Is a Flat Tax a Good Idea? >
Flat Tax Would Introduce New Problems
A flat tax doesn't solve our problems; it just introduces new ones
November 1, 2011
About Kelly Phillips Erb:
Kelly Phillips Erb is a founding shareholder of the Erb Law Firm, PC, in Philadelphia, Pa., where she focuses on tax law for businesses and families. Kelly authors the popular Taxgirl blog for Forbes.com; the blog has been recognized by the ABA Journal as one of the top 100 blogs written by lawyers for the past three years running.
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.
[Vote: Do the Rich Pay Enough in Taxes?]
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.
- Check out a roundup of editorial cartoons on the economy.
- Read 10 Things You Didn't Know About the Bush Tax Cuts.
- Read how Rick Perry is using the flat tax the boost his campaign.
- Other Arguments
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#112982
Yes — The flat tax saves time, provides choice, and restores fairness to the tax code
MICHAEL C. BURGESS, U.S. Representative
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#211778
Yes — Flat tax makes it more difficult for the government to divide Americans against each other
GROVER NORQUIST, President of Americans for Tax Reform
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#310174
Yes — The Cut, Balance and Grow plan will unleash economic growth
RICK PERRY, Texas Governor and Presidential Candidate
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#47974
Yes — Flat tax would spur foreign investment, job creation, and economic growth
MARY KATE CARY, Former White House Speechwriter for President George H.W. Bush
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#5104112
No — Flat tax would cut taxes only for the rich, which never ends well
JOHN IRONS, Research and Policy Director at the Economic Policy Institute
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#687104
No — The middle class pays more so the rich can pay less
DEAN BAKER, Author of 'The End of Loser Liberalism: Making Markets Progressive'
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#87198
No — Flat tax will benefit only the richest taxpayers
STEVE WAMHOFF, Legislative Director of Citizens for Tax Justice
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#974102
No — Flat tax shifts burden to low- and middle-income taxpayers
CHARLES B. RANGEL, U.S. Representative
