Stephen Foley: Flat tax is a seductive idea that just might survive the Republican pandering season

 

US Outlook: Could the world's largest economy really switch to a flat tax?

In US politics, the idea of a flat-rate income tax has usually been the preserve of wingnuts or rich businessmen standing for President, so it has been alarming to watch the issue move up the political and academic agendas.

Herman Cain and and now Rick Perry, two of the top three candidates for the Republican presidential nomination, have spotted the seductive appeal of a flat tax in their bid to be the anyone-but-Mitt-Romney contender and to appeal to the party's right. This sort of thing sometimes happens during pandering season, the last few weeks before the primaries begin, when the fringes of the political parties are at their most powerful.

What is new is the sense that mainstream and even elite opinion is taking the flat tax seriously.

The reason is that introducing a flat tax could unlock solutions to a few intractable problems for the federal government's finances and for the US economy, namely the need to simplify an impossibly complex tax code, the need to raise taxes overall to deal with the country's long-term deficits and the need to rebalance the economy away from debt-fuelled consumer spending.

As is typical for supporters of a flat income tax, Mr Cain, the pizza chain boss who has popularised the idea this election cycle, says it should be accompanied by a nation-wide sales tax. The more you earn, after all, the more you spend, so taxes can be both flat and fair, they say.

Mr Cain is making political hay out of his 999 plan to deal with America's economic emergency. It proposes a 9 per cent flat-rate income tax, a 9 per cent sales tax and 9 per cent on corporate profits.

The idea for a federal sales tax already has considerable support as part of a deficit reduction plan. And by the by it could prove a neat piece of natural justice for Amazon and other online retailers, who have managed unfairly to avoid state sales taxes.

The introduction of a flat tax would just be the most dramatic manifestation of a trend that is going on elsewhere in the West, where politicians are finding it easier to put up VAT and the like than have to put up income taxes.

Here's the new economic justification: by shifting taxation from income to consumption, it encourages people to save and not to spend, thereby rebalancing the US economy towards investment. The sugar-rush of consumer spending will be replaced by investment that boosts jobs and long-term growth. Meanwhile, a flat income tax wipes away all those marginal disincentives to work hard and to invest well.

See – I told you it was seductive.

The miscalculation, though, is that encouraging saving does not necessarily encourage investment in the US economy, since fund managers are as likely to be chasing returns in emerging markets as at home, and even US-listed companies include some of the world's most geographically broad multinationals. Stoking consumer spending, which accounts for around 70 per cent of US GDP, is vital to keeping the US economy on the rails.

All this is before we even start to talk about the regressive horrors of scrapping the tiered income tax system, which, I'm optimistic, will ultimately keep the flat taxers at bay in the end. But after the past week, I'm reducing my bets on that and watching the Republican race more closely.

Suggested Topics
News
Ian Thorpe had Rio 2016 in his sights
people
Sport
world cup 2014A history of the third-place play-offs
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Sport
The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice