BusinessWeek published an opinion piece discussing an International Money Fund paper about some European countries who adopted a flat tax and are now considering more progressive tax schemes. The writer is clearly not in favor of the flat tax himself:

These reverses for the flat tax missionaries highlight that the question of which tax system to adopt is not just about which one is more efficient at raising income. In modern history tax systems also have a vital role in redistributing income, correcting the vagaries of the market system.

Flat tax systems usually have a regressive impact because they allow the rich to keep more of their income. At the same time indirect taxes are typically increased to balance the loss of income tax, which has a bigger impact on low- and mid-income taxpayers who spend more of their income on goods subject to such taxes.

We would not be talking about the fairness of a tax nearly so much if we were not using the money to buy the votes of the lower class. Government is not the most efficient way to help the poor. As to the other indirect taxes, that is not the fault of the flat tax.

It amazes me how, except at the very low end of the income scale, how people think taxing richer people with a higher tax rate is seen as “fair”. With a flat tax, rich people already pay more money than poor people. To discern a progressive system as fair is to quantify and rectify an amount of pain supposedly felt by those with less incomes that richer people supposedly do not feel. Pulling such a number out of thin air is arrogance.

Supporters of the flat tax often deliberately confuse the impact of moving to a flat system with the impact of cutting tax rates or simplifying the system. Often the switch to a flat system involves cutting and simplifying, but these are separate issues from the tax rate.

A flat tax, for example, can be set high; the abolition of a higher-rate tax band does not bring huge gains in simplicity.

The writer should have quoted a person who said a flat tax had the benefits of lowering tax rates. More correctly, the flat tax most easily shows everyone the impact of government expenses on each individual’s paycheck. As to simplicity, a single tax rate by its own nature does make calculation and collection simpler. You either have two or more band rates, or you have just one.

Behavioral effects such as improved incentives were usually not enough to compensate for a cut in overall tax rates, contradicting the hypothesis by the economist Arthur Laffer that revenues would increase as rates were cut. “Behavioral responses may have mitigated the revenue loss, but in no case does there appear to have been a Laffer effect,” the researchers found.

Here the writer misunderstands the Laffer curve. Lowering revenues as an effect of lowered taxes is not a refutation of Laffer. It means that you are on the left side of the Laffer curve. If you don’t tax the people, you get no revenue. Obviously if you tax the people some, you get more than if you don’t tax at all. Laffer suggested that it is possible to get more revenue by lowering taxes, if you were overtaxing the public in the first place.

The impact of the flat tax on incentives is in any case ambiguous. Cutting marginal tax rates will increase incentives, especially for those at the lower and upper ends of the income scale. However, some taxpayers may be less motivated to work harder if average tax rates fall because they will more easily achieve the standard of living they aspire to. Many others, of course, are salary earners and cannot work harder in any case, regardless of whatever tax incentives are offered. Extra revenue from incentives offered to entrepreneurs is likely therefore to fail to match the reduced revenue from the majority of taxpayers if overall rates are cut. (my emphasis)

It isn’t human nature to aim for an arbitrary standard of living and then stop working. We earn as much as we can, and we take what we can get. We might plateau for other reasons, such as the amount of effort required to gain that extra $10 grand a year might not be worth it. We might decide that we can live at a certain level and then use the extra income to help other people. We do not, though, turn down our claim to gains that aren’t too difficult to get. That would be negligence in our vocations.

It would seem that the IMF and the people in these countries are submitting to the old dragon of class envy. Everyone wants to be in the middle- or lower-class so they can soak the rich without working so hard themselves. There really is only one reason why a rich person would want money forcefully taken from them; if it was money they didn’t really earn in the first place.