Evangelical college president Greg Thornbury and libertarian biographer Amity Shlaes have written an editorial to explain why a flat tax is better for families than the present regime of child tax credits. (The article said “religious families,” although I don’t see what religion has to do with it other than the fact that my wife and I are married, and our habit of giving 10% of our income to a religious institution.)
A flat tax means everyone’s income is taxed at the same rate, presumably a lower rate than the current average tax rate. The wealthy still end up paying more in taxes as a function of their greater income; the poor pay in proportion to their poverty. It is certainly more fair than a system in which people are taxed both directly and indirectly—a system in which one’s ability to avoid excessive taxes depends on one’s facility with the byzantine complex of exemptions and loopholes built willy-nilly into the tax code.
However, federal income tax is just a fraction of the taxes we all pay. States tax goods and services transactions at the point of sale, while the federal government tends to focus on taxing income. There are state income taxes too, and all kinds of fees. In general, we are all taxed way too much. Local municipalities tax real (land) and other property (cars, etc.) to fund local services, principally schools. At least 2/3 of my personal property tax goes to fund either the schools themselves or debt service on school buildings. And the Federal government takes a double dip with Social Security and Medicare entitlement taxes, which, unlike the income tax, are not imposed on a progressive scale. Oh, and let’s not forget the ‘Affordable’ Care Act healthcare tax. What this means is that a lower-earning person will likely pay significantly more in entitlement and other taxes than in income tax, especially after deductions.
A just tax system would have to reform, not only the Federal income tax, but also all of the other, more regressive forms of taxation which consume the wealth of the lower and middle classes.
I stress that I am not an economist and hesitate to approach this subject from a layman’s perspective. The current tax system is not only financially burdensome, but very difficult to understand, even for a college-educated person who arranges words for a living, like me. I gratefully buy TurboTax every year to sort out my relatively simple tax filing. How do people, especially people who are not as intelligent or detail-oriented as I am, manage to navigate the tax code at all?
But Greg Thornbury and Amity Shlaes fail to convince me of the benefits of a flat tax.
To begin with, the fundamental problem with the current tax system is simply this: the government takes too much of our money. The tax structure is not at fault for this; it’s the tax rates that are the problem. So when Thornbury and Schlaes lament the stifling effect of the top tax bracket on innovation and job creation, the real answer is simple: eliminate the top tax bracket and simply collect less revenue. According to Thornbury and Schlaes’ free market economic beliefs, which I share, this will result in economic growth and be better for everyone.
What Thornbury and Shlaes actually defend, however, is far worse. Eliminating the child tax credit while keeping tax rates at a level similar to the present tax rates takes away one of the best forms of tax relief available to lower-earning families.
And then, because Thornbury and Shlaes apparently don’t know anyone who makes less than $150,000 a year, they advance as their hypothetical scenario a courageous female orthodontist, who is charmingly also an innovator in her field. This tragic genius has the chance to develop a great new product which might become the next Invisalign. But no—her work on the project would increase her income just enough to bump her into the top tax bracket, which starts at $464,850 and is taxed an additional 4.5%. It’s not worth it, and she chooses to go Galt and “tinker in her garage” instead.
Alas, who are these people who refuse to make money, lest they jump a tax bracket? I know some relatively high-earning people, including a father of 8 whose senior engineer’s salary puts his family at the mercy of the Alternative Minimum Tax, meaning they are ineligible for many common tax deductions. Strangely, he has not attempted to renegotiate a lower salary. Of course, he’s better at math than most people.
What Thornbury and Shlaes are really doing, which as teachers at a Christian liberal arts college they should know better than to do, is political propaganda. They play on out-of-date ‘culture war’ tropes (Ralph Reed? the Christian Coalition?), give bogus examples, and ignore the economic concerns of the supposed target audience, which is lower-earning married couples with children. Most conservative, religious Millennials probably belong to this demographic. Economic and societal pressures on young families are frightening. As much as I would like to be able to contribute my fair share to Uncle Sam, I confess I won’t regret being able to file for a child tax credit this year. It may help—a little—to offset the burden of our family’s reduced income and increased expenses as a result of, you know, having a child.