Fair Tax or Flat Tax?

Should we move to a Fair Tax or a Flat Tax?

American public discourse, particularly on the Internet, includes a reliable population that is perpetually honked off, offended, and eager to unleash the awesome power of ALL CAPS against any idea, no matter how commonsensical.  

 
But for all the hullabaloo around the IRS of late, with some claiming complaints against the agency are overwrought, and others going so far as to question the motives, intelligence and parentage of those of us who have called for its abolition, there has not emerged any kind of reasoned argument in favor of keeping the tax authority just the way it is.
 
What has come to the fore, however, is a healthy competition between two credible, if not complementary, alternatives to America’s current tax system.  That is, should we move to a Fair Tax or a Flat Tax?
 
Simply put, would a consumption tax on goods and services (Fair Tax), or a single, small rate of tax on income (Flat Tax) be a better way to fund our government?  The short answer is that either would be preferable to the Byzantine, corrupt tax system America has now. 
 
Folks are fond of saying you can’t replace something with nothing.  This is, of course, complete rhubarb, and if the US government could learn to replace something with nothing, it would go a long way toward solving its monumental debt and deficit problems.  But in this case, we do need to pay for our public sector somehow, and since it would defeat the purpose to replace something with two things, it behooves us to consider which of these worthy ideas would work best.
 
First, the Fair Tax: There is legislative support for this approach, as the Fair Tax Act of 2013 works its way through Congress, sponsored by Rep. Rob Woodall of Georgia as H.R.25 in the House, and by Sen. Saxby Chambliss, also of Georgia, as S.122 in the Senate.
 
The gist of the plan is to phase out the IRS over three years, replacing income taxes with a sales tax on new goods and services, excluding necessities, of 23 percent.  This figure is reached by combining the 15% income tax bracket with 7.65% employee payroll taxes, both of which would be eliminated.  As to that last, fairtax.org stresses that their plan eliminates the payroll tax, and this is not an insignificant feature.
 
Many workers, particularly those with lower earnings, feel the bite of payroll taxes when they collect their paychecks, even if they do not end up with a federal income tax liability for the year.  If we mean what we say about simplifying the tax code, then whatever system and rates we settle on ought to be straightforward and clear, and should account for whatever effect, if any, payroll and Social Security taxes will have on take-home wages.
 
A Flat Tax of, say, 10 percent should mean exactly that – not 10 percent, plus additional levies for retirees, unemployment, etc., that are not normally part of the income tax conversation.
 
If that can be accomplished, there is much to be said for the simplicity and transparency of a Flat Tax.  Sen. Ted Cruz of Texas and The Heritage Foundation are among those calling for this approach.  Americans spend billions of hours and hundreds of billions of dollars trying to comply with the country’s impossibly complex tax code.  The opportunity cost to the productive economy is extraordinary.
 
Something that is often lost in discussions of income tax is that these rates also apply to small businesses, which create two-thirds of the new jobs in America, and almost all of which file at individual rates.  If a Flat Tax can eliminate the expensive and time-consuming task of tax preparation, not only for individuals but for job-creators as well, that would be a boon to America’s beleaguered employment market.
 
As to revenues, economists of all stripes have looked through this glass onion, trying to make that dove-tail joint, and you will find very intelligent people convinced that a Fair Tax or a Flat Tax cannot replace the revenue raised by the current system; conversely, you will find wicked smart proponents of these ideas who say we cannot afford not to adopt them.  Whom to believe?
 
Concepts like dynamic scoring – meaning, tax policy alters behavior, which should be considered in estimating revenues – are sensible.  But, since not everyone acknowledges these factors, let us cleave to the concept of reasonableness.  Would either plan get us in the ballpark of where we need to be?
 
Certainly, they can, and if the political climate that enables either of these policies to be enacted also facilitates spending cuts, more’s the better. The last two presidents, aided by Congresses led by both parties, have each added a trillion dollars (and counting) to the federal budget over the past dozen years.
 
Despite this sharp increase in spending, recent silly-bears surrounding the sequester remind us that many insist the current level of government expenditure, no matter how high, is a sacred, serene, steady state, such that even one penny cut might mean Joe Biden has to peel his own grapes. 
 
As a Republic, we can take that risk.  So, if a Fair Tax or Flat Tax can get us close enough to the revenue we need, even if it requires pruning the Tsarist lifestyles of our so-called public servants, so be it.
 
Mission creep will also be an issue, with either a Fair Tax or a Flat Tax. Lest we forget, when the income tax started in 1913, the top marginal rate was a whopping 7 percent, applicable only to a relative few people. Politicians, present and future, will be eager to expand and increase the scope of the new system, and taxpayers must remain vigilant.
 
Questions linger, such as whether a Fair Tax would inhibit productivity, or spawn underground markets, and just what “necessities” would be excluded?  Likewise, what would become of charitable or mortgage interest deductions under a Flat Tax?  Each of these merits debate, but they are soluble.  Considering our current system has the IRS shelling out $50 million for its agents to learn line dancing at sleep-away camp, even imperfect replacements represent serious improvement.
 
Further to that, while we remember that this discussion was brought about by scandals at the IRS, including hassling of groups seeking tax-exempt status, along with audits and harassment of people who donated to political candidates or raised their voices in the public square, the issue should not be consumed by politics or prosecutions.
Odious as Douglas Shulman, Steven Miller and Lois Lerner may be, they and the rest of the IRS squadron of winged monkeys that descended on Congress recently are beside the point.  When you create an unaccountable, bloated bureaucracy, these are the sort of people who show up to run it.  They and their ilk are not unique to history, nor are they helpful in solving the problem.
 
So again, which should we choose, a Fair Tax or a Flat Tax?  The answer is: whichever one can gain traction.
The primary question of whether to abolish the IRS having been answered in the affirmative by both sides, disagreement between Fair Tax and Flat Tax proponents is akin to the quarrels of the Yooks and the Zooks in Dr. Seuss’ Butter Battle Book (to whatever extent Seuss intended the tome as a moral relativist metaphor for the Cold War, it was misbegotten – but it actually works here).  In that tale, both sides enjoy toast, but are at loggerheads as to whether it should be buttered on the top or the bottom. The applicable lesson here is, having agreed on the big issue, residual differences can be worked out over breakfast.
 
And so they should be, with the American people as arbiter (though if everyone’s coming to the breakfast, making a reservation seems sage). Politics being the art of the possible, if there is an appetite in the land for a Fair Tax, and political leadership able to make it happen, Flat Tax folks should sign on, perhaps keeping personal lists of I-told-you-so’s, in case the system falters.  Likewise, if the Flat Tax finds a market and effective champions, Fair Taxers should offer support.
 
Whichever option prevails, let us seize this opportunity to reform America’s tax system and change the country for the better.

This post originally appeared in The Daily Caller.
 
Theo Caldwell, host of TV’s Global Command Centre, has been a member of the New York Stock Exchange, the Chicago Board Options Exchange, the American Stock Exchange, and the Kansas City Board of Trade.  He can be reached at theo@theocaldwell.com
Big Think
Sponsored by Lumina Foundation

Upvote/downvote each of the videos below!

As you vote, keep in mind that we are looking for a winner with the most engaging social venture pitch - an idea you would want to invest in.

Keep reading Show less

Essential financial life skills for 21st-century Americans

Having these financial life skills can help you navigate challenging economic environments.

Photo by Jp Valery on Unsplash
Personal Growth
  • Americans are swimming in increasingly higher amounts of debt, even the upper middle class.
  • For many, this burden can be alleviated by becoming familiar with some straightforward financial concepts.
  • Here's some essential financial life skills needed to ensure your economic wellbeing.
Keep reading Show less

New study finds the egg may actually 'choose' the Sperm

Here's the first evidence to challenge the "fastest sperm" narrative.

popular
Keep reading Show less

New fossils suggest human ancestors evolved in Europe, not Africa

Experts argue the jaws of an ancient European ape reveal a key human ancestor.

Surprising Science
  • The jaw bones of an 8-million-year-old ape were discovered at Nikiti, Greece, in the '90s.
  • Researchers speculate it could be a previously unknown species and one of humanity's earliest evolutionary ancestors.
  • These fossils may change how we view the evolution of our species.

Homo sapiens have been on earth for 200,000 years — give or take a few ten-thousand-year stretches. Much of that time is shrouded in the fog of prehistory. What we do know has been pieced together by deciphering the fossil record through the principles of evolutionary theory. Yet new discoveries contain the potential to refashion that knowledge and lead scientists to new, previously unconsidered conclusions.

A set of 8-million-year-old teeth may have done just that. Researchers recently inspected the upper and lower jaw of an ancient European ape. Their conclusions suggest that humanity's forebearers may have arisen in Europe before migrating to Africa, potentially upending a scientific consensus that has stood since Darwin's day.

Rethinking humanity's origin story

The frontispiece of Thomas Huxley's Evidence as to Man's Place in Nature (1863) sketched by natural history artist Benjamin Waterhouse Hawkins. (Photo: Wikimedia Commons)

As reported in New Scientist, the 8- to 9-million-year-old hominin jaw bones were found at Nikiti, northern Greece, in the '90s. Scientists originally pegged the chompers as belonging to a member of Ouranopithecus, an genus of extinct Eurasian ape.

David Begun, an anthropologist at the University of Toronto, and his team recently reexamined the jaw bones. They argue that the original identification was incorrect. Based on the fossil's hominin-like canines and premolar roots, they identify that the ape belongs to a previously unknown proto-hominin.

The researchers hypothesize that these proto-hominins were the evolutionary ancestors of another European great ape Graecopithecus, which the same team tentatively identified as an early hominin in 2017. Graecopithecus lived in south-east Europe 7.2 million years ago. If the premise is correct, these hominins would have migrated to Africa 7 million years ago, after undergoing much of their evolutionary development in Europe.

Begun points out that south-east Europe was once occupied by the ancestors of animals like the giraffe and rhino, too. "It's widely agreed that this was the found fauna of most of what we see in Africa today," he told New Scientists. "If the antelopes and giraffes could get into Africa 7 million years ago, why not the apes?"

He recently outlined this idea at a conference of the American Association of Physical Anthropologists.

It's worth noting that Begun has made similar hypotheses before. Writing for the Journal of Human Evolution in 2002, Begun and Elmar Heizmann of the Natural history Museum of Stuttgart discussed a great ape fossil found in Germany that they argued could be the ancestor (broadly speaking) of all living great apes and humans.

"Found in Germany 20 years ago, this specimen is about 16.5 million years old, some 1.5 million years older than similar species from East Africa," Begun said in a statement then. "It suggests that the great ape and human lineage first appeared in Eurasia and not Africa."

Migrating out of Africa

In the Descent of Man, Charles Darwin proposed that hominins descended out of Africa. Considering the relatively few fossils available at the time, it is a testament to Darwin's astuteness that his hypothesis remains the leading theory.

Since Darwin's time, we have unearthed many more fossils and discovered new evidence in genetics. As such, our African-origin story has undergone many updates and revisions since 1871. Today, it has splintered into two theories: the "out of Africa" theory and the "multi-regional" theory.

The out of Africa theory suggests that the cradle of all humanity was Africa. Homo sapiens evolved exclusively and recently on that continent. At some point in prehistory, our ancestors migrated from Africa to Eurasia and replaced other subspecies of the genus Homo, such as Neanderthals. This is the dominant theory among scientists, and current evidence seems to support it best — though, say that in some circles and be prepared for a late-night debate that goes well past last call.

The multi-regional theory suggests that humans evolved in parallel across various regions. According to this model, the hominins Homo erectus left Africa to settle across Eurasia and (maybe) Australia. These disparate populations eventually evolved into modern humans thanks to a helping dollop of gene flow.

Of course, there are the broad strokes of very nuanced models, and we're leaving a lot of discussion out. There is, for example, a debate as to whether African Homo erectus fossils should be considered alongside Asian ones or should be labeled as a different subspecies, Homo ergaster.

Proponents of the out-of-Africa model aren't sure whether non-African humans descended from a single migration out of Africa or at least two major waves of migration followed by a lot of interbreeding.

Did we head east or south of Eden?

Not all anthropologists agree with Begun and his team's conclusions. As noted by New Scientist, it is possible that the Nikiti ape is not related to hominins at all. It may have evolved similar features independently, developing teeth to eat similar foods or chew in a similar manner as early hominins.

Ultimately, Nikiti ape alone doesn't offer enough evidence to upend the out of Africa model, which is supported by a more robust fossil record and DNA evidence. But additional evidence may be uncovered to lend further credence to Begun's hypothesis or lead us to yet unconsidered ideas about humanity's evolution.