Rick Perry and the False Appeal of the 'Flat Tax'
Why is Rick Perry boasting a plan that lowers the rich's taxes when most of us want to raise them? It's all in the vague phrasing of "flat tax."
Rick Perry unveiled his flat tax plan in The Wall Street Journal this morning, calling for an "optional" 20 percent tax across the board and a temporary corporate tax of 5.25 percent. Some of us instantly understand that this means the richest Americans, who currently pay a historic low of 30 percent on their incomes, will opt to pay even less. Considering nearly seven in 10 people, including a majority of Republicans, approve of raising taxes on the rich, this may seem counterintuitive. Why would someone running for president peddle a plan that's so unpopular, even within his own party?
It's all in the phrasing. Ask someone how the rich should be taxed, and 68 percent will agree that wealthy families making more than $250,000 should step up their contribution. But ask them if they'd be in favor of a flat tax, and you may get a different answer. Pollsters haven't explored this question in a while, but in 2004, a full 40 percent of Americans "didn't know enough to have an opinion."
Can you blame them? The language is quite vague and, without more information, sounds ideal. Granted, the last person to run on a flat-tax platform was Steve Forbes in 1996 and 2000, and that didn't go over too well. But these are different times, when every politician is touting the language of "shared sacrifice." And this is a mainstream candidate with millions of dollars behind him. It may be harder to argue with a concept that has "equality" embedded in its meaning, and Perry's pitch of "filing your taxes on a postcard" sure does sound inviting. Even some liberals may have trouble explaining why a progressive tax code is better than the same rate for everybody, especially when conservatives liken the idea to the "FairTax" proposal (there's a good explainer on the difference here). Virtually no deductions, no brackets, no estate tax, capital gains tax, or dividends tax. The same rate for all. Simple, right?
Not quite. A flat tax conveniently ignores a few societal dynamics that aren't immediately obvious. First, the poor pay a higher percentage of their income on consumption—things they buy and use right away—and therefore a disproportionate amount of sales tax. The rich, on the other hand, use a bigger proportion of their money for savings and assets—their cars, their houses, their mutual funds. A progressive income tax balances this out. Perry's flat tax also excludes the taxing of capital gains. A large chunk of wealthy Americans' money is made not through income, but through investments, which are taxed at a lower level than income as it is. Rick Perry's flat tax would reduce this rate to zero, making the rich even richer.
Perry is also boasting the plan's simplicity, but complicated tax codes exist for a reason. Our current tax system includes beneficial policies like the EITC for low- to middle-income workers, as well as health insurance and charity deductions. These rules may be more confusing, but they help out a huge number of people and encourage positive behavior.
Most importantly, a flat tax would drastically reduce the federal government's revenue by hundreds of billions of dollars, which would lead to deep cuts in everything from infrastructure to entitlement programs. Who would be hurt by this the most? The middle and working class, of course.
At bottom, this is a philosophical issue: A progressive tax code is anti-greed. It means that if you're rich, you need to take on more responsibility for the society who nurtured you into a successful person. It challenges the assumption that we should all have a proportional stake in the government; as Elizabeth Warren explained, the rich have a special obligation to pay their wealth forward so success will be possible for "the next kid."
The idea that a progressive tax code benefits everyone is supported by history. Just look at the tax codes of the 1950s and 1960s, when the tax rate maxed out at 90 percent and the number of middle-class Americans was at an all-time high. Meanwhile, there is no evidence that cutting the rich's taxes creates jobs or improves the economy in the long run. Distribution of wealth is good not only for the disadvantaged, but for society as a whole.
Perry's introduction of a flat tax is likely a way to impress conservative primary voters, and distinguish himself from the more moderate Mitt Romney (who, despite professing his "love" of flat taxes, hasn't advocated for further reducing the rich's tax burden). It doesn't mean Perry's proposal—or Herman Cain's 9-9-9 plan—will get very far with the rest of America. But as the primaries approach, let's hope the 57 percent of Republicans who are in favor of taxing millionaires aren't lured by the phrase's false logic.