Battle4Liberty

The flat tax idea must be gaining traction. Just take a look at former Fed vice chairman Alan Blinder’s op ed piece in Monday’s (November 14) Wall Street Journal. Blinder is a heavy hitter for the left-of-center Keynesians and he doesn’t waste time attacking ideas that don’t seem to be going anywhere. His piece, “The Folly of the Flat Tax,” contains everything we expect from the left. Blinder is right on several points, however, so let’s give him his due at the outset.

1. Blinder argues that “the flat tax alone” won’t simplify the tax system. Technically he’s correct, but I’ve never heard a flat tax proposal that hasn’t been attached to an overhaul of deductions and exemptions that will make the entire system much simpler.
2. He argues that a flat tax would make the system “far less progressive.” He’s correct again, at least to a point. The major problem with the tax system now is that it’s too progressive. I’ll return to this point in a minute.
3. Blinder also notes that every tax “gimmick”—like mortgage interest, state income tax, and other deductions—has a constituency that will fight it’s proposed elimination tooth and nail, making any real simplification of the system all but impossible. Again, he’s somewhat correct here, although I think a real overhaul is possible.

The problem with Blinder’s piece, however, is the leftist foundation on which it’s built. When I read op eds from the left, I always skip to the last couple of paragraphs where the logical flaws usually reside.  There, Blinder attacks conservatives for emphasizing that 47% of American households don’t pay income taxes. “They pay sales taxes, payroll taxes, and many others. The income tax and the estate tax are virtually the only progressive elements in our tax system. If you take away progressivity there, precious little remains.”

Since when is a progressive tax considered to be “precious?” Herein lies Blinder’s moral code—wealth redistribution.

And since when is a flat tax not progressive? I have never heard a flat tax proposal that doesn’t include a hefty standard deduction. Do the math. If you exempt a certain amount of income from a flat tax, then the system is progressive by definition.

When taxpayers pay the same dollar amount regardless of income—such as with a vehicle registration tax—we call that system regressive because the amount paid represents a lower percentage of earnings as incomes rise. You could argue the fairness of such a plan because everyone pays the same amount. It’s like a general admission ticket to a concert. You pay the ticket price and you get in.

The progressive tax is the opposite of the regressive tax. Here, those with higher incomes not only pay proportionally more in taxes, but they also pay a higher percentage of their incomes in taxes. The federal tax system is progressive in that higher wage earners move into higher tax brackets. In my view, however, confiscating a higher percentage of one’s earned income simply because one earns more of it is Marxism pure and simple. Most Americans accept this type of system because they envy the wealthy, and besides, the rich can afford it.

The irony here is that common flat tax proposals are progressive because—as stated earlier—they exempt a certain amount of income from taxation. The problem for Blinder and the left is that they are not progressive enough. In fact, the left has taken the notion of a progressive system to new heights with programs such as the Earned Income Tax Credit (EITC) where low-income earners not only pay no taxes, but they actually receive money from other taxpayers. Consider that the budget deficit has ballooned in part because of programs specifically designed to assist this same group of individuals and you can see why conservatives are fed up.

There’s no question that getting a simple flat tax will be an uphill battle. The only hope is to propose a complete overhaul with a low tax rate. When Americans see that they pay for their deductions with higher rates many will favor ending the scam once and for all. This type of reform could happen, but only with the right leadership in Washington.