Replace Progressive Taxes with a Flat Rate for All
Fein, Bruce, Insight on the News
Rep. Dick Armey, Texas Republican and the House Majority Leader-designate for the 104th Congress, deserves applause for his proposed legislation to enhance the fairness of government concurrent with a boost to economic growth.
Styled as the Freedom and Fairness Restoration Act, the bill would target income taxes, spending and regulatory laws that penalize the most productive and enterprising members of society -- and indulge the unambitious, indolent and inert.
That skewing is not only morally wrong but also morally backward. Its persistence since the New Deal is ascribable to the politics of envy and an egalitarian ethic intolerant of genius and aristocracy of merit.
The Armey legislation would establish a flat income-tax rate of 17 percent on all income. A personal exemption of $13,100 would be authorized for a single person; $17,200 for a single head of household; and $26,200 for a married couple filing jointly. Those exemptions would be augmented by $5,300 for each dependent of the taxpayer. Thus, a married couple with two children would escape any income tax until earnings exceeded $36,800. Earnings derived from savings, such as interest or dividends, would be untaxed because the investment sums would have been taxed previously as income.
Business owners also would pay a flat tax rate on net income. The business tax base would be gross revenue less purchases of goods and services, capital equipment, structures, land and employee wages. Fringe benefits, interest and payments to business owners would be nondeductible.
A flat federal income-tax rate would be no curio. Indeed, flat taxes are more the norm than the exception in tax codes, such as sales, excise and property levies. Federal income taxes initially were flat; but progressive rates crept into the system to enable spend-thrift politicians to raise more revenues while losing a minimum number of votes. Thus, at present, the top 1 percent of all income earners pay approximately 30 percent of all federal income taxes, while the bottom 50 percent of taxpayers contribute a paltry 5 percent of income tax revenues.
Those disparities are morally outrageous. The highest earners deserve the greatest societal kudos. Their activities satisfy more wants of their fellow citizens than does the labor of low-income individuals. The proof is that consumers are voluntarily willing to pay more for goods and services of high-income earners.
In other words, the more an individual satisfies the demands of others, the more income; altruism and avarice converge in free-market economies. As Adam Smith cogently observed in The Wealth of Nations, an individual pursuing his own gain promotes social ends that are not part of his intention. He amplified: "I have never known much good done by those who affected to trade for the public good. …