Friday, December 16, 2011

Not so Simple: Flat Tax Rhetoric

You have probably all heard this years republican buzword "flat tax."  You've also probably heard the blatant misrepresentation that switching to a flat tax will simplify our tax code.  Rick Perry, Herman Cain, and Newt Gingrich have all suggested flat taxes as techniques to simplify our taxes.  But the question is: does a flat tax really simplify the tax code?

Answer:  no a flat tax does not simplify our tax code.

What then does a flat tax do?  The biggest effect of a flat tax is a rate change.  It is a decrease in taxes for the wealthy and an increase in taxes for the poor.  This is clearly not a simplifying effect, its just a changing of the rates.  A flat tax does also change the wording of the tax code but just barely and it doesn't simplify our tax code.

To understand how minor of an effect a flat tax is on our tax code let me first explain how big our tax code is.  In front of me on my desk I have a two volume set of books containing the internal revenue code totalling in at 5,000 pages written in a tiny font.  Now, changing to a flat tax only changes one paragraph of material on one page.  Imagine those 4,999 pages unchanged and just one paragraph modified on one page.  The  effect of this change is to simplify what is already simple math when you calculate the amount of taxes you owe, the code stays just as complicated as it already was.

Now, after explaining why a flat tax doesn't simplify our tax code let me explain what this has to do with rhetoric.  The claim "it simplifies our tax code" is a misleading slogan used to promote the flat tax, the actual effect of which is to decrease taxes for the rich.  This is a deceitful way to promote the flat tax.  In reality switching to a flat tax and simplifying the tax code are two separate issues and the reasons for doing either are vastly different.  Thus, the debate on whether we should switch to a flat tax should be separated from the debate of how and if we should simplify the tax code.

Simplifying the tax code is a worthy goal and should be pursued, not to mention the fact that it is a great political slogan, who wouldn't want a simpler tax code.  This is why politicians advocate for a simpler tax code.  But in reality, the reason the tax code is complex is because life is complex and the tax code reflects those realities.  Fixing the tax code would be a vastly complicated process and finding a way to make the tax code simpler and still work will likely be a difficult goal (which is probably one reason we still have our current tax code).  So when a politician says they want to fix the tax code our response should be: how will you fix it and why will your plan work?

But regardless of how noble a cause fixing our tax system is, whether or not a flat tax is fair is a completely separate debate and should not be lumped together with fixing our tax code.  So next time you hear someone say a flat tax will simplify our tax code just remember a flat tax doesn't simplify the code it just reduces taxes on the rich.

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