How about a flat tax?

In 1940 the instructions to the Form 1040 were about four pages. Today they are more than 100 pages, and the form itself contains more than 10 schedules and more than 20 worksheets. The complete tax code totals about 2.8 million words – about four times longer than "War and Peace" (and considerably harder to parse).

That is from a New York Times Op-Ed.  And Andrew Sullivan has been pushing for a flat tax. 

My comments:

1. In a sufficiently wealthy or sufficiently egalitarian society, a flat tax is a no-brainer.  Distributional dilemmas are the main obstacle, whether in reality or the public perception.

2. Much of the complexity of the U.S. tax system stems from the definition of income; the simplification benefits from moving to a single flat rate, while real, are often overrated.  A VAT can be complex as well.

3. If I were spending political capital on reforming a tax system, I would sooner push for a more favorable treatment of capital income.  Similarly, if we were sacrificing revenue or fairness, my priority would again point toward capital income.

The bottom line: My ideal tax system has two or three rates, with slight progressivity.  I would keep the tax privileges of non-profits, but otherwise be reluctant to use the tax system for social engineering.  So I favor a "not quite flat tax."  Tax simplification is worth doing, whether or not it is linked to pure flatness of rates.  That being said, flat tax advocacy remains a good way to hold politicians’ feet to the fire.  All tax systems are too complicated, and moves toward simplification are rarely a mistake.

Addendum: Bruce Bartlett summarizes some tax reform ideas.


Comments for this post are closed