that it was a good idea, we'd never actually embrace a pure flat tax.
The variations that are being rolled out by presidential candidates like Perry and Cain aren't actually a pure flat tax; a pure flat rate would mean that one tax rate is applied to all income with no deductions or exemptions. As taxpayers, we like our deductions and exemptions. So many of the flat tax proposals already chip away at the simplicity of a flat tax by adding ands, ifs, and buts in an effort to appeal to voters: That's exactly how our tax code became so bloated in the first place.
That said, even with deductions and exemptions, I don't believe that a flat tax is a good idea. A flat tax isn't fair: 10 percent of income at the bottom isn't equal to 10 percent of income at the top. The cost of most goods is fixed, meaning that you don't pay proportionally less for gas or milk if you make less money. The price of merely surviving is somewhat fixed, making a flat tax not quite as flat as proponents like to pretend.
Additionally, most flat tax proposals are based on earned income, which means that unearned income like interest and dividends would escape taxation. Taxpayers who work for a living would end up paying a higher rate of tax, relatively speaking, than those who relied on investments for the majority of income (like Jobs and Buffett). How is that remotely equitable?
Of course, fair is clearly a relative concept. It's pretty difficult to get to a point that feels "fair" to everyone along the income spectrum. But maybe that's not quite the right end. About 25 years ago, Reagan embraced the idea of parity within each income bracket. That idea has some merit: In other words, each group of taxpayers who were similarly situated would pay the same rate of tax. It's not a flat tax but it speaks to the same goals: fair and simple. And I think it comes closer to achieving them.
I agree that our current tax code is broken. But throwing it out in favor of something that can quickly grow to just as broken isn't the answer. A flat tax doesn't solve our problems: It just introduces new ones.
About Kelly Phillips Erb Author of Taxgirl Blog at Forbes.com
Dean Baker Author of 'The End of Loser Liberalism: Making Markets Progressive'