Stephen Moore: Flat Tax Revolution (An idea whose time has come--just not here)

Wall Street Journal ^ | September 1, 2005 | Stephen Moore

[RWR8189]

The flat tax--the same tax rate for everyone, without all the deductions that now complicate the tax code--is an idea with a decades-long pedigree. Politically its high-water mark in the U.S. came in 1996, when Steve Forbes ran for the Republican presidential nomination against Bob Dole and a tired GOP establishment.

Mr. Forbes single-handedly thrust revolutionary ideas into the political headlights--ideas about health insurance and Social Security, for instance, but most famously about the tax code itself. The GOP establishment hated his message, but the conservative rank-and-file loved it. Mr. Forbes was suddenly the talk of the town. There he was, with his signature horn-rimmed glasses and geekish smile, plastered on the cover of Time magazine. And for a brief moment it appeared that he might even win the nomination and topple the Republican establishment.

But then various deep-pocketed interest groups stirred themselves into action. In January 1996, for instance, the housing industry spent millions of dollars on TV and print ads explaining to New Hampshire voters that Mr. Forbes's flat tax, by eliminating the mortgage-interest tax deduction, would destroy the value of their homes and send their tax bills through the ceiling. Not a word of it was true, but truth is often a casualty in political polemics. Mr. Forbes fell like an oak.

[xrp]

We MUST have a consumption tax, not an income/productivity tax!

[samadams2000]

ditto that. The grand solution. Let everyone keep every dime they work and scrape for. You want success? Go get it.

[msnimje]

I am not smart in matters of money but I do think Stephen Moore is absolutely brilliant. If he is pushing the idea I believe it should be considered seriously.

[Your Nightmare]

The Flat Tax is a consumption tax. The critical feature of the Flat Tax is not the flat rate, but that it completely exempts all returns to savings (e.g., capital gains, interest). Income is equal to consumption plus savings, so if you don't tax savings, you are taxing consumption.

A great benefit of the Flat Tax is that it is a consumption tax but it doesn't double tax existing wealth. Under a NRST or similar sales tax, if you have after-tax money in the bank at the switch it will be taxed again when you spend it.