Saturday, April 16, 2005

Flat Taxes

The Economist has two articles about the flat tax this week. Between the two of them, I have been convinced that, if we must have income taxes at all, we should have a flat tax. My personal view of taxes is simple: if you want more of something, you subsidize it, if you want less of something, you tax it. Why then are we taxing income, profits, dividends, etc. We want all of those. What we should tax are things that we don't want, such as pollution. Anyway, these two arguments made the case for me: first, that it is so simple. Individuals wouldn't have to fill out tax forms at all. The IRS would send a form to WalMart saying, take the total payroll expense for this year, subtract $xx,xxx times # of employees (based on, for example, 2,000 hours a year). Multiply by xx% and send the check to us. Thus WalMart would prepare the tax form for all of their employees, and it wouldn't take them very long either. Plus, it wouldn't be hard to process all the forms.

Second, that progressive taxes are not progressive. Those with a good deal of money are also those with a good deal of political power (remember, correlation does not equal causation), and thus the tax system becomes flat by the creation endless loopholes, tax shelters, etc. So, in effect, we have a flat tax with the inefficiencies of a progressive, complicated tax code, instead of having a flat tax that's simple.


Blogger Noumenon said...

I thought the VAT came out of the articles pretty well. I've been swayed by the same incentives argument you posted toward thinking we should tax consumption instead of income.

Do you think Wal-Mart would run a withholding system just like the present one, or would taxes become invisible, like the employer portion of the Social Security tax?

12:36 AM  
Blogger Octavo Dia said...

The VAT seems to fail for the same reason that progressive income taxes fail--it's just so darn complicated. It does have the advantage over the income tax, however, of being invisible.

I've wondered about the employer portion of Social Security. It would seem to me that an employer would try to highlight how much they are actually paying--"Look your gross income is actually much higher! We want to pay you that, but the government takes it away."

5:07 AM  

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