Sunday, November 6, 2011

"Studies show flat taxes are harmful to your health"

Economist Robert Frank explains at NYT's how the flat tax "would greatly exacerbate longstanding growth in income inequality" and diminish quality of life, health and well-being:
Republican candidate, Herman Cain, enjoyed widespread attention when he unveiled his “9-9-9” plan last month...

Mr. Cain touted his plan’s simplicity, and many voters were apparently impressed... Rick Perry, the Texas governor, responded with a flat-tax proposal of his own. At this point, Mr. Romney is the only top-tier Republican candidate without some variant of a flat-tax proposal. But give him time.

The contention that a flat tax would be simpler because it involves only a single rate is flatly wrong. The complexity of the current system has nothing to do with its multiple income brackets.

The hard step in figuring your tax bill is to compute your adjusted gross income — roughly, the amount you earn, less the myriad exemptions, deductions and various other offsets described in the 3.4-million-word code of the Internal Revenue Service...

The much more serious concern is that a flat tax would reinforce the trends toward greater income inequality that have been seen over the last several decades.
As documented by a recent Congressional Budget Office study, the top 1 percent of income recipients in the United States earned 275 percent more in 2007 than they did in 1979, adjusted for inflation, a period when the earnings of middle-income households grew by less than 40 percent. A flat tax would increase inequality by substantially reducing rates on the most prosperous households, while increasing them on low- and middle-income households.

According to an analysis by the nonpartisan Tax Policy Center, Mr. Cain’s proposal would increase the annual tax bill of a typical family of four earning $50,000 a year by more than $4,000, but would reduce the taxes owed by a similar family earning between $500,000 and $1 million by almost $60,000. The center also estimated that families in the top one-tenth of 1 percent of households would enjoy an average annual tax reduction of nearly $1.4 million under the Cain plan. Similar distributional effects are common under all flat-tax plans, not just Mr. Cain’s.

Rising inequality exacts a toll not just on those with lower incomes, but also on those much higher up the income scale. In their 2009 book, “The Spirit Level: Why Greater Equality Makes Societies Stronger,” the British public health researchers Richard Wilkinson and Kate Pickett document a range of social ills that are reliably associated with increased income inequality, both over time within nations and at any particular moment across a broad range of countries. Countries and times with lower inequality fare better on virtually every published index of health, well-being and quality of life.

Those with the highest levels of inequality, like the United States, invariably score poorly on these indexes. And those same countries consistently experience higher rates of violent crime.

TO say that flat-tax proposals are problematic isn’t to deny that our current tax system is profoundly dysfunctional. Every year, corporate lobbyists and other supplicants use campaign contributions and other inducements to persuade legislators to enact additional exemptions, deductions and other loopholes. Voters are justifiably angered by having to wade through this complexity, or by having to hire one of the nation’s 1.2 million professional tax preparers to do so....

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