Why There Will NEVER Be A Flat Tax

I’m listening to a Vanguard Podcast on the new tax law when…
…the interviewee, Jackie Yousef, Vanguard’s tax planning specialist, states:

“I studied Egyptology for a number of years in college, and a few years back I found out that the Franklin Institute in Philadelphia was holding an exhibit on Cleopatra, the last queen of Egypt. So, naturally, I was one of the few people that decided to make it to the exhibit.

What I stumbled upon at the exhibit was the oldest tax document that we have discovered to date. This is a tax exemption that essentially was for one of Mark Antony’s associates. And it was signed by Cleopatra herself, supposedly, in Greek; and essentially translates into “Make it happen.”

Now, what Ms. Youssef takes away from this incredible finding is that “taxes have been around for more than 2,000 years at this point, and they will continue to be with us…”

Oh, while that is true, what this historical document actually shows is that taxes were and forever will be used as political leverage to reward your friends and grind down your opponents. Why did Mark Anthony’s associate get a tax break? Well, because he was part of the favored political class at that time.

How about an opponent of Mark Anthony though? Did he also get a tax break? Are you kidding?

You think it’s any different today? Check out this video from John Stossel about modern day tax preferential treatment.

Don’t get me wrong, the Republicans do the same thing. Why do you think there was a $10k limit on State and Local Taxes (SALT) in the new tax law? Well because the Trump Administration felt the higher taxed states (mainly Blue states) shouldn’t get a tax preference for their high taxes. And thus limited how much residents in those states could deduct from their FEDERAL taxes. If those states voted for Trump hard to imagine there would be a $10k SALT limit.

Literally, does not matter what YOU, or I, think of these situations. These things are part and parcel of the tax code; reward favored groups and punish non-favored groups. It’s just that simple.

What does this have to do with the title of this post though? that there will never be a flat tax? Again, simple, the politicians LOVE the ability to grant favors to their supporters. It puts the politicians in the catbirds seat. Constituents then need to kiss the ring of the political party in power in order to get preferential treatment. Very few politicians will give that power away by simplifying the tax code.

You think the Republicans are purer than the Democrats than this? Ever heard of Billy Tauzin? Trent Lott? John Boehner? All of them went from powerful positions in Congress to become very wealthy as lobbyists. And the list goes on and on…and on.

Flat tax would remove all that from happening. Thus the flat tax would completely eliminate the ability for politicians to exercise power while in office and once out of office get rich.

And there you have WHY it will never happen. This isn’t new. As Cleopatra shows, this kind of favoritism goes back 2000 years.

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