Rick Perry's Flat Tax Snake Oil

Don't trust the Texas governor's new tax plan.

Rick Perry lies like a rug.

Last week he floated a flat-tax proposal that, he says, would make life simpler for taxpayers. That's a snake-oil pitch if ever there was one.

When he unveiled his scheme, Perry took a postcard out of his pocket and called it the "best representation" of his plan. "Taxpayers will be able to fill this out and file their taxes on that," he said. Under Perry's plan, the flat rate for everyone would be 20 percent—unless you want to stick with the current tax plan, which he would allow. That's a pretty big complication right there. To find out which system you're better off using, you would have to calculate not one set of tax returns but two. Only then would you be in a position to choose which way to file.

But that's a side issue. Here's the real problem. Taxes are not complicated because it's hard to multiply your taxable income by X percent. (Heck, the IRS even does the math for you.) Taxes are complicated because of everything leading up to that final calculation.

Perry's proposal maintains personal exemptions, as well as deductions for mortgage interest, charitable contributions, and state and local taxes. The sample tax return on his website makes it look as though all you have to do is plug in the figure for each of those categories, subtract them from your gross income to arrive at your taxable income, and then multiply that figure by 20 percent. Easy as pie, right?

Wrong. Anyone who has filled out an IRS return knows there is much more to it than that. Documentation, for starters. If you claim you gave $5,000 to charity, you had better be able to prove it.

Even that is fairly straightforward. The really complicated question is how much you received in income in the first place. Some people collect one paycheck and nothing else. But many Americans have money coming in half a dozen ways. That's where things get hairy fast:

Did you collect any interest last year—and if so, was it taxable or tax-exempt? Did you receive any dividends? If so, where's your Form 1099-DIV? Did you collect alimony or jury-duty pay? Did you make any money from tips? (Allocated tips should be shown in box 8 of your W-2. See Pub. 531 for more details.) Renting out your basement? That's income—see Schedule C. But note that improvements to the property can be depreciated using the modified accelerated cost recovery system. Are you a student? Scholarship money used for tuition does not count as income, but scholarship money for room and board does. Do you run a business out of your home? If the business percentage of an indirect expense is different from the percentage on line 7 of Form 8829, enter only the business part of the expense on the appropriate line in column (a). . . .

It's true that the tax code is cluttered up with a lot special favors for particular industries, groups and causes. But as the preceding paragraph indicates, much of its complexity arises from the fact that modern life itself is highly complex.

There's really only one way to make federal taxes so simple you could file them on a postcard: Replace the income tax with a capitation tax—i.e., a head tax. Under a head tax, people don't pay a flat percentage regardless of income. Rather, everybody pays the same dollar amount. Now that's really flat.

Of course, a capitation tax would create a whole new basket of problems. There's the social-justice angle, for one; even conservative Republicans generally think the rich should pay more. It's also difficult in a practical sense. In 2010, Washington collected about $900 billion in federal income taxes. To raise a similar amount from a capitation tax, every U.S. resident would have to pay $3,000. That would create a real hardship for, say, working-poor couples with children. On the other hand, if the capitation tax were set low enough so everyone could afford it, then we would have to learn to do without a few things: the Department of Defense. Medicare. Medicaid. Little things like that.

But you really could fill out your taxes on a postcard. Still, it's doubtful even a wild man like Perry would try to sell the public on that idea. He may be dumb, but he ain't crazy.

A. Barton Hinkle is a columnist at the Richmond Times-Dispatch. This column originally appeared at the Richmond Times-Dispatch.

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  • CE||

    There's really only one way to make federal taxes so simple you could file them on a postcard: Replace the income tax with a capitation tax—i.e., a head tax. Under a head tax, people don't pay a flat percentage regardless of income. Rather, everybody pays the same dollar amount. Now that's really flat.

    And fair. In fact, we could call it The Fair Tax.

    On the other hand, if the capitation tax were set low enough so everyone could afford it, then we would have to learn to do without a few things: the Department of Defense. Medicare. Medicaid. Little things like that.

    Sounds good to me.

  • ||

    The easiest way to collect taxes is to let retailers do it for us.

  • White Indian||

    Social engineering to reduce consumption, eh?

    Only at Reason.

  • CE||

    An even easier way is to let people send them in voluntarily. Or not.

  • ||

    Replace the income tax with a capitation tax—i.e., a head tax. Under a head tax, people don't pay a flat percentage regardless of income. Rather, everybody pays the same dollar amount. Now that's really flat.

    Yeah! A poll tax! One man, one vote, one tax.

  • CE||

    Or take it a step farther, and you get 1 vote for every 10,000 you pay in taxes.

  • anon||

    Yet another Reason article that neglects to even mention the well researched FairTax and instead proposes terrible ideas that continue to promote class warfare.

  • Barely Suppressed Rage||

    When you have time, maybe you should read the entire article. This time have your reading comprehension turned on.

  • anon||

    A head tax is not the FairTax. FairTax is a consumption tax.

  • Barely Suppressed Rage||

    I was referring to your statement that the article proposed a head tax. If you read what Bart actually was saying, he was not actually, legitimately "proposing" a head tax.

  • CE||

    Yet another Reason article that neglects to even mention the well researched FairTaxand instead proposes, another terrible ideas that continues to promote class warfare.

    Fixed.

  • ||

    Easiest income tax is to treat all income as the same. Capital gains, interest, dividends, rent, wages, gambling winnings, whatever. Then have a three tier progressive tax like the Simpson Boweles without decuctions.
    I would also get rid of the Corporate income tax. Worst. Tax. Ever.

  • Barely Suppressed Rage||

    But... but... CORPORAYSHUNS IS EEEEEEVIL!!

  • ||

    Of course they are. They are so evil they get the consumers to pay the tax.

  • George V||

    I sure hope that you plan to index capital gains to inflation.

  • Wesley||

    I would also get rid of the Corporate income tax. Worst. Tax. Ever.
    I don't know about that. I think corporate income tax (and the double-taxation that results) is a reasonably fair trade for limited liability protection. Corporate income taxes should be lowered to the point that they are competitive with the rest of the world, but that's far from saying that they're the Worst.Tax.Ever. (That's the death tax.)

  • Colonel_Angus||

    Taxing businesses is stupid because presumably individual people are making money off the business- owners, investors, AND employees. Why not just tax their income as income instead of having another damn layer of taxation?

    Limited liability just means the investors who provide capital should not be held liable for the mistakes that the organization makes, beyond whatever they have already invested. The people who actually make decisions (who sometimes are also investors) can still be held civilly or criminally liable when they fuck up. If the investors' returns are getting taxed as income anyway, how are they NOT making a "fair trade" for limited liability? And why should their be a "fair trade" for something that makes logical sense anyway?

  • Colonel_Angus||

    Why would you need the progressive brackets?

    And some things should account for inflation.

  • ||

    I can't (emotionally) get away from the marginal utility of money. If you're making $20,000.00 that $5000.00 has more utility than the $25,000.00 of someone making $100,000.00 assuming a 25% flat tax rate.

    As to capital gains indexing for inflation it adds to much complication and will have to be incorporated into the risk profile of the investor. It will also force the politicians to focus on not increasing the money supply.

    The estate tax is double taxation as well as the corporate income tax so yes both stink.

  • BRM||

    If you care about the poor and the working class at all, you can not support corporate income taxes. They simply transfer the cost of the tax from the the IRS collectors to the consumers who buy their products and services and pay the IRS in the process.

  • ||

    I wonder if we could go to a single tax? However it was done, just one thing gets taxed, and the pool is divvied up by the various levels of government. No deductions or exemptions.

    It could just be on income, though I'm concerned about the government continuing to get paid more than once on the same dollars.

  • anon||

    See, you don't understand. We want all those additional taxes so that those filthy stinking rich capitalist pigs are forced to pay their fair share. Of course, if we only levied a single tax, everyone would realize how retarded the taxes on the rich actually are, and we wouldn't be able to collect as much!

  • ||

    You're right. I'll turn myself in for mutuality training. Again.

  • cynical||

    May as well do LVT if you're going to do that.

    But really, given that there is so much argument about the moral and economic aspects of taxation, I feel like the best system is just for the feds to send a bill to each state (proportional to its electoral college votes), and let the laboratories of democracy figure out the best tax system.

  • cynical||

    Of course, you don't really need a tax system -- you can make a system where people make legally binding pledges of payment that are contingent on raising a certain overall amount; it's non-coercive, but prevents free-riding in a way that a simple donation model does not.

  • ||

    I wonder if we could finance the whole thing--pared down to something sane, of course--with taxes solely on sex and recreational drugs?

  • Sam||

    If an individual has to pay at all (the federal government ran just fine before the income tax) than truly the most fair tax would be the "head tax" mentioned.

    Do people use government services in quantities proportional to their incomes? On average I'd assume that number would be opposite, i.e. the lower an individual's income, the more government services they use.

  • Barely Suppressed Rage||

    Depends on which government services you're talking about, and how you quantify an individual's "use" of them.

  • ||

    Do people use government services in quantities proportional to their incomes? On average I'd assume that number would be opposite, i.e. the lower an individual's income, the more government services they use.

    It's hard to say. If you count infrastructure like roads and public airwaves and the like, a person who owns a big business probably benefits more than your average lower-income person from government expenditures of tax revenue. After all, I use the road to the store to get to the store, but the store owner uses it to get all his/her customers to the store. So a "head tax" isn't so fair in that situation it seems. Also, the US Military has long been used to force open or maintain markets for our corporations (not that there's anything wrong with that, though there might be). Certainly an owner of such a corporation benefits from that more than any one individual consumer, by millions in some cases (and remember we are talking about individual taxation).

    Or at least someone could argue along such lines. I don't pretend to know the answer. Although it does seem that almost all of the proposals to simplify the tax code would greatly benefit those who need the least benefit. Not that that's relevant.

  • freeforall||

    Eliminate all taxes.

    To fund the government, make elected officials pay a monthly fee in order to keep their job.

  • anon||

    On a serious note, this would only allow the wealthy to occupy office, effectively creating an oligarchy where the rich create laws to keep themselves in power.

  • freeforall||

    And how is this different than what we have now?

    I did post this in jest, but if we removed the government's power to tax, it might be enough of a transfer of power so that the government would essentially become insignificant which would open up more opportunities for individuals.

  • smz||

    unlike now

  • ||

    Logic dictates that there is a basic average worth of government on all levels. Let's just call it X.

    Simply change voting on the value of X you pay in taxes.

    If you only pay .75% of X, then your vote only counts as a 3/4 vote. If you are rich and pay 5*X, your vote counts as five votes.

    Interested in decreasing the power of the wealthy in politics? Cut their taxes.

  • Governor Gran Capillose||

    Interested in decreasing the power of the wealthy in politics? Cut their taxes

    This is like "interested in lessening corporate control of governance? Deregulate." It would be greeted with derisive laughter. Then they would read the story of Mattel using their own fuck up (along with extensive and expensive lobbying) to regulate small toy makers out of business, and claim we need more regulation. DERPHERP MOAR COMMITEES PLZ

  • Governor Gran Capillose||

    ...corporate control of government...

  • Colonel_Angus||

    As taxation approaches infinity, X approaches 0.

  • anonymous commenter some guy||

    How about this? People pay based on the government services they use.

    Capitation tax to cover defense and such.

    Excise taxes to cover everything else. Want the government to recognize your contract? Pay the contract tax. Want the government to save you when you "accidentally" hike into Iran? Pay the overseas rescue insurance tax. Etc.

  • Old Mexican||

    It's true that the tax code is cluttered up with a lot special favors for particular industries, groups and causes. But as the preceding paragraph indicates, much of its complexity arises from the fact that modern life itself is highly complex.


    Or it arises from the fact that nobody can define what "income" means.

  • Geoism||

    A tax on land value is economically efficient, fair and equitable; and that it can generate sufficient revenue so that other taxes, which are less fair and efficient (such as taxes on production, sales and income), can be reduced or eliminated. A tax on land value has been described by many as a progressive tax, since it would be paid primarily by the wealthy, and would reduce income inequality.

    Georgism
    https://secure.wikimedia.org/wikipedia/en/wiki/Georgism

    One's labor, wages, and the products of labor should not be taxed.

    Geolibertarianism
    https://secure.wikimedia.org/wikipedia/en/wiki/Geolibertarianism

  • Colonel_Angus||

    What happens when poor people find their property surrounded by yuppie "gentrification"?

    Fuck all forms of property taxation.

  • TJ||

    That and the retired. If someone manages to go into retitrement debt free, then property tax means that they're renting their home back from the government.

  • Old Mexican||

    Re: Geoism,

    A tax on land value is economically efficient, fair and equitable


    There's nothing "fair" or "equitable" about thieving.

    A tax on land value has been described by many as a progressive tax


    Which is a way of saying that thieves go where the money is.

    Thief.

  • cynical||

    You realize that unless someone shares your underlying assumptions, name-calling is fairly useless. I mean, I can assert that all male-female sex is rape and call you a rapist, but that isn't going to change your mind unless you're an idiot, it's just going to annoy you and make you assume further discussion is fruitless. Geoists don't buy into a moral right to property in land. You should probably attempt to make some argument as to why they are wrong, unless you just find it amusing to yell at people on the internet.

  • Colonel_Angus||

    "Geoists don't buy into a moral right to property in land."

    Then there is no point in extending any respect whatsoever to them.

  • cynical||

    That's not really a refutation of their position. It's a philosophical question: what is the moral justification for a property right in land? If you can't explain it, then I don't see how you can dismiss them so easily.

    A couple of points, if you want to tackle the question:
    1) So far as I'm aware, they're fine with the legal framework of deeds and so on. They don't disbelieve in the tragedy of the commons. They just feel that since the deed could just as justifiably be given to anyone, that those who get the privilege should make everyone else whole so it evens out karmically. Hence, the land tax. Even though that technically just goes to the government.

    2) Also so far as I'm aware, they only apply that moral principle to land in the economic sense (that is, stuff made by nature). Whatever people earn from developing and working the land is property. For example, they don't believe in property taxes on buildings erected on land, only the land itself. True, it's nearly impossible to separate some land developments from the land itself, but that's a question of practical implementation, not moral truth.

  • DDavis||

    Not too long ago, I came across Geolibertarianism.

    I had been calling myself a Tom Paine libertarian. That's still catchier to me, but it's nice to finally find that there are enough people besides me thinking this way that there is a name for it.

    Libertarians who think they believe in Locke, Mill, Smith, Paine, and Jefferson should really give the page a read.

    Compared to those guys, most libertarians are just propertarians - get everything owned by somebody, then everything will be "efficient". Not so much serious thought on who gets to own natural resources. But Justice lies in who owns what, and how they got to own it.

    I remember way back in the day, I argued the basic point on an Objectivist list. You can guess how well that went over.

  • Colonel_Angus||

    I just ate frozen waffles with maple flavored corn syrup and reheated bacon for lunch. I did not eat breakfast today.

    Fuck you, fakeass gourmet food snobs. Eggo is the shit every once in a while and life would be less interesting if all that existed were homemade waffles. Its two different flavors and they're both fine.

  • ||

    Or we could simply tax Eggo waffles.

  • CE||

    Le'go my Eggo!

  • DDavis||

    I was very unimpressed by Perry's flat tax. It is just a way for people in higher brackets to calculate their taxes two ways, and pick the lower bill.

  • CE||

    One advantage of a capitation tax (where everyone pays the same amount) is that proposals to increase government spending would hurt everyone equally, which should lead to greater reluctance to support spending increases.

  • BRM||

    Perry is a pussy. He caved on the HPV vaccine when he was right. He caved on the tax code here. This man must be from the French part of Texas, he surrenders before the fight starts.

    Count all income as the same. If it can be a stack of dollar bills in your hand, then its income. If it can't, then it isn't.

    Give all workers a set amount that is tax free (say $30,000/yr). Then tax everything above that at some standard rate (say 25%).

    All investors have their investments in a tax bubble called an investment account. What goes into the investment account is tallied on one side. What comes out of the account as cash or potential cash (dollars in your hand remember) is taxed as income IF and only if it exceeds what you put into the account.

    So a worker bee that makes $32K a year is going to pay 25% of $2K in taxes. Lets say that worker bee saves $5K and puts it into an investment account that makes a $1.5K profit, but he doesn't take it out, then the $1.5K is tax free in that year.

    Say 4 years go by and the account is now up to $10K, and he decides to take it all out and buy a new car. He would then owe tax on the $5K of profit in addition to his normal income-30K.

    No deductions that give people the correct impression that some are getting ripped off and others are skating by. Everyone gets the same treatment.

    So Gov. Perry, I believe that Texans call them Cajones. Look for a pair.

  • Some Guy||

    Yes. Clearly what we need to do is come up with a tax scheme that requires payment from those with zero dollars. This is both practical and likely to be popular!

  • cynical||

    He wasn't actually proposing a head tax, you know, just satirizing the idea that simplicity is the be all and end all of tax reform.

  • Mr. Mark||

    Either...

    - Have competent individual pay a set amount

    or

    - Switch to a national sales tax

    Now that I think about...a last minute BONUS option:

    - Since we're headed to inevitable financial catastrophe anyway, let's just put EVERYBODY on the Timothy Geithner plan.

  • Amagi||

    Flat tax w/ standard deduction for everyone, no gimmicks. The government shouldn't encourage any behavior (home ownership, marriage, ext...)

    If we could get the 16th Amendment repealed, I'd be all onboard for a consumption tax like the Fair Tax (NOT A VAT Tax though).

  • ||

    What would YOU want? A tax on discretionary income, to ease the burden of "just getting by"? A tax on all other income with only three exemptions, health care, education and savings? A means whereby states and local government can freely choose to piggy-back the feds? A requirement that spending be slightly less than revenues, except in severe recessions? A single tax, replacing the hidden taxes we pay everyday without knowing it? A negative tax to replace Social Security, the Medicare/Medicaid and welfare systems? Here's the plan:

    1. All persons residing in the U.S. shall come together in households for the purpose of reporting all income from any source, each item to be identified by payer's and payee's tax number, and for receipt of federal and state benefits. Members of a household need not be related, need not reside together, and a household may consist of as few as one person. The federal government shall collect no taxes other than provided in this act. (This taxes all persons equally, including those outside traditional families, and makes the total cost of government visible to all).
    2. Each year congress shall set by legislation a "minimum wage" and a "tax rate", which in turn will be applied to the previous year’s reported incomes to determine the maximum expenditures of the federal government. (These basic parameters require annual review for tuning them to correct misassumptions and changing circumstances, and to counter economic fluctuations while providing a pay-down of the debt over an extended period of time.)
    3. The following income shall not be subject to taxation:
    • An amount equal to a year's earnings (2000 hours) at the minimum wage rate, for each adult (age 20-65) member of the household, decreasing 10% per year to 50% at age 15, and increasing 10% per year to 150% at age 70. (Family of two adults and two young children would receive exemptions of 100% + 100% + 50% + 50% = 300% minimum wage, or $46,500.00 at a minimum wage of $7.75; If that’s the least someone should work for, why should it be taken from them?)
    • All payments for what is classified as necessary health care for all members of the household including medical care, any pharmaceuticals prescribed by a recognized health care professional, vision and hearing aids, and membership fees for health-enhancing entities such as gyms or other exercise facilities. Health care insurance premiums may be deducted but not health care expense paid for by such insurance. (This provides health care assistance, both in paying insurance premiums and in paying that not covered. All costs are shared through tax deductions as an offset, but the individual now sees and shares the cost of each element of his health care, a serious deficiency in existing programs)
    • All educational expenses including day care for young children or legally incompetent persons, that portion of state and local taxes identified as spent on education, that portion of parochial school tuition, fees and other expenses identified as going for non-sectarian education, tuition, fees and educational materials for private school education at any level. (This provides both a continuation of the public school system along with the freedom to pursue a better outcome for one’s offspring through any of the alternatives.)
    • All income saved into an identified account from which investments may be made. All withdrawals from this account for the benefit of any member of the household shall be reported as income to that member. (This allows providing for one’s retirement and encourages investment as opposed to channeling the money through high overhead government systems. Since charitable contributions are not for the benefit of any member, they would be exempt from taxes, and no government agency is required to decide what is a charity; any group not returning anything of value to a member may receive funds tax free, including political campaigns).
    These deductions encourage growth of the tax base, thus growth of the government's ability to pay for its responsibilities, by fostering health care, education and investment, all of which contribute to growth of income, taxable to support legitimate government purposes, by reducing the cost of these services by an amount equal to their cost times the tax rate.
    4. The "tax rate" shall be applied to any income over and above the deductions listed above, regardless of amount. (It seeks the elusive concept of fairness by taxing at the same rate all "discretionary" income.)
    5. For households whose deductions exceed total income, the Federal Government shall make payment equal to the tax rate multiplied by the shortfall in income, as shall municipalities and states. (This replaces the patchwork of entitlement programs, and helps tp assure “domestic tranquility” as required by the Constitution.)
    6. There shall be no federal tax on corporations or other business entities. (This tax is paid for, and hidden from, those who pay it when purchasing of the products and services of corporations; it brings back profits of corporations now held overseas and makes American-made products more competitive on the world market, it creates a more “progressive” tax structure.)
    7. At the request, by legislation duly enacted by a municipality having greater than 100,000 inhabitants or a state, a surtax may be imposed on citizens of that municipality or state which shall be applied in the same manner as this tax. (This assures sufficient revenues for all levels of government and, where adopted in lieu of sales tax, will eliminate the regressive nature of such taxes)

  • TJ||

    Free traders will have my head for saying this, but how about the only source of Federal revenue be a tariff on imported services (for example off-shore call centers) and goods. In essence this does constitute a hidden sales tax; however it is less intrusive to the right to privacy of the earner, property holder, and consumer.

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