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Liberals Are Starting To Like The Flat Tax

As our California readers no doubt know, the contortions that have elected representatives in Sacramento all knotted up right now justifiably invite the "sausage factory" comparisons frequently used to describe state level budget fights. (Wasn't it Otto von Bismark that said "laws are like sausages, it is better not to see them being made" ?)

Joe Matthews writes in today's Wall Street Journal that there are some laws being considered in California right now that would , in the very recent past, be considered dead on arrival regardless of party sponsorship. One of those sacred beliefs currently under reconsideration is the progressive nature of the state tax code:

Karen Bass is an unlikely tax cutter. She's the Democratic speaker of the California State Assembly, a fierce defender of the labor movement, and an advocate for repealing a constitutional provision that requires that tax increases pass the state legislature with a two-thirds majority.

But as California faces a budget crisis that defies efforts to resolve it, there is a woman-bites-dog story developing with Ms. Bass at its center. By the end of the month, a commission she pushed to create is expected to recommend that the state adopt a flat (or at least flatter) personal income tax and cut or repeal corporate and sales taxes.

...now many Democrats, including the speaker, are realizing that what they need is a tax base that will provide steady funding for their programs. In other words, they need a tax base that doesn't count on a large slice of revenue from taxes on a relatively small number of wealthy residents who can flee the state or who are themselves vulnerable to losing a substantial portion of income in a recession.

New York City Mayor Michael Bloomberg got his head around this problem earlier this year:

"One percent of the households that file in this city pay something like 50 percent of the taxes. In the city, that's something like 40,000 people. If a handful left, any raise [tax increase] would make it revenue neutral," the billionaire mayor said on his weekly radio show.

"The question is what's fair. If 1 percent are paying 50 percent of the taxes, you want to make it even more? Anybody below that 1 percent, no taxes?"

The lesson here is that, at least on the state and local level, tax payers will engage in tax avoidance at the highest marginal rates. State politicians are learning this the hard way; they see the gravy train is leaving the station and may not return. At the federal level politicians know that many taxpayers will never leave the country. Congress also knows that it can print money and borrow until some lender says no, a consequence that they have no plan for but still blithely ignore. Reform, as it always does, is beginning at the state and local level where accountability is higher.

Adam Smith's invisible hand is witholding that which commands the undivided attention of any politician: tax revenue. Ever in need of the fix that only tax receipts can supply, politicians are now apparently considering remedies that would have been scoffed at during the fat years.


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Comments (18)

The 'spin' in Sacramento is... (Below threshold)
GarandFan:

The 'spin' in Sacramento is that 'the rich' aren't really leaving the state. They keep smoking that pot, one day they'll find they are the only one's still here. Nevada is right next door and has NO state income tax. Imagine that!

I'm wary of any oversimplif... (Below threshold)

I'm wary of any oversimplified new tax process that doesn't allow business to take off substantial business deductions for expenses.

I'm wary of any oversimp... (Below threshold)
HughS:

I'm wary of any oversimplified new tax process that doesn't allow business to take off substantial business deductions for expenses.

Ding, ding,ding,ding....we have a winner!

Paul,the existing federal tax code is littered with fifty years worth of special interest deductions. Your sacred cow is another man's dinner.

It never seems to occur to ... (Below threshold)
bobdog:

It never seems to occur to these clowns that revenue is not the problem. Unrestrained spending is, and people are getting tired of it.

And as soon as the idea of a flat tax is floated, the limp-wristed liberals in Congress will notice that a flat tax is regressive, impacting the Gimme Class disproportionately more than the Rich Folks as a proportion of their disposable income. Don't stand next to the political dumpster when they do.

Personally, I think it would be a good idea to require all candidates for political office to pass a test on fundamental fricking economics.

The "Gimme Class" - I like ... (Below threshold)
BPG:

The "Gimme Class" - I like the sound of that. So apt. Good one, bobdog!

Let me fix that for you Pau... (Below threshold)
SCSIwuzzy:

Let me fix that for you Paul:
I am wary of any tax plan that threatens my deductions and write-offs.

Adam Smith's invisible h... (Below threshold)
Steve Crickmore:

Adam Smith's invisible hand is witholding that which commands the undivided attention of any politician: tax revenue.

Both Adam Smith and his father were Scottish customs' collectors, so it is not as if Smith was unaware how much the state needs tax revenue.

In stating his general principles of taxation, Smith proposed that taxes should be levied on people 'as nearly possible, in proportion to their respective abilities,' that is in proportion to the revenue, which they respectively enjoy under the protection of the state.' A little later in his book, ('Wealth of Nations') however, discussing taxes on the rent of houses, Smith appeared to favour progressive taxation. 'A tax upon house rents, therefore, would in general fall heaviest on the rich; and in this sort of equality, there would not perhaps be anything very unreasonable... that the rich should contribute to the public expense, not only in proportion to their revenue but more than in proportion."
If you thing the housing in... (Below threshold)
Rance:

If you thing the housing industry is in the dumper now, consider what the flat tax would do.

Loosing the deduction for interest and taxes would be a negative incentive for would be buyers.

That prospect alone will probably prevent any true flat tax from ever getting passed.

Liberals always approve of ... (Below threshold)
Flu-Bird:

Liberals always approve of any kind of tax no matter how rediculous

Clearly, the problem with o... (Below threshold)

Clearly, the problem with our society is that we don't tax maids and fast food workers nearly enough.

Who is this Krovee Klown? ... (Below threshold)
Greg:

Who is this Krovee Klown? You really think you're witty?

Don't worry Kroveechernila.... (Below threshold)
Oyster:

Don't worry Kroveechernila. You can always get a second job making minimum wage in Hooson's new grocery store.

Noted in the news this morn... (Below threshold)
GarandFan:

Noted in the news this morning that our beloved California Air Resources Board has admitted that 'going green' on 30% of electricity needs by 2020 will cost the ratepayers several BILLION dollars per year in added costs (typical home increase they say will be about $45 - so you know the true cost will be anywhere from $90 - $125 per month). No mention if this includes the cost of moving electrical plants off of ocean water cooling - that was to add about $2 BILLION in costs. California, gotta love it. When people start moving out because of the cost of living, who are the liberals going to soak to pay the bills?

And there will be no union ... (Below threshold)
SCSIwuzzy:

And there will be no union protection there, Oyster.

What are the latest numbers... (Below threshold)
Jamie:

What are the latest numbers on exactly what percentage truly "flat" tax would generate the same revenue as the last few years' average? I'm thinking that a loss of expense deductions may actually pay off for businesses if the required percentage was enough lower.

The problem with getting into the "deductions" business is that with enough deductions, you have generated yet another untaxed class of citizen.

Of course the real reason there won't ever be a flat tax is the hundreds of thousands of people who would be unemployed because there won't be any need for 90% of the population to file a tax return. What's deducted from your paycheck is what you owe. Period. Four-month-a-year tax prep people and most of the IRS's employees will be out of work.

At the federal lev... (Below threshold)
_Mike_:
At the federal level politicians know that many taxpayers will never leave the country.

The thing that they miss is that jobs will leave the country... so their solution to that is to stop the jobs from leaving the country. However, while they may or may not be able to stop a job from moving from 'here' to 'there', those efforts will effectively destroy the job 'here' while someone else creates it 'there'. The net result being that the job moved.

The solution... "Laissez-nous faire"

Sacramento better wake up a... (Below threshold)

Sacramento better wake up and fast, businesses and the upper middle class/rich are leaving the state and fast...and I agree with Mike the federal government is missing the point that jobs will leave the country (and while not a significant amount, taxpayers will leave as well).

Democraps have taken Mr. Bi... (Below threshold)
eaglewingz08:

Democraps have taken Mr. Bismarck's saying to a new higher and literal level, where even democrap lawmakers (sic) refuse to even read the bills they are passing. Talk about remaining blissfully ignorant.




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