Satyagraha

Cultural Psychology

Flat Tax

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Let’s continue to hammer away at one of the core problems with the current presidential race: Republicans and Democrats are both part of the status quo; part of the System that wants to keep people distracted, divided, oppressed, and afraid. They want to keep attention away from ideas that would promote real reform in America.

One of these ideas is the flat tax. This would vastly simplify tax laws by having all people pay a constant tax rate, say, 15% or 20%, regardless of income. Proponents argue that this would increase tax revenue, despite lowering tax rates by: (1) increasing compliance; and (2) stimulating economic growth.

Opponents object mainly based on social equity arguments. As this is the main criticism, it needs to be addressed squarely. Here’s a statement of the objection with an unusually clear rejoinder, adapted from the Wikipedia article on flat tax:

Inequality

Social democrats in particular oppose flat tax plans since they believe they weaken the redistributive effect of progressive taxation. Even with overall economic growth, tax-rate disparity is seen as undesirable, as it may be linked to poorer health, higher crime rates, and more social unrest among the poor.

However, proponents argue that this does not consider the effects of the sizable exemptions included in most flat tax proposals. Further it is possible to envision a scenario in which all parties are better off under a flat tax than without, despite inequality; in this case, according to utility theory, the flat tax scenario dominates the status quo (meaning it is preferred in all cases); the ‘inequity’ becomes a mere abstract consideration, as contrasted with the tangible economic benefit achieved by each individual. This assumes, of course, that there is not some third alternative which benefits each individual in a more equitable way.

In short, let’s put the argument this way:

  • Under Plan A, Bill Gates lives in a nice house and I live in a hut.
  • Under Plan B, Bill Gates gets a $20 million mansion and I get a nice house.
  • There is no Plan C.

I’m much better off under Plan B. It should be irrelevant to me if Bill Gates gets a mansion; I ought to grateful to get a nice house. In fact, it would be completely irrational to reject the plan only because Bill Gates gets a mansion; that would be ‘cutting off my nose to spite my face.’ People do unfortunately tend to think that way, because envy is such a strong emotion. But if you think like that the price you pay is to keep living in a hut!

In any case, the flat tax is just an example. Whether you agree or disagree, the fact is that this is an important possibility. It clearly demonstrates: (1) that there are good ideas out there, ones we should be actively considering, and (2) how the media and main political parties collude to keep important and positive reform ideas like this off the radar screen.  Don’t let them.

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Written by John Uebersax

February 15, 2008 at 10:45 am

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