The flat tax is
back!
When Rick Perry
announced his support for this particular tax reform, he
reinvigorated an issue that hasn't been heavily discussed since
Steve Forbes first ran for president in 1996. My copy of Robert
Hall and Alvin Rabushka's "The Flat Tax" was signed by Alvin,
for whom I helped set up a local media tour: "To Barbara
Anderson, fellow flat taxer, who saved it in Massachusetts to
help in the national effort to get one."
Actually, we
taxpayers saved the Massachusetts flat tax to help ourselves, to
keep the one advantage we have over our political system — the
fact that it can't pick us off one tax bracket at a time by
changing the rate for just one group of wage-earners and
taxpayers. Our state constitution wisely requires a flat-rate
income tax, and the only way to change this is with a
constitutional amendment that must be approved by voters on a
statewide election ballot.
Liberals and most
politicians, longing to utilize class warfare to raise taxes on
all of us, starting with "the rich" and working their way down
to where the majority of taxpayers reside, have placed a
"graduated income tax" constitutional amendment on the ballot
five times. Citizens for Limited Taxation was formed in 1974 to
fight an early attempt, and it led the most recent and
successful "save the flat tax" battle in 1994.
Of course we would
like to share the concept with our fellow taxpayers across the
nation.
One reason: It's
fair. Everyone pays the same rate, though of course that rate
applied to various incomes requires higher earners to pay more
in actual dollars. Though "progressives" always talk about
making the rich pay their "fair share," no one has ever
explained to me what that means.
Envy and the need
to penalize the financially successful was traditionally an
un-American concept. It probably still is; the "tax the rich
more" rhetoric we hear today is aimed not so much at the
productive wealthy, but at those who have worked with our
federal political system to buy themselves favored treatment
within the tax structure.
The flat tax is
often linked with the idea of "tax simplification," whose image
is a postcard once held aloft by Steve Forbes and now by his
endorsed presidential candidate, Rick Perry. If you want a rough
idea of how it could work for you, take your annual gross
income, subtract your standard deduction and any other
deductions for which you are eligible, then apply the flat rate
to what's left.
In Perry's plan,
the standard deduction is $12,500 (if you earn less than half a
million dollars), then you can deduct your mortgage interest,
charitable giving and state taxes.
I did a quick
computation for myself, using what applied — I don't have a
mortgage — and ended up paying a couple hundred more than I paid
last year. Then I subtracted what I pay my tax preparer. Even
though I personally have a very simple economic structure, I've
been afraid to do my own taxes since my teacher-husband and I
tried it in 1965 and determined that we owed thousands of
dollars on an income of roughly $5,000. (He was not a math
teacher.)
I still can't cope
with thousands of pages of federal tax code with provisions that
change every year.
Perry's tax reform
plan also eliminates taxes on Social Security, estates, capital
gains and dividends. Recent professional analyses indicate that
I might save around $200. But I'd be willing to pay a little
more if I had to in return for a simpler system. I recall 1992
presidential candidate Ross Perot explaining how Congress
alternately threatens or rewards various taxpaying entities in
order to get them to contribute to its re-election campaigns.
Corruption,
corporate welfare, crony capitalism and the general culture of
Washington insider games, are fed by the complicated tax code.
If I were creating
a national flat tax, there would be a standard deduction and
nothing else. I would probably have to grandfather the mortgage
interest deduction for now, but it's important to recognize that
all this deduction does is drive up the cost of the house to
what a buyer perceives he can afford because of the deduction.
The exclusion from taxes of employer-provided health insurance
has the same artificial impact on health care costs.
Rabushka and Hall's
version of a flat tax has been rejected by most Washington
politicians who love complexity and campaign contributions.
However, the authors' advocacy led to the adoption of a flat tax
in other countries, most notably those that were emerging from
the communist bloc. Apparently people who had lived with another
postcard concept — "How much do you earn? It belongs to the
government, here's your food allowance" — found the flat rate
helped them adjust to the free market.
The flat tax
doesn't directly address the deficit. Perry also proposes
spending cuts, entitlement reforms and other reforms that favor
job creation.
Other Republican
candidates have various economic plans of their own.
Everything must be
on the table, with the primary focus on eventually reducing the
national debt and restoring citizen confidence.