Fair Not Flat: How to Make the Tax System Better and Simpler
by Edward J. McCaffery
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Book Summary Information
Author: Edward J. McCafferyEdition: Hardcover
Audio: English (Original Language); English (Unknown); English (Published)
Published: 2002-04-01
ISBN: 0226555607
Number of pages: 192
Publisher: University Of Chicago Press
Book Reviews of Fair Not Flat: How to Make the Tax System Better and Simpler
Book Review: An interesting argument
Summary: 5 Stars
Should we have a flat tax instead of the present income tax? How about, as the author of this book proposes, a "fair" tax. Edward McCaffery's idea is to tax spending.
The argument he gives is simple. The rich can avoid taxes by acquiring assets, avoiding a tax on income, avoiding a death tax, and not having to pay a spending tax. With a spending tax, the rich will still be able to avoid a tax on savings and at death (there won't be a tax on savings or on inheritance). But they will pay a tax on big spending. And that seems a little better for society.
Well, maybe that's true. But I think it is more complicated than this. First of all, we pay plenty of taxes: income tax, payroll tax, property tax, sales tax, inheritance tax, and a few miscellaneous fees here and there. Second, the nature of the income tax is not really evident to me. If I make widgets for a living, spend 10 dollars per widget for raw materials, and sell the widgets for 20 dollars each, I understand a little about the effect of an income tax: a 20% tax takes more of my profit than a 10% tax. More important, I know what the effect is if I work twice as hard and make twice as many widgets. But even here, I'm not so sure about all this, because a higher tax may let me raise my price for each widget.
When it comes to salaries, I'm really not sure what the effect of an income tax is going to be. I don't see much (or any) of the taxed income: it is taken out of my paycheck before I get it. In some cases, it may be obvious how much the work I do is worth to my company, independent of taxes. But in other cases, my salary is more of a negotiated quantity, and what I'm negotiating is going to be my after-tax salary. It can make my income tax look more like a payroll tax (such as social security) and it can make my employer look more like the entity that actually pays the tax.
McCaffrey does not get into this sort of question, nor the significance of higher payroll or property taxes. Well, that may be okay, given that he's proposing spending taxes. But I think it will turn out that these spending taxes wind up being very difficult to collect, and when they are large, there will be more and more loopholes in them too.
The author discusses some present tax features (such as disproportionate tax burdens on women), while not mentioning others (such as bracket creep and other effective tax rate changes) which I think have a strategic significance that the author overlooks.
I agree with the author on getting rid of the inheritance tax. I would add that under present laws, in the case of inheritance taxes on previously untaxed money, the marginal rate can easily exceed 90% or even 100%: an inheritor can actually lose money by acknowledging the existence of some money in an untaxed IRA.
Are loopholes and complexity inevitable in any fair tax system? Maybe so. But I have a counterproposal: make the tax system unfair if necessary but make it simpler.
Right now, as the author points out, our income tax system is very complex, inconsistent and arbitrary, and unfair. McCaffrey is trying to attack all these problems, especially the unfairness. I would prefer to attack the complexity above all. And I think that means finding a way to stop making typical workers fill out all these tax forms. In short, while I'm not a big fan of a flat tax, I can see an argument for "flat, not fair."
I think that our nation is very rich and powerful, and that it may be able to afford the luxury of an inefficient and unfair tax system, but I agree that we'd be better off with something simpler. In general, it is wise for governments to make it easy to tax its citizens. Best is a very simple tax policy, strictly enforced. It is, in my opinion, ridiculous for the same agency that collects taxes to worry about all sorts of deductions, no matter how worthy. Let other agencies worry about that! Taxes are the lifeblood of the government's budget, so let the tax collectors do their job.
Anyway, here's my advice: if we want to get rid of inheritance taxes and taxes on savings, fine. But get rid of filling out tax forms for us employees. Our employers are already sending in our money, let them do it without us watching them. Tax the employers on the payroll. Tax us on our property if you must. Have sales taxes as well. Or value-added taxes. But don't make us fill out complicated forms. Leave that to companies who may have better access to accountants and lawyers.
Meanwhile, we'll get paid our salaries in post-tax money. Is such a tax regressive or progressive? It seems regressive, but I'm not so sure it is, as the only way to tell is to see how much more employees get paid if they produce, say, twice as much good work. It may be a rather progressive tax after all!
If we need to tax the rich when they spend, we can find a way to do it other than making us all fill out yearly spending forms. If we need to tax assets to stop the rich from hiding all their money from taxation, we can probably do that as well. That only requires a flat tax on transactions and on assets, not a complex study of the worth or income or other spending of the person who owns an asset or makes a transaction.
I recommend this book.
Summary of Fair Not Flat: How to Make the Tax System Better and Simpler
Everyone knows that the current tax system is unfair. Some of the richest people in America pay no tax, while a huge share of the tax burden falls on the rest of us. A mere glance at the tax code confirms that it is far too complex, with volumes of rules that no ordinary person could possibly comprehend. What is to be done? Some conservatives have called for a so-called flat tax. But a flat tax is not necessarily a simple tax, and "flat" means "more" for most taxpayers: a rise in middle-class taxes to finance tax cuts for the rich. Is there another choice?
In clear, easy-to-understand language, Edward J. McCaffery proposes a straightforward and fair alternative. A "fair not flat" tax that is consistent and progressive would tax spending, not income and savings. And if it were collected at its lower levels through a national sales tax, most people would not have to file a return. A supplemental tax on spending for the wealthiest individuals would make the national sales tax progressive. Under McCaffery's system, a family of four would pay no tax on their first $20,000 in spending, and 15 percent on the next $60,000. Only the few families who spend more than $80,000 a year would be subject to the supplemental tax. Necessities would be taxed less than ordinary and luxury items. No one would be taxed directly on savings. The estate and gift or so-called death tax would be abolished, for the simple reason that dead people don't spend. The "fair not flat" tax would fall on heirs when and as they spend their good fortune. Perhaps best of all, most Americans would not have to fill out tax returns.
Simpler, more efficient, fairer, and more reflective of America's current social values, McCaffery's "fair not flat" tax could help get us out of the tax mess that politicians and special interests have gotten us into, improving the whole country in the process. Read Fair Not Flat to find out how.
"In Fair Not Flat, Mr. McCaffery lays out the case for a consumption tax. He does so in a reader-friendly way, presenting his argument with very few footnotes, equations or technical terms. The consumption of the book, so to speak, is not at all taxing. And its argument is well worth pondering."-Bruce Bartlett, Wall Street Journal
In clear, easy-to-understand language, Edward J. McCaffery proposes a straightforward and fair alternative. A "fair not flat" tax that is consistent and progressive would tax spending, not income and savings. And if it were collected at its lower levels through a national sales tax, most people would not have to file a return. A supplemental tax on spending for the wealthiest individuals would make the national sales tax progressive. Under McCaffery's system, a family of four would pay no tax on their first $20,000 in spending, and 15 percent on the next $60,000. Only the few families who spend more than $80,000 a year would be subject to the supplemental tax. Necessities would be taxed less than ordinary and luxury items. No one would be taxed directly on savings. The estate and gift or so-called death tax would be abolished, for the simple reason that dead people don't spend. The "fair not flat" tax would fall on heirs when and as they spend their good fortune. Perhaps best of all, most Americans would not have to fill out tax returns.
Simpler, more efficient, fairer, and more reflective of America's current social values, McCaffery's "fair not flat" tax could help get us out of the tax mess that politicians and special interests have gotten us into, improving the whole country in the process. Read Fair Not Flat to find out how.
"In Fair Not Flat, Mr. McCaffery lays out the case for a consumption tax. He does so in a reader-friendly way, presenting his argument with very few footnotes, equations or technical terms. The consumption of the book, so to speak, is not at all taxing. And its argument is well worth pondering."-Bruce Bartlett, Wall Street Journal
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