The Flat Tax fantasy
In the wake of the recent IRS scandal, some well-intentioned but badly misguided people have begun touting the flat income tax (called the flat tax for shorthand) as a replacement for the current tax code. They claim it would be an antidote to the IRS’s abuses and curb that agency’s powers while also supercharging America’s economy.
But they are dead wrong. The flat tax is no solution at all. It would not solve any of the problems with the current tax code and the IRS, and it could be replaced with a progressive income tax by the next Congress anyway.
Here’s why the flat tax would utterly fail to solve the problem, and why the FairTax – a flat 23% consumption tax designed to replace all federal internal taxes (income, payroll, excise, gift, death, etc.) is the solution:
- The flat tax would still be an income tax, and as such, would still punish hard work, wealth creation, productivity, and savings, taking away from people what they have earned. Making an income tax flat does not change the fact that it is still a punitive tax on INCOME. By contrast, the FairTax, as a consumption tax, would be levied only on retail sales, not on income, inheritance, or the sales of raw materials or unfinished products.
- With the flat [income] tax, you would still have to file tax returns every year by April 15th, and be liable for any mistakes you make therein. With the FairTax, there would be no such problems.
- Administering the flat [income] tax would still require having a large IRS with dozens of thousands of staff to receive and review tax returns, audit people and organizations, and punish cheaters, and the IRS would, of course, retail ALL of the awesome powers it currently has, all of its staff, and all of its budget – and would still retain all your financial records. By contrast, with the FairTax, the IRS would be abolished PERMANENTLY, and under the FairTax bill (H.R. 25), all IRS records would have to be destroyed within 2 years of the FairTax being enacted – the sole exception being records related to Social Security, but these would be turned over to the Social Security Administration, not retained by the Treasury.
- Unlike the flat [income] tax, the FairTax would be administered by the states, who would then send the revenue (minus their costs of administering the FairTax) to the federal government. Thus, it would dramatically shift the balance of power in the US in favor of the states and against the federal government. There would only be a federal Sales Tax Bureau with 51 personnel to audit the states in rare cases of state malfeasance.
- The flat [income] tax would keep the current tax code, although it would be somewhat slimmed down from today’s 70,000 pages. The FairTax would abolish the federal tax code completely and replace it with the simple 123-page FairTax Act.
- The FairTax would provide sufficient revenue for Social Security, though not for the entire federal Leviathan that exists in Washington today.
- The FairTax would be completely transparent – you would know how much you pay in taxes everytime you make a retail purchase. By contrast, even under the flat tax, you would not know how much you really pay in taxes.
- The flat [income] tax would keep the 16th Amendment. The FairTax Act would jumpstart the process of REPEALING the 16th Amendment forever, and would sunset (i.e. expire) automatically 7 years after its enactment if the 16th Amendment is not repealed within that time. But once Congress passed a resolution repealing the 16th Amendment, the states would be eager to ratify such resolution, as it would shift the balance of power in their favor.
- The flat [income] tax would keep tax exemptions and thus allow the IRS to decide who deserves them and who doesn’t. Conservative groups applying for such exemptions would still face IRS audits.
- And last but not least, the flat [income] tax would not remain flat for long. The next Congress could repeal it and replace it with a progressive one. The evidence? The current monstrosity of a tax code started in 1913 as a flat income tax at a 4% rate. But just 4 years later, in 1917, it was a heavily progressive income tax, with a maximum 77% rate. Although the maximum rate was later cut under the Coolidge Administration to 24%, it was still a progressive income tax – and 24% was still a rate that not even the most fervent advocate of the income tax had hoped for in 1913. Similarly, when President Reagan and the Congress enacted the 1986 tax reform bill, creating only two low rates, it took the Congress and Reagan’s successor, George “Read My Lips” H. W. Bush, only 4 years to add two new, higher rates, and thousands of pages, gimmicks, exemptions, and loopholes, thus essentially undoing President Reagan’s tax reform in just 4 years.
The flat [income] tax is not a solution. It would not solve ANY of the problems with the current tax code, the IRS, the 16th Amendment, the income tax itself, or the US political system. Only the FairTax would do that – by doing away with the income tax, the IRS, and the 16th Amendment PERMANENTLY.
It is no coincidence that the FairTax bill now has over 70 sponsors and cosponsors in both houses of Congress (including such conservative stars as Sen. Ted Cruz and Congressman Tom Price), while the flat tax bill has only one sponsor in the Senate and no companion bill in the House.
The flat tax is not a solution to anything and should not even be considered.
I might also add that the flat tax would give the Democrats ample ammo to claim that Republicans are “the party of the rich” that wants to cut taxes only for rich people.
Why? Because any flat income tax, in order to provide sufficient revenue for the federal government – even a dramatically slimmed one – would have to have a rate of at least 15% (and closer to 20%). Sen. Rand Paul’s proposed flat tax would be levied at a 17% rate.
If such a rate were to be implemented, then – even with all standard deductions – the poorest and middle-class Americans would see a steep TAX HIKE (to the tune of thousands of dollars every year), while the wealthiest Americans would see a big tax cut.