Tags: Blinder | Flat | Tax

Blinder: Flat Tax Is Folly

Monday, 14 Nov 2011 08:05 AM

Economist Alan Blinder says a flat tax is extremely unlikely to eliminate the biggest deductions and exclusions, and flatter rates alone won't make the tax system any simpler.

"The flat tax is typically marketed as a way to achieve drastic tax simplification — something virtually everyone favors, at least in the abstract," Blinder writes in The Wall Street Journal. "But what a flat tax would actually achieve is a drastic reduction in tax progressivity."

Many useful steps could be taken to simplify the personal income tax, says Blinder, but flattening the rate structure isn't one of them.
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"The truth is that 100 percent of the complexity inheres in the definition of taxable income, which takes up millions of words in the tax laws," he says. "None inheres in the progressive rate structure."

"If you don't believe that, consider the fact that the corporate income tax is virtually flat once a corporation passes a paltry $75,000 in taxable income. Is it simple?"

Once they have figured out their taxable incomes, most taxpayers just look up their tax bill on an IRS-provided table, notes Blinder. Those with incomes above $100,000 must perform a simple calculation that involves multiplying two numbers together and adding a third.

"A flat tax with an exemption would require precisely the same sort of calculation," Blinder says. "The net reduction in complexity? Zero."

Moreover, Blinder says, though flat tax advocates claim it's unfair that 47 percent of American households pay no federal income tax at all, such is not actually the case.

“These alleged "freeloaders" don't get off the taxpaying hook; they pay payroll taxes, sales taxes and many others,” Blinder says.

“The income tax and the estate tax are virtually the only progressive elements in our tax system. If you take away progressivity there, precious little remains.”

The New York Times reports that the government deficit panel has asked to be allowed to decide the amount of new revenue to be raised but leave filling in the details to the tax-writing committees of Congress until next year, well beyond the Nov. 23 deadline for the panel itself to reach an agreement.

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Economist Alan Blinder says a flat tax is extremely unlikely to eliminate the biggest deductions and exclusions, and flatter rates alone won't make the tax system any simpler. The flat tax is typically marketed as a way to achieve drastic tax simplification something...
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Monday, 14 Nov 2011 08:05 AM
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