The flat tax has been on America’s political radar for some time. Steve Forbes popularized the idea in the 1990s and even one version of Jerry Brown supported a flat tax. Today, support for a flat tax is on the rise and with good reasons – both economic and political.
From an economic point of view, replacing our current income tax code with a flat tax (a code based on minimal deductions and a single tax rate under 17% regardless of income) for individuals and businesses would produce a huge economic boom. Keep in mind that we have had four, significant prior income tax rate reductions in our history – in the 1920s, the 1960s, the 1980s and the early 2000s.
Each time those reductions were enacted in a period of economic stagnation or decline. Each time the increased economic incentives of lower rates played the key role in the ensuing economic turnaround. With those increased incentives came increased incomes - and not coincidentally - each time federal tax revenues rose – by 61% in the 1920s, by 62% in the 1960s, by 98% in the 1980s and over $700 billion after the final rate reductions in 2003.
Today, after 40 years of growing government, huge increases in local, state and federal regulations; and increases in local, state and federal taxes and fees – not to mention unprecedented government debt – our economy limps along and labor force participation is at historic lows.
Our economy doesn’t need tinkering – we need a course correction. A flat tax would provide a huge jolt to the economy. It would also provide consumers with the income and the confidence they need to start spending again.
That is, in part, the economic case for a flat tax. However, now there may be an even more compelling societal reason for the flat tax.
As I write about in my new book, The Divided Era, our income tax code is among the most divisive policies we have in America today.
It is well known that approximately half of Americans today pay income tax and half do not. In a republic or democracy, we could not design a more divisive system of taxation.
Many of our politicians use taxes as their sharpest class warfare weapon. Hillary has gone so far as to say she wants to “topple” the top 1%. She believes that will get her votes. Franklin Delano Roosevelt made a similar political calculation when he surmised his party would net “at least 10,000,000” votes by publicly going after those he didn’t think were paying their fair share.
No society, however, has benefitted from class warfare - let alone the poor. Not a single one. Opportunistic politicians yes, society no.
Ask yourself what benefit it has produced in America today – or consider the failed revolutions of history that have destroyed wealth and redistributed poverty – most of which started with class warfare.
Pitting one part of society against another with the tax code only produces resentment. That resentment is growing in America today and plays a role in the riots we see.
On top of that, distrust of the IRS is growing today. The IRS scandal shouldn’t be surprising given that our annotated tax code is more than 70,000 pages long and the basic code contains more than one million words. That leaves a lot of room for interpretation or for government to be abusive.
It also should be obvious that having a tax code that is that many pages long isn’t about collecting tax revenues, it’s about collecting political favors – yet another major political competition that divides us.
The political or societal case for the flat tax comes down to ending much of that abuse, reducing the power of the IRS and ending the use of government policy to foment class warfare.
Those economic and political reasons are why I support a flat tax in my run for the U.S. Senate from California in 2016. But I am not the only one. In a Reason-Rupe poll last year, 62% of Americans favored a flat tax at 15%. In other words, most Americans prefer the wisdom of a simplified code.
For all of those reasons, the time has come for a flat tax. Before the next politician uses tax policy to tear us apart, let’s instead follow the basic wisdom of Americans. The time for the flat tax has come - and it is not a moment too soon.
