Posted on 11/11/2015 5:23:17 AM PST by Cincinatus' Wife
Any flat tax is a great improvement over our current system, so conservatives shouldn’t quibble over details.
Here's a no-good-deed-goes unpunished story.
Rand Paul has proposed a $2 trillion tax cut over years - arguably the biggest tax reduction in American history. He wants to shave tax rates down to 14.5 percent, the lowest rate since the income tax was introduced a century ago. Ted Cruz has proposed a tax cut nearly as large; his rate is 16 percent. This compares with tax rates that are as high as 42 percent under the current tax code.
Both plans would eliminate the corporate income tax AND the payroll tax. They would also eliminate almost all loopholes in the tax system.
The Tax Foundation estimates that the plans would add about 12 percent to GDP within a decade, which amounts to an extra $2.5 trillion over that period - like adding another California to the economy.
This could be the biggest takedown of our $4 trillion colossal government and Washington, D.C.'s micro-control of the economy in decades. K Street's million-dollar lobbyists would be all but shut down.
If you're a free-marketeer, it sounds like a dream come true, right?
So why are the libertarians at the Cato Institute and other purists on the right attacking the lowest flat-rate tax out there? Dan Mitchell and Chris Edwards, economists at Cato, say the plan will grow government because it is a European-style hidden value-added tax (VAT). "The left's dream is a value-added tax on the middle class," says Mitchell, "so why are advocates of small government helping to advance that awful levy?"
I and others have made the case against a VAT for many years. VATs in Europe have financed the European cradle-to-grave welfare states, with spending zooming to as much as 50 percent of GDP, versus closer to 35 percent in the U.S. VATs have tended to start low and then go higher and higher.
Which brings me back to the Rand Paul and Ted Cruz plans. Both have their origins in a book that Arthur Laffer and I wrote, Return to Prosperity. In it we endorse what we call the "Complete Flat Tax." Under that plan, wages and salaries are taxed at a low flat rate, while on the business side, companies are taxed at a flat rate on their revenues minus their cost of production.
It is a consumption-based tax, and most economists would agree that it uses the proper base for taxing business output. Senators Paul and Cruz call it a net-business-income tax.
Cato calls it a VAT.
Here's how it is different from a VAT. First, Europe's VAT expanded governments because it was an add-on to the existing income- and payroll-tax system. That is what financed the Euro-welfare-state time bomb.
By contrast, the Rand Paul and the Ted Cruz plans - let me shout this again - ELIMINATE the payroll tax and corporate taxes - entirely. The corporate tax is the worst tax ever. It is costly, it is riddled with loopholes that make some companies pay a lot and some pay almost nothing, and it destroys American jobs. The complete flat tax creates millions of jobs.
Skeptics say that the flat business tax is hidden from consumers, and taxes should be visible. That's true. But the current corporate tax is invisible, and so is the payroll tax - especially the half paid by businesses. With electronic paychecks, most workers don't ever see what FICA takes from their check. So this is no less transparent than what we have now. Perhaps we need to find ways to make the tax more visible to consumers, as Senator Cruz is proposing.
Opponents also say that the business tax is such a big revenue generator that politicians will start increasing rates by a point or two at a time to raise a vault of dollars to fund more government programs. Sure, but the same danger arises under every flat-tax plan. There is no way to prevent the rate from being raised later. At least the Rand Paul plan requires the votes of 60 percent of Congress to raise taxes later.
Cato has long been an admirer of a Steve Forbes/Dick Armey flat tax, which also replaces the corporate tax with a form of VAT. (I worked for Dick Armey back in the mid-1990s and had a hand in that tax-reform plan, too. It’s a very good tax plan - we are comparing a Ferrari with a Porsche here.) The only major difference is that the Paul and Cruz plans require businesses to pay the tax on worker payrolls, while the Forbes/Armey plan retains the current payroll-tax structure.
There are two advantages to taxing employee costs at the business level. First, since all wages are taxed under the complete flat tax, there is no cap, as under the current FICA tax. This means that the effective tax rate on wages and salaries is flat, whereas under the Forbes/Armey plan, a worker who earns $100,000 pays a higher marginal tax rate than a worker who earns a million dollars. So the distributional impact across income groups is more evenly - and I would argue, fairly - distributed under the complete flat tax.
Second, and this is crucial: The Paul and Cruz plans tax imports at the low rate and don't tax exports. So for manufacturing workers and Trump voters, this plan is a big jobs producer here at home. Our current tax system perversely taxes what we produce, but not what we import. That's dumb policy and even worse politics. Republicans can win middle-class union voters by persuading them that the complete flat tax is a GATT-legal tariff on all goods and services imported into the United States, and no tax on what they produce for export - just as a national sales tax accomplishes the same thing. That's huge for Trump voters.
Then there is the argument by some folks at American Enterprise Institute, and National Review's Ramesh Ponnuru, that the Paul and Cruz plans will cause inflation. Really? A $2 trillion tax cut will be inflationary? That's what the Left warned about the Reagan tax cuts. Instead we had the biggest cut in inflation ever. The flat tax increases production of goods and services, which reduces inflation. Duh.
There are probably about a dozen different ways to craft a flat tax, everything from the 9-9-9 plan devised by Herman Cain to the national sales tax to the Paul and Cruz plans. They are variations on the same theme, and conservatives should be for whichever one of them is politically most salable and can pass. A circular firing squad on the right by those who only want their plan is counterproductive.
The "my way or the highway" mentality benefits only the Left - and the politicians, accountants, lawyers, lobbyists, and redistributionists who want to strangle tax reform altogether.
Stephen Moore is an economic consultant with Freedom Works and co-founder of the Committee to Unleash Prosperity.
How about just putting in a flat tax without changing other elements, like adding VAT. Just set the rate accordingly.
The best thing about a flat tax is that everyone pays. Right now, there’s no skin off half of America’s teeth when new spending is introduced - as far as they’re concerned, someone else is paying for it.
The immediate change to the poor’s income can be ameliorated by charity, since higher taxed folks will now have more cash.
Perfect is the enemy of good.
By holding out for “perfect”, some more modest plans are overlooked or discarded before even a fair trial has been given to the concept.
But putting a leash on the IRS has an appeal almost impossible to resist.
The trick is for someone to put on that leash. Or maybe the IRS should be killed altogether, and only a direct assessment be paid into the Federal government by all parties for whom there is an interest.
Consumption tax or whatever, but keep away from layers and layers of obfuscation and hiding of taxes.
Just make sure they stop thinking about EXCEPTIONS or EXEMPTIONS to every tax plan.
Te democraps will be fighting themselves over who will promise the biggest increase in exemptions each election year.
Like the STUPID “FAIR”TAX (30% of everythign you buy???)
The ‘pre-bate’ is the biggest monstrosity of that stupid idea- every democrap on the planet will be promising ever-increasing ‘prebate’ every election.
Lower the stupid rate from 30%, STOP USING the insane ‘tax-inclusive’ calculation, and get rid of the pre-bate, and you’ve got something. A national sales tax of 10% across the board would be idea.
Along with a balanced budget amendment- they can ONLY spend what they take in, and any year there is a deficit then ALL members of congress become ineligible for re-election.
“Perfect is the enemy of good.”
Good reminder.
I would get rid of the IRS. But then I would use all those tax attorneys and accountants to go through the entire budget to find additional savings. Give each of them a few pages and they can make edits online which would then be reviewed and sent to congress for approval. Any change that gets put into law, the creator of the change gets a bonus.
It has been shown that ALL of ther proposed tax plans, from Carter forward, have proven one thing.
Congress has never been taken to task to cut the spending, and here is why.
For all of my years in the military/government, each fiscal year has been balanced against the spending of the last quarter of the last year. Should all the year’s funding be exhausted, or have reached the edge of exhaustion, before the last quarter, the logic was to increase the next year’s funding, by the percentage near or over that exhaustion amount.
Saying that, any tax plan that is ‘pro-rated’ over time, to reduce the tax burden, in the light of the provided example, means no tax relief at all.
I suggest, (since the notion of doing away with the IRS has been made public last night), since the sitting president has set the precedent for the exercise of executive orders unchallenged, an executive order to order the cessation of the IRS, and release of all those employees of their contracts, in THAT agency, by deletion of their positions, thereby disallowing any federal R.I.F. procedures, within a 90- to 120-day window. The deletion of positions precludes any litigation to regain a previous employment status, since there is no ‘personnel slot’ to regain.
“Flat-Tax Plans: All Are Good, None Are Perfect “
And none will ever happen because too many politicians and crony capitolists are invested in the massive tax code. It provides both punishment and preference, depending on who is in control.
It isn’t going anywhere, nor is the IRS.
Promises of getting rid of them is just pie-in-the-sky pandering to a segment of the population. Pandering politicians have been promising reform every presidential election cycle at least since the 1970s.
It might also go a long way toward helping wean the poor off some of their nastier habits.
Don’t care about tax rates, method of collection...any of that. Just eliminate all the loopholes! THAT’S how you start to attack crony capitalism, as practiced in Washington, DC
That would be a start. Sadly, it probably would have a "nimby" problem.
That gets my vote.
Flat Tax, YES! Kill the IRS and it’s thug intimidating agents. VAT, NO! That would kill high end products and the companies that make them. And a VAT can be raised by any Congress that determines they want more money.
I would keep a small cadre of residual IRS employees to go after those ex-employees who are delinquent on their taxes under the old rules. If need be, jail ‘em!
A flat tax is still an income tax. It does nothing to resolve the politics of which groups are exempt & which are not. There is nothing to prevent exemptions, deductions, & loopholes from being added to the tax, probably the day after such a tax is implemented. The IRS will still be in the wallet of every person, business, & group. They can still take your home or business.
A sales tax eliminates all of the above.
Politicians are loathe to end the income tax because it is a major vehicle in the government control of individuals. It allows the government to spy on us all. The taxpayer is overwhelmingly disadvantaged in tax disputes with the government. The opportunity for partisan political tyranny at the IRS is now obvious.
I am disappointed in Ted Cruz for advocating for a continuation of the IRS tyranny with a flat income tax. Surely he must know that it will NOT abolish the IRS, but merely make their tax auditing easier, giving them more time to play politics with taxpayers, political & religious groups.
Would you vote for a candidate who promises to raise your income taxes to a point considerably higher than they are now? If not then why should the half of the Americans who are going to see their taxes up be any different?
I will never support a flat tax, never, because it will keep increasing and the other taxes in spite of what they promise, will never go away and will increase too.
I haven’t read any comments yet but someone will say, “everybody will have skin in the game”
Pipe dream, it will never, ever happen. There will be some form of “E.I.T.C.” for the “poor”. Same with a V.A.T. The protected classes will always get back more than they pay in.
It would take an overwhelmingly conservative congress, president and Supreme Court to change those facts.
The only "protected classes" should be those who are incapable of caring for themselves through no fault of their own. None of this phony "disease" stuff for destructive behaviors (alcohol or drug abuse, gambling addiction, etc.) and workfare to replace welfare.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.