Viewpoint: Flat-Rate Debate

With Reaganomics in a shambles, the administration keeps looking for some panacea, some gimmick that will bring the economy out of the doldrums and insure political victory. Other politicians and economists are also looking for some quick route out of our economic mess. The latest nostrum being seized on is the flat-rate income tax.

Neoliberal Democrats, Friedmanite economists, Reaganites, and libertarians have all jumped on the flat-rate bandwagon, hailing it as "simple" and "fair," in contrast to the present complex system that soaks upper-income groups while allowing others to avoid paying their "fair share" of taxes. Even my favorite congressman, Ron Paul (R–Tex.) has fallen for this hokum, hailing in a press release the "perfect fairness" of a flat-rate tax. And many libertarians, who claim to have abolition of the income tax or even all taxes as their ultimate goal, have taken up the flat-rate cause as a sensible "transition" demand on the way to their eventual goal.

The first point to make is that, for some reason, no one is really calling for a universal flat rate, despite its alleged perfect fairness. Everyone advocates a hefty minimum income floor to be exempt from any tax, the usual figure bandied about being $10,000. But if the poor are to be exempt from the fairness of flatness, why not—as even the president himself wondered—those suffering from catastrophic illness, who are now exempt and would have to pay suddenly at the high fixed rate? Why is poverty worse than a catastrophic illness and therefore more entitled to exemption?

But a more important flaw is the very concept of fairness in taxation. The word fair is here being used to cloak the envious view that, by God, if Smith has suffered Jones should be made to suffer equally as well. "Fairness" in taxation is compulsory equality in suffering. The proper analogy is with slavery before the Civil War. It is as if we see a group of slaves escaping the South, and we then capture them and send them back to their masters, saying something like this: "We recognize that slavery is evil and that someday slavery should be abolished, but in the meanwhile it is terribly unfair for you to escape slavery while your brothers and sisters are suffering that fate. Therefore, we're sending you back until all slaves can be equally freed."

The analogy with slavery is a good one because taxation is nothing more nor less than organized theft. If we see Group A escaping taxation, whether through tax shelters, tax credits, exemptions, or whatever, our proper response is not to curse them for escaping their "fair share" of taxation and to force them under the heel of equal robbery. On the contrary, we should all rejoice at their ability to escape taxation and try to widen those shelters, exemptions, and "loopholes" to include all the rest of us. The mean-spirited quest for extending robbery to the currently exempt is in no sense a transition to a taxless society. Quite the contrary.

Those libertarians who see a flat-rate tax as gradual transition to abolition of the income tax should realize that it is absurd to advance toward zero taxation by increasing the taxes of the currently exempt and sheltered. That is very much like the Marxists who claim to be moving toward the goal of abolishing the state by first maximizing state power. It is, in short, hokum and double-talk.

Finally, in pragmatic terms, the flat-rate scheme is just another gimmick to soak the main sufferers from income taxation, the bedraggled and exploited middle class. The poor will get a hefty income exemption; the rich will enjoy a big cut in their taxes. I don't begrudge the poor or the rich their proposed goodies under the flat-rate; but I do take great umbrage at the increase in taxes that the bedazzled and swindled middle classes will undoubtedly have to shell out when the dust has settled and the piper will have to be paid.

Murray Rothbard is a professor of economics at Brooklyn Polytechnic Institute of New York and the author of numerous articles and books on economics, history, and the libertarian movement. His most recent book is The Ethics of Liberty (Humanities Press).