Stateside,  Vote 2012

GOP’s flat tax fever

Birtherism isn’t the only thing that’s risen from the grave recently.

Steven Thomma of McClatchy Newspapers writes:

The Republican Party is catching flat-tax fever, setting up an election-year fight with Democrats over whether wealthier Americans should pay more taxes or get tax cuts.

Republican presidential candidate Mitt Romney became the latest to punch the tax button Wednesday, telling a Virginia audience that he’ll soon update his economic proposal to spell out how to flatten the tax code.

A day earlier, rival Rick Perry proposed an optional flat 20 percent tax on income. Both followed Herman Cain’s pitch for a flat 9 percent income tax as part of his 9-9-9 plan, which helped him jump to the top tier of candidates for their party’s 2012 nomination. Newt Gingrich and Michele Bachmann also support a flat tax.

A flat tax – so called because it would set one tax rate for all income groups while taking away many or all deductions – would simplify taxes. It also would almost certainly give big tax cuts to wealthy Americans. Republicans say cutting taxes, especially on the wealthy, helps spur investment, economic growth and hiring.
The debate comes as new data show that the wealthiest Americans have greatly increased their share of U.S. income in recent decades. The richest 1 percent had 17 percent of American income in 2007, more than double their 8 percent share in 1979, according to a report this week from the non-partisan Congressional Budget Office. Protest over growing income inequality is also among the issues driving Occupy Wall Street and similar protests around the country.

Polls show that a solid majority of Americans favor raising taxes on the wealthy. But that’s anathema in the Republican Party, where tax cuts, particularly for higher incomes, are popular. Seven in 10 Americans say policies of Republicans in Congress favor the rich, according to a New York Times poll [pdf] published Wednesday.

The flat tax scheme had been more-or-less dormant in US politics since publisher Steve Forbes made it the central issue in his 1996 campaign for the Republican presidential nomination. Forbes seems to be the driving force behind Perry’s plan.

They don’t seem to do it much anymore, but I’m old enough to remember when leading Republicans used to proudly call themselves “the party of Lincoln”– the first Republican president. As it happens, Abraham Lincoln supported and signed the first progressive income tax in the United States.

The Revenue Act of 1862 (July 1, 1862, Ch. 119, 12 Stat. 432), was passed by the United States Congress to help fund the American Civil War. The Act was signed into law by President Abraham Lincoln, introducing the first progressive rate income tax to the country.

The office of the Commissioner of Internal Revenue was established, with the Act specifying that Federal income tax was a temporary measure that would terminate in “the year eighteen hundred and sixty-six”).

Annual income of U.S. residents, to the extent it exceeded $600, was taxed at a 3% rate; those earning over $10,000 per year were taxed at a 5% rate. With respect to the income tax liability generated by the salaries of “officers, or payments to persons in the civil, military, naval, or other employment or service of the United States, including senators and representatives and delegates in Congress”, the law also imposed a duty on paymasters to deduct and withhold the income tax, and to send the withheld tax to the Commissioner of Internal Revenue.

This Act repealed the flat rate income tax that had been established by the Revenue Act of the previous year.

Even that icon of free-market conservatism, Adam Smith, wrote: “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more in proportion.”

But clearly, when it comes to Republican politicians, we are living in a brave new world.