ShareThisIs America ready for a flat tax? Back in the late 1990s, Steve Forbes ran for president proposing a "flat tax" in which everybody -- rich and poor -- would pay exactly the same percentage of their income in taxes. Forbes' idea failed, but GOP presidential candidates Herman Cain and Rick Perry have proposed a variation of the flat tax as part of their economic plans. Advocates tout the virtues of a simplified tax code; critics say the tax would fall disproportionately on the poor.
What are the virtues of the flat tax? Joel Mathis and Ben Boychuk, the RedBlueAmerica columnists, debate the issue.
MATHIS The flat tax is Republican-led class warfare. It makes the rich richer and the poor poorer, for no better purpose than making the rich richer and the poor poorer.
We have progressive taxation -- in which people with higher incomes pay a higher tax rate than those at the lower end of the scale -- for a reason: People on the low end are less able to pay. Flat taxes invert that logic, giving the rich a huge tax break and often burdening the poor.
The Tax Policy Center says a low-income family making $31,000 a year would lose its $5,147 tax return under Perry's plan, for example.
(Herman Cain's plan is worse. Nearly everybody making under $50,000 would see a huge tax increase.)
Perry's plan was unveiled the same day as a new Congressional Budget Office report showing economic inequality is widening in this country.
From 1979 to 2007, people in the richest 1 percent grew their after-tax income by 275 percent. The three-fifths of people in the middle class saw less than 40 percent income growth during the same period -- and the bottom fifth grew incomes just 18 percent.
The gap is getting bigger. Even before the recession, the middle class was being left behind. Perry's plan would exacerbate the problem -- and likely balloon the deficit even further.
"But I don't care about that," Perry says. He should.
In the new book "The Darwin Economy," economist Robert H. Frank points to research that high levels of income inequality are correlated to slow economic growth. "Larger shares (of income) for poor and middle-income groups were associated with higher growth rates," Frank writes.
Flat taxes burden the poor, make income inequality worse, and in so doing put a stranglehold on an already-strangled economy. Other than that, Mrs. Lincoln, how did you like the play?
BOYCHUK: Lose the "class warfare" talk already. Three-quarters of Americans think the United States is on the wrong track. Those are Republicans, Democrats and independents. Reforming the tax code to spur economic growth and investment is one way to get the country back on the right one.
The current tax code is a cesspool of exceptions and special-interest carve-outs. Everybody knows it. But, hey, it's great for accountants.
According to National Taxpayer Advocate Nina E. Olson, 142 million U.S. taxpayers spent 6.1 billion hours on tax preparation last year. A simpler, flatter income tax, or something close to it, would let people put that time to better use.
Would Perry's flat-tax plan work? Would Cain's 9-9-9 plan? Who knows? These are works in progress. It's fair to say that no Republican tax plan would survive first contact with Congress.
Would lower-income earners pay more under an income-tax system that eliminates most deductions, tax expenditures and transfer payments? Considering that 42 percent of earners currently pay no income tax whatsoever, you don't need a Ph.D. in economics to know the answer is, "Obviously."
What may not be so obvious -- and what liberal critics of Perry's plan ignore -- is that taxpayers could pick the system that works for them.
Perry's flat-tax proposal also includes a generous individual exemption of $12,500 (meaning a family of four making $50,000 a year wouldn't pay a thing).
A Tax Foundation analysis of Perry's plan concluded: "Taxpayers at every income level would see a reduction in their tax payments, but ... the relative progressivity of the tax system is maintained. Wealthier taxpayers still pay more in actual dollar terms than lower-income taxpayers."
Ideally, any tax reform -- flat tax, national sales tax or some other scheme -- would begin with a clean slate and eliminate the host of deductions and credits that have fatally compromised the current tax code. The goal should be to spur long-term growth, not to satisfy special interests.
(Ben Boychuk is associate editor of the Manhattan Institute's City Journal. Joel Mathis is a writer and blogger in Philadelphia. Reach them at bboychuk(at)manhattan-institute.org and joelmmathis(at)gmail.com, respectively.)
(Ben Boychuk and Joel Mathis blog daily at www.infinitemonkeysblog.com and joelmathis.blogspot.com.)
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