Herman Cain proposed his peculiar 9-9-9 tax plan with a flat 9 percent tax on personal income and businesses. Rick Perry tried to push his proposition to replace our current tax code with a “simple” 20 percent flat tax. Even Mitt Romney, who in the past denounced the flat-tax proposals, was quoted a few months ago, saying “I love flat tax.”
Why are politicians fascinated with the idea of a flat tax? Is it because the U.S. economy is at a standstill and not getting any better? Is it because people feel that some drastic changes are needed? Or is it all based on the illusion that a flat tax would be a cure for the troubled economy, free U.S. businesses from a 35 percent corporate tax and start a long-awaited and so much desired economic boom?
None of the reasons above can actually justify the proposition of the flat tax (other than using it as an attractive political campaign slogan.) A flat tax simply would not work.
Raising Taxes on The Middle Class, While Cutting Taxes For The Top Earners
The U.S. tax code has always required the rich to pay a greater percentage of their incomes then the poor. If we flatten that out, the rich and corporations will get massive tax cuts, while taxes for the poor and middle class will go up. All of these would be just in time to strengthen the already rising income inequality.
In order to avoid the outrageous gap between the wealthy and the poor, the capital gains tax would have to be increased. However, the definition of a “flat” tax in itself (a constant marginal rate) would not allow a capital gains tax hike.
A Flat Tax is a Drag on Government Revenues
Cutting down on taxes will have a staggering impact on revenues. If the government is left with huge decreases in tax revenue and gaping deficits, it will end up borrowing more, and probably making cuts in a lot of government funded programs. What gives?
Probably using a flat tax slogan serves more as a political stunt rather than a substantial, well-thought out plan.