Monday, February 07, 2005

Homework time: Flat Tax

It's embarrassing to have to be pointed at the same thing two or three times before you see it. I suppose it's a guy thing. Only reluctantly asking (for directions or) for information. It's always better when you look up, see a familiar landmark and announce "See, I knew it was here!"
(Never mind we were as lost as that blind hog in the woods til he found that acorn.)

Anyway, here's the site that I passed over three times this morning.
Fred Wilson finally aimed me at it and this time it took.

The flat tax is really worth a look. The idea seems to be gaining momentum, and with the right handling it can become a win-win idea that can be supported left and right. Tom Watson shares a great anecdote to make a point.

A couple of years ago, I was waiting for a friend in a Gramercy Park restaurant when Steve Forbes wandered in for lunch. He sat down alone, quite obviously at his regular table, opened a newspaper and tucked into a salad. No one looked up or seemed to recognize him despite his massive amount of TV time as one of the dwarfs running against Bill Clinton's second term just a few years earlier. Just another publishing geek grabbing lunch in between meetings. Yet I felt a stirring: there's the father of the flat tax taking his ease! Doesn't anyone see him there? That's Steve Freakin' Forbes! Where are the autograph hounds? The paparazzi?

Now, I don't mean to shock my liberal friends with this, but I always felt there was a generous sliver of validity in Forbes' quixotic flat tax campaigns. This narrow peninsula of common ground with hard-core economic conservatives came back at me this week, pouring through the brisk left-right combination being exchanged on this site, in comments on my post about the $6 b-b-billion Presidential helicopter contract (which, yes, those same hard-core economic conservatives supported whilst Barry Goldwater spun in his grave like the plastic urinal roulette at Pizza Beat).

Read all of the Tom Watson post, and the inserted quote from one of his commentators, which concludes...

...our current system isn't really progressive; it taxes honest people, not rich people, disproportionately. Worse, it re-defines "honesty" downward: if you don't take advantage of any avoidance options that you can afford to exploit, you aren't being "honest" - just as people taking advantage of legal avoidance options aren't "dishonest." It makes a sucker of he who is not a schemer, and could be much fairer and simpler and, I would submit, more "progressive" with a flattening of rates.

Next, read the Times piece by Nick Kristoff. This line fairly jumps off the page. This is your new memory verse when you want to talk about economics and politics in the same conversation...

It shouldn't be liberal to oppose wealth-creating savings programs for workers. And it shouldn't be conservative to use loans to launch a multitrillion-dollar program.

Got that?
Now keep saying it until it sinks in.
Tom Watson drives home the point...

Tax simplification offers a siren song to both left and right, if they're honest about it. Easing the burden, putting more money in the pockets of the working poor and lower middle class, and lowering the cost of actually paying and collecting taxes - these love lights beckon us all. Nick Kristoff (no conservative, he) suggests in a terrific NYT op-ed piece today that increasing Americans' personal savings is a true and valid policy goal for our government, and I agree. This does not have to run through a stripped-down and privatized Social Security system, however. It should run through a generous and open debate on our tax code and its implications on our personal financial health.

As Kristoff and others note, our system currently rewards debt and interest payments to the extreme. Hell, I've refinanced my house a bunch of times, so that I can pay mainly interest on the mortgage, write it off, and lower my taxes; it's too good a deal to pass up, and most homeowners don't. But our growing debt may presage a crisis much, much worse than the so-called Social Security "crisis" a couple of decades hence. And borrowing more to create an investment-friendly Society Security is truly insane, as Kristoff notes.

The debate is off and running.
Matthew Yglesias is taking part...

...Helping more people own equities is a reasonable goal. Boosting the savings rate is also a worthwhile goal, but probably better tackled on the debt-side by reforming the credit card industry and predatory lending. These are things we should look at along with tax reform and health care reform, ideally after my "pain free" reforms and before we start looking at the "painful" ones. Their relationship to Social Security, however, is tangential at best, and better savings policy is not a replacement for better social insurance policy.

I have advised my kids, my employees and anyone else who would listen:
Don't jump into the pool until you know that there is water in it.

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