A prerequisite for a flat tax discussion

Tom Ashbrook spent 45 minutes with Ben Carson yesterday. Jon Cohn entered the conversation briefly, which was the best part of the program.

I generally like it when Ashbrook gives his guest room to express his or her views without debating every point. A little pushback is a good thing, though, to help draw out the best arguments, and Ashbrook usually strikes the right balance, in my view. He did not rebut Carson’s dismissal of Keynesian economics or evolution. That was probably wise. However, he seemed to want to engage on the flat tax, but came up embarrassingly short.

TA: You’re a smart guy. I mean, isn’t it ideology either way? Isn’t a flat tax an expression of a kind of ideology as well?

BC: I think the flat tax, proportionality, is fair. Describe to me how proportionality is not fair?

TA: Um, I’m not here to carry the torch for what people might say. You know, if you’ve got those billions of dollars and you can afford to chip in when the country needs it —  you know a progressive tax can be understood as proportional. It depends on your ideology in assessing it.

BC: Proportionality, if God thought it was fair, I think is fair too.  The onus is on somebody else to prove to me why God is wrong in his assessment of what is fair.

Oh boy. At the very least one of these guys, if not God, should know what Mark Thoma explained recently.

What is the basis for progressive taxation? One principle of taxation (there are others) is “equal marginal sacrifice,” i.e. that the last dollar in taxes paid by the rich and the poor should cause the same amount of pain.

Thoma then quotes Miles Corak explaining a passage from Alfred Marshall’s Principles of Economics.

In other words, losing a dollar when you already have many causes less pain than when you have only a few. Marshall’s argument is the basis for both the substance and the method of a good deal of basic micro-economics: it explains the “law of demand”—why lower prices induce people to buy more—but also why tax rates should rise with income.

Economists judge the functioning of the tax system in a number of ways: certainly the system should not be administratively cumbersome, and it should, to the greatest degree possible, not cause individuals in a well-functioning market to change their behavior. It should also treat equals equally. Finally, the tax system should raise more revenue where it will cause the least pain. And this last concern, when coupled with Marshall’s reasoning, suggests that tax rates should be progressive: as income increases, the greater the fraction that should be paid in taxes.

Learn this one, Tom Ashbrook.


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