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Monday, October 08, 2012

a little lesson in flat tax propaganda

A little lesson in flat tax economics and propaganda

There is a way of keeping gasoline prices low. It consists in the government price controls. You enforce a top price for gas, say 1.90, and allow noone to sell above it.
Of course, any economist worth his Econ 101 will tell you that won’t work. It interferes with the nature of the price system. Prices are set “naturally” in the market place acc
ording to the laws of supply and demand. Even if one concedes to institutionalists that prices are determined, as well, by the firm, according to a complex system of emulation – government price controls would simply cause either shortages, or black markets, or both.

But these same economists have no problem writing in the NYT – as Richard Thaler recently did – decrying the “complexity” of the tax code and urging flat rates. Even if the flat rates are tiered – say 29 percent for the wealthiest, 15 percent for the 99 percent scum – this, these economists will say, would clean up our tax problems in a jiffy.

Now, formally, what these economists are doing is – urging price controls. To see this, we have to see that political bodies are markets of a particular type - rather like auctions, or futures markets, in which the products consist of positive expenditures and negative ones - the latter being taxes. A tax deduction is, basically, a sneaky way the government can pay for a behavior. When the legislature votes to depreciate the tax on gas production according to a certain schedule, it doesn’t do so because it wants to complicate the tax code – any more than a soup manufacturer wants to complicate the price system by selling soup at 3.99 per can, rather than 3.50 or 4. Taxes, like prices, are the products of negotiation. Lobbyists spend incredible amounts of money, campaign contributers contribute incredible amounts of money, the most cretinous members of a Representative’s family land the most munificent positions, all as part of a system to give tax advantages to one or another party. These tax advantages produce competitive advantages, which is why cutting taxes on this or that product, or to encourage this or that behavior, is routinely advocated by the same economists who will then turn around and maunder about fake flat rates. The House of Representatives and the Senate, when considering taxes and budgets, are not doing anything much different than futures markets.

So what would happen if you set a tax rate for rich people who make a million a year at a flat 19 percent, no deductions? In time a, you would have a flat 19 percent tax, with no deductions. In time b, defined by the second day of the legislative session, you would have forty proposals for deductions, of which any number would pass. And every one of those forty would be attached to some propaganda effort to make it seem necessary – in the same way that advertising is an integral part of the price system. In an auction like system like the modern legislature, this is as “natural” as supply and demand is in the price system. In fact, a rich person would be insane not to bid, in the case of a flat tax, for exceptions. Because rich people exist as rich people by ... making more money. And there is no honeypot so sweet as the government.

Thus, like price controls, flat tax rates would require a few minor structural changes in order to really work. If you have price controls on gasoline, for instance, the best method would be for the state to Sovietize all gas producers and centrally plan supply, perhaps using the military to evict owners of gas fields. See how simple this is? In the case of flat tax rates, we would have to simply abolish the constitutional provision that allows legislators to set tax rates forever from the point at which the flat rate was passed. Again, this is simple. You just need a military coup to overthrow the democratic system.

In other words, when people tell you about flat tax rates and their advantages - see the Republican platform - they are either, a, lying, b, ignorant as dirt, or c, a University of Chicago economist.
Q.E.D.

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