Economics Politics

A Liberal’s Flat Tax

This is one of those posts where I should start with the caveat, “I’m no expert.”

But it seems to me that progressives and liberals should embrace the idea of a flat tax. Much of the tax debate we have in America today revolves around the charge that liberals and progressives are “redistributing wealth,”  targeting the rich, engaging in class warfare, and otherwise penalizing success. Americans tend to look at the tax issue aspirationally. Joe the Plumber, perhaps, is the most famous example. He criticized Obama for wanting to penalize his success, but he actually would do far better under the Obama plan than under the McCain plan. If his business had thrived, he was able to buy another company to double the size of his, and he was able to maintain enough ownership of the total business, then he might have done slightly better under McCain than Obama. But he saw Obama as taxing the guy he wanted to be – and he was incensed. Part of the reason Joe the Plumber was able to attract such a following with his passionate denunciations of “socialism” and the “redistributionist in chief” was the confusing and complicated nature of our tax code which allowed him and many like him to think they were or might soon be penalized for their successes. With an understandable tax code, it’s unlikely Joe’s cause would have resonated.

The bottom line is: our national debate on taxes is distorted by our complicated and confusing tax code. These distortions mainly work in favor of special interests who want their tax benefits preserved and right-wingers who use these confusions to sow doubt about the efficacy of government and who exactly is being taxed.

Which is why liberals should embrace the flat tax.

I’m not saying we should get rid of any progressive tax structure. Rather, we can design a progressive flat tax. 

What would this look like? 

The simple structure would be this: a flat 40% tax on everyone. Then give fixed dollar amount deductions. In other words, a deduction for a child credit would be $2,000 whether you make $25,000 or $250,000. The guy making $25,000 would pay $8,000 in taxes instead of $10,000 making his effective rate 32%. A woman making $250,000 would pay $98,000 instead of $100,000, making her effective tax rate 39.2%. The system could start out approximating our current tax system in terms of who is paying what, but when the math is clearer, it makes for a more fair system and a more honest debate.