Argument: Why a flat tax is regressive

'Regressive' means that a tax impacts upon the poor more greatly than upon the rich, and this is exactly what occurs with a flat tax. Because everyone pays the same percentage, both a rich and poor man would for example pay 10% of their income in tax. As the poor spend a greater percentage of their income on their basic necessities (such as rent and food) than the rich do, as the rich have far more discretionary income to spend on luxuries. [1] Therefore, the impact of a 10% tax upon a poorer person is far greater in terms of limiting their ability to buy things they may want or need than it is upon a richer person, and consequently the harm of taxing a poorer person at the same rate as a richer person is greater than the harm of taxing a richer person at a higher percentage. Even if the 'personal allowance' allows the poorest in our society to exempt their income from the flat tax (which, of course, offers no relief to the middle class, who now pay a greater percentage tax on their income), they will still be significantly worse off as a consequence of the sales component of the flat tax. This again stems from the poorest spending a greater percentage of their income on necessities, which are not currently subject to sales tax (VAT). Once these VAT 'loopholes' (such as on books, children's clothing and food) are closed, the poorest will be harmed as they have to pay out even more to obtain the necessities of life. Both These increased harms breed resentment and can lead to social disorder, as was seen in the UK in 1990 when an attempt to introduce a 'poll tax' (a form of flat tax, with everyone paying the same charge) led to severe rioting in London and caused the plan to be abandoned. [2] Therefore the regressive nature of a flat tax makes it undesirable and more harmful than current forms of taxation.

[1] Encyclopedia of Business. “Discretionary Income”. Enotes. http://www.enotes.com/biz-encyclopedia/discretionary-income

[2] BBC On This Day “1990: Violence flares in poll tax demonstration” BBC Home http://news.bbc.co.uk/onthisday/hi/dates/stories/march/31/newsid_2530000...

Candidate 1: "This argument ignores the fact that there is still another channel for the allocation of resources, namely the government. In the given example of agriculture tax credits verses manufacturing without such credits, if resources did not go into agriculture because of the special credit, they would have gone not into manufacturing but into government (through the closing of loopholes, and thus the disappearance of a means of being taxed less), and government is far less neutral to the market than any other allocation. Therefore, if the argument assumes that the best allocation of resources is that which most closely resembles a genuinely free market, then in this example a flat tax produces a worse situation, as any allocation of economic resources in the private sector (no matter how 'distorted) is closer to the free market (and thus 'better), than if those resources went into the hands of the government. So if reflecting the market is the uppermost concern, a flat tax is a worse proposition as it brings into higher rates of taxation many areas which currently are less taxed ('loopholes'), thus distorting the market even further as even more resources fall into government hands"
Candidate 2: "The much-acclaimed simplicity of the flat tax in fact makes it too simple to properly reflect a very complicated reality. Goods and services vary in order to make them accessible to different people; there exist both luxury and economy versions of the same goods because companies recognise that people have differing ability and willingness to pay, and hence price these goods differently. It would therefore be strange for the state to tax both kinds of good at the same rate, as if their respective buyers had the same discretionary income and could both afford to buy the product with the additional uniform flat tax on it."
Candidate 3: "The aim of a welfare state is to allow provide access to vital services for all, but especially for those who could not otherwise afford them -to lift the burden of poverty somewhat. A flat tax, however, would actually increase the burden on the poorest. [1] For example, if under a progressive taxation system the highest rate of tax was 50%, and the lowest 10%, if tax revenues were to be maintained when switching to a flat tax system, then it would be impossible to simply extend the 10% rate of tax to all, as this would mean a large effective drop in revenue (as 40% less is collected from the top bracket with no gains anywhere), and so the rate paid by all would have to be somewhere between 10% and 50%, meaning an effective tax rise on the poorest and middle classes, while the richest receive an effective tax cut. This hardly seems 'fair' or in keeping with the aims of a welfare state, as the argument purports to serve.

[1] Ulbrich, Holley. “Flat Tax Is Class Warfare”. U.S. News &amp; World Report. April 12, 2010. http://www.usnews.com/opinion/articles/2010/04/12/flat-tax-is-class-warfare"
Candidate 4: "This argument again assumes that governments do a good job of deciding what areas and sectors 'deserve' loopholes and which do not. The fact that the distribution of resources would change if we abolished certain tax loopholes is probably a sign that these areas have been artificially inflated in terms of their resource allocation by these very tax credits and loopholes, and should therefore be returned to market standards. The selection of many of these sectors for credits may well have been done not on an economic but rather on a political basis, for example in order to protect jobs in some sectors and help boost a government's votes at election time."
Candidate 5: "This argument fails to account for the fact that elected governments are even worse at determining what is 'fair' when it comes to tax policy than the arbitrary circumstances described when the government has the option to tax different persons at different rates on the basis of their income. In effect this allows the less wealthy majority to decide what the 'circumstances' of the more wealthy minority mean they 'should' pay in taxes, which may in fact be inaccurate and based more upon a desire to 'punish' the wealthy and appropriate their resources for the majority in an unfair manner. This populist tendency in elected governments is what makes them so bad at deciding 'fairly' based upon 'circumstances', not sectional or class interests, and so why the power to set different tax rates to different people should be taken out of the hands of the government by instituting a flat tax."
Candidate 6: "The status quo, whereby governments select what areas to tax and at what rate, leads to even more examples of regressive taxation than is alleged of flat taxes. For example, the so-called 'sin tax' on alcohol and cigarettes are designed to limit people's consumption thereof (and thus mitigate the harms of excessive consumption and abuse), but in fact have highly regressive results. This is because those on lower incomes are both more likely to consume large amounts of alcohol and cigarettes, and because this expenditure thus represents a larger share of their income. Consequently, by proportion the taxes on alcohol and cigarettes actually redistribute wealth from the poor to the rich. [1] Therefore there is no reason to believe that government discretion in what is taxed and how much actually leads to less regressive taxation; it may even be more so.

[1] Barro, Josh. “Alcohol Taxes are Strongly Regressive”. National Review Online. March 25, 2010 http://www.nationalreview.com/agenda/39020/alcohol-taxes-are-strongly-re..."

The status quo, whereby governments select what areas to tax and at what rate, leads to even more examples of regressive taxation than is alleged of flat taxes. For example, the so-called 'sin tax' on alcohol and cigarettes are designed to limit people's consumption thereof (and thus mitigate the harms of excessive consumption and abuse), but in fact have highly regressive results. This is because those on lower incomes are both more likely to consume large amounts of alcohol and cigarettes, and because this expenditure thus represents a larger share of their income. Consequently, by proportion the taxes on alcohol and cigarettes actually redistribute wealth from the poor to the rich. [1] Therefore there is no reason to believe that government discretion in what is taxed and how much actually leads to less regressive taxation; it may even be more so.

[1] Barro, Josh. “Alcohol Taxes are Strongly Regressive”. National Review Online. March 25, 2010 http://www.nationalreview.com/agenda/39020/alcohol-taxes-are-strongly-re...
