Tag: flat tax

A Flat Tax Is a Fair Tax

 

One of the most contentious political battles of the 2020 election cycle involves the Illinois “Fair Tax” ballot amendment. Supported politically (and financially) by Illinois’s billionaire governor, J. B. Pritzker, the amendment seeks to remove a provision in the Illinois constitution that requires all income taxes to be flat—that is, held at a constant rate regardless of the amount of income earned by any taxpayer. Currently, all income earned in Illinois is taxed at a 4.95 percent rate. The amendment requires a simple majority vote to be passed.

The amendment does not offer any specific progressive rate scale, but allows for increasing tax rates to be applied to successive tiers of a taxpayer’s income. Notably, the initial legislative plan on which the amendment is largely based—and which was proposed by the Democrat-controlled legislature—is a hybrid between a flat and progressive scheme. Most earners would be subject to progressive rate scales starting at 4.75 percent for the first $10,000 of income earned. Then. as income increases, so would the tax rate, maxing out at 7.85 percent. The legislative plan maintains a flat tax for the financial elite: Individuals reporting income above $750,000 and couples with joint incomes above $1,000,000 would pay a 7.95 percent rate from their first dollar.

This change in tax structure is held out as the fairest because it puts onto the rich the burden of shoring up Illinois’s rickety finances. The argument goes that the poorest 20 percent of the public are disproportionately exposed to high state, county, and local sales taxes, which total 10.25 percent in Chicago. This leads to a regressive system overall, where the poor pay an effective tax rate of 14.4 percent, while the top 1 percent pay only 7.4 percent. The obvious rejoinder is that, in total dollars, the rich pay far larger amounts in all taxes, much of which is used for transfer payments from which they do not benefit.

Member Post

 

I need a mental break from preparing my taxes and the usual dread of having to wade through what seems like hundreds of little problems involving old papers filed away somewhere, lost passwords, and kluge software. Partly as an escape and partly out of concern that the whole system is out of control, I have […]

Join Ricochet!

This is a members-only post on Ricochet's Member Feed. Want to read it? Join Ricochet’s community of conservatives and be part of the conversation. Get your first month free.

Richard Epstein grades the Trump Administration’s proposal for tax reform, explains the first principles of effective tax systems, and challenges the notion that progressivity is essential to an equitable tax code.

We Need Flatter Taxes, Cleaner Rules

 

The Trump administration released a thumbnail sketch last week of its much anticipated tax plan, which has generated opposition and support from all the usual suspects. The critics of the plan take the view that the program will generate windfall subsidies for the rich and increase deficits while doing nothing for growth. Its defenders, including Treasury Secretary Steven Mnuchin, claim that the anticipated growth from lower tax rates will override any objections about increasing income inequality.

It is, of course, difficult to make predictions on matters such as economic growth. The overall effect of any tax plan depends not only on the plan itself, but on other government actions, such as spending rates, which have risen inexorably since the end of World War II, and interest rate increases by the Federal Reserve. It puts the cart before the horse to think about growth and deficits before getting the right tax structure into place. Once that is done, the needed response to changes in economic and financial conditions can be handled solely by changes in tax rates. The enhanced stability of the tax structure itself should be positive for growth. And on tax design, the Trump plan offers a mixed bag.

Politics aside, the best tax plan is also the simplest: I have long advocated that the sole source of general revenues should come from a flat tax, preferably on consumption and not income. A consumption tax eliminates the enormous difficulties of separating out capital gains, which are typically taxed at a lower rate, from ordinary income, taxed at a higher rate. If a consumption tax is unattainable politically, a relatively close substitute would be to defer capital gains taxes on any profits that are reinvested in other capital assets. No other forms of ad hoc taxation, such as the notorious medical device tax, should be used to raise general revenues.

Steve Forbes Warns Washington

 

Steve ForbesSteve Forbes warns the Republicans why they are about to lose the House unless… Steve Forbes, Chairman and Editor-in-Chief of Forbes Media sits down with Dave Sussman at Whiskey Politics for a discussion about Free Markets at the home of Libertarian thought, Freedom Fest. Topics include Obamacare, Tax Reform, the border adjustment tax and why “Paul Ryan has been snagged by the Body Snatchers.”

Richard Epstein explains what’s good, what’s bad, and what’s missing in the recent tax reform proposals issued by the Trump Administration.

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.

Is the Flat-tax Going to Become a Key Issue for Social Conservatives?

 

tax exempt statusOn NRO, David French reports that one of the attorneys arguing in favor of gay marriage in the Supreme Court admitted that tax exempt status for institutions that oppose gay marriage “is going to be an issue.” The institution under discussion was colleges — Bob Jones University in particular — but surely this would also become an issue for hospitals and other institutions and charities run by religious orders and eventually even churches, temples and mosques (well, maybe never mosques).

My question is whether we who harbor the definition as marriage as being only between a man and woman (like those who, you know, take Jesus as His word) will soon be considered Constitutional heretics. And if that happens, would we be better off doing away with all of the lawsuits in our future about whether a charity is worthy of tax exempt status by doing away with all such exemptions now? Should we focus on a flat tax which would allow more people to keep more money and be able to than give even more generously to the religious institutions they value?

And as a bonus, no more tax exemption for The Clinton Foundation.