Three major Republican presidential candidates want to replace all or part of the byzantine federal tax code with a “flat tax” that collects a fixed percentage of one’s income, with no brackets and few exemptions. The change would give Americans more incentive to save and invest, and less incentive to cheat. But there are other ways to obtain the economic benefits promised by a flat tax without asking the middle class to shoulder more of the tax burden now borne by those at the top.
Originally proposed in 1981 by Stanford University scholars Robert E. Hall and Alvin Rabushka, the flat tax is a variation on the value-added taxes imposed in Europe. Former Godfather’s Pizza Chief Executive Herman Cain has called for a flat 9 percent tax on personal and corporate incomes along with a 9 percent national sales tax. Former House Speaker Newt Gingrich of Georgia, who once ridiculed presidential contender Steve Forbes’ flat-tax plan as “nonsense,” now proposes to give individual taxpayers the option of paying a flat tax of 15 percent in lieu of complying with the current code. And Texas Gov. Rick Perry is expected to unveil a similar proposal for an optional flat tax of 20 percent.
Lawmakers can achieve the legitimate economic goals of the flat tax without abandoning graduated rates. One example is the tax overhaul that President Ronald Reagan signed into law in 1986, which eliminated enough tax breaks to allow brackets to be consolidated and the top rate lowered significantly. Flat-tax advocates are right to call for a radically simpler code, but they’re focusing on the wrong problem.
Los Angeles Times (Oct. 26)