Flat tax yields productivity
Taxes have always been a part of civilized life. In early America, there was never any consideration of a progressive income tax until 1861, when the U.S. government needed more funds to finance the Civil War. Rates started at 5 percent and were raised numerous times until in the mid-1940's when they reached an astonishing 94 percent. In addition to the income tax, the government has imposed a capital gains tax, payroll taxes to fund Social Security and Medicare, an estate tax, gift taxes and many excise taxes. As with everything that involves government policy, there are two main sides to the debate on progressive taxes — and I should say that there probably always will be.
There has always been the battle between equity and efficiency, and there is no end in sight. The case for favoring equity, and consequently, a progressive tax system, is quite simple and is based in goodwill toward the poor. Most Liberals — is that a fair assumption? — believe the wealthy population has a glaringly disproportionate aggregate income, and hardly needs all of it to live a comfortable, if not luxurious, lifestyle. On the other hand, the poor have very meager incomes, and thus have a substantially lower standard of living. Accordingly, the government must intercede to limit this inequity. The preferred course of action is to exclude a group of people deemed "poor" from paying any kind of income tax and, since the wealthy have so much money and can afford it, tax them even more to make up for the difference. This ideology has led to more progressive taxes like the estate tax, which collects a portion of a deceased person's assets passed along in his will.
Here's my take: Whether you like it or not, this country runs on a capitalist market. This means hard work, innovation, entrepreneurship and risk-taking are rewarded with a better quality of life. Taxes, like a progressive income tax, that try to restrict those key elements do nothing but stifle the gross domestic product and subsequently lower incomes of everyone. When the incentive to be productive and work hard is taken away, the effect is — you guessed it — people stop working hard and stop being productive. Economically, this results in a slower growth of GDP, and that affects everyone. Yes, wealthy people can "afford" to pay more in taxes without sacrificing their quality of life. Yes, poor people can hardly pay their bills on time, and can use every penny they earn. However, 48 percent of the country does not pay a dime in income tax. To be tactless and insensitive, they are like parasites. A country cannot run efficiently or equitably when one-half of the population financially supports the other half — especially when it is unwilling. And since most people benefit from progressive taxes, in the form of lower rates and more social programs, the Robin Hoods — both Republicans and Democrats alike — are re-elected.
Obviously, government needs financial capital to provide certain public goods and services like national defense and infrastructure, so it needs to tax its citizens. However, it is illogical to say that one demographic — based solely on income — needs these goods and services more than another. Everyone drives on the freeway to get to work. Everyone needs protection from foreign threats. And since these goods are used relatively equally, one person should not have to pay more for them than his or her neighbor does.
One cannot possibly make the argument that tax hikes on the rich are incentives that will inspire innovation, investment and ultimately grow the GDP. Clearly that is not the goal of President Barack Obama's administration anyway. Historically, Congress has raised taxes to raise revenue so they could spend more, and that is what they are doing now. The current policies of redistribution are counterproductive, though. A poor man cannot reach a rich man's standard of living in the short term, but a capitalist market still allows him to improve his life. By providing for him and excluding him from taxes, the government acts like a parent who will not let his child grow up. It has the best intentions, but the poor man will never learn how to work exhaustingly hard in order to better his circumstances and those of his own children.
Ideological arguments are endless and unrelenting — most people understand that. I know that I will never succeed in converting anyone to my way of thinking because most of those who disagree with me do not seem to genuinely listen to a differing perspective. That is why compromising is such a powerful tool in problem solving. There is one potential taxation system that finds a middle ground between the two seemingly polar-opposite ideologies, and it's called a flat tax. The flat tax would eliminate every federal tax and every federal tax deduction and loophole by replacing the current, nine-million-word tax code with a simple proportional tax rate of about 17 to 20 percent on gross income. There are so many benefits to instituting a proportional tax system, primarily because it simplifies taxation to an elementary level. With no deductions, people will not be able to hide income in tax shelters. With a simplified code, taxpayers would save almost $10 billion because the Internal Revenue Service would come close to obsolescence. This extra revenue could be used to reduce the enormous national debt. Most importantly, though, the quintessential American values would truly be rewarded with parity. People who invent or innovate or plainly work hard can collect a bigger paycheck without giving the government an even bigger chunk of it.
I am going to take a leap of faith here and suggest that Liberals do not actually hate the rich — they are mostly concerned with the plight of the poor man. If this is true, they need not worry about him. The flat tax would still identify an arbitrary income level, below which income taxes are not collected. In that sense, the status quo for lower-class citizens is maintained. Also, richer people would still be paying more than the middle-class. Twenty percent of $1 million is a lot more than 20 percent of $50,000.
The fair tax levels the playing field and reflects the true priorities of Americans. The current tax code needs to be radically changed if we want a more productive future and a better quality of life for everyone. If the country stays on its current path forged by the most progressive president in history, it will become a mirror of most European nations: Upwards of 50 percent income tax on an individual, 35-hour work weeks, almost no technological progress and a stagnant GDP — essentially a generation waiting to die. And for some people, that is fine. But they should move to France where that system is already in place. This is America, the greatest nation on the planet — not because its citizens are nannied by the government, but because of the unlimited opportunity for anyone, regardless of circumstance, to achieve a better life. Take it from former President Ronald Reagan, "We need true tax reform that will at least make a start toward restoring for our children the American dream that wealth is denied to no one, that each individual has the right to fly as high as his strength and ability will take him."
James Winters is a School of Engineering sophomore majoring in biomedical engineering. His column runs on alternate Tuesdays.