Inequality is a hot topic these days. Everyone seems to want to write about it. The launch of TheUpshot, the new project from the New York Times, included a story on the wealth of the middle class, the Times Sunday...
- The Tax Policy Blog
- Hyperbole Defined: U.S. News & World Report Claims Flat Tax Pl...
Hyperbole Defined: U.S. News & World Report Claims Flat Tax Plans Are "Job Killing"
October 28th, U.S. News & World Report released the article "How a Flat Tax Would (Ahem) Kill Jobs." The logic within is simple: A flat tax would greatly reduce compliance costs, reduce the need for tax professionals and, ultimately, render them obsolete.
Unfortunately, the logic becomes more and more flawed paragraph by paragraph.
A flat tax would certainly reduce compliance costs. Cited within the article is a Tax Foundation study estimating that this reduction could surpass $400 billion dollars, roughly the amount of permanent tax hikes built into the President's proposed American Jobs Act (For more details of these tax hikes, see Tax Foundation Fiscal Fact No. 283, "Academic Research Suggests That the American Jobs Act Will Produce Few Jobs.").
The author readily admits that, "...simplifying the tax code, theoretically, would cut back on compliance costs and put more money into the pockets of ordinary taxpayers," but then tugs on heart strings by reminding everyone that, "...tax accountants and lawyers are people too..."
The American public knows that these professionals are people who contribute to society, but claiming a flat tax is "job killing" is absurd for a few key reasons:
1. Individuals will still have to file state and local taxes. So while the time per return spent by your accountant may go down, they will still have work. These tax preparers will likely make less money as they compete with one another on a price basis, but their job isn't likely to vanish into thin air.
2. Corporations also deal with state taxes, so the above logic applies even if it may mean a decrease in wages for corporate tax preparers.
3. A flat tax proposal such as Cain's, Perry's, or Ron Paul's would instantaneously make U.S. corporations more globally competitive. Multinationals must keep separate books for each country in which they do business and, given expansion, will need some extra tax professionals.
4. Making U.S. corporations more globally competitive will spur economic growth and create jobs. Tax professionals are smart people. Even if they lose their current job, they will have opportunities created elsewhere in the marketplace.
Tax reform will not take place in a vacuum. It will help what is an extremely dynamic U.S. economy. A flat tax would make April 15th a lot less stressful for Americans and decrease unemployment—not kill jobs.
Follow David S. Logan on Twitter @Loganomix
Buy this blogger a cup of coffee!
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.