As April 15th nears each year, many taxpayers struggling to find their way through the labyrinth of IRS definitions and dicta angrily conclude that there must be a better, simpler way. In recent years, this recurrent dream has acquired a name: the flat tax.

The brainchild of Stanford University economist Robert Hall and political scientist Alvin Rabushka, the flat tax was strongly advocated by 1992 Democratic presidential contender Jerry Brown, and more recently by 1996 Republican presidential aspirant Steve Forbes. In Congress, House Majority Leader Richard Armey (R.-Texas) and Senator Richard Shelby (R.-Ala.) are pushing the flat tax hard.

Though it comes in different versions, the idea essentially is that household wages and pension income above a certain amount (but not other types of income) and corporate revenues less expenditures (including the full cost of capital investment) would both be taxed at the same flat rate. The rate is 19 percent in the Hall-Rabushka proposal and 17 percent in the Armey-Shelby one. Tax forms could fit on postcards, it is promised, and Americans could fill them out easily, without having to resort to tax code hermeneutics. No more fuming as April 15th draws closer! Sounds great, but the reality might not be quite so wonderful. Joshua Micah Marshall, a Writing Fellow at the American Prospect (May–June 1998), contends that "the flat tax would leave the rich paying less and the poor and middle class paying more." Though proponents stress the simplicity of the flat tax, a progressive tax need not be complicated, he points out. "It would be just as easy to ‘simplify’ the tax code by creating four or five graduated tax brackets and eliminating most, or all, deductions. That’s simple, straightforward, and progressive." But both the Hall-Rabushka and the Armey-Shelby proposals are also "progressive," according to an analysis in Contemporary Economic Policy (Jan. 1998) by Mun S. Ho, a Visiting Fellow at Harvard University’s Kennedy School of Government, and Kevin J. Stiroh, an economist with the Conference Board, in New York City. While the flat tax may be the soul of simplicity, figuring out its effects is not easy, because of the family allowances (excluding those whose wages are below a certain level from being taxed) and the tax on business income (which would have an impact on wages and prices). Using Current Population Survey data on households for 1993, Ho and Stiroh calculate that the average tax rate for families with less than $10,000 in total income would be about three percent under both proposals, and would steadily increase—to about 17 to 19 percent for families with total income more than $1 million. That is progressive, they note, though "less so than the current combination of a personal income tax and a corporate profits tax." In fact, they add, both flat tax proposals "shift the burden of the income tax from both high- and low-income families to the middle class."

In their pioneering 1983 book, Low Tax, Simple Tax, Flat Tax, Hall and Rabushka, as quoted by New Republic (Dec. 15, 1997) staff writer Jonathan Chait, touted the flat tax as "a tremendous boon to the economic elite," and conceded that "it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people." Comments Chait: "This candor, while admirable, did not prove an effective political strategy." Hence, Republican flat taxers have wrapped the idea in near-soak-therich populist rhetoric. "It is just plain wrong that the politically well connected have been able to carve out for themselves special treatment under the law," Armey has said, for instance.

"To defuse the ‘fairness issue,’" reports National Review (Mar. 9, 1998) national reporter Ramesh Ponnuru, Armey’s proposal, like Forbes’s, provides "generous exemptions." A family of four earning $25,000 would owe no tax at all. But many Republicans, writes Ponnuru, now "worry that a flat tax... could be a political disaster," taking "millions of voters off the income-tax rolls [and] thus expanding the ranks of people who can vote for big government at no obvious cost to themselves."

Whatever the merits, a flat tax is not likely to be adopted in its pure form, observes William G. Gale, a Senior Fellow in the Brookings Institution’s Economic Studies Program. "The flat tax is considered a simple tax with a relatively low rate in large part because it eliminates, on paper, deductions and exclusions that no Congress has dared touch," he points out in The Brookings Review (Summer 1998). Among them: deductions for mortgage interest, state and local income and property taxes, and charitable contributions. These "loopholes," Gale says, have long been sacrosanct, for two reasons: "political forces and views of social equity." any flat tax that moved from controversial The same pressures would be at work on idea to inescapable reality.