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About a year ago, a company asked me to write a daily blog for them. I told them that I’d never read a blog and had absolutely no idea how to write one but sure, if you want to pay me for it, I’ll give it a shot. It was either my good or bad fortune to start at the beginning of the credit... More
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  • What Constitutes A Good Tax Regime? 0 comments
    Apr 30, 2009 12:22 AM

    Connor Clarke notes today that Arlen Specter is a flat tax supporter and posts an example of what Specter's flat tax return might look like as well as his own thoughts on the flat tax.

    I like the progressive income tax, so I find the flat tax unappealing for moral reasons. But I also find it slightly bizarre that Specter believes the main recommendation for this tax is that it will "dramatically simplify the payment of taxes." Sure, the tax code is complicated and should be made simpler. But that's an ancillary concern. The point of the tax code is to raise revenue efficiently and pursue a variety of desirable social goals (which you can bundle under the heading of fairness). Making sure taxpayers can mail a postcard to the IRS makes a triviality into a fetish.

    I took a look at the Sixteenth Amendment and wasn't surprised to find that there is no mention at all of fairness. Mostly it just enables the government to tax incomes. So it's probably reasonable to assume that fairness came along later when all sorts of things started getting tacked onto the code. A history of all of those bits and pieces of statute might possibly be longer than the code itself (it's currently about 3.4 million words and fills 7500 letter sized pages) but it's probably a pretty safe guess that only a small part consist of fairness as Connor might define it and a very large part consist of favors bought and paid for. Fairness and morality are in short supply within the code.

    Connor is right that a desirable attribute of any tax code it its ability to raise money efficiently. I expect that he did not mean to imply that our current system satisfies that criteria. I Googled around a bit trying to find some defenses of the tax code based on it being an efficient system. I didn't find many advocates.

    The flat tax may or may not be the way to go. Some of its harder edges can be rounded by introducing a bit of progressivity or linking it to payroll tax reform. In all likelihood it stands no chance of becoming the regime of the country simply because everyone sees themselves as being gored and their neighbor as profiting. 

    Let's acknowledge that we have a looming revenue problem. Between things we want the government to do (health care, education and new energy initiatives)  and looming entitlement expenditures there simply isn't enough money in the pipeline. The current tax code is a creaking monstrosity that isn't up to the job. Circumstances are going to force its overhaul or replacement.

    Whatever takes its place is going to have to be much more efficient and, though it might be progressive, it's going to require tapping the real honey pot of revenues -- the middle class. We can try and divine a standard of fairness that most can agree upon and design that into the system but that comes after we make sure it generates enough money. 

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