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MN2020 - Minnesota 2020 Journal: Flat Tax, a Flat-Out Bad Idea
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Minnesota 2020 Journal: Flat Tax, a Flat-Out Bad Idea

October 28, 2011 By John R. Van Hecke, Executive Director & Fellow

If you think a flat tax will improve life in Minnesota, friend, I have a contaminated superfund clean-up site in Arden Hills that I’d like to sell you.

Once again, the flat tax is rearing its simplistic, tempting head. It’s a great deal for a few people and horrible deal for the rest of us. That’s precisely why the flat tax was and is a conservative pet policy project.

Presidential candidate Herman Cain has made much hay recently with his version of a flat tax-based tax reform. But, this is not a new idea. Cain treads ground that many have walked before.

It’s important to recognize the flat tax’s attractive feature. Simplicity. A flat tax rate—everyone pays the same rate, regardless of need, ability, circumstance or capacity—is deceptively seductive. That notion, that everyone pays the same, is rooted in our sense of our American democracy. In fact, it’s about as Jacksonian of an ideal as you can find outside of the 19th century.

We love that idea, that very American sense of presumed equality. If we work hard enough, live frugally, don’t intrude on our neighbors, and keep our noses to the grindstone, we will succeed. Advantage, we believe, should flow from ability rather than systemically preserved wealth and power. The flat tax idea neatly intersects with that concept of fairness and equability.

There’s the rub, however. A flat tax isn’t fair and it is certainly not equitable. But, it is simple.

A true flat tax levies the same tax rate on all eligible payers, making no exception for deductions or exemptions. Cain’s proposal, for example, extends the flat tax ideal to both businesses and individuals. He also adds a third leg to his flat tax stool proposal, a national consumptive, meaning sales, tax. That negates the simplistic fairness beloved by flat taxers but it reveals a key fly in the flat tax ointment; the flat tax won’t remotely generate enough revenue to meet our country’s many financial commitments.

Also, we don’t equally consume community services. Some people realize much greater benefit from public services and infrastructure than others. For example, a trucking firm makes money by delivering goods. In order to do that, they invest in capital assets, labor and other overhead—trucks, drivers, dispatchers, sales staff, rent, supplies, fuel, and insurance. They pay, through fuel and business taxes, only a tiny sliver of the physical infrastructure essential to their business. Without public roads, highways and bridges, Minnesota’s economy would be virtually nonexistent.

Business success and growth is essential to stable community life. Public roads reflect the community’s desire for public exchange and connection. Roads serve all, just not equally. And, that’s ok because we collectively gain great if indirect benefit from a robust transportation infrastructure.

There’s an insidious argument, common among conservative policy advocates and used to attack community services and investments, at play. It’s the idea that every public investment’s benefits must accrue equally. What they really mean is that they don’t want to pay for services and investments that they don’t perceive as directly benefitting themselves. And, they don’t want to pay for the services and investments that they need and value; they want the rest of us to pay more and get less so that they may receive more and pay less.

Welcome to the flat tax.

For most Minnesotans, a flat tax isn’t tax reform or even tax simplification. In truth, a flat tax is tax restructuring, capping tax liability on the very highest income earners while shifting community costs on to the backs of low and middle income earners. The conservative flat tax pitch is the mother of all bait-and-switch proposals. Don’t fall for it. You’re smarter than that.

Progressive taxation is the best, fairest way to fund community services and investments. It’s based on the idea that for those to whom much has been given, much is expected. In other words, as you earn more money, you have a greater responsibility to support the community that facilitated your success. The trucking firm makes a profit by using our shared road system. It’s not their road, singularly, but our road, collectively. In return, everyone benefits.

The flat tax is a bad idea for nearly every Minnesotan. Don’t be tempted. In Greek mythology, the Sirens’ seductive song lured sailors toward certain death on boat-crushing rocks. The modern version is the flat taxer’s insistent wail. Minnesota needs responsible, progressive, fairly-shared fiscal policy. The flat tax is none of those.

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3 Comments:

  • tony says:

    November 1, 2011 at 9:13 am

    To maintain the American Dream society of the 40’s, 50’s, 60’s & 70’ we must maintain a progressive tax system. The middle class does not make enough money to maintain the modern society our parents achieved. We are paying the lowest amount in taxes since 1950, and we wonder why we have a deficit! The wealthy since Reagan have seen their taxes go down. When the top tax rate is 50% or more, we have never had a recession or depression. If you want to return to the glory days of your childhood, the wealthy must pay a larger percentage of taxes as they did then & still did very wekll by the way.

  • wayne says:

    November 2, 2011 at 1:52 pm

    IT IS NOT THAT I DO NOT SEE THAT A FLAT TAX IS NOT FAIR. THE APPEAL OF IT IS THAT IT WOULD PUT EVERYBODY IN THE FIGHT AND MONEY SEEMS TO BE THE ONLY MOTIVATOR TO GET PEOPLE TO PARTICIPATE. IF I PAY NOTHING, WHY SHOULD I PAY ATTENTION TO HOW TAXES GET SPENT ?

  • tony says:

    November 2, 2011 at 3:30 pm

    Who pays no taxes. While some people pay no federal income taxes, they pay payroll taxes & in MN about 17% state & local taxes. Do you pay that large a percentage. If you make more than $11000 a year, you dont. All flat tax proposals being offered will cause increasing deficits, but then they are Repubs. As Dick Cheney said “deficits dont matter..”.