Flat Taxes vs. Federalism

Three of our top Republican contenders have taken up a suicidal lament: “Half the people pay no taxes! ” This is not only bad politics for the general election; it is bad policy – if you believe in federalism. I, for one, want to see Obama out of office and the federal government sticking to federal functions. And so I implore our standard bearers, and those who echo their talking points, to reconsider the theme.

The rich – even if you dilute the term to include country doctors and lawyers – are a minority. You need majorities to win elections. Duh! Are we the party of free markets and smaller government? Or are we merely the party of the upper class as the Democrats claim?

True, half the country pays no federal income tax, but we have plenty of other ways to tax the poor: sales taxes, payroll taxes, property taxes, gasoline taxes, cigarette taxes, state lotteries… Taxing the poor is easy. Even the states can do it. It’s the rich who have the lawyers, accountants and tax shelters.

Federalism requires progressive taxation at the federal level. As I said before, taxing the poor and middle classes is easy. The states can do it! The rich, especially the idle rich, can change venues to escape taxation, not to mention buy off state legislators to gain special tax breaks. On the other hand, changing countries is still a challenge. As a whole the United States remains a good place to become and be rich. The federal government can still shake them down for spare change. If the federal government were to go back to a more progressive tax system, we could eliminate a host of federal programs which go through the states. Let the states fund themselves through their own not-so-progressive tax systems. Let the states and/or localities fund schools, police and transportation infrastructure. We can even get rid of block grants – which never stay free of strings anyway.

Some of you might object that going to progressive federal taxes would complicate the tax code further or get us past the Laffer Curve maximum. Hah! If we merged the payroll and income taxes together and had a single per citizen deduction (or rebate), we could have a single marginal rate from tomato picker to cardiologist. As for the Laffer Curve, all we need to do is plug the most gaping loopholes, such as the lower rate for capital gains and dividends, and leave income rates where they are – below the rates from end of Reagan’s first term.

With a progressive federal tax system we can put an end to federal patronage and stimulus packages, reinvigorate our fifty laboratories of democracy and make Warren Buffet happy.

Cross posted to The Scientific Conservative.