Flat tax?

November 2, 2011 by nanwich

Let's assume for the moment that partisan-opposition doesn't exist. I think we can all pretty much agree that the USA needs more people working (and paying taxes). I think we can also agree that a flat tax is a great ideal. Unfortunately the two concepts are in direct opposition.

How many accountants are there in this country? If they amount to only 1% of the population (I suspect that's a low estimate), then that means 3,000,000 (yes, million). I would guess that half of them derive the bulk of their income from doing taxes; I know several in that boat. So there's one and a half million people who would be added to the unemployed rolls.

The primary flat tax proposal out there today eliminates home mortgage interest deductions. How many mortgage bankers and real estate agents would be forced out if their jobs by eliminating that deduction? A bunch. I suspect that new home starts (builders) would drop off too. Now, consider that banks make a considerable portion of their income from the interest; so we could look forward to a number of bank failures, so we can add all those tellers, vice-presidents, and even janitors to the unemployed. We won't even think about the deposit insurance that the US would have to pay off...

Another deduction that would be eliminated is medical expenses. This means that people with serious medical problems would have to start cutting back on their care because they can't afford it. Gosh, could that mean that doctors, nurses, techs, etc. might start losing jobs? There would probably be some fall-out shared with medical insurance providers as well.

No job uniform deductions – hmm, clothing and cleaning companies going belly up. No moving deductions – moving companies going under. No legal expense deductions – okay, we could live without a few lawyers.

Oh, yes, no charitable contributions – think about the domino effect there. Much of that would fall back to public support.

Yes, a flat tax is a great ideal, but when you look at the effects, I think it's a bad idea, especially right now. If we want to move in that direction, we need to start eliminating the deductions slowly – starting with the ones that benefit the rich more than the poor and middle-class. Things like interest on a second home (or any home that is not lived in half the year) and "company" airplanes that aren't used much.