THE tax may be flat but the argument isn't.
It's an attractive idea: Scrap today's intricate income tax
system and replace it with a flat rate that applies to all income
above a certain amount. Figure your taxes on a postcard. April 15
might no longer be a national day of dread.
Businessman Steve Forbes has ridden his 17 percent flat-tax
proposal to second place in some GOP presidential nomination polls.
A commission led by former Housing Secretary Jack Kemp has said
kind words about the flat-tax concept.
The problem is that a flat tax might increase the tax burden on
the American middle class. And unless the rate is substantially
higher than 17 percent, a flat tax would likely increase the
deficit, at least at first.
"Economically speaking, the flat tax makes a great deal of
sense. But at the rates people are talking about, some
middle-income people are certain to pay more tax," says J.D.
Foster, chief economist at the Tax Foundation, a Washington think
Flat Tax Stirs Debate Over Middle-Class Wallets
The flat tax isn't exactly a new political idea. It's
experienced Washington boomlets before, most recently in the early
1980s, and has long been a favorite idea of maverick Democrat Jerry
Brown, former governor of California.
But this year's race for the GOP presidential nomination has
pushed the flat tax to prominent new heights. Along with Mr.
Forbes, Sen. Phil Gramm has produced a flat-tax proposal. So has
commentator Pat Buchanan. Sen. Richard Lugar is pushing a
national-sales tax as his version of sweeping tax reform.
The flat tax's virtues, say proponents, are many. First is
simplicity - filling out a Form 1040 would no longer require the
math skills of an accountant and the patience of Job. This aspect
appeals to many voters. A recent Boston Globe poll found that 54
percent of Republicans supported flat-tax implementation. Forbes,
the candidate most identified with the flat tax, is the choice of
17 percent of New Hampshire GOP voters, according to the same
survey, second to Sen. Bob Dole and his rating of 33 percent.
But to economists, a primary virtue of a flat tax is that it
might be economically neutral. In other words, all those deductions
and exemptions that distort economic activity would disappear. And
by lowering the top marginal rates, a flat tax might unleash a
burst of business activity powered by newly available capital.
The problems lie in flat-tax details. Seemingly small variations
in the way a flat tax is designed end up having huge economic and
political consequences. As a result, prospective GOP nominees are
already squabbling among themselves about the effects of each
other's tax-reform plans, raising issues of fairness and class
division with all the avidity of 1930s labor activists. …