One of the things that have not been reported on about Barack Obama’s visit to Buffalo, NY today was his reaction to a question about abolishing the IRS and moving to a flat tax. Obama said, “In order to have a flat tax that was revenue-neutral, that didn’t add to the deficit, it’d have to be a pretty substantial tax, but it would mean a huge tax break for Warren Buffett.”
During the Q&A portion of his visit to Industrial Support Inc., Obama was asked about the potential for abolishing the IRS and moving to a flat tax. The President explained the problems with the flat tax, “The main argument, and the last point I’ll make on this, on the fair tax, the main argument that people make against the fair tax is right now we’ve got a progressive income tax. I made a lot of money last year because my book sold a lot, and so I wrote a really big check to Uncle Sam. My rate was higher than somebody who made $40,000 a year. So we’ve got a progressive income tax, meaning that the more you make the higher your tax rate goes, up until a certain amount.”
Obama explained the limitations of the flat tax, “Now, if you have a flat tax and everybody is — let’s say everybody was — had a — was paying 10 percent. That means Warren Buffett is paying 10 percent. It means the construction worker is paying 10 percent. It means somebody who has got a minimum-wage job is paying 10 percent. And the question is does that 10 percent take a bigger bite out of the cashier at the supermarket than it does out of Warren Buffett? Because she is paying more of her income in food and rent and just basic necessities, and so does it make sense for Warren Buffett to be paying a little bit more?”
He added that a small flat tax would not be revenue neutral, “In order to have a flat tax that was revenue-neutral, that didn’t add to the deficit, it’d have to be a pretty substantial tax, but it would mean a huge tax break for Warren Buffett. And so the question is, is there a way of achieving simplification, but still having some element of progressivity and some element of fairness in the tax system? That’s part of what makes it complicated.”
The last part of the President’s remarks is what supporters of the flat tax often ignore. A small flat tax would never, ever work. The problem is that a flat of 20% would not be enough to fund the government. The bigger problem with the so called”fair tax” is that it isn’t really all that fair. A flat tax would result in a regressive tax on the poor, middle class, and those with fixed incomes. The real reason why advocates of the flat tax push it so hard is that it is part of their small government agenda.
The point of the flat tax is not to be fair, but to reduce government spending. The problem with this concept is that mandatory spending is $2.16 trillion dollars, which leaves only $520 billion to cut. Thus the only way a flat tax would work is if Social Security was done away with or privatized, and programs like Medicare were done away with. The flat tax is about ideology not fairness, and this is something that Obama described perfectly.