The Current Irrelevance Of A Flat Tax

Carol Matlack reports on the recent move away from flat taxes in the Czech Republic, Slovakia and Bulgaria:

The lesson: Flat taxes seem to work pretty well when an economy is growing—but not so well when it is stagnant or shrinking. Across Central and Eastern Europe, “every country is in need of more revenue because of debt and public deficits,” says Andreas Peichl, a senior research associate at the IZA think tank in Bonn, Germany. “There is a feeling that the crisis has affected poorer people more than the rich and that the rich should contribute more. But that is not easy to do if you only have one tax rate.”

Given the extremes of inequality we are now facing – and likely to intensify as technology cuts yet another swathe through entire industries that sustain a middle class – I have to say I am pragmatically against such a tax now, even though I have consistently supported one in the past. I’m only flip-flopping, I hope, in the best way. A flat tax remains theoretically and symbolically deeply attractive to me. I still believe that penalizing people for succeeding in our economy is unjust to those individuals. But in our current contingency of accelerating inequality, a flat tax would be socially destructive.

And a true conservative seeks to avoid social destruction more than he enshrines ideological purity (which is why I really have no love, and a lot of distaste, for the current GOP). Nonetheless, we clearly, desperately need simpler taxation. And surely that is one area of potential compromise for both the GOP and the president, if the GOP hangs on in the House.

You would have to make it revenue neutral at first. But taking not a scalpel but a sledge-hammer to deductions, especially corporate welfare, could finally create a tax code that is comprehensible to most citizens.

It is deeply damaging to our core democratic legitimacy that the average citizen has no hope of understanding the tax code. If we cannot understand it, we cannot truly monitor it. And thereby lies one root of profound distrust of government, of the way in which powerful interests, like Apple, can find ways to avoid tax, while the struggling middle class has no way out. Yes, we need new revenue. Desperately. But if the actual politics prevent it, why not the next best thing: radical tax simplification. Some may argue that this could ultimately hurt the Democrats’ leverage for more revenue. So be it. We have four years of what could be stalemate – and this framework could unite sane people in both parties to make our tax regime comprehensible, reduce the income of lobbyists, and restore a sense that the game is not rigged. Those are important – close to indispensable – elements of a functioning democracy.