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A Flat Tax Truth We Need to Tell
Kevin Williamson makes the case for killing the corporate income tax. I have argued the same thing. Now as an additional part of KW’s radical tax reform, he would “institute a flat tax on all income, salary, bonuses, capital gains, inheritance, gifts, dividends, whatever.” Then he tells a truth that many flat tax advocates and supply-siders shy away from:
If you’re a deficit-hawk like me, you’ll want to see that one flat rate set high enough to cover what government actually spends every year. And there’s the poison pill: A real flat tax would necessarily mean a very large tax increase on the American middle class. The middle income quintile currently pays around 13 percent per year in real federal income taxes (here I’m combining the income tax and the payroll tax). Figure on doubling that, more or less, if you want a truly flat tax that funds what government actually spends.
But that’s not really so bad in the long run, either: There’s no way that the United States will keep up its currently level of welfare-state spending (Social Security, Medicare, Medicaid, welfare per se, etc.) without either a large tax increase on the American middle class or crushing debt and eventual fiscal chaos.
And here’s me with a similar take on some hard budget realities.
Published in Economics
The government (and every little part of it) is a monster – it WILL eat every thing that it needs to survive. The number of our reps and senators who are willing to starve any significant part of this government is exceedingly small.
Woe is us!
I’ve been hearing that all my life, and I’m over 40. When is it going to happen?
The best way to “fairly” tax corporations is to allow for immidiate (100%) deductions for any capital expenditures and to eliminate double taxation of dividends, making them the same as an loan expense.
And reduce the rate to something like 10-20% like in the rest of the world.
What most people don’t get about Cruz’s tax proposal is that the don’t-call-it-a-VAT tax mixes a basically dollar-for-dollar replacement of payroll taxes (SS and Medicare) in with a 16% corporate income tax. The tax is on all revenues less capital expenditures and cost of goods. If you break out the portion of the tax on employee compensation it is essentially the same tax base as the current corporate income tax except it immediately expenses all capital expenditures and doesn’t all a few small deductions like interest expenses.
The business expense that Cruz’s tax hits hardest (relative to our current system) is employee compensation that doesn’t currently get hit by SS and Medicare (i.e. non-cash benefits and unearned income like bonuses). For wages currently taxed under SS and Medicare the difference in tax rate is less than 1%. However, paired with a low flat tax most people will come out a head except for those whose compensation is dominated by things like employer provided healthcare.
We crossed the rubicon a couple years ago. We are tipping into the recessionary deflation that occurs before the unwind/chaos.
Think of the videos on YouTube right before the tsunami in Thailand. The tourists are transfixed on the beach as the tide rushes out. That is where we are now.
I thought “starving the beast” was some knucklehead’s obviously incorrect characterization of supply-side tax policy (possibly David Stockman’s).
A Flat Tax and a balanced budget amendment won’t happen in DC. The inability to monkey with the tax code and the inability to overspend would lead to unacceptable limits on the graft, kickbacks and corruption available to fatten up the wallets of legislators.
I disagree with the proposed remedies.
Government is always the effect, never the cause, of the condition of a self-governing people.
Its elements–lawmakers, law, officers, policies, regulations, judges, precedents–can never be the cause of a deadly illness in a self-governing people. Therefore, changing them can never be a cure.
Rather, for them government isn’t a cause acting on them from outside, to be repulsed from within. It is purely an effect, the effect of the character of their current generation: spiritual, moral, and intellectual.
If one wishes to cure a self-governing society one must cure its education. Cure the process by which it propagates its faith, piety, virtue, and wisdom to its children.
I’m 53, and I’ve heard it too, but even paranoids sometimes have real enemies. And sometimes the doomsayers are right. In this case, it is easy to tell because the difference now is that the Federal Reserve cannot raise interest rates to anything close to historic norms without adding catastrophically to our debt payments. So it’s got to keep the easy money going even though it will eventually result in systemic collapse. That’s crushing debt.
You don’t need tax restructuring to make this happen.
The number of reps and senators who are willing to starve any insignificant part of this government is just as small. Sure you could start small, but then it could become a habit, and nobody wants that.