Perry’s Flat Tax Proposal
by Linda Beal
The Atlantic has a good summary article contrasting Perry’s Flat Tax proposal (an alternative choice to the income tax, that is modeled after Steve Forbe’s flat tax, which will result in much lower taxes for the wealthy because of the deductions it retains along with the zero taxation of capital income) and Cain’s 9-9-9 intermediary proposal as well as Cain’s ultimate goal of the so-called “FAIR tax” –a national sales tax at a tax-inclusive rate of 23%–both of which will result in much lower taes for the wealthy because of zero taxation of capital income. Of course, along the way to his purported “FairTax”, Cain will put us through his wacky 9-9-9 plan that includes a VAT (but one that has solely a wage base), an individual Flat Tax (but one whose provisions to benefit the poor are uncertain–some kind of poverty exemption and impoverished district exemption, without much information about how it works or how much it helps), and a FairTax (without any relief from the lumpiness of the tax that causes it to be particularly unfair to the poorest of the poor). See Derek Thompson, Perry Tax, Flat Tax, Fair Tax, VAT (Tax): What’s the Difference?, The Atlantic (Oct. 25, 2011).
None of these proposals are revenue neutral (they will raise less revenues than raised under the current tax system). Either the rates would have to be increased or the government would be forced to operate in deficits (as it was pushed into doing with the Bush tax cuts where the $1.2 trillion cost over ten years of the 2001 bill moved the nation from surplus to deficit in one fell swoop).
None of them are distributionally fair–they shift the tax burden (to whatever extent the federal government is allowed to exist) down to the middle class and maybe the poor, while giving the rich extraordinary tax reductions through complete exemption of their main type of income.
None of these proposals are “simple” in any meaningful way. They all require similar tax administrative apparatus to the current system (or, in Perry’s case, duplicative administration to take care of the choice of Flat or Income tax), involve the same calculations about timing, amount and character of income necessary under the income tax (but now fraught with more potential for abuse through mischaracterization, since one type is entirely tax free), and require the same procedural due process and penalty mechanisms, as well as forms, instructions, guidance and audits that are required under teh current system. The only sense in which the Flat or FAir tax or VAT is simpler is when you mean by simpler that the wealthy pay less in taxes.
So if we are to judge the proposals by their results, it would seem that these two right-wing contenders for the GOP presidential nod think that two things are immensely important:
1) reducing taxes on the uberrich, and
2) reducing revenues available to the government to fund important programs.
That fits, since the right wants to “drown” government (and get rid of the New Deal earned benefit programs of Social Security and Medicare that aren’t needed by the elite who fund the right) and wants to cut taxes on the rich/big corporations as close to zero as it can get away with.
Let me repeat. The arguments used to support all of these consumption-type taxes are fundamentally flawed. They are not simple–they will involve the same hair-splitting on categorization of income as the current income tax, the same forms, timing issues, accounting issues, tax procedures for due process, and tax administration as the income tax. They are not fair–they push the tax burden off on the middle class (and the poor, especially under some of the variants) and give the wealthy inordinate tax breaks by not taxing at all their most common type of income from capital. They will not bolster growth and result in superb “trickle down” effects for the poor–tax cutting measures simply cannot do this because the theory that says they can is based on flawed assumptions about real life and flawed judgments about what matters. They will hurt government programs that are vitally important to quality of life. They will exacerbate the inordinate inequality already hurting the US society by making the wealthy even wealthier, and push us even further towards outright plutarchy (plutocracy and oligarchy at the same time, where a wealthy and prestigious elite holds all the reins of power). They will result in the dismantling of the New Deal from Social Security to Medicare, accompanied by gleeful sounds of delight from the radical right that supports the corporatist state and moans of pain from the vulnerable, the poor, and the elderly who are thrust back into neofeudal serfdom under the corporate masters of the universe.
Michael Kingsley and Francis Wilkerson agree with me on the latter issues. I just found their Bloomberg opinion piece on flat taxes: Flat Tax Proposals are Perpetual Font of False Promises, Bloomberg.com (Oct. 24, 2011).
originally published at ataxingmatter
“FairTax (without any relief from the lumpiness of the tax that causes it to be particularly unfair to the poorest of the poor).”
You gotta understand. The poorest of the poor are supposed to die. Or go back to Mexico. After all, it’s their own fault, dammit!
Oh, yes. Selling themselves into slavery is another option, but we can’t call it that these days.
Prof. Beale speaks as a Michigan government employee who depends on students heavily funded by student loans.
She beat me to saying it.
Both Spencer and I were looking at the Tax Policy Center’s review of the 9-9-9 plan which showed the numbers for the tax shift from the upper income househoulds to the middle and lower income households who have been penalized by a declining income over the last decade. The flat tax or fair tax is not-so-fair to the 90% of the taxpaying households and more-than-likely break even for 8% of the households. The 1-2% remaining households reap the increased income as a result of a shift and lower tax.
if you are saying what i think you are saying here, you have ceased to be worth listening to.
For what it is worth, as a most-of-the-time resident of Michigan now, it amazes how much employees in the Michigan public sector despise the private sector, and especially anyone with a good income, business ownership, and/or any hint of wealth.
I read most of Linda’s work, I don’t necessarily disagree with all of it, but she makes her positions on the private sector and capital very, very clear.
And, I don’t support any of the GOP tax plans, flat or not.
I will continue to pay my taxes so Linda can have a nice salary and much better pension than most of us.
Note what you are doing. You are challenging my position as though you think I am advocating something favorable to my own situation as a public employee. You are doing just what the hard right wants you to do–attacking public employees who are union members from having used the clout of collective bargaining to get decent salaries and pensions, and suggesting that they too should be dragged down.
What you fail to say is that what we should be doing is empowering everyone to unionize and collectively bargain, so that employers are no longer able to capture all the productivity gains of their workers for themselves!
By the way, I think the taxes on people who make as much as I do should be increased. Do I WANT to pay higher taxes? Hell no. Do I think I ought to be more highly taxed than I am now? Hell yes. Would I support tax increases on those in the upper quintile? Most certainly. I’d like to see Michigan amend its constitution to permit a graduated income tax, so the wealthy in Michigan would pay their fair share, and I would like to see more brackets added to the federal income tax to make it more progressive than it is, while the estate tax should be retained with a more progressive rate structure as well. The fact is, that the ‘have mores’ are also the ones who have more ability to pay. And if you judge on ability to pay, you pay attention to the marginal utility of the dollar and you have to use a progressive rate structure to really tax equals alike.
(Of course, I’d also like to see Michigan amend its constitution to permit Detroit to annex its suburbs. I am so tired of those wealthy suburanites who trash-talk Detroit but come into the City to earn their living and to enjoy the opera, games, and museums, but go out into their (mostly lily white) suburbs to spend their money on suburban businesses. And then they wonder why Detroit businesses don’t succeed.)
I’m against the flat tax and the FAIR tax and the VAT as a substitute for the income tax because it overtaxes schoolteachers and firemen and small business owners who get similar profits out of their businesses compared to the way it taxes the wealthy.
And what on Earth does an analysis of the fairness of various tax mechanisms have to do with Linda’s being a public employee or a private employee? And why the assumption that an employee that works in a public entity is any more or less entitled to their earnings and retirement income? Is the analysis that Linda offers to us valid or not? Her employment status has nothing to do with that assessment. STR is barking up some rotted tree that is growing in his own mind.
And how is it Rusty that the students of a public university are any more depenedent on education loans than are those in a private institution? And how would that have anything to do with the issue of a flat tax scheme? You’re point is irrelevant as well as being illogical.