Tea Parties and Flat Taxes

E. J. Dionne spends this column talking about why the Tea Party movement has arisen, why these people insist on seeing the distinctly moderate President Obama as a "socialist," and what is the source of all this rage. I think he quite rightly puts his finger on the anti-government sentiment that goes all the way back to the Anti-Federalists. Some years ago, the Library of America published a two-volume set on The Debate on the Constitution. It can be a real eye-opener in terms of how many people were very suspicious of the power of centralized government.

This leads me to another, related, topic: the flat tax proposals of such conservatives as Steve Forbes. Let's not dismiss these proposals as impractical, fiscally ruinous, or the product of the lust of the rich to keep their ill-gotten gains. The flat tax idea is, at least in part, an aspect of the "starve the beast" concept. Ronald Reagan earned a lot of criticism for his assertions that he could increase defense spending, cut taxes, and reduce the deficit, all at once. Sure enough, that didn't happen, and he had to raise taxes again to keep the deficit under control. But the idea wasn't as ridiculous as it might have sounded, if, that is, you accept a couple of premises.

Premise One is that government spending is essentially non-productive, and that, because of this, it doesn't generate further economic activity. A dollar spent by the government is spent once; a dollar spent by private business is spent many times as it works its way through the economy. This is nonsense, of course. While government spending is, generally, non-productive - from an economic point of view, the military is a complete nullity, it isn't, on that account, tagged with a lower velocity than private spending. A billion dollars spent on a new government building has the same impact on the economy as a billion dollars spent on a new automobile factory.

But this premise leads one to suppose that cutting taxes always allows the money to be spent in some more productive way, thus boosting the economy, and, yes!, raising tax revenues.

Premise Two is that the government will limit its activities according to the amount of money it has, i.e., that there will be no deficit spending. Therefore, tax cuts serve to "starve the beast" by depriving it of its sustenance. This, too, is utter nonsense. Both Republicans and Democrats happily plunge into deficit spending rather than either raise taxes or cut programs that are dear to their constituents' hearts. And every program, no matter how useless, is dear to some constituent's heart.

The flat tax has to bring in less money than a graduated ("progressive") income tax, even if, as Forbes has suggested, we do away with such shibboleths as the home mortgage interest deduction. That's because people making $30,000 per year can only afford so much in taxes. You might get $4,500 (15%) from them, and that would then become the limit for everyone. At a flat 15%, the government would take in a lot less than it does now, and it would have to shrink. QED. Except that it won't shrink; it'll borrow instead.

The only way to shrink the government is to cancel expensive programs. Cancel all farm subsidies. Cancel all business subsidies. Cancel subsidies for energy programs. Cancel subsidies for home heating expenses. Cancel subsidies for small business loans. Cancel subsidies for student loans. Cancel the tax breaks on home mortgage interest, capital gains, and anything else that effectively subsidizes an activity. Cut the military in half and close two-thirds of the military bases in the country. Raise the co-pays on Medicare and Medicaid so that the insurance only covers serious medical conditions and treatments. Give all Federal employees, including the military 20% pay cuts. Give all Federal pensioners, including the military and Social Security recipients 10% pay cuts. Do all that, and you might balance the budget. Watch for that proposal in your local newspaper! Not!