Why a flat tax is a bad idea

An acquaintance asked me about this. Here’s the quick answer.

Virtually every tax in the US is regressive except income tax. That is,the more money you make, the less money you you pay as a % of your income. If you replace income tax, the only progressive tax (one where if you make more you pay a higher percentage) then you will have a strongly regressive system. (The system is probably effecitively flat already when you add all taxes/fees together).

Not only does regressivity hurt poorer people, it reduces demand and it increases income inequality. Income inequality is heavily correlated with all sorts of bad outcomes including lower lifespans, higher infant mortality, lower happiness and so on.

Lack of high level progressivity is also a major reason for the financial crisis. What should be done instead of a flat tax is to tax all income over a million at 90%, all income over 5 million at 95%, closing loopholes and so on. It is not a coincidence, or an accident that the US was highly progressive in the 50s or 60s, nor is it an accident that the countries in the world with the happiest citizens (aka. the nordic countries) have high tax rates.

The current system is not fair because of loopholes and special treatment, not because it’s progressive. Those loopholes could be changed under any new tax system, whether highly progressive or flat.