A flat income tax is a scam. It won’t stay flat.

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Number of tax brackets increase over time

Bias Statement: When writing about candidates, I believe that authors should include a bias statement, indicating the author’s possible bias. So here is mine. As a conservative Texan, I campaigned for and voted for Ted Cruz for the U.S. Senate. Sadly, I now think he has been only a marginally “acceptable” Senator. I have never voted for anyone whose last name was Bush, for any office, except coincidental with my votes for Ronald Reagan. My choice for President is Mike Huckabee, but if it comes down to it, I will have no problem voting for Trump in November.

Not surprisingly, most GOP presidential candidates have their own tax plan. Unfortunately, most are nothing but shams, aimed at preserving the current progressive income tax.

All but one of the tax plans proposed by GOP presidential candidates are variations on the current income tax. Moreover, a significant selling point for each income tax plan is a reduction in the number of brackets, including four flat income tax plans.

The Trump and Bush plans cut the number of brackets from seven to three. A significant point, concerning these two plans is that their proponents don’t suggest that that the rates they promote would stay the same over time. Rubio would cut the number of brackets to just two, also making no suggestion that his rates would remain there for long. But those variations on a progressive income tax are not the plans I want to talk about.

Instead, I want to focus on the plans that are called “flat income tax” plans. I use the term “called”, in the previous sentence, because the Cruz and Paul plans are not really what most Americans think of, when they hear the term, “flat income tax”. Calling the Cruz and Paul plans a “flat income tax” is just a deceptive way to get people to support a Value Added Tax (VAT). They hide the fact that it’s a VAT with phrases like this, from the Cruz website, “The tax will be based on revenues minus expenses such as equipment, computers, and other business investments.” That sentence just defined what is referred to as a “subtraction-method VAT“.

Senators Cruz, Santorum, and Paul, each refer to their own plans as a “flat income tax” and Carson calls his a “flat tithe”. Furthermore, the top tax bracket in each of the various flat income tax plans is significantly lower than the current top tax bracket of 39.6%. Sen. Cruz and Dr. Carson would set a flat income tax rate at 10%, Sen. Paul would place the flat income tax rate at 14.5%, and Sen. Santorum would set it to 20%.

Wow! These flat income tax plans “sound” great!

Actually, that’s all it is – just sound bites. All of the talk about a flat income tax is all sound and no substance. As William Shakespeare would say, a flat income tax is “a tale told by an idiot, full of sound and fury, signifying nothing.” (Macbeth – Act 5, Scene 5, lines 26-28)

In fact, when you stop and think about it, it’s only the Santorum plan that even comes close to “sounding” great, since it is the only one of the four flat income tax plans that wouldn’t bust the budget. In recent years, numerous economists have determined that the point of diminishing returns for a flat income tax is somewhere around 17 to 19 percent. The Hall-Rabushka plan – the VAT plan upon which both the Cruz and Paul plans are based – concluded that the point of diminishing returns was 19%. Also, consider that the flat income tax proposals in Congress today, set the ongoing flat income tax rate at 17% (one of them starts at 19% and drops to 17%. The point is that, at 10% for the Cruz and Carson plans and 14.5% for the Paul plan, all three are significantly below the point of diminishing returns and would therefore, bust the budget.

Note: I mention the Paul and Santorum plans, despite the fact that both candidates are third tier candidates, because their plans are referred to as a flat income tax, which is the subject of this article.

But let’s ignore the fact that three of the four proposed flat income tax plans would bust the budget. Instead, let’s assume that these politicians, with no real economics background, have some magical knowledge of economics that major economists have overlooked. Let’s assume, for a moment, that these extremely low rates won’t bust the budget. There is still a major problem.

The farcical promises made by candidates supporting a flat income tax are exceeded in absurdity, only by the Muslim promise of 72 virgins, for blowing yourself up. But then, these candidates aren’t trying to get people to go out and blow themselves up, either. They just want to maintain power and that means preserving the progressive income tax, at all costs. They also want your votes and they’re not beyond employing deliberate deception, to get those votes. Although what they’re saying may not be outright lies, it’s what they leave unsaid and what they imply, that amounts to willful and calculated “deception”. The promoters of all of these plans would have us forget one key fact.

A flat income tax will not remain flat.
(See above chart.)

A flat income tax is nothing more than a fall-back position, aimed at distracting voters, while simultaneously preserving the Washington Establishment’s cherished income tax gravy train. In fact, a flat income tax is intended to give the “appearance” of tax reform, only long enough to kill any hope of real tax reform. In that regard, one of the primary purposes of a flat income tax is to be a “FairTax killer”. (Note that when Ted Cruz was campaigning for the U.S. Senate, the FairTax was one of his major issues.)

Should a flat income tax ever become law, then every time, after that, when a member of Congress mentions the FairTax (or any other comprehensive tax reform proposal), the DC Elite would answer with, “We just passed a flat income tax and now you FairTax people don’t even want to give it time to work. Besides we still have to work the bugs out of the flat income tax. You’re being unreasonable.” and the litany would go on and on. Of course, they would milk that argument for at least a decade, by which time, they would have “work(ed) the bugs out” of the flat income tax, in the form of a bunch of new tax brackets and tax shelters too numerous to count.

Don’t take my word. Just think about it… Think about what you know about how Washington, DC operates… You know that’s exactly what will happen. It has happened in the past, with other big-government programs that the DC Elite have wanted to protect and it will continue to happen in exactly the same way, with taxes, as long as the government taxes income. We’ve heard it a thousand times, with other issues. “We have to give (name the bill) time to work.” Of course that “time to work” is the enemy of real reform, be it tax reform or any other type of reform.

So what this means is that any candidate who tries to tell you that his flat income tax plan is just a first step to comprehensive tax reform is either completely ignorant of how Washington works or he’s lying. You be the judge.

But let’s get back to why we know that a flat income tax won’t stay flat.

To understand how flattening tax brackets will have no real long-term effect, we have only to look at what happened after President Ronald Reagan took office. He inherited a convoluted income tax system, with 16 tax brackets, topping out at a whopping 70%! That was in 1980.

Over his eight years in office Reagan managed to cut the number of brackets from 16 to just two – 15% and 28%. Think about it. The top tax bracket was lowered by 60% and the number of brackets was reduced to one-eigth the number of brackets he inherited. Those reductions are far greater than anything being offered in any of the flat income tax proposals today.

The first time that U.S. taxpayers saw just two tax brackets, since the current income tax went into effect, in 1913, was in 1988. So let’s look at the time line.

  • 1988 – This was the first year for only two tax brackets.
  • 1989 – Ronald Reagan left office.
  • 1990 – George H.W. Bush signed into law a third, higher tax bracket (31%). This was less than two years after Reagan left office.

Furthermore, every president since then has overseen the addition of at least one more tax bracket (see chart above), with the current top bracket now being 39.6%. That’s a 41% increase over Reagan’s top rate of 28%. Moreover, the complexity of the current tax code is today, far worse than even what Reagan inherited, but with seven instead of 16 tax brackets.

When Reagan was cutting taxes and tax rates, there was speculation that his tax cuts and flattened rate structure would be only temporary. But, at that time, it was just speculation. Today, we have historical proof. We’ve heard all the arguments. The most popular is, “The rich aren’t paying enough, so we need another tax bracket for them.” But once rates rise above the point of diminishing returns and revenue starts dropping, we get, “Revenue is down, so we need more brackets to enable us to get more money from the rich and the greedy corporations.” Of course, many naive voters don’t realize that all income tax is paid by individuals and that taxes on the rich always end up being taxes on everyone.

So, in light of the real history of flattening and lowering tax rates, consider that we now have Cruz, Santorum, Carson, and Paul trying to make naive voters believe that their flat income tax is going to be any different than what Reagan gave us – a trampoline to allow the tax-and-spend crowd to quickly get us back to where we are today and worse. Few people would think that any of these candidates are stupid. But the facts are so obvious that only someone who is totally incompetent could miss them. I’m sure that most people who have taken the time to read this article are aware of those facts. But for the candidates who seem to have missed them, here they are.



History proves that those two facts are inherent in the underlying structure of an income tax. In particular, the chart at the top of this article clearly shows how the two tax brackets that Reagan left us, quickly became three and then five and have now climbed to seven.

It follows then, that since these flat income tax candidates are surely not ignorant of the facts, they must be engaging in intentional deception. In fact, Ted Cruz goes even further in his attempt to deceive, when he claims that his plan will allow him to “abolish the IRS” – something that is just not possible, as long as income is taxed (proven, with out a doubt here).

But, with the sole exception of Cruz’s completely false “abolish” statement, none of these candidates appear to be telling outright lies. It’s just that their truthful statements are carefully crafted to lead naive voters away from any thought concerning the above two facts. Though not really lies, the candidates’ statements about a flat income tax are clearly attempts to deceive or mislead.

I had great hope for Ted Cruz, in particular, since I campaigned for and voted for him, as the “outsider candidate”, in his Texas U.S. Senate race. Sadly, I am now forced to admit that, like Texas Senators Kay Bailey Hutchison and John Cornyn, before him, Senator Cruz has joined the ranks of the “DC insiders”, both in trying to protect the income tax (which he vociferously campaigned against in his U.S. Senate race) and in how he now, not only uses, but embraces obfuscation, to deceive voters.

But this criticism of Cruz is not meant to let Senators Santorum and Paul or Doctor Carson off the hook. They’re just as bad. It’s just that I had much higher expectations for Cruz, than I had for Santorum, Carson, or Paul. They all want us to ignore the fact that ANY flat income tax will not stay flat.

It’s all hype. A flat income tax is nothing more or less than a fall-back position for the progressive income tax. It’s no more than a two-year vacation for tax lobbyists. The real purpose of a flat income tax is two-fold. It is meant to (1) gain the votes of naive voters, while (2) preserving the foundation of the progressive income tax, in order to make re-implementing the progressive income tax easy, once voters have been temporarily appeased. It’s a feint.

There is little doubt that each of these candidates would do his very best to implement his tax plan. But there is NO doubt that such a plan, if it were to be implemented, would be only temporary. As long as the foundation remains, re-implementing a strongly progressive income tax, with high rates is a simple matter and would occur within one or two sessions of Congress.

These flat income tax plans plans were hurriedly cobbled together by the candidates and their staffs, in the months since each candidate entered the race. As a direct result of the way they were developed and by whom they were developed, those plans were focused more on political goals, than on economic goals. Certainly, economists were involved in the development of those flat income tax plans. But those economists were hired by politicians, who gave them political goals to achieve. They didn’t want solutions, as much as they wanted convincing sound bites. Remember, “sound and fury, signifying nothing.”

But all this talk of what would happen if a flat income tax were to pass is largely irrelevant, since a flat income tax has absolutely no chance of passage. There are currently two flat income tax bills in the House and one in the Senate and between them, they have three sponsors and no co-sponsors. After all, most members of Congress don’t want to be associated with a tax plan that they know will hit the middle class hardest. This means that a presidential candidate can safely push for a flat income tax and then blame Congress when it doesn’t pass.

Only Governor Mike Huckabee has proposed a tax plan that really will:

  • abolish the IRS,
  • make changing the plan extremely difficult,
  • make raising the tax rate political suicide and
  • has a real chance of becoming law.

Huckabee supports the FairTax, which was developed over several years (not months), by many well-recognized economists, at a cost of more than $20 million. To put this into perspective, most of the candidates have not yet spent that much on their entire campaign, let alone, on defining their tax policy. Furthermore, the economists who developed the FairTax were not hired by politicians, with a political agenda, but by a private organization, funded by private donations from Americans of all walks of life. Those economists were not told to create a particular kind of tax (income tax, VAT, sales tax, etc), to fit a political agenda. Rather, their mandate was to identify the problems with the current system and come up with a plan that would positively address those problems. That’s all. In other words, for probably the first time in history, economists were given a free hand, with no political constraints, and a huge budget. The FairTax is what they developed.

Moreover, the FairTax can easily become law. All it requires is to get the entrenched DC Elite out of the way. That’s because the FairTax now has 81 sponsors and co-sponsors in both houses. That’s more sponsorship than any revenue bill that has ever become law. Of course, many more members of Congress have voiced their support for the FairTax, but have not signed on as a co-sponsor. Even former Congressman Ron Paul, who is known for opposing all taxes on Americans, told me at a National Libertarian Party Convention in Houston, where I was manning a booth, that he would not co-sponsor any bill that taxed Americans, but that he would vote for the FairTax, should it come to the floor. The FairTax is nearing critical mass in support. All it needs to pass, is for the entrenched GOP Leadership to either be ousted or to seriously fear being ousted, so they will allow FairTax to get to the floor for a vote.

Also, the FairTax really does abolish the IRS, since it abolishes the whole reason for the IRS – the income tax. In place of the income tax, the FairTax implements a national retail sales tax, that would be collected at the cash register and forwarded to a state tax agency (45 of those agencies already exist). The Treasury Department would audit only those state agencies, the state agencies would audit a portion of the roughly 25 million retail businesses, and nobody would audit individual consumers. No income tax plan can get the government so completely out of our financial lives.

Further differing from the flat tax plans, raising the tax rate of the FairTax would be seen as political suicide, since every consumer would be reminded of how much tax he pays, with each purchase of a head of lettuce, when he pays his electric bill, or with any other retail purchase or payment. Since the amount of FairTax paid is printed on each receipt, there is no way to hide tax increases under a sales tax. Moreover, since most people spend money on retail goods and services almost daily, they are reminded of how much tax they pay almost daily. So there is no “safe” time of the year to raise sales tax rates.

This is why, in the states where sales taxes are currently collected, legislators have found that even a failed attempt to raise sales tax rates is very politically hazardous. With an income tax, it’s easy to raise tax rates, by claiming that taxes are only being increased on “the other guy”, even when the net effect is to raise taxes on everyone. Then of course, they never raise income tax rates on April 10th, when people are thinking about taxes. But as pointed out above, with a sales tax, there is no time of the year when voters won’t notice a tax increase. It’s the in-your-face, 365 day a year transparency of the FairTax that makes raising the FairTax rate so politically hazardous that it’s not likely to be raised, short of a national emergency of epic proportions.

The FairTax also eliminates more than 50% of the effect of lobbyists, since more than 50% of all lobbying activity in Washington is income tax-related and that all goes away under the FairTax. This means that the people you helped elect to office will have to listen more to what you have to say, since more than half of the lobbyists who currently influence them, will be out of work.

But the best part of the FairTax is that not only is the IRS abolished, but all personal records held by the IRS will be destroyed (with the exception of employment data needed to calculate Social Security payments, which data will be forwarded to the SSA). Unlike with a flat income tax, under the FairTax the foundation of the income tax is completely broken. Reconstituting an income tax would not only be politically hazardous, but it would have to be rebuilt from the ground up.

Do not be deceived. Those who support any kind of flat income tax are simply proposing a plan intended to preserve the foundation of the progressive income tax, so they can easily get back to the status quo, after fulfilling or attempting to fulfill their promise to implement a flat income tax. Sure, it would be flat for a year or two. But the politicians would soon find that revenues are down, the poor are paying too much, the rich are paying too little, or they would find some other excuse to add in new brackets. In short order, a second, higher tax bracket would be added (a la George H.W. Bush). Then the whole thing starts all over again.

In fact, it’s highly likely that the lower a flat income tax rate, the sooner such brackets would be added. This is because the lower the tax rate falls below the widely accepted 17% point of diminishing returns, the lower will be the revenue collected and the sooner those in Congress will be able to justify adding in new and higher tax brackets. It should be noted that, among these plans, only the Santorum plan is close to that point of diminishing returns. At 10%, the Cruz plan would either have to be raised or have new brackets added within a year. Oops!

A flat income tax is a scam. It won’t stay flat for more than a year or two.

Think about it… You know this to be true. A flat income tax won’t stay flat.

If your candidate is pushing a flat income tax, then he is deceiving you on taxes. So you should start asking yourself, “On what other issues is my candidate deceiving me?” If your candidate tells you that his flat income tax plan will abolish the IRS, then you are being doubly deceived. The point is that a candidate who attempts to deceive voters on any issue should never be allowed into the Oval Office, even to visit, and certainly not as President.

Of course, in fairness, I should offer one other explanation (albeit extremely unlikely) for candidates who support a flat income tax. They could be incompetent. They could be ignorant of the obvious facts, which were pointed out above. But then, wouldn’t having an incompetent president be almost as bad as having a president who deceived voters? Either way. If a candidate supports a flat income tax, he is to be trusted even less than those who want to keep some sort of progressive income tax plan. At least that second group is being honest about wanting to maintain a progressive income tax and the power it gives those in government.

If my only choices are a candidate who openly supports a progressive income tax or a candidate who deceptively supports the same progressive income tax, I’ll take the honest status quo candidate over the deceiver, since they both lead to the same place. But fortunately, there is a candidate who has a workable and long-term tax plan. Mike Huckabee not only has a better tax plan than Cruz, Santorum, Carson, or Paul, but he has executive management experience, as Governor, that none of them have. Maybe if any of them had ever successfully run a large business or a state, they would have executive management experience and, having such experience, would have hired a tax adviser who would have pointed out to them that a flat income tax won’t stay flat.

A flat income tax is a scam and candidates who propose any kind of scams have no business in the Oval Office.

To learn more about the FairTax, read The Rich Don’t Pay Tax! …Or Do They? Also read, The FairTax Book.

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