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Oh Great, A Flat Tax

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Oh Great, A Flat Tax

by Tony Sterle on October 21, 2011

Yesterday, Texas Governor Rick Perry announced a plan to replace the current U.S. tax code with a federal “flat tax”, the specific details of which will be released next week:

(From Politico) Perry’s plan, he told the Western Republican Leadership Conference, “starts with scrapping the 3 million words of the current Ttax Code [sic], starting over with something simpler: a flat tax.

‘I want to make the Tax Code so simple that even Timothy Geithner can file his taxes on time,” Perry said, in a reference to the treasury secretary’s personal tax slip-ups.

The Texas governor is scheduled to give an Oct. 25 speech on jobs and taxes, the second of several policy addresses he’s delivering this month.

Apparently, the theme of the Republican side of the Presidential race is going to be coming up with new, fancy alternatives to the current tax system (9-9-9 anybody?).  A flat tax actually sounds pretty good at face value.  It would simplify the tax code immensely; we’d all pay the same share of our income in taxes (so whether you make $40,000 or $4 million, you’d be taxed at one fixed percent–Perry’s a Republican, so something as low as 20% isn’t out of the question).  A flat tax even seems fair.  I mean, we’re all equal aren’t we?  Why shouldn’t we all pay the same percentage?  
Well, one reason, obviously, is the massive gains that those at the top of the income ladder have accrued over the past 30 years.  We’ve hit on that subject pretty hard at the blog before, so I won’t rehash the arguments here, but suffice it to say that it doesn’t seem unreasonable to ask the extremely wealthy to pay a larger share of taxes when their income has skyrocketed while everyone else’s has been stagnant.

But perhaps you don’t find that particular line of reasoning convincing.  In that case, consider that a flat tax would do two things: it would raise the share of taxes paid by the middle class, and it would lower the government’s overall revenue right as we head into a period when we need to start seriously thinking about curbing the long run growth of the deficit.  

Or, worst case scenario (depending on the details of Perry’s plan), it does three things: it raises the share of taxes paid by the middle class, lowers revenue, and it raises the absolute value paid in taxes by the middle class.  So instead of just making up a larger chunk of the tax base, working class people will actually have to pay more dollars to the government (if anybody feels like getting their inner nerd on, I can present a mathematical example of how that would work in the comments section).

Perry’s flat tax is bound to score him large political points.  It’s an easy sell for the rich; they’ll have to pay less in taxes.  What’s more, Perry can cater it to the middle class as a simple solution to the government’s overly complex code.  But my hope is that folks like you and I, dear reader, will not be fooled.  A flat tax makes things worse for the middle class and for the nation.  Progressive taxation works just fine.

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