Matt Yglesias plugging Jonathan Chait's forthcoming book, The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics got me thinking about something I've thought about for years.
I won't be able to read the book, because like Matt, the dishonesty of the selling of right-wing crackpot economic schemes and the medias fawning coverage literally upsets me so much that I loose sleep. I just can't stand stupid people.
But I started thinking about the flat tax again. The problem with the right-wing flat tax cons that have popped up ever few years is that those who propose them make sure they pay little or no income tax. Flat taxes from the right only tax wage income exempting the wealthiest from all income taxation while at the same time bankrupting the government. Those who make millions or even billions in the markets or real estate, for instance, would pay no income tax on their income.
But what would an honest flat tax look like that taxed all realized income, wage and non-wage equally, and without exception or limit?
Eliminate all deductions including the mortgage interest deduction. Keep only per person exceptions -- specifically targeted to protect the working poor (like 10 or 12k per person so a family of 4 paid no tax on the first 40 to 50k of income) -- but everyone would receive regardless of income. (I would exempt gains from the sale of a primary residence placed into another primary residence within a reasonable period of time, but that's it. Sell an investment property or stocks netting a gain and you would pay taxes on the gain even if you rolled the gain into other property, etc)
For the purposes of this discussion, forget the realities of getting this trough Congress. What would the tax rate have to be in order to adequately fund the government (not current funding which is hundreds of billions short of spending)?
I couldn't begin to figure this out, and I may be wildly naive. Perhaps such a tax is not workable under any circumstances. But If by actually taxing all income we could reduce the actual tax rate to something less than 20% we would have meaningful and revolutionary tax reform.
Surely someone out there knows of a paper or article where this calculation has been attempted?