Photo: Lachlan Hardy via flickr
I’m just back from a trip to Washington, D.C., where people take politics so seriously that politicians’ speeches are broadcast in full on the radio (e.g., a full half hour was devoted to a talk by Joe Biden to some Democrats in Florida; anywhere else in the U.S., a Vice-President would have to be Raptured or undergo a sex-change operation in order to merit 30 minutes of uninterrupted radio time).A handful of friends there asked me what I thought about the various “flat tax” proposals being put forward.
Most of these folks have worked in Washington their entire lives and therefore have no understanding of what it might be like to work in a private company selling goods and services to private customers. So they asked “Would a flat tax make it easier to run a business?”
My reply was that most of the costs of the present system to me relate to figuring out how much my income actually is, rather than multiplying that income by one or more rates. Different capital goods must be depreciated on different schedules. Expenses must be categorized. Losses are sometimes deductible (ordinary business) but sometimes not (loss from renting out real estate, unless one is working full time in real estate). All of this costs me about $2500 per year in accounting fees and a couple of weeks that could have been spent generating additional income rather that poring over statements. The cost/hassle would be the same under a flat tax.
So I’m not motivated to advocate for a flat tax, but I do advocate that we eliminate home mortgage interest deductibility (subsidizing one of the most unproductive corners of the economy (a worker who goes home to a fancy house is no more productive than a worker who goes home to a simple house)) and allow businesses to choose whatever depreciation schedule they like for capital expenses, including immediate write-off of 100 per cent (could simplify compliance by allowing a company simply to look at its checking account balance annually and infer the previous year’s income).
In general, all of the tax talk seems like a bit of a distraction. If we re-tweaked the income tax code would it then become profitable for companies to hire America’s 15 million unemployed folks? If the problem is that these workers aren’t educated or skilled enough and that they require health insurance in the world’s most expensive country for health care, a change in income tax policy isn’t going to make a big difference.
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