For GOP Presidential Field, It's Survival of the Flattest
As Steve Forbes learned in 1996 and 2000 and Herman Cain is learning now, the flat tax is a bad idea whose time never came. After all, the move to a single income tax rate for all earners inevitably shifts the tax burden from the rich to middle and lower income Americans. And if the rate is too low, the result is a hemorrhage of red ink from the U.S Treasury that quickly becomes an ocean of debt.
Nevertheless, in one form or another, the top tier of the 2012 GOP presidential stands poised to embrace this latest wildly regressive Republican windfall for the wealthy. Hoping to benefit from the hype surrounding Cain's simple 9-9-9 plan, Texas Governor Rick Perry with Steve Forbes' endorsement will announce his own flat tax proposal on Tuesday. Meanwhile, the resurrected Newt Gingrich has exhumed his own scheme in the guise of an "optional" 15 percent flat tax rate. And to confirm the growing flat tax popularity among his party's primary voters, frontrunner Mitt Romney in typical fashion may be on the verge of reversing course.
Last month, Governor Romney unveiled his 59-point, 162 page plan for the U.S. economy. With its call to make the Bush tax cuts permanent, cut the top individual and corporate tax rate and end the estate tax, the Romney proposals would drain an estimated $6.6 trillion from the Treasury. But Romney's payday for the gilded class (including himself) did not feature a flat tax.
At least, not yet.
As the New York Times explained on Sunday:
As several leading Republican presidential candidates embrace a flat tax as a core campaign position, one contender stands out in not doing so: Mitt Romney, who has a long record of criticizing such plans and famously derided Steve Forbes's 1996 proposal as a "tax cut for fat cats."
Lately, though, his tone has been more positive. "I love a flat tax," he said in August.
The old Mitt Romney had it right. As the Washington Post summed it up last week:
The details of each flat-tax proposal differ -- the overall rate, whether some low-income families would be exempt and which deductions might be spared on the chopping block. But experts say they invariably increase taxes on lower-income households and cut them for the rich, a potentially dicey proposition for voters worried about the country's decades-long trend of growing income inequality.
"If you're going to get the same amount of revenue, someone has to pay the price," said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution. "The rich pay less, the poor pay nothing, and the middle class bears the burden."
Team Romney has admitted as much. As the Times reported, "Romney aides said they could not recall any that might pass muster with Mr. Romney's requirements." On Thursday, Mitt reiterated the problem with flat tax proposals to date: you have to make sure it "doesn't raise taxes on middle-income Americans."
Nonetheless, with Perry and Cain, backed by supply-side snake oil salesman Arthur Laffer and the literally unblinking Steve Forbes, pushing flat taxes to the front burner, the perpetually waffling Romney can be expected to perform more gymnastic flip-flops. Last week, Forbes called Perry's upcoming flat tax program the most exciting tax plan since Reagan's" in 1980. For his part, Laffer praised Cain's "stimulating 9-9-9 tax reform" despite analyses showing it would hike taxes on 84% of Americans while showering cash on the very rich. And as the New York Times explained, the usual suspects in the conservative movement are especially suspicious of Romney on his past aversion to flat taxes:
Grover Norquist, head of Americans for Tax Reform, says he sees Mr. Romney's shift as part of a broader consensus among the field to move toward a flatter tax structure. But with that movement gaining strength in the Republican Party, he said, Mr. Romney's past critical comments about flat taxes are "awkward" and "a little tough to explain."
Dick Armey, the Texas Republican and former House majority leader who was an early flat-tax proponent, said he believed Mr. Romney was doing "the conventional, orthodox, old traditional Republican thing: you've got to give it lip service but 'I don't want to do much heavy lifting.' "
With flat tax friends like that, Mitt Romney doesn't need any enemies. The pressure for him to adopt some manner of flat tax will be intense. But as the Tax Policy Center's Williams put it, ""The people with big incomes are going to see big tax cuts, the low-income people are going to see big tax increases, and suddenly that doesn't seem fair."
Except, of course, to supporters for whom the unfairness of the flat tax is a feature and not a bug. As Arthur Laffer explained in April 2009:
"You really can't collect much money from upper-income people. They know how to get around taxes. So if you want to raise revenues, you've got to do it in low-level, broad-based taxes."
Or as Republicans might call it, survival of the flattest.
UPDATE: Writing in the Wall Street Journal, Stephen Moore confirmed that Perry's "flat tax will have a rate of 20%, and tax filers will be able to choose between the flat tax and the current code." It will also feature "a standard deduction of $12,500 for each person in the household." Nevertheless, Bloomberg News concludes that "people want their taxes simpler, fairer and lower. A flat tax promises all three and would deliver on none."