Arguments For Flat Taxes Are Universally Bad

Ben Carson is pushing the idea of a flat tax again, this time at CPAC. Conservatives like flat taxes because, relative to the status quo, they take from the poor and give to the rich, one of their chief policy goals. Smart people recognize that you cannot analyze the justness of tax rates in a vacuum to begin with because doing so assumes "pretax" income (which is a myth anyways) has any moral significance when it doesn't.

But even if we play along, flat taxes still do not make any sense. To see why, consider the following three tax approaches:

  1. Head Tax. Under this tax, everyone pays an equal dollar amount of taxes each year, e.g. $8,000, no matter what their income is.
  2. Flat Tax. Under this tax, everyone pays an equal percentage of their income in taxes each year, e.g. 20 percent, no matter what their income is.
  3. Progressive Tax. Under this tax, everyone's effective tax rate increases as their income goes up. So a poor person might pay 10 percent and a rich person 35 percent, for instance.

Flat tax advocates are opposed to head taxes and progressive taxes. But their opposition to those types of taxes runs into an amusing problem. All of the arguments they provide against the progressive tax in favor of the flat tax can also be provided against the flat tax in favor of the head tax. All of the arguments they might provide against the head tax in favor of the flat tax also cut against the flat tax in favor of the progressive tax. So flat tax advocates, even within their own corrupt way of thinking about tax justice, find themselves in an argumentative no-man's land.

Simplicity

Consider the argument that says "flat taxes are better than progressive taxes because they are simpler." This sentence is true, though only by a narrow margin (progressive rates aren't that complicated and are not the source of our tax code's currently complexity). When it comes to simplicity though, clearly head taxes are better than flat taxes. With flat taxes, you have to account for all your income in a given year and then multiply that income by a particular percentage. That's much more complicated than just paying a flat dollar amount, which does not require you to keep track of your income or do any multiplication either. If the head tax is $8,000, you pay $8,000, no matter your income. Simplicity points us to the head tax, not the flat tax.

Punishing Success

Consider the argument that says "flat taxes are better than progressive taxes because progressive taxes punish success." This argument objects to the fact that under progressive taxes, people have to pay more taxes just because they made more money. But that's true of flat taxes as well. Under a 10 percent flat tax, someone making $10,000 pays $1,000 in taxes and someone making $1,000,000 pays $100,000 in taxes. The richer person is paying $99,000 more taxes purely because he or she made more money. You know what doesn't punish success though? The head tax. If the head tax is $8,000, everyone pays $8,000, people making $1k and $1mil alike. The desire to avoid punishing success points us to the head tax, not the flat tax.

Unfair to the Poor

Why would it be wrong to assess a head tax? This is not something that comes up very often because nobody really thinks about it. But I would imagine a flat tax advocate would say first and foremost that a head tax is really damaging to those with low-incomes. After all, paying $8,000 of your income in taxes when your income is only $10,000 is much more damaging than if your income is $100,000. It is therefore unfair to the poor to assess a tax that way.

This argument dooms the flat tax too though. Due to the diminishing marginal utility of money, a 10% flat tax reduces the well-being of those with low incomes more than it reduces the well-being of those with high incomes. Just as taxing flat dollar amounts imparts more disutility to those with less income, so too does taxing flat rates. If you are worried about fairness (defined as equal disutility burdens), you want the progressive tax.

Revenue

I also could imagine a flat tax advocate remarking that the problem with a head tax is that it just cannot generate an adequate amount of revenue. Since everyone is being made to pay an equal amount, you have to keep that amount really low, else you will immiserate the poor, many of whom wont be able to pay the tax. A flat tax is therefore better because it allows us to generate more revenue before we hit the point where it would just be prohibitive to tax any more.

But as with the fairness concerns, the revenue concern is actually going to be a winner for progressive taxes. Just as you hit some dollar amount in the head tax beyond which it would be essentially impossible to tax more, you also hit some flat rate where that is also true. Poor people cannot afford to pay, for instance, 20 percent of their income in taxes. Introducing progressive rates therefore expands your tax capacity more than flat taxes. So the revenue capacity point cuts for progressive taxes.

Conclusion

I could probably go on, but it's really just the same story again and again. Flat tax arguments against progressive taxes actually generate the conclusion that we should have head taxes. Flat tax arguments against head taxes actually generate the conclusion that we should have progressive taxes. There is no argument that actually provides support for the flat tax position. Flat taxes are uniquely unjustifiable, and that's even within the unjustifiable nonsense that acts like you can analyze taxes in a vacuum to begin with. It's impressive really.

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