Ari Fleischer’s Flat Tax

Ari Fleischer‘s WSJ column “It’s Bad for Our Democracy to Exempt Half the Country From Income Taxes” is attracting widespread commentary, mostly along predictable party lines.

While I agree with the basic premises (see, for example, “Class Warfare: Framing the Debate“) I am rather dubious of his actual programmatic prescription:

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays.

Abolishing the separate Social Security and Medicare taxes probably makes sense. He’s right: the idea that these are set-asides rather than simply paid out of general revenues is a fiction.

But, surely, we don’t actually want to have everyone pay taxes based on gross income with “no deductions or credits at all“?

That would be devastating, indeed, for those of us who declare income as sole proprietors of businesses.  While there’s room for quibbling on implementation, it’s almost unfathomable to tax “income” that is paid out for legitimate business expenses.  For many, this would quite literally leave them owing more in tax than they earned.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dave Schuler says:

    In particular it would make retail or wholesale sales difficult if you couldn’t deduct the cost of goods sold.

  2. odograph says:

    You need to back up, and ask how half the country can be so poor? We certainly tax everyone we think we can, and yet half are escaping by being so near poverty?

    Half the population can’t afford to pay taxes?

    1/10th of the population is on food stamps?

    Is that what you’d expect for a vibrant market economy?

    I think we have structural problems of some sort, and the first task is to understand them, something mainstream politicians aren’t really trying to do.

  3. odograph says:

    Shorter: I think there is an unacknowledged problem with income distributions.

  4. Michael says:

    You need to back up, and ask how half the country can be so poor?

    By defining “poor” to mean the lowest-earning half of the country.

    I think there is an unacknowledged problem with income distributions.

    It’s been acknowledged, there just hasn’t been any solution proposed that is acceptable to our social norms.

  5. Comrade Stuck says:

    “It’s Bad for Our Democracy to Exempt Half the Country From Income Taxes”

    I wonder if he includes the Fortune 500 corps who pay a fortune to lawyers to find the kazillion loopholes so they pay little or no income tax.

    And who believes a flat tax wouldn’t spring leaks toward the richest among us? They would soon call it trickle down tax 2.0, or another brainy scheme designed to squeeze the middle and lower classes into herdable entities.

    And as for the sales tax, my guess is Ari might term those unavoidable rabble fees, and not really taxes, as such.

    His flat tax plan is nothing more than a smart bomb built for his side in the prevailing Class War/

    Mr. Joyner is right. There needs to be some progressiveness built in. Not too much to prevent people who work hard from becoming rich, but not to little to punish the inevitable losers in a Capitalist society, lest they fall to the street and become un-consumers. Which would be bad for bidness afterall.

  6. Pete Burgess says:

    Why don’t any of you bring the Fair Tax into your musings?

    Odograph, have you studied it?
    Michael, did you follow my suggestion to read the White Papers on your questions posed a couple of weeks ago?

    Do any of you have any intellectual curiosity about it?

  7. odograph says:

    Hi Pete. To be honest, I think the big shakeups in tax plan are too far off the table for me to even look at. I’m sure that’s frustrating to people who want to bring them on the table ;-), but what can I say. The original purpose of this post, to take the various kinds of tax and lump them as “income” doesn’t really excite me either, for the same reason.

    I’m more interested in what the total tax obligation looks like for people in the various income bands, and if it’s fair. I don’t think that’s a simple question.

  8. odograph says:

    Here (maybe I’ve linked this before):

    Total Effective Tax Rate by Household Quintile, 1979-2005

    Bush’s tax cuts really knocked the effective tax rate down, even as borrowing for a war and etc. The top quintile is the only one even in its historic band.

  9. An Interested Party says:

    It’s so amusing when random conservatives whine about half the country not paying income taxes…as if that means they don’t pay taxes…ask these people if they feel like lucky duckies, what, with payroll and sales taxes, I’m sure they would disagree…

  10. Michael says:

    Michael, did you follow my suggestion to read the White Papers on your questions posed a couple of weeks ago?

    Nope. It turns out, I really didn’t care.

    Do any of you have any intellectual curiosity about it?

    As intellectually stimulating as theoretical tax law is, I somehow found other things to direct my curiosity towards.

  11. mpw280 says:

    He didn’t propose a flat tax, he called for a progressive tax structure that included the bottom half of earners. The idea is that to be concerned one must be affected, ie its OK to raise taxes because I don’t pay any mentality. His major proposal was to tie tax hikes to all levels across the board, so you don’t have a sliding penalty applied to the upper brackets and not affecting the lower brackets.

  12. bill says:

    By no deductions I think he is likely addressing the day to day salary worker. You would still deduct your costs etc as a business. He is just talking about the home interest deduction, kid deduction other misc. type stuff.

  13. Tlaloc says:

    It’s been acknowledged, there just hasn’t been any solution proposed that is acceptable to our social norms.

    You keep increasing taxes on the top end until the inequality stops growing and starts shrinking. Start by adding half a dozen or more tax brackets above the current maximum which starts at a paltry quarter million. Then tax capital gains the same as income. Lastly buff up IRS enforcement and give them incentives to go after the big offenders rather than the little guys.

  14. Tlaloc says:

    Why don’t any of you bring the Fair Tax into your musings?

    Because the last thing we need right now is a more regressive tax structure.

  15. PrahaParrizan says:

    Tlaloc posted 13 April 2009 at 10:54 pm:

    Start by adding half a dozen or more tax brackets above the current maximum which starts at a paltry quarter million. Then tax capital gains the same as income.

    Tlaloc, I agree totally with your proposal to make the income tax schedule more progressive. However, I’m not sure that we should do the same with capital gains. Interest, sure. Dividends, sure. Capital gains, no. Capital gains don’t really represent income. It represents the increase in the value of an asset, which can be driven upward by many things, including just plain inflation. Capital gains needs to be treated as special case, which reflects its true essence as capital itself, not the earnings generated by capital. Worse, we want patient capital, which means that some investors might be leaving their investment in an asset for five, ten or more years, which society wants. Those folks we want to encourage, so capital gains with long time horizons might be rewarded with no capital gains tax. Those speculators who invest for short periods of time (less than a year, say) might pay a premium of multiples of the base tax rate. As a society we don’t want hot money which leads to stupid financial tricks but we do want to reward patient investors.

  16. mpw280 says:

    tlaloc you could just take everything from everybody and see how it goes. Tax the rich and hard working more and see how much more they want to work, there is an economic law for this its called law of diminishing returns. Why work more if it nets me less. Tax code isn’t to bring all down to the lowest common denominator and this country isn’t about reducing all to the lcd, its about hard work will get you ahead in life, to turn that idea into a negative is wrong.

  17. Pete Burgess says:

    Because the last thing we need right now is a more regressive tax structure.

    As usual, someone hasn’t done his homework. Just more intellectual dishonesty.

  18. odograph says:

    Logical rejoinder:

    Noted tax expert Ari Fleischer is back on the case
    Posted by Justin Fox

  19. Bithead says:

    As usual, someone hasn’t done his homework. Just more intellectual dishonesty.

    No shock for that.

    And I must say, I’ve been rather ambivalent about Boortz’s flat tax proposals, much as I’ve come to respect the man in general.

    That said, however, let’s look at the reality of the thing. The current government isn’t about to give up that kind of power… and that’s really what the current tax structure represents; power. A flat tax would certainly eliminate the kind of social redesign that’s always been the darling of the left.

    But perhaps most important of all; Anything that so frightens the left leaning denizens in here must be worth serious consideration.[/snark]

  20. Tlaloc says:

    Tlaloc, I agree totally with your proposal to make the income tax schedule more progressive. However, I’m not sure that we should do the same with capital gains. Interest, sure. Dividends, sure. Capital gains, no. Capital gains don’t really represent income. It represents the increase in the value of an asset, which can be driven upward by many things, including just plain inflation.

    I’d be amenable to an inflation correction. Beyond that though I don’t really see the difference between capital gains and other forms of income except that capital gains you don;t have to actually work for. And yet we tax them less. This clearly promotes the accumulation of wealth by the already wealthy (i.e. those who can afford to leverage their current wealth into things that will bring in capital gains, rather than having to work for a living).

  21. Tlaloc says:

    Tax the rich and hard working more and see how much more they want to work, there is an economic law for this its called law of diminishing returns. Why work more if it nets me less.

    That’s a feature, not a bug. If you somehow get into a position of making a million dollars an hour I really really want to encourage you not to work more than one hour a year. Why? Because I don’t care about productivity so much as equality. Specifically income equality in this case.

    Again why? Because income inequality is a huge engine for a the various bad things (TM) going on right now. Income inequality promotes social instability and irresponsible behavior of the kind we’ve seen at Enron and more recently AIG. To say nothing of the literally deadly behavior of WR Graces and Union Carbides of the world. It is because we have a system where people are allowed to become obscenely wealth compared to the mean that people behave in utterly unscrupulous ways to be obscenely wealthy.

    As long as we promote life as a rat race we’ll never be better than vermin.

    So by all means work less. Maybe read a good book, or spend some time with the family. Take up a hobby or a cause. If my proposed tax structure encourages that over a “grab as much as you can” mentality then I’m proud.

  22. Tlaloc says:

    As usual, someone hasn’t done his homework. Just more intellectual dishonesty.

    *shrug*

    The fair tax is essentially an over glorified sales tax, in other words the most regressive tax there is. Your “intellectual honesty” is neither impressive nor convincing.

    Here’s fact check’s conclusion:

    We found that while there are several good economic arguments for the FairTax, unless you earn more than $200,000 per year, fairness is not one of them.

    fact check

  23. Rick Almeida says:

    Capital gains don’t really represent income. It represents the increase in the value of an asset, which can be driven upward by many things, including just plain inflation.

    But isn’t it the case that a capital gain only occurs when an appreciated asset is sold? That is, an appreciating asset that is simply held does not represent a cap gain, right?

    I think a fundamental issue worth discussing is whether unearned income should be privileged over income earned from work. Personally, I am not so sure.

    I imagine that someone might reply, “Well, that unearned income was earned sometime.” That’s true, but I am not willing to privilege massive intergenerational transfers of wealth over income generated personally by work.

    YMMV.

  24. Pete Burgess says:

    Tlaloc, so you take one aspect of one group’s opinion, effectively rebutted by the Fair Tax people, and conclude the idea is bogus? Glad I don’t work for you. As I said, intellectual dishonesty, or is it laziness?

  25. Tlaloc says:

    Tlaloc, so you take one aspect of one group’s opinion, effectively rebutted by the Fair Tax people, and conclude the idea is bogus?

    I take the conclusion reached by an impartial group, that also matches independent consensual reality, over the pipe dreams of the highly prejudiced people promoting the fair tax. Yep. Sue me.

    Glad I don’t work for you. As I said, intellectual dishonesty, or is it laziness?

    My choice not to humor the kind of people who think the Fair tax is A) better and B) possible is a function of there being entirely too many nutters and not enough hours. Develop me a pill that makes sleep optional and maybe I can slot you in between the 9/11 truthers and the guys who insist the moon landing was faked.

    *kisses*