It’s a bit past 6:30pm here on the east coast, and I’m listening to Marketplace on the local NPR station. Presumably because it’s April 15th, they have some lunatic from the Cato Institute going on about how we should switch to a flat tax.
The idea is that rather than the crazy system of variable tax rates, exemptions, loopholes, massive paperwork that we currently have, we should switch to a tax system wherein everyone is taxed at the same rate across the board. Sounds great, right? Who wouldn’t like to be able to say, “Here’s how much I made last year,” and know exactly what the tax on that amount would be, without having to resort to 18 forms and an HP graphing calculator? It’s so simple! And fair!
There are all sorts of arguments against such a system, but it seems to me that at its most basic, this is yet another case of over-reliance on common sense, combined with people’s inability to comprehend very large numbers. It’s easy to look at the current tax code and say, “That’s ridiculous—it could be so much simpler. All we’d have to do is…” But is it easy? In a country of 300 million people who make their money in all sorts of different ways, how do we not end up with a crazy, complicated system? In theory, a progressive income tax is a pretty simple idea, but then people start coming up with all sorts of exceptions, deductions, incentives, etc., every one of which, on its own, seems like a perfectly good and legitimate idea. The accumulation of all these good ideas, however, results in the horribly bloated monster that we have today.
So, my question is, if you take something simple like a flat tax and try to apply it to a country the size of the United States, how do you not end up with the same giant, complicated mess? Except for the libertarian nutjobs who want to get rid of taxes entirely, even most propenents of alternative tax schemes nearly always admit that one or two variations needs to be added into their “simple” plan—a baseline deduction, exemptions for education expenses, mortgages, or whatever. My point is that these changes aren’t going to stop with the one or two—they are going to keep piling up, and soon enough, your simple, straightfoward flat tax plan is going to look just like the one we have now.