Please Explain: The Flat Tax

Friday, November 04, 2011

Herman Cain has gotten a lot of attention for his 9-9-9 tax plan, Governor Rick Perry recently unveiled his own flat tax proposal, and there have been numerous presidential candidates who have made a flat tax plan the basis of their campaigns. Joseph J. Thorndike is the director of the Tax History Project at Tax Analysts and a contributing editor for Tax Notes magazine looks at the history of the flat tax, how it compares to our current tax system, and what the proposed flat tax plans would mean for the U.S. economy.


Joseph J. Thorndike

Comments [25]

Intellectual Property SALES Tax from Progressive and Efficient Taxes

Intellectual Property - including Copyright,
Patent and Trademark - are all GOVERNMENT GRANTED MONOPOLIES. They would not exist in a
totally free market. All IP revenue is therefore directly due to government support and intervention in the markets.

IP-based companies are also notorious for
evading US taxes by readily moving their IP to a non-US tax haven. Google, GE, etc
all do this.

How about a SALES TAX on ALL IP.
For example, a 25 % IP Sales tax would
probably raise well over 3 Trillion in 10 years.

Unlike a conventional sales tax, an Intellectual Property sales tax is also progressive. First, because it taxes monopolies, from an microeconomic
analysis most of the costs would be
carried by the companies in terms of
reduced pre-tax prices, increased tax payments, and decreased monopoly rents.
Second, most IP spending is not for essentials like food, rent, water, heat, non-brand name clothing, etc, so whatever small component is actually carried by the public will be progressive. Many IP monopoly holders in fact intentionally charge US customers more for the exact same textbook, DVD, movie, software, clothing, computer and medication than they charge for the IDENTICAL item overseas - so clearly, they can reduce their US price to absorb the tax avoid losing US customers. Finally, and importantly, an IP sales tax would tax
ALL IP sold in the US - not just IP produced or owned in the US - this would greatly widen the tax base and make sure that non-US (and US) companies that are profiting from the US marketplace help
pay their fair share of taxes. (Conventional
taxes like income taxes and payroll taxes actually penalize US workers and reduce their international competitiveness).

How about a special Sales tax ON all Intellectual Property ?

Why have I never heard this discussed in policy circles ???

Nov. 04 2011 02:31 PM

There is a "sin" tax on cigarettes and alcohol. Why not a "sin" tax on greed?

Nov. 04 2011 01:57 PM
Michael from manhattan

If you want a coherent explanation of current flat-tax proposals, just read Robert Reich's take on them...

Nov. 04 2011 01:57 PM
Kate Green from the Bronx

Can you explain the greatly increased tax on ELECTRICITY that just occurred in Greece--seems like a great idea to keep people from using too much electricity, and the rich use more of it than the poor, so it makes a lot of sense.

Nov. 04 2011 01:55 PM
Kate Green from the Bronx

Can you explain the greatly increased tax on ELECTRICITY that just occurred in Greece--seems like a great idea to keep people from using too much electricity, and the rich use more of it than the poor, so it makes a lot of sense.

Nov. 04 2011 01:54 PM
John Weaver

Flat tax puts the onus on lower income vs. upper income that control leavers of power. Elastic tax structures with spending priorities are required at the start of fiscal year based on anticipated tax revenue, loopholes prohibited. Constitution provides for extruding funding like war or catastrophes that require debate and majority approval and presidential signature.

Nov. 04 2011 01:54 PM
James I from Brooklyn, NY

The Fair Tax is an unrealistic and unfunded tax program for several reasons. Since sales taxes are regressive (takes more in % from poor and middle-class then the rich since there are more of them) the fair tax sends a monthly check to those in the lower tax brackets. Not only does this require major government oversight to track everyone's income and the plan doesn't account for the increased spending of monthly checks in it's revenue.
Most importantly! 23% is inaccurate and insufficient: Congress's committee on Taxation has already concluded that the national retail sales tax would have to be much, MUCH higher than 23%. AKA 30%. They found that the rate would have to be 36% (inclusive rate) or 57% exclusive rate (that's if you eliminate the current sales taxes on goods and services) in order to cover costs. But then the Treasury Department calculated that an increase of 34% is needed JUST to cover Income Tax. And that's not including payroll taxes. So the number grows even higher!!! And this is assuming the states would be 100% honest in their federal returns which is highly unlikely. So then you have to incur some margin for error in the increase sales tax. So the number grows even HIGHER!!!

Nov. 04 2011 01:54 PM
Roberta from Chappaqua

Capitalism and "we are all in it together"
are not compatible.

Nov. 04 2011 01:52 PM
Carrie from Hudson, NY

Is there any connection between the reduction of income taxes for the rich and our skyrocketing property taxes

Nov. 04 2011 01:51 PM

Most people seem to act as if their taxes to the Federal government just fall into a black hole. This money gets spent, doesn't it? And so likely helps the economy that way.

Money needs to move around for a vibrant economy, and there are lots of ways to keep it moving.

Nov. 04 2011 01:49 PM
stuart from manhattan

Why isn't the alternative minumum tax adjusted based on the geographic location of where the taxpayer lives? It costs more to live NYC than the rest of the country (housing, rent, food, transportation, child care, etc). A study 2 yrs ago by the Center for an Urban Future stated that it takes more than a six figure income to be considered middle class in NYC. Other than moving to another part of the country, how to we resolve this inequity?

Nov. 04 2011 01:48 PM
Paul from NYC

Where did the alternative minimum tax idea come from? Doesn't this overemphasize a progressive tax for those who do not receive benifits
from capital gains.

Nov. 04 2011 01:47 PM
LL from UWS

Are you covering Henry George's SINGLE TAX (on land)?

Nov. 04 2011 01:47 PM
Robert Ragaini from NYC

Great questions, incomplete answers. Which countries do have a flat tax? Your guest said they work rather well. What does that mean? Examples please.

Nov. 04 2011 01:46 PM
sheldon from Brooklyn

Why not - a progressive, no loophole flat tax?

First 100k - 15%

Second 100k - 20% etc?

Nov. 04 2011 01:45 PM
Ed Canavan

I live on Long Island and we have a sales tax of 8.5%

Under the 9-9-9 plan would we still have to pay this local sales tax?

If so, that would effectively make it a 9 - 9 - 9 - 8.5 flat tax; that's almost 40% !

Nov. 04 2011 01:45 PM
John A.

The problem is curved tax in that EG Buffett says he pays less than his secretary. Progressive tax for sure. Flat and Progressive - a line, not curve, tilted up.

Nov. 04 2011 01:44 PM
Steve from NJ

I loved the idea of a flat tax until I discovered the Fair Tax as explained on the website

Is Mr. Thorndike familiar with this plan and care to comment on it?

Nov. 04 2011 01:42 PM
Glen from Manhattan

There is no 'right' or 'left' in this issue, better to describe flat tax as fair or populist, and the 'progressive tax as 'called fair', and elitist.

Elitism has no right or left, both 'sides' get get manipulated by it

Nov. 04 2011 01:39 PM
No Flat Tax

Flat tax is regressive.
The poor pay a larger percent of their income, the rich pay less.

Nov. 04 2011 01:34 PM
Glen from Manhattan

Right now in the 'progressive' system we have - the top 20% in wealthy individuals pay 70% of the income taxes.

Equal opportunity means everyone pays the same percentage and then everyone has the same stake in government, meaning we'd have more of a small 'd' democratic government.

Nov. 04 2011 01:33 PM
Amy from Manhattan

Jerry Brown advocated a flat tax when he was running for president. Was it considered a left-wing idea at the time, & if so, how did it become a right-wing one?

Nov. 04 2011 01:33 PM
Jenny from LES

It is my understanding with the Perry plan the middle class would actually pay more in taxes with Flat Taxes than they are now.

Nov. 04 2011 01:32 PM
Steve M from Convent Station, NJ

I remember vividly reading my first chapter of my advanced tax text while studying at MSU.

Taxes were described as having two purposes:

1) to raise revenue
2) to direct public policy i.e. tax deductibility of mortgage interest to spur home purchase/ownership.

How would a flat tax impact the second purpose?

Nov. 04 2011 01:27 PM
Glen from Manhattan

Thorndike is obviously an elitist, who feels lawyers and accountants should be the only ones who can understand and do our taxes for us. He also believes the rich should pay more tax (and thus have more influence over government) and works for a liberal think tank in Washington, and his hence, against a flat tax.

Why not have pro and con flat tax guests to pose point and counterpoint?

Maybe because WNYC is only interested in left wing propaganda.

Nov. 04 2011 01:24 PM

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