Consider the long-term economic benefits of flat tax reform

By Stephen Slivinski

The flat income tax proposal authored by state Representative Steve Court (HB 2636) to replace the current Arizona income tax altogether has started a much needed discussion about tax policy.

The proposal rests on an important insight: the need to have a broad base of taxation with a low, single tax rate that avoids distorting the economy by exempting some activities, but not others from taxation.

What’s been overshadowing the discussion, however, are reports that this specific proposal would increase taxes for the working poor. It is certainly true some people currently pay little or no taxes under the current system and they would pay at least something with a flat tax. It’s also true that income isn’t the only form of compensation these sorts of workers receive in a year. They also receive a number of government benefits such as subsidized child care, free health care, and myriad other services. The requirement that all Americans pay at least something in taxes may not seem as onerous when viewed in the broader context of the government services to which they have access.

Another important concern is whether tax policy is geared to increasing economic growth over the long term so those who are currently poor have more and better job opportunities to help them leave poverty. Today’s graduated income tax rates targets the very people who can create jobs that lift people out of poverty. Taxpayers in the middle and high income brackets – many of which are investors and small business owners – pay a progressively higher rate for each additional dollar they earn or invest. Economists generally agree that sort of tax system hinders income and job growth for all, and particularly for those at the lower end of the income ladder.

Analysis of tax reform proposals needs to take into account the long term, not just the short term. Seemingly-difficult changes today are worth making if they are part of a reform plan that creates a more robust economy tomorrow.

Steven Slivinski is senior economist with the Goldwater Institute.

Learn More:

Goldwater Institute: “How To Restructure Arizona’s Tax Code: A Smarter, Flatter Tax Plan to Create Jobs.”

Goldwater Institute: “Would a flat tax be good for Arizona? Yes”

Hoover Institution: “Questions and Answers about the Flat Tax”


Comments

  1. Suprise PC says

    If the reports are to be believed that 88% of Arizonans would see a tax increase under the proposed flat tax, then it’s hard to see how this bill is a good thing. Let’s cut taxes for everyone or at a minimum, cut without raising taxes on anyone.

  2. Ok, Surprise –
    A movie ticket is $10.00. 10 people in line for a movie. The first 3 pay nothing, the next 3 pay $2.00. The next 3 pay $5.00. Of the last 4, 2 pay $10.00 and the last 2 pay $29.50.
    Thats how our tax structure is kinda set up. Is that fair?
    Steve Forbes for President!!!

    • Suprise PC says

      Fred,

      Didn’t say it was fair. Said I don’t support raising taxes on anyone. I can only assume by your response that you don’t mind seeing others pay more. The liberals must love that attitude.

  3. UseYourBrain says

    A flat tax disproportionately hurts the poor, just like our present system of increased taxation for the rich (started by Republican Abraham Lincoln by the way) disproportionately hurts the rich. Here’s why: Somebody making $30,000 a year needs to spend 95% of their income to live. Guess what? Now they have to spend another 16% on tax that they didn’t before. Somebody making $600,000 a year probably only has to spend 35% of their income to live. That 16% flat tax decreases the amount they HAVE to spend each year. A flat tax system “sounds fair” because the % is the same for everybody. But in the real world it’s another tool the rich use to increase the already widening gap between the rich and the poor/middle class. I’m glad you brought up Steve Forbes, the billionaire. He’s well known for championing the flat tax. Do you really think he would champion something that hurt him? Do you really think he would champion something that made the gap between poor and rich smaller? Use your heads people. Start thinking for yourselves. You’re smart enough to understand this is all BS, but choose to not think about it critically–and instead simply rely on bloggers or commentators to think for you. I’m curious how many of you tea partiers will be electing Republicans again in 2012. You’re in a movement about taxes, named after a tax event, and you just elected people who raised taxes on 88% of Arizonans, increased the sales tax and increased property taxes. What is your response to this? That it’s somehow Bill Clinton’s fault?

  4. UseYourBrain says

    Interesting that I have made an unfavorable comment toward a conservative point of view, and this website has chosen a picture for my profile that looks like an illegal immigrant. It’s almost like the website wants people to ignore my posts. Hmmm….

  5. One of the best attributes of the FLAT Tax is that it is self-regulating. It is exactly because NO ONE is exempt that it can never be raised too high or the poor become severely penalized.
    The poor will scream bloody murder if the Legislature attempts to raise the income tax too high.
    This is a very excellent way for the income tax to have a cap incorporated within it, such that the rate is kept low for EVERYONE!
    Rather than being viewed as “regressive”, a Flat Tax should be viewed as the optimum method of taxing income because of its self-regulatory nature. It avoids both the onerous “progressive” rates, which penalize the producers, and the complete abrogation of all responsibility for expensive social programs by those who would pay NO income tax.
    Fair Tax supporters will argue that elimination of income tax also fixes this problem by tying tax revenues directly to consumption, which makes it inherently progressive.
    However, if we are going to have an income tax at all, the Flat Tax is the best option.
    As an example, Pennsylvania’s State Constitution mandates that the income tax must be a FLAT tax!

  6. UseYourBrain says:
    March 30, 2011 at 5:18 pm
    Interesting that I have made an unfavorable comment toward a conservative point of view, and this website has chosen a picture for my profile that looks like an illegal immigrant. It’s almost like the website wants people to ignore my posts
    ……………………

    How does this website “chose a picture for your profile?”
    I read your post and find it as well-thought out and as backed by “facts” as your peculiar and thinly veiled racist-mongering theory of SA “chosen a picture for my profile that makes me look like an illegal immmigrant.”
    Hmmmmmmmmmmmm. Hmmmmmmm.

  7. If the “poor” paid taxes, we’d have MORE citizens who would have a vested interest in keeping taxes LOW for EVERYONE.

    RIght now, the tax code perversely pits Americans against each other. Those who don’t pay taxes, while receiving free or subsidized services that others must pay full price for, want it to stay that way, with NO incentive to keep taxes low for those who ARE paying. It’s fundamentally unfair, encourages greedy behavior, not cooperative behavior and creates divisive resentment.

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