Over in one of those libertarian threads, an example was given of the sorts of things real-life libertarians like to talk about - a flat tax. I agree with this, as it’s something I hear a lot in real-life conversations, not just from capital L libertarians, but even wishy-washy not-very-political libertarians who are all over the spectrum on various issues.
My standard response is to point out that it’d be impossible to pay for our current government without setting the flat tax rate so high as to completely hose most Americans. The standard rebuttal is that the federal budget should be some tiny fraction of what it is now, and then a flat tax would work.
OK. But it’s not a tiny fraction of what it is now. It’s going to take years, if not decades, to get the budget to a flat-tax-friendly amount, and that’s assuming that congress solves all of the political and practical problems associated with gutting the federal government. If we ever get to that point, we can start talking about flattening the tax rates. Right? What sense does it make to start talking about it now, when it’s basically impossible? It’s a political means, not an end. The “end” is a smaller government, right? So if we ever get a smaller government, then we can sit down and decide how we’re going to pay for it.
Fine what about no flat tax, but something like we had in 1913:
“in 1913 when the federal income tax was implemented to help finance World War I, the marginal tax rate was 1% on income of $0 to $20,000, 2% on income of $20,000 to $50,000, 3% on income of $50,000 to $75,000, 4% on income of $75,000 to $100,000, 5% on income of $100,000 to $250,000, 6% on income of $250,000 to $500,000, and 7% on income of $500,000 and up.”
This site implies GDP is 3-4 times taxable income . Personal income tax is about 7.3% of GDP and payroll tax (employers pay about half but take into account the FICA cap) is about 5.3% of GDP so it seems to me as a rough estimate is that personal/payroll (paid by employee) tax is about 10% of GDP or roughly 30-40% of taxable income.
In a prior thread I can’t find, one of our economists (Hellestal? Measure for Measure?) arrived at a figure of ~23%, assuming there were no exemptions for the first $X of income.
A flat tax seems fair, which is why it has such traction. But even a little bit of inspection will show that it isn’t fair at all. The reason we have a progressive tax system is to spread the burden equally.
Say that a group of tribes people needs a bridge to make their lives easier. They gather everyone together to do the job. Now some people are strong, young men who can lift hundreds of pounds at a time. Some are elderly women who can barely walk.
Ideally what you want to do is distribute the labor such that everyone at the end of the day has the same level of fatigue. So that everyone contributes the same amount of work to the task.
One of the strong men may move a ton of rocks, logs and vines in a day. An elderly woman may move 100 lbs. But at the end both are equally tired.
When it’s done, ideally everyone should have put the same amount of fatigue into the bridge.
Our taxation system should be the same. 10% of income to someone who is at the poverty line is very, very painful. But 10% to someone who makes $20 million a year is trivial. He won’t even feel the loss of the money. So the rate should be low for the poor and high for the rich.
Of course the specific break-points can be argued, but the flat-taxers simply don’t understand that they are advocating distributing the pain preferentially to the poor. Or perhaps they do, and they simply want to hurt the poor while elevating the rich.
There is also their hypothesis that the poor are mainly poor because they don’t work very hard, in other words each dollar represents exactly the same amount of pain. Which is false of course. Most poor work harder than the middle class and above. Those of them that have jobs of course, and most that don’t wish they did. Of course there are slackers but there are also slackers who only work as hard as required to support their upper middle class lifestyle.
The issues I have with statements like this is that it is based on a Keynesian assumption that the economy will tank if the government does not prop it up as a matter of economic policy and not as Eccles, Keynes and Reagan believed as a policy during financial crisis. Also, why do we need the social safety nets that are built into the system? Social security was financially flawed from the beginning but rather than making it self-supportive it continues to be a pyramid scheme. The military is severly overbudgeted as we have seen in most circumstances a smaller force with overwheming superior logistics can serve the US’s needs as long as we avoid the clusterfuck of Bush2/Obama’s Iraq2/Afghanistan.
And why is it a tiny fraction as written in the OP? I estimated 30-40% tax rate but I see a 23% taxrate with no exemptions. I am middle class and pay an effective rate of 14% so let’s say we need to make do with half of the personal income tax (and the OP did not address supplementing this with increased corporate tax). Now the budget is 50% of what if we ignore the effect of deficit spending which apparently is not a concern to Keynsians.
Most flat tax proposal have a relatively high exemption. You pay 0% up to X amount and then Y% on everything above X. It’s the only way to make it work without killing poor people.
Also: Libertarians don’t want the government to stay the size that it is, stop suggesting it to them.
If they also address which specific programs to cut to make up for the lost tax revenue then that is more realistic. Instead, they imply or outright say that it would be revenue neutral yet somehow magically* lead to lower taxes for everyone. And there’s a reason for that which is right in the OP: the required cuts are not politically feasible, and for more than just 50% of the population. So the cuts are a non starter unless you’re trying to starve the beast or want to impost radical spending cuts dictatorially.
*Except of course loopholes. But they never add up anyway in these plans.
Libertarians may not want it, but they need to live in the real world. If you suddenly dropped the government by 50% it would collapse the economy. So you’d need to slowly migrate to Libertopia.
Never mind that Libertopia would be a complete hell-hole, but that’s another thread.
No. Many Libertarians favor open borders. But you can’t make that work with the current social safety net. It makes no sense to assert that the system, as a whole, can’t be taken into account when talking about pieces of the system. Unless you simply want to shut out certain ideas altogether.