Thursday, April 20, 2006


Wyden's Flat Tax.

Looking through my posts, they're as much about budgets as taxes, so here's something directly on topic: Senator Ron Wyden's "flat" tax. He has offered it as a fix to two major problems in the US tax code: getting rid of the insane complexity (it is 1.4 million words long, would stand 6 feet tall if bound in standard paper, and takes the average citizen 31 hours to fill out), and getting rid of all the little perks to the rich.

I'm not sure why he called it a flat tax, unless he's adopting Bush's trojan-horse nomenclature ("healthy forests," "clean skies")--it's not flat, and flat taxes are always offered, as Steve Forbes', as a sop to the rich. Wyden's proposal is designed for simplicity:
  • On a one-page 1040, filers would be taxed at one of three (nonflat) rates: 15%, 25%, and 35%.
  • The corporate income tax would be fixed at 35%
  • Almost all loopholes would be eliminated (including the AMT), particularly in the corporate code
Apropos of my comment earlier in the week that taxes are actually politics, I think we can divine a few things about what Wyden's after. The tax code has gotten way out of whack. Corporations and the wealthy now have a host of loopholes, thanks to a slow accretion of tax breaks since 1981, to protect their income. Regular workers have seen their taxes rise, because they're taxed at the paycheck, while the rich get breaks on their income through capital gains.

So while Wyden's tax system doesn't look particularly progressive superficially (as recently as 1964, the top income bracket was 94%), it actually makes huge gains. It also has great window-appeal; almost everyone recognizes that the tax code needs to be simplified, so this is a huge selling point. By leaving the top marginal rate low, he makes it difficult for the rich to argue publicly that they're getting shafted (though of course privately they know just how much they've been shafting the US). It would actually reduce the burden on the middle-class an poor while adding money to the budget.

He's not offering a return to midcentury progressive tax politics, but it's a huge step in the right direction, and may actually have political legs.


Kari Chisholm said...

Most "flat tax" proponents are talking about two kinds of flat.

There's flat, as in no deductions and credits, meaning a one-page form.

And there's flat, meaning a single tax rate.

The single-rate flat tax is deeply unpopular with the American people. So, its proponents - like Steve Forbes '96 - confuse things by talking about the "postcard tax return."

The progressive flat tax - championed by Wyden and Jerry Brown in his '92 presidential race - focuses on the deductions and credits while managing to keep the progressive rate structure.

Those who refuse to allow Ron Wyden to call his tax proposal a "flat" tax are simply buying into the right-wing framing -- that "flat" means a single rate, as opposed to removing all the deductions and credits favored by the wealthy, the corporate interests, and of course, lobbyists.

Jeff Alworth said...

Well, nomenclature isn't only about framing, it's also about what people understand. I'd hazard a guess that if you asked 100 random Americans what they thought a "flat tax" was, something like 80 would describe Steve Forbes' plan. And surely Wyden is not insensitive to that.

Kari Chisholm said...

BTW, something I just read... The flat tax that Steve Forbes proposed would have been voluntary. VOLUNTARY! In other words, anyone who found that their deductions and credits gave 'em lower taxes would get to keep 'em.