Tuesday, November 15, 2011

As a reminder: flat taxes don't simplify anything

If you go to conferences and talk about tax, and especially about the complexity of international tax, then as likely as not some bright spark will accost you afterwards and say 'isn't the answer to this complexity to have a flat tax system?' (To which the correct response is to roll the eyes.) Well, as a reminder of some of the argument, look at this from Alan Blinder of Princeton University, writing in the Wall Street Journal:
The flat tax is typically marketed as a way to achieve drastic tax simplification—something virtually everyone favors, at least in the abstract. But what a flat tax would actually achieve is a drastic reduction in tax progressivity.

Let's start with simplicity, and with the frank admission that both the U.S. personal and corporate income taxes are disgracefully complicated messes. Throw any insult at them you wish; they probably deserve it. ... Many useful steps could be taken to simplify the personal income tax. But, contrary to much misleading rhetoric, flattening the rate structure isn't one of them. The truth is that 100% of the complexity inheres in the definition of taxable income, which takes up millions of words in the tax laws. None inheres in the progressive rate structure."
Yes, quite. Read more here.

And more on flat taxes here and here.


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