Financial Week has a headline that says:
A tax reform plan not only accountants would love
It refers to a proposal by the New York State Society of Certified Public Accountants (the US equivalent of Chartered Accountants) for what they call a simple exact transparent tax (SET).
Now let's be blunt, the SET is a flat tax. As Financial Week says:
like other flat tax proposals, would tax all income at a single rate-no income brackets, no phase-out of deductions and no surtaxes.
And as Bob McIntyre of Citizens for Tax Justice said:
A flat tax, regardless of what tax code rationalizations might accompany it, favors the wealthy. With a flat tax, people currently taxed at the top rate win
And as in Bulgaria, the poorest lose.
Financial Week says its surprised that CPAs are calling for this:
The U.S. tax code is overly complicated and hard to comply with, but certified public accountants are perhaps the last people you'd expect to develop a fix for it.
I'm not. Too many in accountancy see their role to be increasing the wealth of the wealthiest in our society. After all, that is what wealth management is. And this is a marketing exercise that panders to that market. They know it won't work. They know it won't happen. But they're politically cynical enough to pander to their clients and ignore the ethics of their duty to society as a whole.
Which is why accountants cannot be trusted to act in the public interest.
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It is a deceit to discuss any proposition for a ‘tax regime’ in isolation from the accompanying tax-credits, benefits and means-testing. For example, consider the two following regimes:
– Regime 1 includes tax-credits/benefits of £3,000/y means-tested at 75% on income up to £4,000/y, tax at 0% on income up to £4,000/y, and tax at 25% on income above £4,000/y (i.e. a ‘progressive tax regime’).
– Regime 2 includes tax-credits/benefits of £2,000/y means-tested at 50% on income up to £4,000/y, a new non-means-tested tax-credit/benefit of £1,000/y, and tax at 25% on all income (i.e. a ‘flat tax regime’).
The differences between these two ‘regimes’ are purely-administrative. They are indistinguishable in economic terms. Both regimes are ‘progressive. Specifically:
– Those with an income of £0/y would end up with £3,000/y, and an average tax rate of minus infinity (i.e. meaningless).
– Those with an income of £2,000/y would end up with £3,500/y, and an average tax rate of minus 75% (i.e. meaningless).
– Those with an income of £4,000/y would end up with £4,000/y, and an average tax rate of 0% (i.e. meaningless).
– Those with an income of £8,000/y would end up with £7,000/y, and an average tax rate of 12.5%.
– Those with an income of £20,000/y would end up with £16,000/y, and an average tax rate of 20%.
– Etc..
Unfortunately, consideration of propositions for ‘flat tax regimes’ are obfuscated by hidden agendas:
– Most/all propositions for a ‘flat tax regime’ fail to include the required neutralising measures outlined in the earlier exposition. Such propositions undoubtedly worsen directly the lot of the poor (and thereby improve indirectly the lot of the rich with the consequential reductions in high-level tax). However, criticism should be limited to the spurious failure to include the required neutralising measures.
– Most/all propositions for a ‘flat tax regime’ are actually poorly-disguised beggar-thy-neighbour ‘low-tax regimes’ (equivalent to reducing the 25% tax rate outlined in the earlier exposition. Such propositions undoubtedly improve directly the lot of the rich (and thereby indirectly worsen the lot of the poor with the consequential reductions in tax-credits/benefits). However, criticism should be limited to the ‘low’ rather than the ‘flat’.
Don’t throw the baby (flat taxes) out with the bathwater (the spurious obfuscations).