Can the GOP deliver flat-tax reform?

posted at 10:45 am on October 27, 2011 by Ed Morrissey

Has the world gone flat?  It seems that the concept of the flat tax has now become almost universal among Republicans candidates, at least to some degree.  Herman Cain offers a version of a flat income and corporate tax as a means to get to the Fair Tax; Newt Gingrich and Rick Perry have similar flat-tax proposals intended as ends in themselves.  Mitt Romney talks about how his plan makes taxes “flatter,” although he’s not exactly a flat-tax purist.

But then, neither are Mitt’s competitors.  Cain wants the Fair Tax as an end result, not a tax of any kind on personal or corporate income.  Both Perry and and Gingrich offer exemptions and deductions on mortgage interest and donations to charities (Cain’s also includes a charitable-contributions deduction), and both retain the existing tax code as an option, at least temporarily.  Why?  A flat tax on personal income is a tough sell, especially when economic turmoil exists at the levels it does now.  Policies that raise taxes on the rich remain popular, and a flat tax goes in the opposite direction.  Small wonder, then, that politicians looking to champion these proposals want significant hedges on those bets.

In my column for The Fiscal Times, I suggest that the GOP should focus less on selling the personal-income flat tax and focus more on the reforms that a corporate flat tax would provide:

Taxpayers like their own deductions and exemptions, but they despise corporate carve-outs, and not without cause. Although the U.S. has the highest explicit corporate tax rate among free-market nations, we have a corporate tax code filled with loopholes that confers benefits on politically connected companies and imposes competitive disadvantages on the rest. A poorly researched claim by The New York Times thatGeneral Electric had no tax liability in 2010 overshadowed the accurate report that GE claimed $3.2 billion in tax credits for the year on a total net income of less than $12 billion, which highlighted the inequality in the corporate tax code.

Too often, larger corporations successfully lobby for tax exemptions and carve-outs that put smaller businesses at a competitive disadvantage. This contributes to the income gap, reduces competition, and ultimately creates economic stagnation. Unfortunately, it also contributes to incumbent job security in Washington. Rep. Ryan explained how tax reform got killed in the early part of the last decade while Republicans controlled Congress, under pressure from the “tax-expenditure lobby,” which Ryan also called “the gauntlet.” When the corporate lobby sensed that their ability to get politicians to manipulate the tax code might be in danger, they quickly used their leverage to end the threat.

If Republicans put corporate-tax code reform at the center of their platform, they might be able to take a “flatter” personal income tax along for the ride. If they feature that as a means to clean up Washington and address the problems of natural wealth distribution, they could end up attracting both Tea Party and some Occupy grassroots to their banner in 2012. The only question would then be whether Republicans in 2013 will stand up to the gauntlet and produce real reform.

There aren’t many similarities between the Tea Party and the Occupiers, but a healthy distaste for crony capitalism is one of those few ties.  Eliminating the ability of Congress to manipulate the corporate tax code to bolster big donors would not just reform the economic impact of taxation but also the politics of Washington.  The Tea Party has demanded this kind of reform since it erupted in early 2009, and just like the Occupiers, prompted from a disgust at the bailouts given to financial institutions and automakers.

Not too many of the hard-core Occupiers will ever cast a ballot for a Republican.  There are many, though, who share the somewhat-incoherent anger and resentment of the Occupiers, but who are honestly looking for actual reform.  The GOP has an opportunity to make that their platform in this election by focusing on their proposals to rid the corporate tax code of its inequities — “close loopholes,” as Democrats have demanded in the past — and strip it of any political value for the “gauntlet,” as Ryan called it yesterday.  That would cut the rug out from underneath Barack Obama and Democrats in 2012 by offering real change as an option from Obama’s Solyndra-style crony capitalism.

Of course, if Republicans win the election, they had better deliver on that promise.  Will the Paul Ryans of the GOP lead the party in defeating the “tax-expenditure lobby” and produce honest tax reform?  If they do, they could set themselves up as the governing party for a generation — an opportunity that they rejected in 2001-2006.

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Comments

… not until 2013, but we can only hope…

I just got a bill from my CPA… $400…

Khun Joe on October 27, 2011 at 10:50 AM

If we nominate someone who has a flat tax proposal there is no reason why not. 2012 is our best opportunity to change the course of gov’t growth in the past 30 years. If we miss this the voters will punish us.

Bill C on October 27, 2011 at 10:50 AM

I still have not seen it explained any more clearly than this:

Path to Prosperity: Part 3

Both parties should agree with this plan — as well as both the Tea Party and the OWS people. I wonder if politicians would ever agree to it, though, as it takes so much power out of their hands.

Ferris on October 27, 2011 at 10:51 AM

Honestly, I think the answer is ‘NO’.

I want a flat tax, but I think once Congress gets involved, every lobby group around gets involved. The vast majority of what many of these groups fight for is tax breaks and the like.

You put in a truly flat tax, their power decreases dramatically. Every interest in DC, whether on the left or right, will fight this tooth and nail.

So I HOPE we can get this done…but I don’t have much faith.

neoavatara on October 27, 2011 at 10:51 AM

The GOP has cornered the market on flat tax and its vagaries. Can’t even imagine Obooba engaging on this topic.

The commies have been and will be caught flatfooted on it, while they yammer on about a “dysfunctional congress” not passing Barry’s bzillion dollar jobs bill.

Akzed on October 27, 2011 at 10:51 AM

If ever the country was ripe for tax reform, this is it. A flat tax, no matter how some may like/hate it, is exponentially better than what we have now. The IRS is the crown jewel of government over reach.

HomeoftheBrave on October 27, 2011 at 10:54 AM

An easy to understand tax system that puts everyone in the gave is change worth hoping for.

cozmo on October 27, 2011 at 10:57 AM

Game, not gave, duh.

cozmo on October 27, 2011 at 10:58 AM

from the GOP Boneless Chicken Ranch that deems candidates like the English Monarchy??? You would think that we have a de facto royal lineage up there.

I smell disappointment in our future.

ted c on October 27, 2011 at 10:59 AM

I still have not seen it explained any more clearly than this:

Path to Prosperity: Part 3

I’m not convinced- the primacy of the flat tax issue is a tribute to Cain’s powers of persuasion more than a real economic solution to our current problems and the malaise associated with our current post-asset bubble recession. Improving the tax code is a great idea but it’s not an economic solution in and of itself.

bayam on October 27, 2011 at 10:59 AM

The IRS is the crown jewel of government over reach.

HomeoftheBrave on October 27, 2011 at 10:54 AM

The three scariest letters in the alphabet.

VegasRick on October 27, 2011 at 11:01 AM

What was the last major legislation the GOP delivered on?

Prescription drug subsidies?

jake-the-goose on October 27, 2011 at 11:15 AM

The three scariest letters in the alphabet.

VegasRick on October 27, 2011 at 11:01 AM

I think you need to reconsider your statement SIR.

meci on October 27, 2011 at 11:20 AM

neoavatara on October 27, 2011 at 10:51 AM

+1

Not gonna happen.

PattyJ on October 27, 2011 at 11:20 AM

No such plan is going to happen without 60 solid GOP votes in the Senate. That probably means 62-63 seats, counting Scott Brown and the Maine sisters.

Furthermore, none of the plans will do much about the fact that entitlement spending will bankrupt the country unless it is dramatically cut. But nobody dares talk about that.

cool breeze on October 27, 2011 at 11:23 AM

Improving the tax code is a great idea but it’s not an economic solution in and of itself.

bayam on October 27, 2011 at 10:59 AM

We need short term and long term solutions to our economic problems. Short term will be tax reform, regulatory reform, and repealing Obamacare because that is the way to get businesses to hire. Long term will have to be a balanced budget amendment. No other way to force future congresses to live within their means.

Bill C on October 27, 2011 at 11:24 AM

Furthermore, none of the plans will do much about the fact that entitlement spending will bankrupt the country unless it is dramatically cut. But nobody dares talk about that.

cool breeze on October 27, 2011 at 11:23 AM

Perry talks about entitlement reform in his plan. Pretty much following Ryan’s plan: block grants for medicaid, raising retirement age.

Bill C on October 27, 2011 at 11:26 AM

I’m not convinced- the primacy of the flat tax issue is a tribute to Cain’s powers of persuasion more than a real economic solution to our current problems and the malaise associated with our current post-asset bubble recession. Improving the tax code is a great idea but it’s not an economic solution in and of itself.

bayam on October 27, 2011 at 10:59 AM

Yeah – we need to cut spending and the size of government on a massive scale too. As well as rollback a lot of regulation. Repeal ObamaCare and leave businesses alone to do their thing.

gwelf on October 27, 2011 at 11:26 AM

neoavatara on October 27, 2011 at 10:51 AM

That is why the Perry opt-in option is so brilliant. Let the people decide which tax plan they want. But also keep the flat tax sacrosanct and let the lobbyists fight over the old tax code. That ought to keep them busy and it gives our side a clear line in the sand to defend.

Ultimately, all tax codes are subject to change so the best way to limit future congresses spending habits is with a BBA.

Bill C on October 27, 2011 at 11:29 AM

would be nice, but k-street will not allow it.

maineconservative on October 27, 2011 at 11:29 AM

Tax reform cuts to the heart of many things near and dear to liberal and RINO hearts. The tax code is the perfect example of laws designed to try and pick winners and losers and attempt social engineering. The liberals who decry the flat tax mostly do so because it doesn’t help accomplish “social justice” or “income equality” etc. For liberals the tax code is not a means of raising money to run government it’s a scheme for social engineering and as payback to big donors.

gwelf on October 27, 2011 at 11:29 AM

Why? A flat tax on personal income is a tough sell, especially when economic turmoil exists at the levels it does now.

I’d say it is more that jumping to a flat tax overnight is a tough sell, since it changes a lot of financial assumptions. That is why Gingrich and Perry’s plans are easier sells than Cain’s – I see them as phasing out the existing code instead of replacing it.

Vashta.Nerada on October 27, 2011 at 11:30 AM

Or focus on CUTTING SPENDING. Tea Party is a joke.

iamse7en on October 27, 2011 at 11:31 AM

Do I like hearing the plans? Yes.

Will any get enacted? No, as the American people have been reduced to nothing but people trying to loot from each other.

The mortgage interest deduction would be Exhibit A: 25%, mostly in states such as California, feeling they have come kind of right to steal from the other 75%? Why? Because the 25% run up excessive household debt, so dammit, give us our Obama Stash! And add about 1/2 point to the rate paid by the other 75% to support that 25%.

MNHawk on October 27, 2011 at 11:40 AM

We are talking about removing the reason 90% of the people in DC wanted to there in the first place. It is possible to do this but only by replacing the majority of politicians now in office.

A. Weasel on October 27, 2011 at 11:50 AM

Headliines from April 2013

President Mitt Romney leads GOP in Raising Debt Ceiling to 20 T.

President Mitt Romney grants waivers to States from ObamaCare but refuses to sign onto full repeal.

President Mitt Romney approves of In State Tuition for Illegals.

President Mitt Romney continues Financial Aid to underdeveloped countries like China, India, and Japan

President Romney expands monitoring of Americans and the Role of the TSA and DHS in search for domestic terrorism.

Saying ‘Nation needs to Heal’ President Romney signs continuation of Pigford settlement, giving cash to people of color that might have once upon a time thought about maybe planting some tomatos.

President Romney refuses to re-open Black Panther case.

President Romney is now against drilling in ANWAR and says America needs a ‘measured approach’ to fossil fuels.

President Romney appointes Al Gore as his chief of the newly formed global warming defense committee.

President Romney meets with George Soros about how to be a more ‘open society.

President Romney refuses to defund abortion.

bla bla bla…. Romney is no different that the current clown.

lm10001 on October 27, 2011 at 11:51 AM

I don’t understand how anyone earning over 200k a year could “want” a flat/fair tax. They are both EXTREMLY regressive….

Rainsford on October 27, 2011 at 12:12 PM

I don’t understand how anyone earning over 200k a year could “want” a flat/fair tax. They are both EXTREMLY regressive….

Rainsford on October 27, 2011 at 12:12 PM

A flat tax is by definition not regressive.

Vashta.Nerada on October 27, 2011 at 12:22 PM

lm10001 on October 27, 2011 at 11:51 AM

President Romney requires mark of the beast in order to receive benefits.

Bill C on October 27, 2011 at 12:30 PM

A flat tax is by definition not regressive.

Vashta.Nerada on October 27, 2011 at 12:22 PM

SShhhh…don’t interrupt the narrative. Besides, people making over 200k would want a regressive tax.

cozmo on October 27, 2011 at 12:30 PM

I’m not convinced- the primacy of the flat tax issue is a tribute to Cain’s powers of persuasion more than a real economic solution to our current problems and the malaise associated with our current post-asset bubble recession. Improving the tax code is a great idea but it’s not an economic solution in and of itself.

bayam on October 27, 2011 at 10:59 AM

I see Ryan’s plan as more than just fixing taxes — it’s getting rid of all the political influence in business and vice versa. Most lobbyists would lose all purpose as the playing field would be leveled and no special favors would be made for those companies or industries. The government will become smaller when it isn’t trying to play kingmaker, especially if those same ideals are used in other areas like healthcare.

Ferris on October 27, 2011 at 12:33 PM

I don’t understand how anyone earning over 200k a year could “want” a flat/fair tax. They are both EXTREMLY regressive….

Rainsford on October 27, 2011 at 12:12 PM

Bullcrap.

A flat tax is by definition not regressive.

Vashta.Nerada on October 27, 2011 at 12:22 PM

BINGO.

Just because we add more people at the bottom end to the tax rolls does NOT make a flat tax “regressive”. It just means that less people get money transfers from those paying taxes.

Ideally, NOBODY gets money transfers from those paying taxes, but if we keep the child tax credits and the mortgage interest deductions, then some people will actually get more back than they put in. It will be a much smaller group of people though.

What Rainsford is exhibiting are the classic signs of Progressivism Poisoning. PP leads to mathematics confusion when discussing economics, magical thinking on issues dealing with economics and government, and in extreme cases “Useful Idiot Syndrome”.

wearyman on October 27, 2011 at 12:44 PM

The problem is we pretty much had a flat tax in 1986. There were three brackets and only a couple of deductions. We know what happened then. Republicans should get off this and focus on passing a BBA with a spending cap as a percentage of GDP. That will keep government small and constrained. That will do more to stimulate the economy than all the flat or fair taxes in the world.

Kafir on October 27, 2011 at 1:25 PM

Do I like hearing the plans? Yes.

Will any get enacted? No, as the American people have been reduced to nothing but people trying to loot from each other.

The mortgage interest deduction would be Exhibit A: 25%, mostly in states such as California, feeling they have come kind of right to steal from the other 75%? Why? Because the 25% run up excessive household debt, so dammit, give us our Obama Stash! And add about 1/2 point to the rate paid by the other 75% to support that 25%.

MNHawk on October 27, 2011 at 11:40 AM

The mortgage interest deduction is one of the few beneficial “loopholes” in the current tax code, because millions of middle-class people benefit from it, it stimulates the construction industry, and privileges home ownership over renting from “fat-cat” landlords and/or slumlords.

At this time, when millions of homes are already in foreclosure due to Fannie Mae, Freddie Mac, and private banks making excessive loans to insolvent borrowers, this is NOT the time to eliminate the mortgage interest deduction, which would impose additional taxes on those still making their mortgage payments, which could force some homeowners still marginally afloat into foreclosure.

Eliminating the mortgage-interest deduction would further depress the already-depressed construction industry, throwing more construction workers out of their jobs. What would be the BENEFIT of this?

Steve Z on October 27, 2011 at 1:28 PM

Ryan’s video on the corporate loopholes was good and I agree, “focus more on the reforms that a corporate flat tax would provide.” Also, there was the Ryan Plan, the first strike per Trump and Newt stumble. All of which reminds me of how strong Rick Santorum has been in his Ryan support (video).

FeFe on October 27, 2011 at 6:59 PM