Tax Day Duplicity

Here we go again. In a “tax day” rehash of one of his favorite topics, Hyman again suggests that a labor tax or a consumption tax would somehow solve the problems of taxpayers. In a textbook example of the “false dichotomy” fallacy, Hyman suggests that either we have a complex tax code that keeps people up until midnight on April 15th doing their taxes, or we have a simple tax such as a labor or consumer tax (a.k.a. a flat tax or national sales tax).

The problem with this argument logically speaking is suggesting that only regressive tax policies can be simple. The problem with this argument economically speaking is that regressive tax policies are bad government.

There’s no reason why a progressive tax policy can‘t be simple enough to allow filers to simply fill out a postcard-sized return. There’s nothing magic about regressive taxation that makes it inherently less complex. In fact, a great many of the 45,000 pages of tax code decried by Hyman are there precisely to help corporations and wealthy individuals find ways of avoiding paying taxes. Hyman’s implication that the only answer to complex tax forms is a regressive tax scheme is hogwash.

And make no mistake, both the labor tax and consumer tax are regressive. A labor tax is often labeled a “flat” tax by supporters because of the egalitarian overtones of the word, but in fact, a single tax rate places a disproportionate burden on those at the lower end of the income scale. Here’s all you really need to know about he labor tax: Steve Forbes, one of its biggest proponents, is a multi-millionaire and would not pay a cent of income tax under his own labor tax proposal.

A consumer tax is often labeled a national “sales tax” because it suggests that such a tax would be incidental—I, for one, usually don’t think much of the few pennies in state sales tax added to the cost of my latte when I go to the campus coffee shop (wink wink, nudge nudge). But any consumer tax that would take the place of the income tax would have to be a hefty 35-50% tax on all purchases (including the purchase of houses and cars). And no more deductions for mortgages either. The end result is that those who spend the highest percentage of their income (i.e., those that don’t make a lot of money and don’t have disposable income to tuck away in savings or investments) get saddled with far more than their share of the tax burden.

As we learned in Ron Suskind’s book The Price of Loyalty, the obsession with cutting taxes for the wealthy is not simply a fiscal policy for neo-cons. It’s a dogmatic belief—something that is good in and of itself, independent of its consequences. But the history of such tax policy isn’t terribly good. Hyman invokes the well-worn talking points that JFK was actually a supply-sider, that Reagan’s tax cuts created a huge economic boom, as did George Bush II’s welfare for the wealthy tax plan. However, Kennedy’s tax cuts were aimed primarily at working class people in an effort to boost the purchasing power of the average American, while the supply-side cuts actually diminish this power by saddling the working and middle class with a greater amount of the tax burden.

What about Reagan? He cut taxes dramatically, but then dramatically raised them (via rolling back the extent of his initial tax cuts) soon after, amounting to one of the largest tax hikes in history (Hyman ignores this). Reagan did this because it became obvious quite quickly that the optimistic projections on which he based his tax cuts weren’t coming true, and rolling back these cuts was a necessity. Of course, he didn’t roll them back nearly enough to prevent an astronomical growth in the national debt, but hey, it could have been worse.

As far as George Bush II’s “economic boom” that Hyman refers to, another such “boom” and we’ll be having to break into the national archives to dust off soup kitchen recipes that have been collecting dust since the 1930s.

The worst aspect of this type of tax rhetoric is its duplicity. Regressive taxes are sold to working and middle class Americans couched in the rhetoric of egalitarianism and practicality, invoking anti-tax and anti-government sentiment, while the actual policies would increase the tax burden on exactly these people. Beyond simply being poor fiscal policy, such tax schemes and the arguments in their favor are egregious examples of duplicity in public discourse.

To paraphrase Hyman, it probably makes you want to take that pencil and stick it in some television commentator’s eye, doesn’t it?

And that’s The Counterpoint.

P.S. Some previous Counterpoints have gone into more detail on the issues of the labor tax and tax fairness.