Today we’ll be discussing the flat (or fair) tax, which has become popular in Republican policy circles the last couple years. The basic idea is to have people at all income levels pay the same tax rate. In 2004 Mike Huckabee promoted such a tax, as have Rick Perry and Herman Cain in the current election cycle. These plans often simply rely on a consumption, or sales, tax, but are occasionally combined with a low income-tax rate. Using solely a sales tax under such a system (and replacing local taxes), Romney estimates the total tax rate would end up just under 35% for everyone. On page 130 of No Apology, he weighs in:
One challenge of the fair tax is that the very rich would see their taxes go down—a lot. If Bill Gates makes about a billion dollars a year on his investments, for example, his current taxes would be at least $200 million. Let’s say he spends $50 million on himself and his family every year—which is a huge sum and I doubt he spends that much, but let’s use it for an illustration: Under the fair tax, Bill Gates would pay “only” about $17 million in taxes—his tax bill would thus drop from $200 million to $17 million. The Wall Street Journal found that the enormous amount saved by the wealthiest under the fair tax would be made up by a higher tax burden on the middle class. This is not an outcome that will or should gain traction with the American public.
While such a consumption tax would encourage Americans to save, on this issue Romney gets it exactly right. A fair tax would cause the tax burden to be shifted towards the middle (and lower) classes, rather than resting mostly on the rich. It’s refreshing to hear such a sensible and contrarian take on this often popular Republican policy proposal. Stay tuned for more Mitt.