Tuesday, March 24, 2015

Unicorns and Centaurs

Matt O'Brien dismantles the flat tax, which Ted Cruz promised to campaign on:
You may say Ted Cruz is a dreamer, but he's not the only one. He hopes some day—especially if you live in Iowa—you'll join him, and, well, he'll be president. That, at least, was the message during his announcement, oddly redolent of John Lennon, that he's officially seeking the highest office in the land. It was a conservative wish list to not only repeal the 21st century, but the 20th, too. About the only thing missing was a call to bring back the gold standard, although Cruz pretty much has that covered now that he's joined Rand Paul's crusade to curb the Federal Reserve.
Now it isn't easy to single any of this out as particularly unrealistic—that's like asking whether unicorns or centaurs are more real—but the flat tax might be it. That's the idea that everyone should pay the same tax rate. It's been the white whale for conservatives who not only want to go back to pre-New Deal levels of taxation, but also think this would super-charge the economy. Steve Forbes, for one, made this the centerpiece of his two presidential campaigns, and says that instead of the 2 to 2.5 percent growth we've gotten, a flat tax would make economic growth would explode up 6 percent the first few years and 3.5 percent thereafter.
But reality is a lot tougher than some tax models. A flat tax would just be a colossal giveaway to the rich—and maybe even take away for the poor—and that doesn't help the economy much. Just look, for example, at Rick Perry's version of this. The nonpartisan Tax Policy Center found that, on average, it would have raised taxes on the bottom 40 percent between $150 and $450, at the same time as it slashed them for the top 0.1 percent by $1.5 million. Or, in percentage terms, that's a 1.5 percent tax hike on the bottom 40 and a 27 percent tax cut for the top 0.1. In all, 34.2 percent of the money would go to the top 0.1, 62.2 percent to the top 1, and 86.6 percent to the top 5 percent.
 Now, I know, I know, that the lower the top tax rate is, the more top earners should work and invest, and the more growth there should be to, yes, trickle down to everyone else. And if you believe that, then this is the plan for you, since it cuts taxes about as much as you can for the rich. But then you probably do believe in unicorns and centaurs—because the evidence says that this theory isn't true.
Well, if this is the kind of reaction a Ted Cruz candidacy is going to bring out, thank God he's running.  That is, as long as he (or any other Republican, for that matter) doesn't actually win.  That would be a disaster for the country.  But the flat tax just won't die amongst people who would get screwed under it.  I tried to explain to my neighbors (while I was fueled by numerous beers) why the flat tax would screw them and most everybody they knew, but they weren't having it.  They were sure it would be better for them.  Damn, math is hard to explain sometimes.

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