Sunday, May 26, 2013

Andrew Sullivan and the flat tax

Andrew Sullivan highlights the following excerpt from a recent Business Week article on Eastern Europe's experience with the flat tax:
The lesson: Flat taxes seem to work pretty well when an economy is growing—but not so well when it is stagnant or shrinking. Across Central and Eastern Europe, “every country is in need of more revenue because of debt and public deficits,” says Andreas Peichl, a senior research associate at the IZA think tank in Bonn, Germany. “There is a feeling that the crisis has affected poorer people more than the rich and that the rich should contribute more. But that is not easy to do if you only have one tax rate.”
The last two sentences are particularly strange given that under a flat tax the rich *do* contribute more than the poor. Someone making $300,000 per year, for example, would pay ten times more in income tax than someone making $30,000 per year (actually, probably greater than ten times more given that flat tax plans -- such as the one advanced by Steve Forbes -- are often paired with generous standard deductions).  

Furthermore, if the flat tax makes it more difficult for governments to tax their way out of debt and deficits rather than through reform and spending cuts -- likely because raising taxes on everyone is more difficult than just targeting a small minority -- well that's a virtue rather than a vice.

An already bizarre post becomes even more so when Sullivan throws in his $.02:
Given the extremes of inequality we are now facing – and likely to intensify as technology cuts yet another swathe through entire industries that sustain a middle class – I have to say I am pragmatically against such a tax now, even though I have consistently supported one in the past. I’m only flip-flopping, I hope, in the best way. A flat tax remains theoretically and symbolically deeply attractive to me. I still believe that penalizing people for succeeding in our economy is unjust to those individuals. But in our current contingency of accelerating inequality, a flat tax would be socially destructive.
Think about that for a second: under a flat tax, someone with an income ten times greater than someone else will pay at least ten times more in tax, as opposed to, say, fifteen times greater under a progressive tax regime. Does it really make sense that a decline from paying fifteen times what another  person pays to merely ten would lead to some kind of societal breakdown or reduced cohesion? What would that look like? And what exactly would the dynamic be? Has social destruction occurred as a result of the flat tax in other countries which have adopted the measure?

The head-scratching is only compounded when, later in the post, Sullivan states that "we clearly, desperately need simpler taxation," that we should "take not a scalpel but a sledge-hammer to deductions" and "It is deeply damaging to our core democratic legitimacy that the average citizen has no hope of understanding the tax code." Each one of those complaints, of course, would be nicely solved by the flat tax, which he opposes.  How something that produces simpler taxation, removes virtually all deductions (save for perhaps the standard deduction), reduces the penalization of those who succeed and boosts democratic legitimacy can also produce unspecified "social destruction" is left unexplained. 

Such are the intellectual contortions one presumably must undergo in claiming to be both a supporter of limited government while simultaneously supporting the broader left-wing agenda. 

No comments: