‘Case of the Week’ 3 (Stoa): Flat Tax

NOTE: We normally try to alternate Stoa and NCFCA cases, but we only had a Stoa case available this week. Rest assured, NCFCA stuff is coming!


Important Disclaimer: We pretty much just throw these together over the weekend, and don’t put a lot of work into them. Case of the Week cases are not subject to the same editorial process and stringent quality standards as the COG 2011 sourcebook, and are frequently contributed by non-COG authors. You will likely find material and sources in these cases that would not appear in the sourcebook. Also the backups are not intended to be complete. That said, we hope these cases will be useful to you; enjoy!

About the Author: Caleb participated in debate in Region 4 for four years. With his partner, he took 2nd place at the 2010 NCFCA Regional 4 championship, qualifying to Nationals in both debate and Apologetics. Caleb is a COG 2011 author.

Author’s Note: The specific version of the flat tax advocated in this case is the Hall-Rabushka model, which is widely accepted by economists and has formed the foundation for most other flat tax proposals. The most recent version of the Hall-Rabushka model is accessible online, at http://www.hoover.org/publications/books/8329. The flat tax act they recommend is accessible at http://media.hoover.org/sites/default/files/documents/0817993115_211.pdf.

1AC: Flat Tax

By Caleb Smith

Imagine I told you that you could file your income taxes on a post card—no other forms needed. Imagine that you could fill out that post card in the time it takes to answer a 10 question survey

Now stop imagining. Believe it or not, we can simplify and improve the federal income tax so that it could fit on an index card, and benefit the economy at the same time. Because we believe that the United States income tax is excessively complicated and unnecessarily progressive, we stand Resolved: That the United States federal government should substantially reform its revenue generation policies.

I’d like to start by defining a few key terms of this resolution.

DEFINITIONS

Revenue: “The income of a government from all sources appropriated for the payment of the public expenses.” (American Heritage Dictionary of the English Language)

Policies: “Courses of action adopted and pursued by a government, ruler, political party, etc.” (Dictionary.com, “policy” definition pluralized)

Progressive Tax: “A tax that takes a higher proportion of large incomes than of small ones.” (American Heritage New Dictionary of Cultural Literacy)

INHERENCY

Inherency 1. (Chart) Income taxes = 50% of revenue

The Heritage Foundation, 2011 Budget Chart Book, 2011 [data from 2010], “Federal Revenues by Source,” “PERCENTAGE OF TOTAL FEDERAL REVENUE (2010), accessed 7/9/11, http://www.heritage.org/budgetchartbook/federal-revenue-sources

[This is a chart, so I’ll summarize what it says. You can ask for the chart after the round if you wish. Reading the chart, we see that individual income taxes constitute 41.6% of federal revenue, while corporate income taxes constitute 8.9% of federal revenue; doing the math, these two taxes combine to constitute 50.5% of federal revenue.]

Inherency 2. (Table) Individual Income Tax progressive

Tax Policy Center (a non-partisan organization, staffed by top national experts in taxes, expenditure, budget policy, and microsimulation modeling, which analyzes current and long-term tax issues ), “Individual Income Tax Parameters (Including Brackets), 1945-2011,” January 2011, Accessed 7/9/11 http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=474

[Again, this is a chart, so I’ll summarize what it says. You can ask for the chart after the round if you wish. Reading the table, we see that the Marginal Rates for the 2011 Individual Income Tax begin at 10% and peak at 35%. Higher incomes are taxed at higher rates, fulfilling our definition of a progressive tax.]

Inherency 3: Corporate Income Tax progressive

IRS, Internal Revenue Bulletin: 2008-6, February 11, 2008, T.D. 9369, “Calculating and Apportioning the Section 11(b)(1) Additional Tax Under Section 1561 for Controlled Groups,” Accessed 7/9/11 http://www.irs.gov/irb/2008-06_IRB/ar07.html

“The income tax rates imposed on a corporation’s income increase with each higher bracketed range of taxable income. The following chart shows the various tax rates imposed on a corporation and the ranges of taxable income that are subject to each of these tax rates:”

[Reading the chart: the rate can be 15%, 25%, 34%, or 35%, depending on the corporation’s income]

Rate of tax Range of taxable income subject to a rate of tax
15% $50,000 (first $50,000 of corporation’s taxable income)
25% $25,000 ($75,000 – $50,000)
34% $9,925,000 ($10,000,000 – $75,000)
35% > $10,000,000

Thus, we see that the individual and corporate income taxes are both currently progressive, and that combined these taxes make up a full 50% of our nations revenue. As the affirmative team, we believe that can we provide substantial advantages by eliminating the progressivty and complexity of these revenue generation policies. In order to do so, we offer the following

PLAN

1. Income Tax Abolished. All current laws, rules, and regulations pertaining to the individual and corporate income taxes shall be abolished
2. Flat Tax. The United States Federal Government shall pass the Hall-Rabushka* Flat Tax Act, as given in their 2007 book, “The Flat Tax.” This act establishes a flat 19% tax on individual and corporate income, establishing exemptions for the filer/filers and his/her/their dependents.

3. Exemptions. However, exemptions shall be valued according to Hall-Rabushka’s 1995 recommendations**, which include:

1. a $20,000 exemption for married, filing jointly
2. a $6,000 exemption per dependent

4. This plan shall come into effect at the beginning of the next fiscal year, with the exception of tax extensions that were begun before the enactment of this plan.

(*Prof. Robert Hall (Professor of Economics at Stanford University, Ph.D.) and Alvin Rabushka (Senior Fellow at the Hoover Institution, Ph.D. In Political Science). **See the sample tax return card, which is based upon their 1995 recommendations.)

This plan shall be passed by the United States Congress and signed by the President, and enforced by the IRS and any other necessary federal agency. Since the flat tax is much simpler to enforce, the funding for enforcement will follow existing budgets.

Since we clearly can’t present the entire act in this speech, we reserve the right to explain and clarify our plan as needed.

SOLVENCY: HISTORICAL PRECEDENT

Flat tax successful in 24 countries

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), “The Global Flat Tax Revolution: Lessons for Policy Makers,” Prosperitas: A Policy Analysis from the Center for Freedom and Prosperity Foundation, Vol. VIII, Issue I, February 2008, Accessed 7/8/11 http://freedomandprosperity.org/2008/publications/the-global-flat-tax-revolution-lessons-for-policy-makers/

Perhaps the most exciting development, though, is the flat tax revolution. The number will probably be higher by the time you are reading this, but as this article went to press, 24 nations have adopted some form of single-rate tax regime. These reforms have generated impressive results, including faster growth, more jobs, and increased competitiveness. While politicians generally are most concerned about losing tax revenue, they should not worry. Flat tax systems oftentimes generate higher tax revenues because of more income and better compliance.

ADVANTAGES

Advantage 1: Eliminates complexity—saves tens of billions compliance costs

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

“If enacted, a flat tax would yield major benefits to the nation, including:

[later in the same list of benefits:]

Simplicity. Complexity is a hidden tax amounting to more than $100 billion. This is the cost of tax preparation, lawyers, accountants, and other resources used to comply with the Internal Revenue Code. The Internal Revenue Service even admits that the current tax code requires taxpayers to devote 6.6 billion hours each year to their tax returns. Yet even this commitment of time is no guarantee of accuracy. The code is so complex that even tax experts and the IRS often make mistakes. All taxpayers, from General Motors to a hamburger-flipping teenager, would be able to fill out their tax return on a postcard-sized form, and compliance costs would drop by tens of billions of dollars.”

Advantage 2: Ends corruption in tax policy

Same source

“An End to Micromanaging and Political Favoritism. A flat tax gets rid of all deductions, loopholes, credits, and exemptions. Politicians would lose all ability to pick winners and losers, reward friends and punish enemies, and use the tax code to impose their values on the economy. Not only does this end a major source of political corruption, but it is also pro-growth since companies would no longer squander resources lobbying politicians or making foolish investments just to obtain favorable tax treatment.”

Advantage 3: Economic boost/income growth

Same source

“Faster Economic Growth. A flat tax would spur increased work, saving, and investment. By increasing incentives to engage in productive economic behavior, it would also boost the economy’s long-term growth rate. Even if a flat tax boosted long-term growth by only 0.5 percent, the income of the average family of four after 10 years would be as much as $5,000 higher than it would be under current tax laws.”


I’d like to conclude by countering the argument that a flat tax hurts low and middle income families—an argument I’m sure my opponents will probably make.

Let’s put this in perspective. According to information from the U.S. Census Bureau* and the Center on Budget and Policy Priorities**, an average middle-income family—let’s say with two children—will earn about $60,000 ($62,363, to be exact) and pay 4.7% of that as taxes, which comes out to $2,820.

Under our model, the household will receive a $32,000 exemption for the husband, wife, and children, and their remaining income will be taxed at 19%. That’s $5,320 in taxes, or 8.9% of the original income. While they have paid $2,500 more; this certainly won’t push them below the poverty level! And remember, even at minimum growth, a flat tax will expand that family’s income by $5,000—more than compensating for their increased taxes! In addition, it’s very important to realize that if the family earned under $32,000, they would be completely covered by the exemption and would not pay a dime.

A flat tax strengthens the economy and reduces compliance costs and time. It ends political corruption and stops the manipulation of loopholes in the complex tax code. It makes taxes so straightforward everyone can easily comply—and no one can evade. And the benefits go to everyone; the rich, the poor, and the middle class alike. Because we believe in a better April 15th, we stand Resolved: That the United States federal government should substantially reform its revenue generation policies.

* U.S. Census Bureau, Fact Sheets, United States, “2005-2009 American Community Survey 5-Year Estimates Data Profile Highlights:,” 2005-2009, Accessed 6/8/11 http://factfinder.census.gov/servlet/ACSSAFFFacts

** Center on Budget and Policy Priorities (national policy organization devoted to the study and distribution of fiscal and economic issues, and how they impact low and middle income Americans), Chuck Marr (Director of Federal Tax Policy at the Center on Budget and Policy Priorities, B.A. In economics) and Gillian Brunet (B.A. In government and mathematics), “Federal Income Taxes on Middle-Income Families at Historically Low Levels,” Updated April 2011, Accessed 6/8/11 http://www.cbpp.org/cms/index.cfm?fa=view&id=3151

Backup: Flat Tax

The postcard tax return

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax
Historical Precedent—Flat tax works—Even socialists like it!

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute), “The Global Flat Tax Revolution: Lessons for Policy Makers,” Prosperitas: A Policy Analysis from the Center for Freedom and Prosperity Foundation, Vol. VIII, Issue I, February 2008, Accessed 7/8/11 http://freedomandprosperity.org/2008/publications/the-global-flat-tax-revolution-lessons-for-policy-makers/

“No nation has returned to a so-called progressive tax. Notwithstanding faulty analysis from the IMF, the flat tax seems to be remarkably resilient. None of the flat tax nations have returned to a discriminatory rate structure. The most recent threats to single-rate regimes came in Russia, where lawmakers overwhelmingly rejected a scheme to create a progressive system with a top rate of 30 percent.5 More impressive, Slovakian voters in 2006 elected a coalition of socialists and nationalists, leading many to conclude that this did not bode well for the flat tax implemented by the outgoing government. Yet Slovakia’s new leaders decided not to tinker with the goose that was laying golden eggs and the flat tax seems securely enshrined.6”

Overview—opening quote

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

Unlike the current system, a flat tax is simple, fair, and good for growth. Instead of the 893 forms required by the current system, a flat tax would use only two postcard-sized forms: one for labor income and the other for business and capital income. Unlike the current system, which discriminates based on the source, use, and level of income, a flat tax treats all taxpayers equally, fulfilling the “equal justice under law” principle etched above the main entrance to the U.S. Supreme Court building. And unlike the current system, which punishes people for contributing to the nation’s wealth, a flat tax would lower marginal tax rates and eliminate the tax bias against saving and investment, thus ensuring better economic performance in a competitive global economy.

Generous household exemption

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

Family-Friendly. All flat tax proposals have one “loophole.” Households receive a generous exemption based on family size. For instance, a family of four would not begin to pay tax until its annual income reached more than $30,000.

Reduces penalties for productive behavior

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

A Single Flat Rate. All flat tax proposals have a single rate, usually less than 20 percent. The low, flat rate solves the problem of high marginal tax rates by reducing penalties against productive behavior, such as work, risk taking, and entrepreneurship.

Fair/Simple—eliminates abuse

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

However, the most persuasive feature of a flat tax for many Americans is its fairness. The complicated documents, instruction manuals, and numerous forms that taxpayers struggle to decipher every April would be replaced by a brief set of instructions and two simple postcards. This radical reform appeals to citizens who not only resent the time and expense consumed by filing their own tax forms, but also suspect that the existing maze of credits, deductions, and exemptions gives a special advantage to those who wield political power and can afford expert tax advisers.

Flat Tax–Successful/Spreading

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

If enacted, a flat tax would yield major benefits to the nation, including:

[later, in the same context:]

Global Competitiveness. In a remarkable development, former communist nations are leading a global tax reform revolution. Estonia was the first to adopt a flat tax, implementing a 26 percent rate in 1994, just a few years after the collapse of the Soviet Union. The other two Baltic republics of the former Soviet Union enacted flat taxes in the mid-1990s, with Latvia choosing a 25 percent rate and Lithuania picking 33 percent. Along with other free-market reforms, the flat tax significantly improved economic growth, and the “Baltic Tigers” became role models for the region. Learning from its neighbors, Russia stunned the world by adopting a 13 percent flat tax, which went into effect in 2001.

The Russian flat tax quickly yielded positive results: The economy prospered, and revenues poured into government coffers since tax evasion and avoidance became much less profitable. The flat tax then spread to Serbia, which in 2003 chose a 14 percent rate. Slovakia hopped on the bandwagon the following year with a 19 percent flat tax, as did Ukraine, which chose a 13 percent tax rate.

No tax is perfect, but flat tax best

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

The current income tax system punishes the economy, imposes heavy compliance costs on taxpayers, rewards special interests, and makes America less competitive. A flat tax would dramatically reduce these ill effects. Perhaps more important, it would reduce the federal government’s power over the lives of taxpayers and get the government out of the business of trying to micromanage the economy.

There will never be a tax that is good for the economy, but the flat tax moves the system much closer to where it should be—raising the revenues that government demands, but in the least destructive and least intrusive way possible.

AT: Not realistic for America b/c foreign results can’t be replicated

Daniel J. Mitchell (Ph.D in economics, senior economist at the Cato Institute, leading national advocate for the flat tax), The Heritage Foundation, “A Brief Guide to the Flat Tax,”July 2005, Accessed 7/ 9/11 http://www.heritage.org/research/reports/2005/07/a-brief-guide-to-the-flat-tax

The shift to flat taxes is dramatic. For decades, critics said a flat tax was unrealistic and that Hong Kong was a special case. They never explained why it was a special case, but supposedly a flat tax could not work anyplace else. They made similar assertions after the Baltic nations adopted flat tax systems, but adapted their arguments to suggest that a flat tax only worked in small jurisdictions. But then when Russia and other large Eastern European nations hopped on the flat tax bandwagon, opponents began to concede that flat tax regimes were feasible, but rationalized that tax reform worked only in transition economies. Now that Iceland has a flat tax, one can only imagine the new excuses that will be used to argue the flat tax does not work or that it is impractical.

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One Response to ‘Case of the Week’ 3 (Stoa): Flat Tax

  1. bill hass says:

    i love the flat tax, and i think that this is the best flattax case that ive seen yet

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