Bruce Bartlett was kind enough to alert us to this post from Senator Brownback:
I propose an optional flat tax that would exist alongside the current code. This approach does not gore any of the tax code’s sacred cows and it could actually be enacted into law. An optional flat tax would generate economic growth and be vastly more transparent, simple and family – friendly than the current code … To account for the complicated credits and deductions in the current system, the optional flat tax would offer a generous personal income exclusion indexed for inflation. For individual tax filers, their first $20,000 of income would be excluded from taxation. For joint, married tax filers, their first $40,000 of income would be excluded. Looking at the work of many tax experts, I expect the optional flat tax rate would be in the range of 15 to 20 percent. The flat tax would partially pay for itself by boosting GDP growth.
Bruce wasn’t endorsing this crackpot idea but rather expressing his frustration with the dishonesty of those who push it. It certainly would not be fiscally neutral as only those who would pay less in taxes would adopt it. And this notion that a top marginal rate equal to 20 percent would not lead to a huge revenue drain is just stupid. Brownback claims that this would be a move to tax simplification, which is beyond absurd as one would have to calculate one’s tax under both systems to figure out which one to adopt. Let me just add the following – Brownback’s claim that a tax rate cut would lead to faster GDP growth is idiotic. After all, giving people their money back so they can consume more translates into lower national savings. The post is the same old free lunch BS we are hearing from most of the GOP Presidential candidates.
Update: Stephen Moore discussed this crackpot idea in early 2005:
Former senators Connie Mack of Florida and John Breaux of Louisiana, the chairmen of President Bush’s new tax reform panel, have been granted a historic opportunity to dramatically overhaul our economically debilitating federal tax system. The surest way for the tax panel to crack through the political gridlock that has paralyzed this issue for decades would be to endorse the Freedom to Choose Flat Tax. This is an idea that I first introduced in The Wall Street Journal eight years ago – to an extraordinarily enthusiastic reception.
Moore claims this additional layer of complexity (having to do your taxes two ways) would somehow lower compliance costs by over $110 billion per year. If this unsupported claim were not bad enough, he writes:
On top of that, economist Dale Jorgenson of Harvard estimated several years ago that if the U.S. tax code were replaced with some kind of flat and simple consumption tax, the economy would grow about 10% faster. This would mean that instead of the economy growing at 4% a year, it could grow at almost 4.5% a year, and in that case the nation could expand its way out of many of its thorniest problems, such as low wage-rate growth, stubbornly high poverty rates, the $413 billion budget deficit, and the decline in jobs in the manufacturing sector.
Ten percent faster versus having a growth rate that was about 1.1 times the usual growth rate. Nice bait and switch language. But the economy does not grow at an average rate of 4% and the free lunch Brownback proposal is not going to increase long-term growth rates. So let’s call this free lunch lies what they are – lies. It would seem that Mr. Moore has been pushing this nutty idea for the last decade with Bruce Bartlett rightfully criticizing it the whole time.