Flatter Will Get You Nowhere

On Friday, USA Today published an editorial by Dick Armey, who is now "chairman of Citizens for a Sound Economy, a group dedicated to lower taxes", entitled Simplify Tax System. The editorial makes many good points, although it omits some important facts. The tax code is absurdly complex, and gets worse every year. The alternative minimum tax (AMT) was not intended to apply to the middle class, and it should be adjusted for inflation. Reforms should be implemented to reduce tax shelters which protect some of the extremely wealthy from paying a fair share of taxes. Increasing the powers of the IRS may raise more money, but there is a definite cost to law-abiding taxpayers likely to get swept up in new random audit programs.

At the same time, while Armey asserts that the wealthiest 1% of the country pays a third of federal income taxes, he neglects to mention that they also control approximately forty percent of the nation's wealth, and that as the middle class has seen the real dollar value of their wages decline the wealthiest of the wealthy have seen substantial real dollar increases in their income and assets. It is not per se unreasonable that the population that owns more than a third of the nation should pay a third of the nation's income taxes.

Also, while Armey laments the AMT, he subsequently argues that the tax system should be made "flatter". While nominally this "flattening" of the tax rate would be to ensure that wealthy tax dodgers pay some taxes - the goal the AMT was originally created to achieve - Armey neglects to mention that the AMT has the very effect he supposedly desires. It creates a "flatter" tax system to help reduce the effect of tax loopholes otherwise expolited by the wealthy.

So what does Dick Armey mean when he concludes that "the federal government should stop hounding honest taxpayers and instead replace the tax code with a system that is flat, fair and simple"? Does he mean that a flat tax is automatically more fair than a progressive tax system? Obviously, a theoretical tax code that is customized to the specific circumstances of each individual tax payer, while absurdly complex, could be far more fair than a flat tax. Does he mean that a simple tax system is always more fair than a complex system? While obviously a flat tax is simple, and may reflexively seem more "fair" than having higher marginal tax rates for the wealthy, most "flat tax" proposals are unabashed efforts to shift a greater tax burden onto the poor and middle class.

Given the concern Armey expresses about the fact that the middle class is being affected by the AMT, his own comments suggest that he doesn't want a flatter tax system unless it places an additional burden on the poor. When the CME proposes "a simple flat tax of one low rate with no deductions or special interest loopholes" - that is, the elimination of those tax benefits which most affect the middle class (deductions for dependents, deductions of mortgage interest), is it truly being sincere that it wants a fairer system for everyone? They propose a 17% flat tax - who is going to make up for the gargantuan 50% tax cut they propose for the wealthiest of the wealthy, whether through higher federal taxes, higher state taxes, or direct payment through services government can no longer afford to offer? Quite obviously, the middle class.

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