March 09, 2006

Washington DC as a Flat Tax Laboratory...again

The Washington Post is reporting that Senator Sam Brownback held a hearing to discuss implementing a voluntary "flat tax" on residents of the District of Columbia.
Sen. Sam Brownback (R-Kan.), chairman of the Senate Appropriations subcommittee on the District, held a hearing to talk about implementing a flat tax on city residents, which would be voluntary. D.C. residents could opt to remain under the current federal tax system.
The specifics of the proposal aren't mentioned. However, even the mention of instituting a flat tax should be hotly debated. Check out our earlier post on this topic to read the varied comments that post received.

The usual arguments about DC Statehood apply here. Why does a Senator from Kansas get to dictate a new tax code to DC? The article notes that while national experts and former majority leader Dick Armey were allowed to testify, no one from the DC government offered their perspective. Apparently another hearing is scheduled and representatives from DC will be invited to offer opinions. There's little reason to rehash the "Taxation without Representation" argument as it clearly applies here.

Secondly, this voluntary flat tax system sounds really confusing. Taxpayers can chose which tax form to use? It's tricky enough to figure out what taxes are owed without having to do the calculation again using presumably different rates and exemption levels.

Thirdly, there's a lot of rhetoric around a flat tax. It's hardly fair to ask a poor family to pay the same 5% (for example) tax rate as a wealthy family. Are we just referring to the income tax when we say flat tax? If so, that seems short sighted because obviously D.C. residents also pay property and sales taxes. If a flat tax is defined broadly as a proportional tax system where each income group pays the same percent of their income in state and local taxes overall, then the way to create a flatter and fairer tax system is to create a more progressive tax structure, not to dismantle it. A progressive income tax helps to offset regressive sales and property taxes and ideally, while a totally progressive tax structure isn't created, a flatter proportional tax structure is formed.

When we stop the rhetoric about a flat tax and ensure that we're on the same page with exactly what that means, only then can we have intelligent discussions about the Senator's proposal. For a good explanation of different types of tax structures check out the first chapter of ITEP Guide here.


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