So, now Ted Cruz joins past presidential candidate wanna-bees on the right in proposing a flat tax. Flat taxes have been proposed by most recently Herman Cain and the Nut Gingrich, but have also been floated in the past as far back as Steve Forbes when he wanted to be the right wing nut candidate.
There is a problem with the Fat Tax. It doesn't work, in that it does not offer the promised benefits in tax revenue or growth. What it DOES do -- and why we should expect it from the right wing, hand maidens to the wealthy, is to benefit the rich and to expand wealth and income inequality. It also tends not to have provided adequate revenue -- much the way the Bush tax cuts failed to produce adequate (much less increased) revenue and economic growth. The flat tax also does not promote adequate revenue or optimal job growth, much the way we have seen the tax cuts in regressive states like Kansas and now Wisconsin have not produce either economic growth or job creation and increases in business growth.
There has been experimentation with the flat tax, mostly in formerly eastern bloc European countries and Russia. Many of those countries, after implementing a flat tax, DID see economic growth, but for other reasons than the flat tax, and those countries have been hit hard by the 2008 global economic recession. And another factor not generally noted - most of the countries that have implemented the flat tax have also been widely regarded as highly corrupt, with Russia being regarded as the MOST corrupt - one of the most corrupt in the world, which should be considered in any reference to increased tax compliance.
This is significant because Cruz also wants to abolish the IRS, making compliance apparently entirely on the honor system.
Yeah, like THAT is going to work.
So lets start with the famous IMF study of flat tax implementation and success / failure from 2006 -- before the big global economic collapse. At that point the range of time during which there was evidence on the implementation of the flat tax ranged from ten years to two years in the countries examined.
From the 2006 IMF study of the flat tax
One of the most striking tax developments in recent years, and one that continues to attract considerable attention, is the adoption by several countries of a form of “flat tax.” Discussion of these quite radical reforms has been marked, however, more by assertion and rhetoric than by analysis and evidence. This paper reviews experience with the flat tax, seeking to redress the balance. It stresses that the flat taxes that have been adopted differ fundamentally, and that empirical evidence on their effects is very limited. This precludes simple generalization, but several lessons emerge: there is no sign of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms; their impact on compliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity, including through the impact on compliance; adoption of the flat tax has not resolved common challenges in taxing capital income; and it may have strengthened, not weakened, the automatic stabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it.
So for those of you who either have forgotten the lessons of your economics classes or never took them, let's first review the significance of that bold typed part of the above study excerpt. What is the Laffer curve and Laffer-type behavior? This is key to the selling of a flat tax by Cruz and other right wingers; it is the fundamental premise and promise of the flat tax, in exactly the same way that it has been the promise for tax cuts generating economic growth and increased revenue -- in other words, a CON, a SCAM, a FRAUD, a HOAX, a LIE.
