One more swipe at flat tax advocates

Yesterday’s post about the strangeness of the flat tax position sparked a lot of conversation. I noticed some confusion here and there on what I was saying, so I thought a brief restatement might be helpful.

The flat tax advocate usually talks about not wanting to make rich people pay more, or punish them for their success. Suppose a person motivated by that goal had to choose from the following three tax systems:

  1. Head Tax (taxing a single amount for everyone)
  2. Flat Tax (taxing a single rate for everyone)
  3. Progressive Tax (taxing income at increasing marginal rates for everyone)

Someone who wanted to avoid charging the rich more should choose (1) over (2), and (2) over (3). But, the flat tax advocate chooses (2) over (1) and (3). This makes no sense. The flat tax option by its very design makes rich people pay more just because they are rich.

The only reason to favor a flat tax over a head tax — if you are someone who has the same mindset as most flat tax advocates — is because you think that differential marginal utility matters. That is, you think that taking $1 from a poor person creates more harm than taking $1 from a rich person, and that therefore taking the same dollar amount from each is unfair.

But the same thing that leads you to think the head tax is unfair should also lead you to think that the flat tax is unfair. That is, taking 30% from the income of a poor person creates more harm than taking the same amount from a rich person. Therefore, someone interested in evening out the amount of utility each person has to forego would favor a progressive tax.

So, basically the flat tax advocate is just in a totally untenable position. The reasons used to support a flat tax over a progressive tax actually lead us to support a head tax. The reasons used to support a flat tax over a head tax actually lead us to support a progressive tax. No reasoning that I can think of — at least not of this moralistic sort — would ever lead you to think a flat tax makes the most sense. It simultaneously “punishes” the rich for making more income and forces the poor to give up more (in terms of utility) than the rich. The flat tax position strikes me as completely incoherent.