|
|
Flat Foolishness
Promoters of simple solutions to complicated problems usually light up the ol' free lunch detector. However, mention lower taxes and shutting down the IRS, and true believers are born by the million.
In all but one respect, the term "flat tax" is a catchall for the standard conservative notions of tax reform: progressive brackets are bad, taxation of capital gains and investment income is bad, and especially bad is the double taxation of corporate and dividend income. If only these pernicious features were removed from the IRS code, the economy would race off in unfettered strength.
The income tax is 83 years old, and conservatives have never made the sale.
While liberal redistributionists occasionally grab the pendulum, a center position has controlled tax policy: high income people should pay a higher percentage tax, and without taxes on investment income, no matter how "doubled," many wealthy people would pay no taxes at all.
The flat tax is just the old conservative package in a new suit: "Simple!" cry the promoters. Mr. Forbes and others are pushing the "tax return on a postcard." Steve Forbes would be a phenomenon without the flat tax, but the cherished centerpiece of his campaign sets a fib and fable record even for an election year.
More than a third of American taxpayers already file their returns on post cards, and the rest can't, and shouldn't be allowed to.
In 1994, Americans filed 116,000,000 tax returns. Of those, 18.1 million were 1040EZ, and another 20.5 million were 1040A. I have the impression that most advocates of a flat tax have not seen either of these forms in so long that they don't remember what they look like. The information required for these filings would fit on a couple of medium-sized postcards.
Though Mr. Forbes will not release his returns, it's safe to assume that he has not filed a short form 1040 in his entire taxpaying life. Why? Beyond mere wealth, his affairs are complicated.
In 1994, nearly 16,000,000 taxpayers filed a schedule "C", indicating self-employment of some kind. Though there is some overlap, another 6,000,000 taxpayers filed a schedule "E", necessary for receipt of royalties, ownership of rental property, or participation in a partnership, trust, or "S" corporation. Millions of other taxpayers can't use a short form because of some other unusual income.
What's unusual about income? Nothing, so long as it's plain, old W-2 hourly or salaried income.
All other forms of income have a difficulty summed up in two words: "gross" and "net".
Gross income less expenses equals net income. Gross shoe sales less the cost of the shoes, the rent on the store, and the wages paid to employees equals net income -- maybe 10% at a well-run store. Tax me on the gross receipts at 17% and I'm history.
If I have a house cleaning business on the side (or the front), can I write off the buckets and soap? Can I deduct my car? How about my home office? Can I have a pre-tax retirement account?
While the charlatans of tax reform dismiss all deductions as "shelters", implying some wickedness on the part of the claimants, subtraction of expenses from gross income is central to the concept of being productive. These same charlatans proceed to demonize the IRS for trying in our group behalf to sort valid deduction from evasion.
Flat rates or graduated, you can't multiply rate times income without defining income, and the flat tax offers no progress whatever in the hard side of that equation.
Tune up your detector.
|
