The Flat Tax "Simplicity" Hoax

Taxes have been an issue during the recent weeks of the presidential campaign. For this reason, I want dispel at least one tax myth that has always irritated me. What ever else might be said in its favor, a flat tax is not simpler than a progressive tax.

To see this, the following four definitions will be useful.

Flat Tax: A system taxing all income at the same rate;

Progressive Tax: A system taxing higher levels of income at higher rates;

Pure Tax: A system taxing all income without allowing for exceptions, deductions, and/or credits (unrelated to actual payments);

Impure Tax: A system (1) exempting some income from taxation, (2) allowing deductions to one’s taxable income, and (3) offering tax credits for certain sorts of behavior.

Currently we have an “impure progressive” federal income tax, i.e., we have a tax structure involving exemptions, deductions, and credits in which higher levels of income are taxed at higher rates. However, the complexity of our system arises entirely from its impurities. It arises from our need to factor in the exemptions and deductions to determine our taxable income. Further complexity arises from the need to identify and assert any applicable credits and add them to our prepaid taxes to determine how much tax we have already paid.

To the contrary, no complexity arises out of the progressivity of our tax rates. That is because progressivity is built into the tax schedules. Once we know what our taxable income is, we simply look up our tax liability in the schedule. What could be simpler than that? And once we know how much tax payment we should be credited for (via employer withdrawals and applicable credits), we merely subtract that amount from our total tax liability. Simple Simon!

What flat tax proponents fail to see (or mention) is that a “pure progressive” tax would be just as simple a “pure flat” tax. They argue as if our only option were to institute a pure “flat tax.” But because the flatness contributes nothing to the simplicity, those concerned about simplicity should be indifferent between the “pure progressive” and “pure flat” tax structures.

Of course, they are not indifferent. This suggests that all the talk about the flat tax allowing us to “fill out our tax returns on a post card” is a smokescreen for arguments that are more difficult to defend.

Joe H.