The question: What do you call a plan that removes all tax burden from low-wage earners and reduces everybody's taxes?
The answer: If you're a Republican running against Steve Forbes or a liberal intellectual like Phil Donahue, you call it a "nutty" idea.
The idea, of course, is the flat tax € which technically speaking should be called the almost-flat tax, because it actually has two brackets € zero and seventeen. If you are single without any dependents (like, say, a college student), your first $12,800 is tax free. Above that, there is a flat 17 percent rate on every additional dollar, so a $25,600 salary, for example, works out to an average rate of 8.5 percent. On the other hand, somebody earning a million dollars will pay very close to 17 percent (17 percent on one million minus $12,800).
The fact that the flat tax benefits everyone, however, has not deterred its opponents from labeling it a "tax break for the rich." And because Mr. Forbes just happens to be rich, some are brazen enough to suggest that the proposal is aimed at his own self-aggrandizement.
The truth is that Mr. Forbes is spending more money campaigning than he could ever recover from the flat tax, so that whole point is moot anyway. But there is another, larger issue here: It's a shame that there are actually people in this country who are petty and vindictive enough to oppose tax reform for everyone on the basis that the wealthy will be amongst those who benefit. Does it make sense to deny some guy struggling to earn $10,000 a much-needed tax break, just because millionaires will also be better off? I think not.
There is another facet of the Forbes plan that seems to have most liberals, and even some Republicans, especially outraged € the plan exempts investment income, while taxing salaried income. Thus, the demagoguery goes, 'Donald Trump can sit on the beaches of Maui earning millions from stock dividends, while Joe Worker pays 17 percent on everything he earns.' There are a couple of problems with this type of logic, so take your pick.
The economic response is that dividends and other investment income is already taxed € only at the corporate level. When companies make profits, they pay taxes, and then the profits are distributed to shareholders in the form of dividends. Thus, to tax the shareholders is to engage in double taxation, a practice which should be avoided in the name of fairness.
Secondly, and perhaps more important, the idea that the stock market is a private playground for the rich sounds rather elitist. Maybe, just maybe, if barriers to entry are lifted, more people from the middle class can begin investing. And that brings us back to the issue of whether it is right to hurt everyone in the name of punishing the "rich." In my book, a flat tax with exempted investment income is better than a flat tax without exempted investment income, because less taxes are always a good thing. And if I never make a dollar of investment income in my life, I can at least take heart in knowing that Mr. Trump is having a good time on the beach.
A final concern about the flat tax is that if everyone is paying less in taxes, then that must mean a huge budget shortfall for the government. The short answer to this is, "Who cares?" The government is large, inefficient and frequently destructive. Surely a Republican Congress, along with a Republican president, wouldn't have much trouble finding programs for the poor to slash (just kidding, liberals).
In reality though, the more likely result of the flat tax is an economic boom that would more than compensate for the lower tax rates. Mr. Forbes believes that the economy is capable of growing at twice its current rate, and there are respectable economists who agree with him. A growing economy translates into more, and better-paying jobs, along with a host of other positive economic and social effects.
What type of nut could oppose all that?
Clinten Garrett is an economics freshman. His column appears every other Tuesday.
Clinten Garrett