The Flat Tax: Possibility or Fantasy?

By: Liam Kerr ’19, Inside Politics Participant

If there is one thing to be said of a flat tax proposal, an idea which has gained traction since Steve Forbes’ Presidential campaign 20 years ago, it is that there is definitely an audience out there for it. Many voters in the country agree with this proposal, albeit primarily conservative voters. The flat tax has been used as a platform to try to reach the most conservative wings of the Republican party. “The flat tax enables a candidate to appeal to the party’s most conservative constituents, including libertarians, deficit hawks, and tea party members” during the primaries. However, since the audience for a flat tax proposal is not yet large enough to make it through a general election, it remains a Republican primary ploy.

To illustrate this point, the current presidential contest can be analyzed to see which candidates would be in favor of a flat tax proposal. Rand Paul, Ben Carson, Ted Cruz, Lindsey Graham, and Rick Santorum are the only presidential candidates who support some kind of flat tax. Senator Paul of Kentucky has by far the most detailed flat tax policy, with a proposed flat tax of 14.5% on all ordinary income above 50k/year, as well as a 14.5% corporate tax. A total of zero Democratic candidates have publicly endorsed any kind of flat tax policy, with Senator Bernie Sanders of Vermont even saying “he could back a 90 percent top marginal tax rate”.

The attractiveness of the flat tax proposal most certainly stems from “deep-seated hostility towards Washington and the Internal Revenue Service”. In addition to this, however, is the complexity of the tax code in its current form (over 70,000 pages in length). This is incomprehensible to the average voter, and, likely, to most politicians in Washington. Senator Paul gains much of his support from libertarian-minded voters who love the idea of a flat tax, which they deem to be fair, as it puts the same burden on voters of all economic classes. Paul recently made the news by burning, shredding, and chain-sawing the 70,000 page tax code as a demonstration in support of his flat tax proposal.

While it seems as if there is a lot of support in favor of a flat tax policy, it is important to remember that this has been a recurring theme in conservative platforms for the last several election cycles. With no progress being made, conservatives find themselves wondering if this platform has any likelihood of taking root or if it is being used simply for candidates to gain support.

When evaluating the chances of the United States ever implementing a flat tax policy, politicians most certainly look at the example of countries throughout the world who have already adopted a flat tax. There is no better example of flat tax implementation than eastern European countries such as Macedonia, Slovakia, and Slovenia. These countries have experienced economic growth in recent years, but there is no evidence that this growth would have been greater or lesser if a progressive tax was implemented instead. “Advocates of the flat-rate tax credit it with playing a key role in generating economic growth and foreign investment flows into east-central Europe” but others argue that there is not enough evidence to support this correlation.

The National Center for Policy Analysis (NCPA), a conservative think tank, conducted an analysis of the effects of a 17% flat tax proposal on several sectors of the economy. Three conclusions were drawn from this analysis. The first conclusion was that “Every income group would gain, with the greatest gain in percentage terms (7.6 percent) going to the lowest-income Americans.” Second, the NCPA found “In percentage terms, the gains of the highest income group would be third highest among the six income groups.” Lastly, “the increased economic activity that would result . . . would be so great that government revenues would increase by 1.8 percentage points.”

The findings of the NCPA report will most likely not be tested for many years to come, or never. The chances of a flat-tax implementation in the near future are slim to none. A majority of voters are satisfied with the progressive tax we have now, but most disagreement lies with the percentages of each tax bracket. The advocates of flat-rate tax policy should not be disheartened, as many presidential and congressional candidates have endorsed the idea. Even some democrats across the country support the idea, particularly in state governments which “need a tax base that doesn’t count on a large slice of revenue from taxes on a relatively small number of wealthy residents who can flee the state or who are themselves vulnerable to losing a substantial portion of income in a recession.” This is a fight, however, which will likely continue for many years to come if the frustration with the current tax system carries on.