Cold Fury

Harshing your mellow since 9/01

Another idea whose time has come

The time came a long time ago, as a matter of fact.

Proponents of tax reform explain that there are many reasons to junk the internal revenue code and adopt something like a flat tax.

  • Improve growth – The low marginal tax rate, the absence of double taxation, and the elimination of distortions combine to create a system that minimizes the penalties on productive behavior.
  • Boost competitiveness – In a competitive global economy, it is easy for jobs and investment to cross national borders. The right kind of tax reform can make America a magnet for money from all over the world.
  • Reduce corruption – Tax preferences and penalties are bad for growth, but they are also one of the main sources of political corruption in Washington. Tax reform takes away the dumpster, which means fewer rats and cockroaches.
  • Promote simplicity – Good policy has a very nice side effect in that the tax system becomes incredibly simple. Instead of the hundreds of forms required by the current system, both households and businesses would need only a single postcard-sized form.
  • Increase privacy – By getting rid of double taxation and taxing saving, investment, and profit at the business level, there no longer is any need for people to tell the government what assets they own and how much they’re worth.
  • Protect civil liberties – A simple and fair tax system eliminates almost all sources of conflict between taxpayers and the IRS.

All of these benefits also accrue if the internal revenue code is abolished and replaced with some form of national sales tax. That’s because the flat tax and sales tax are basically different sides of the same coin. Under a flat tax, income is taxed one time at one low rate when it is earned. Under a sales tax, income is taxed one time at one low rate when it is spent.

Neither system has double taxation. Neither system has corrupt loopholes. And neither system requires the nightmarish internal revenue service that exists to enforce the current system.

All of the reasons given above are good ones, logical ones, fair and workable ones…and are also why our misbegotten government will resist with all its considerable might; its minions and apparatchiks are quite simply opposed to every last one of them. Still, read it all anyway; Dan lists several other reasons for this sort of reform that ought to be compelling, but won’t be to the sewer rats currently in charge.

Update! Good comment at WRM’s joint:

In describing the RR approach it’s more precise to use the phrase “tax rate” for the cuts they envision. Overall their goal is to recognize Hauser’s law for the fact that it is: “no matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5 percent of GDP.”

Among the conclusions that can be drawn is that one increases tax revenue by increasing the GDP. That argues for lower tax rates to stimulate growth while the taxman taketh 19.5% of a larger pie.

Hauser’s law also implies that raising tax rates reduces GDP, thereby reducing tax revenue. You still collect your 19.5%, but it’s from a smaller pie.

If you really want to strangle growth, keep all tax rates where they are and add a VAT. This is a trick we learned from the old country. Works like a charm.

Yep, every time it’s been tried, and to everyone’s detriment. This is called, by liberal fascists, “watching out for the little guy,” “protecting the middle class,” and other such bass-ackwards nonsense.

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5 thoughts on “Another idea whose time has come

  1. These proposals are just dreams.
    Voters won’t go for it because NOBODY believes that a national sales tax or VAT will replace the income tax. We all know that it will be in addition to the income tax.

  2. Yes sadly it’s a pipe dream, without the taxation of today the left wouldn’t be able to coddle their chosen voter base and punish the rest who won’t vote for them. Not to mention that spending would still be out of control forcing an enormous flat tax to adjust to it. Whatever savings would be realized would just be spent on solyndra-like fraud anyways.

  3. Umnnh….The author asserts that the ‘flat tax’ and the Fair Tax (he calls it a ‘national sales tax’ are two sides of the same coin. No–unless he’s stipulated that “income” includes interest, dividends and cap-gains which will be taxed at the Flat Tax rate.

    The Fair Tax (sales tax, if you prefer) has one MAJOR advantage over the Flat Tax: it will hit the “high income” earners harder, because they spend a helluvalot more than do low-earners. Thus, if the (R) folk want to “tax the rich” they couldn’t ask for a better vehicle than this one.

    On the flip side: a tax on spending automatically becomes a boost to capital formation (what you don’t spend ain’t taxed.) The Flat Tax doesn’t have that effect.

    Curious, is it not, that the loudest proponents of the Flat Tax are all multi-zillionaires?

  4. We’ll never see a flat tax, because 47% of America is accustomed to not having to pay a single penny in Federal income tax. When they talk about some people not paying their fair share, the irony is thick enough to cut with a knife.

  5. I do not support a national sales tax for two reasons:

    1. its negative effect on trade; and,
    2. until borders are enforced and citizenship based on something more than payment of taxes, a sales tax becomes an argument for granting Constitutional rights (like VOTING) to non-citizens who will also pay the tax.

    Based on reason #2, I think the so-called “Fair” tax (if you have to name it “fair”, … it ain’t) is a tool to push for globalization and a “borderless” world.

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