We’ll hear a lot of talk this year, most of it going nowhere, about “tax reform” in Congress, a term that usually connotes the kind of comprehensive pruning back of special-interest deductions and credits and exclusions that was last really undertaken in 1986, along with a general reduction in tax rates.
But out there on the campaign trail, where supply is meeting popular demand, particularly in the Republican presidential nominating process, it’s increasingly likely we’ll hear a return to the age-old cry for “flat” taxes.
Technically speaking, all a “flat” tax means is that whatever is being taxed will be taxed at uniform rates. So the very concept pretty much rules out progressive taxation. “Flat” tax advocates who also emphasize “simplicity”–you know, a tax form you could print out on a post card–are generally alluding to a wholesale elimination of exemptions, deductions and credits, which gets rid of a lot of special-interest provisions along with a host of provisions aimed at reducing or eliminating income taxation on the working poor. If rates are “flattened” too, the net effect would be huge tax breaks for upper- and upper-middle class folk and big tax increases for the poor. Some of these proposals, of course, also casually exempt corporate or investment income from taxation, so the regressive effect is even greater than first appears.
Then you’ve got “flat tax” advocates who simultaneously want to move from income to consumption taxes, which is generally the case with people who talk about “abolishing the IRS,” insofar as merchants would be collecting the taxes rather than a federal agency. This approach is even more regressive than a “flat” income tax, since everybody’s got to “consume,” but poorer people spend a higher percentage of their income covering essential living needs (yes, it’s true some progressive countries, mainly in Europe, depend heavily on consumption taxes, but they deliberately offset them with redistributive spending programs, which is not what our Republicans have in mind).
A lot of these ideas get jumbled together in politicians’ rhetoric, as Paul Waldman noted the other day at the Prospect
[A]lmost every potential GOP presidential contender has at the very least expressed support for tax flattening, and most of them have come out and endorsed a flat tax.
But the details are hazy and often contradictory. Ted Cruz, for example, has endorsed both a consumption tax and a “flat” income tax (Mike Huckabee is the one consistent consumption tax proponent). Rand Paul, Rick Perry, and Bobby Jindal have all indicated support for a flat income tax. Jeb Bush and Marco Rubio have spoken of a flat income tax as a “goal.”
The political motive for such talk, or at least so I think, is to do two things: first, it offers an alternative, less unseemly way of talking about upper-income tax rate reductions, and second, it sneakily scratches the itch of conservative “base” anger at the “lucky duckies” who are too poor to pay income taxes under the current system.
To see which way the wind would blow if Republicans win the trifecta in 2016, listen to what the candidates are saying about taxes more than to the wonky discussions on “tax reform” in Washington.
