Conservatives Must Learn the Language of Tax Reform
Thomas Jefferson said "a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouths of labor the bread it has earned." Against this backdrop the 100 year old federal income tax code contains 73,954 pages of special interest gobbledygook. This juxtaposition tells us something is seriously out of alignment in America. It's time for honest discussion on reforming our income tax system with a Flat Tax.
Enter Reihan Salam of National Review. Writing: The Flat Tax: Questionable Economics, Bad Politics, Salam at best distorts the English language and at worse offers a false narrative of the Flat Tax misusing economics and elevating politics over principles of property.
The two main tax reform ideas are generally called the "Flat Tax" and the "Fair Tax." Both are different in design. So when Salam's calls the Flat Tax a "flat consumption tax" he muddies the waters from the start. The proposed Flat Tax is actually a proportional income tax that would replace the current progressive rate income tax. The "flat consumption tax" is actually called the Fair Tax.
With a flat tax all income earners pay the same federal income tax rate percentage. For example, if the flat tax rate was 15%, a wage earner of $30,000 a year would pay 15% or $4500 in income taxes while an income earner of $90,000 a year would also pay 15% or $13,500 in taxes. Both people are treated with equal dignity and worth, while the person earning more pays more. This simple system meets the ability to pay principle and is aligned with the main criteria of taxes: equity, simplicity, and efficiency.
The Fair Tax is an entirely different proposal. It ends income taxes in favor of a national sales tax. It is truly a consumption tax because it is paid at the point of purchase by consumers who are in the act of, you got it, consuming. To have any justification, or unless you want Uncle Sam to have the power for both taxes, the Fair Tax would have to do abolish the 16th Amendment which authorized a national income tax in 1913. In contrast, current tax law would only need to be altered to implement a Flat Tax.
Mr. Salam says the Flat Tax would be "highly regressive" and filled with "exemptions." But if a Flat Tax was initiated correctly, exemptions and loopholes would end. Regressive taxes by definition have the least able paying more than the most able. To say a flat proportional tax is regressive is just disingenuous.
The only regressive argument with a flat tax comes from those currently in the bottom 50% of income earners who now only pay 3% of federal income taxes. It's hypocritical when half of Americans who pay virtually no income taxes, and do not want to pay any tax, have the audacity to argue that the "rich" ought to pay their "fair share." The real regress should come from the top 50% of Americans that are footing the entire government bill so 100% of Americans can benefit.
It's ironic how we hear the left champion the victimized and disenfranchised while waxing poetic about "equality" and people paying their "fair share" when they need votes. But these same charlatans ignore their words when it comes to actually practicing what they preach among the voters they claim to respect.
Salam worries the government would not raise as much revenue after tax reform and speculates on its impact to "lower and middle income households." But focusing on how much the government "needs" first and then building tax policy to match is backwards. Taxation must conform to the burden on citizens who freely decide to offer up a portion of their hard earned wealth to pay for the government services that protect their property and allow for the free market to operate efficiently.
And "cutting capital-income taxation as part of a revenue-neutral reform would require offsetting increases in labor-income taxation" is an issue that only applies to the Fair Tax. More importantly, why does tax reform have to be "revenue neutral?" That argument favors government size, scope, and power over freedom, liberty, and equity. In the end, the tax balance that needs to be achieved is to give the state what it needs to protect you and your property while at the same time protecting you and your property from the state.
Salam goes on to state "there is some dispute over whether ending the double taxation of savings would yield significant growth dividends." Again he confuses the Flat Tax with the Fair Tax. The Flat Tax would not eliminate taxation on any form of income such as capital gains unless a separate law was passed that repealed the tax on investment income. We will leave the merits of that question for another day.
Lastly, Salam seems to be more concerned about politics than principle. He says "the flat tax has broad appeal that extends across income groups." But then states it is "problematic" because "two-thirds of voters consistently favor higher taxes on upper-income households" because the misconception "that upper-income households pay less in taxes than middle-income households." So instead of simply explaining the Flat Tax to the general public and using the truth as actual justification for its merits, it is seen as "problematic."
Why? Because he fears; "one can imagine Republicans making an effort to disabuse voters of the notion that upper-income households pay less in taxes than middle-income households do'...when opponents of the flat tax will point out that it will greatly reduce the tax burden on (say) people like Mitt Romney." In short, because liberals will lie and call conservatives names, defending the Flat Tax is not worth the hassle. So much for standing up for principles our nation has spilled blood defending.
Tax policy should focus on economic growth which will create more than enough compensation for government to perform its duties. Taxation should place the least restrictive burden on all taxpayers equally, be easy to understand, and be collected efficiently. There is no more sacred duty than to transfer wealth from property owner to government with respect and honor.
While Salam does a good job at pointing out some of the issues regarding the Fair Tax on consumption; his rhetorical confusion and focus on political fears does little to advance the Flat Tax. The problem is this leads to only one outcome. The left will use Salam's words to undermine tax reform efforts. The end result, a 3.8 million word tax code is legitimized while we ignore nine words spoken by Chief Justice John Marshall: The power to tax is the power to destroy.
