Poking holes in the flat tax
IT’S TRUE THAT the Republicans are the party of ideas and the Democrats are the party of reaction. Republicans set the agenda, and Democrats try to talk the country out of it. But the Republican Party is hardly the Institute for Advanced Studies. The GOP uses ideas like seasonal sports equipment -- taking them out when needed, then scraping the mud off and stuffing them back into the garage until they are needed again.
Remember term limits for members of Congress? The flag-burning amendment? The balanced-budget amendment? Each of these has had a moment or two of glory, when Republican politicians, conservative TV and radio hosts and the Wall Street Journal editorial page all decided simultaneously that implementing this idea was vital to the survival of Western civilization. Polls soon showed a majority of Americans agreeing with them. The idea seemed unstoppable. It had the winds of history behind it.
And then the wind died and the idea went away. I still can’t figure out how we have avoided trashing the Constitution with an idiotic amendment against burning the flag. But the failure of these hot-button issues, in stunning contrast to the success of the party that has ridden them to power, suggests that for Republicans, ideas serve politics, rather than the other way around.
The so-called flat tax is another hobby horse of the right that swept the nation, then got swept away. But someone forgot to tell Steve Forbes, the amiably blank-faced magazine heir, who ran for president on the issue in 1996 and 2000. Now he has a book out: “Flat Tax Revolution.” It’s getting the full fair-and-balanced treatment -- that is, unashamed open-throated puffery -- on Fox News and other conservative outlets. So even though the idea looks pretty dead right now, a stake through its heart might still be prudent.
The flat tax is a game of three-card monte that deliberately confuses the issues of simplicity, fairness and the total tax burden on society. A simpler tax system would be a very good thing: good for the economy, and good for everyone’s sanity. But contrary to what Forbes would have you believe, progressive tax rates -- higher taxes on higher incomes -- aren’t what make the current system so complicated. It’s as easy to multiply by 40% as it is to multiply by 17%. Even Republicans can easily do it -- or hire someone to do it for them, if necessary.
The complications come in defining and calculating income. Some of the complications are unavoidable because people and companies have complicated affairs. The day may come when you can file your income tax on a postcard (millions come close even today, with the sorta-simple 1040EZ), but that day will never arrive for Steve Forbes. As for the unnecessary complications, most of them were not put there by people or interest groups pushing for higher taxes and bigger government. Quite the opposite: The complications are mostly special rules for people or companies trying to lower their taxes.
The nub of Forbes’ proposal is this: Everybody would pay an income tax of 17%, with most deductions eliminated, but enough basic exemptions so a family of four would owe no income tax until it had income of more than $46,000. Of course, it would still pay the FICA Social Security tax. FICA, which starts at dollar-one, is already a bigger burden than the income tax for most people. But it tops out at incomes of $90,000 and doesn’t apply to investment income at all. But that is just fairness talking.
Forbes figures that almost everybody would pay less under his proposal than under the current system. And just to make sure, he would let you opt to calculate your taxes under current rules, if you prefer. So everybody would pay less. That is swell. But it has nothing to do with the flatness or otherwise of the tax system. You could just as well combine a tax cut with a proposal to release all the animals from the National Zoo. People might like that too. A simpler tax system would be very nice. But find me some folks who would choose a flat tax over the current system even if it meant that they would pay more, not less. Then I’d be impressed.
And if everyone gets a tax cut, where does the money come from? Do you really have to ask? It seems that no amount of recent experience can put a dent in the wonderfully convenient belief that you can raise tax revenues by cutting taxes, because lower taxes inspire people to work longer and think harder, yadda yadda yadda.
Debate on this quickly becomes theological, so let’s note only that tax rates were higher than they are now when Forbes had the inspiration to be born into a wealthy family, and higher still when his father, Malcolm, first built the family fortune.
Next idea, please. Or, heck, why don’t we take the balanced budget amendment out for another spin? It’s been a while.