In my ultimate fantasy world, Washington wouldn’t need any sort of broad-based tax because we succeeded in shrinking the federal government back to the very limited size and scope envisioned by our Founding Fathers.
In my more realistic fantasy world, we might not be able to restore constitutional limits on Washington, but at least we could reform the tax code so that revenues were generated in a less destructive fashion.
That’s why I’m a big advocate of a simple and fair flat tax, which has several desirable features.
- The rate is as low as possible, to minimize penalties on productive behavior.
- There’s no double taxation, so no more bias against saving and investment.
- And there are no distorting loopholes that bribe people into inefficient choices.
But there are also sensible people who are hesitant to back fundamental reform.
Consider what Reihan Salam just wrote for National Review. He starts with a reasonably fair description of the proposal.
The original flat tax, championed by the economists Robert Hall and Alvin Rabushka, which formed the basis of Steve Forbes’s flat-tax proposal in 1996, is a single-rate tax on consumption, with a substantial exemption to make the tax progressive at the low end of the household-income distribution.
Though if I want to nit-pick, I could point out that the flat tax has effective progressivity across all incomes because the family-based exemption is available to everyone. As such, a poor household pays nothing. A middle-income household might have an effective tax rate of 12 percent. And the tax rate for Bill Gates would be asymptotically approaching 17 percent (or whatever the statutory rate is).
My far greater concerns arise when Reihan delves into economic analysis.