The Flat Tax: Too Little Too Soon.

April 15, 2008 8:10 AM by D.W. MacKenzie (Archive)

Mid April is always depressing time of year. The ski season is ending, spring colors have not yet arrived, the pollen count is rising, and above all we must all now "celebrate" Tax Day. Tax day is a miserable time for two reasons: we are made more aware of our tax burden and we come to face the compliance costs of the Income Tax. While it is the case that life has some necessary inconveniences, we should consider how much of our grief on tax day is unavoidable.

Federal taxation will exist so long as there is a Federal government, obviously. There are some proposals to make the Federal Income Tax less onerous. The best-known proposal for reforming the Federal Income Tax is the Forbes Plan. Steve Forbes has proposed a flat and simple tax of seventeen percent. There are several problems with the Forbes proposal.

First, it is not a flat tax in the strict sense, it is a flatter tax. As such, the Forbes tax does not square well with the idea of equality before the law, particularly equality before tax law. Second, the Forbes tax retains unnecessary complexity. The Forbes tax does contain exemptions, albeit fewer than currently exist. Special interest groups will always lobby for more exemptions, and Forbes allows them too much latitude. Third, the Forbes Tax is too high. There is no need for the Federal Government to extract 17% of income from Americans, especially in peacetime. The Forbes's most recent book came out during wartime, but his proposal predate our current situation, and would also apply to American's post Iraq war years.

Forbes type proposals are meant as practical compromises that can pass in the current political climate. Such a compromise reform had some political momentum in the mid 1990's. While there remains some political support for Forbes type of tax, and his plan would be an improvement on the status quo, any effort to pass the Forbes tax is largely in futility. Federal spending is the root cause of our problems with the tax code. So long as Federal spending is at its current and rising levels, the chances for real reform are nonexistent.

Federal spending has exploded during the Bush Administration. While a simpler and flatter tax code would be less onerous, taxes will remain far too high until Federal spending is slashed. Since both major political parties are behind increased Federal spending the political situation does not allow for real tax reform. What we need to do then is to alter the political climate.

If the Forbes Tax were to pass now, it would do so at best in its present weak form, or at worst in a form that differs little from our current tax code. Why waste effort on such marginal reforms? More radical tax reform will require a shift in public opinion. People like Forbes should therefore dispense with advocating watered down compromise plans, and focus on shifting public opinion towards more radical and ideal reforms.

The bad news here is that this will not be the last tax day that Americans endure, at least not in the short run. The good news is that those who value economic efficiency and justice can win over public opinion, given time. We can win this fight because the facts are on our side. The tax code is needlessly complex and high, and Federal spending entails much waste and should be slashed. The Forbes tax offers too little reform, too soon. Let's wait for something better. Better still, let's push for radical reform.

(For more, see Rothbard's Case Against the Flat Tax)