On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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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.
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