Flat Taxes And Jobs
Oct 25th, 2011 | 15 responses
I’ve been surprised about all the flat tax talk this October by Republican presidential candidates. The flat tax idea usually doesn’t surface much until April, when taxpayers and their helpers gather around dining room tables to figure out how much they can get away with in their tax reporting. The fact that flat tax mania among Republican White House aspirants has come to the fore this early thus strikes me as a seasonal affectation gone awry.
Whatever the season, however, the appeal of flat taxing for most people is simplicity. Or supposed simplicity. You can’t just multiply your income by a single percentage (9 percent or 20 percent or whatever) and come up with a tax rate. Under almost all flat tax proposals, people below a certain income level don’t pay any taxes. A few write-offs or exemptions are sometimes also left in place (mortgage interest deductions, et. al.).
Still, it’s true that all flat tax proposals if adopted would make for less tax figuring and finagling. Through the extent of this figuring and finagling and its costs to the overall economy depends on the numbers you like to play with.
Through clever but unsubstantiated extrapolation, some experts have come up with a figure of 6.1 billion hours spent by American taxpayers on their taxes. Some conservative economists than multiple this figure by average hourly wages in this country (about $23) and conclude the economy could save $140 annually with a flat tax system.
Is this a valid figure? Too large, too small, utterly irrelevant? Yes, no, maybe. Some people like it. Some journalists need filler for their tax stories. So you’ll see numbers like these often in coming months. Best to keep an open mind when they appear, however.
Here’s really the only thing you have to remember about all current flat tax proposals coming your way. They won’t affect the poor much — many of whom don’t pay federal income taxes today under the present system What these proposals will do is put a lot more cash in the pockets for the rich. And the deduction and exemption-deprived middle class will end up paying more, subsidizing the rich in the process.
Republican flat taxers are thus asking the voting middle class to pay more in taxes in return for a few hours less spent on tax computations. Along with this, they throw in their favorite pitch — that more money flowing to the top of the income ladder means more jobs.
This comes about (in Republican economic thinking) because when rich people get any extra cash in pocket, they don’t buy a second (or third) home on a foreign beach front. Instead, they invest the extra cash and open a pizzeria that employs one baker, one counter man, and three waitresses.
This kind of thinking is where Republican tax policies and their policies generally would take this country. A country with a shriven middle class, pockets of vast and growing wealth, and a great many people employed in lousy jobs, but so poor they escape federal income taxes (though still paying the killer Payroll Tax and local taxes).
Come to think of it, this is where President Obama has been taking the country, too, since coming into office. Except he would also give the huddling masses health insurance coverage.
Wow! What a great choice in 2012! I can hardly wait to vote.
More from this writer at wallstreetpoet.com.
15 Responses to “Flat Taxes And Jobs”
How do you figure, Michael? A flatter, simpler tax code isn’t necessarily cheaper or less progressive. All other things being equal, it would probably tend to hit the rich harder, as they’d lose deductions and loopholes that work to their advantage now.
Do we need to go over again the math of how flat taxes speed up the accumulation of wealth at top of the economic pyramid? Flat tax is one of those things that is really simple to explain, seems totally logical and fair, but upon further inspection is really not fair at all. In short, its the perfect sound bite idea for a politician.
Taxes are complicated, the movement of money how it affects the economy is complicated, making the tax codes simpler is complicated. No one is going to come up with a solution and be able to discuss it live on the air. By definition any solution that presumes to solve the problem and is explainable in 30 seconds is a false one. Yet that seems to be what people keep expecting.
Yes, that is exactly what I’m asking for.
Hi Dr. J.
Glad you asked this question. Because it is one of the least understood elements of the tax madness that afflicts this country.
The rich do NOT want all those rich-oriented deductions and loopholes and cute trust games that have become part of our tax system. They employ these mechanisms simply to avoid paying more in taxes.
Trading a give-back of these tax avoiders for lower tax rates, from the perspective of the rich, is like losing the right to wear gloves after being given a beachfront home in Honolulu.
Thanks, Michael, I’m with you that far. If I were rich enough to save a lot of money by setting up a trust, I’d do even though it’s a headache. But I’d prefer a flat tax that saved me the headache, if my final tax bill came out the same or even slightly higher.
What I’m not seeing is where my beachfront home is coming from. A flat tax could be structured so that my total tax bill goes down, or so it goes up, or so it stays the same. For example, a flat tax that exempted everyone’s first $500K and taxed everything thereafter at 50% might save me money if I made $600K but cost me dearly if I made $2M.
So I could see the argument that a specific flat tax proposal might favor the rich, but I don’t see the argument that flat taxes as a class do.
Well, one reason it comes up is that it also addresses how much the rich do pay. If you force everyone to pay 20%, and the rich see their taxes go down, then it is clear that they must have been paying more than 20% before. Given the current political meme from the Democrats is that the rich pay less than secretaries and teachers, one can see the attraction for Republicans.
However, I’m not sure both parties are unaware that our current system of political discourse doesn’t nothing to prevent each side from holding contradictory positions on even related issues. Its not like both sides don’t do it all the time.
A flat tax is NOT good for America.
I know of no Flat Tax proposal that don’t charge the same percentage rate on everybody from top to bottom. Hence the “flat tax”.
Under a “flat” tax the wealthy will get a huge tax cut on top of the huge cuts G.W. Bush gave them. Those poor people whom pay no tax, after income tax returns, still pay all consumer taxes. What ever the flat tax rate would be, would be an additional on the poor. A flat tax would also be a tax increase for the middle class.
Good to see a lively debate on this topic.
Since the self employed are pretty much on the short end of almost any tax plan, I don’t have much skin in the game but I find the discussions lively.
It’s funny that nobody has mentioned the notion of horizontal tax equity rather than vertical tax equity.
Horizontal equity is the notion that people who make the same amount of money should pay the same amount in taxes. The current tax code has so little horizontal equity as to make it completely laughable. A flat tax, pretty much by definition, has great horizontal tax equity relative to the current code.
As to vertical equity, it all depends on what the rules are. Put in a large personal exemption and include investment income in the income taxed and a flat tax can easily be more vertically equitable than the current tax code and more horizontally equitable at the same time.
Depending on how you set the standard deduction and what rate you use, you can make the tax code more or less progressive although, as a general rule, the poor would pay less, the middle would pay more, the bottom of the top would pay less and the very top of the top would pay more (assuming that investment income is included).
Such a change is not unambiguously less progressive. It all depends on how you define your terms.
I haven’t heard one flat tax proposal from the Republicans, including when Steve Forbes proposed one that doesn’t favor the rich. Why are the conservatives ignoring that actual proposals that have been made in favor of claiming that it depends?
Well Jim, since nobody has made a flat tax proposal yet, why is that relevant?
And this is different from Republican tax proposals in general?
If you want to discuss a specific flat tax proposal, go ahead and cite one. If it favors the rich, I’d expect it could be made to favor the poor by just tweaking the numbers a bit.
In other words, I think it’s a mistake to write off the concept of a flat tax because you disagree with the numbers someone proposed. The concept seems like a clear win for the country, in terms of fairness (in the horizontal sense Steve mentioned) and in terms of efficiency. Who wouldn’t want to be able to file their tax return on a postcard?
Jim-
I’ve never heard of a Republican Tax proposal in the history of life on the planet that didn’t heavily favor the wealthy.
Ever. Since rocks formed. Even before Nixon.
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I view all the flat tax talk coming from the R’s as gimmickry and distraction. If they actually are serious about it (enter common sense) then their record would indicate that it must ultimately be regressive.