Flat tax solves – bipartisan public benefits provide transparency

One single impulse—to narrow the gap between the rich and the poor—drives these concerted efforts to wring more out of the taxation system, if only from a much-reduced wealth base. But even if the markets were to turn around, the fatal flaw in these onerous taxation programs persists in their initial premise: that closing the wealth gap between rich and poor matters more than increasing overall wealth.

Consider two changes in wealth in a two-person society: one person who starts with $10 and another who starts with $20. In one scenario, the wealth of both double to $20 and $40, respectively. Classical liberals would see an unambiguous social improvement. Equalitarians might ask whether the increased wealth differential should lead us to reject this new state of affairs where both are better off. In a second scenario, the wealth of each person falls to $5. Should an egalitarian prefer this newfound parity because it eliminates the wealth gap even though it makes both sides worse off?

One who perversely prefers the second scenario to the first shows how far modern tax theory has departed from its classical origins. In the classical liberal ideal, a flat tax to fund public improvements allows for complex changes that are intended to create public benefits that cannot be obtained via market transactions, while avoiding senseless partisan conflict over the wealth tax and its close substitutes. The system is both stable and pro-growth. It works far better than today’s never-ending set of progressive tax gimmicks.