I was heartened recently to see Edward Kleinbard’s op-ed in the New York Times, with its alluring title, “Don’t Soak the Rich.” But as I read the piece by Kleinbard, a law school professor at the University of Southern California, it became clear that his proposed solution was a classic bait-and-switch operation. Kleinbard’s so-called flat tax soaks the rich by a different route. He proposes a tax hike on everyone evenly and then suggests that the government spend most of the extra revenues on the poor, either by direct grants or public expenditures from which they derive the lion’s share of the benefit.
The flat tax deserves a better send-off. Historically, the tax was championed by such notables as Aristotle, Locke, and Hayek as a device to reduce the government’s role in the lives of its citizens. Even a limited government must do many things—provide national defense, preserve internal order, and supply the infrastructure on which a well-organized private sector markets run. Accomplishing these daunting tasks requires public revenues. The challenge for the defender of limited government is to find that set of taxes that minimizes the distortions of a market economy while generating revenue to accomplish government’s necessary and proper goals.
In general, a two-pronged approach offers the greatest hope. First, whenever possible, the government should impose user fees to defray the costs of public services. These include, for example, highway tolls, which ideally should cover the costs of running the system, by apportioning expenses so that those who place the greatest burden on the roads pay the greatest amount. But user taxes are not feasible for standard public goods, i.e. those indivisible benefits that must be supplied to everyone if they are supplied to anyone.
The flat tax proportionate to either income or consumption offers the most attractive option, because it allows the government to set the overall levels of revenue as high or as low as seems necessary,….