Andrew Sullivan Flat Wrong on Flat Tax

Andrew Sullivan Flat Wrong on Flat Tax

Andrew Sullivan Flat Wrong on Flat Tax

Moneybox
Commentary about business and finance.
Jan. 13 2000 4:20 PM

Andrew Sullivan Flat Wrong on Flat Tax

(Read Andrew Sullivan's response to this article here.)

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In his New York Times Magazine piece last Sunday arguing for the virtues of a flat tax, Andrew Sullivan suggested that the flat tax would be "the central political reform of the next decade," in part because it fit so well with America's supposed newfound love of "simplicity." As the Times'  subhead put it, "[t]he flat tax is the perfect artifact of our one-click era." For Sullivan, the "byzantine" nature of the current tax system benefits the wealthy, who can afford to pay people to decipher it. And all the loopholes make a "nominally progressive" system much less fair than it appears, and much less fair than a one-size-fits-all system. In fact, Sullivan suggests, a one-rate system is an answer to liberalism's woes, because "by treating every taxpayer alike," it would eliminate so much of the complexity and indebtedness to special interests that make people hate government.

Actually, though, even if the current system is nominally progressive, it's much more progressive than any flat tax--no matter what reforms accompany it--could ever be. Under any flat-tax system, the wealthy will pay much less in taxes than they now do, and therefore everyone else will account for a much higher proportion of tax revenue. (Sullivan wants to tax all capital gains at the same rate as income, and the numbers would be skewed even more by that.) Sullivan says that the idea that a flat tax is a "giveaway to the rich" is a knee-jerk response. But it is a giveaway to the rich. As for the idea that the wealthy benefit from the current system because they can trick it, there's zero evidence for that. The percentage of revenue paid by those in the top 10 percent of income-earners has risen steadily throughout the decade, just as you would expect to happen in an era when the rich have gotten much richer.

Sullivan may really believe that rich people should get to keep as much of their money as possible--actually, he does believe this--but if he does, he should come out and say it, and not try to disguise the argument as somehow about correct process or the imaginary salvation of liberalism. Nor should he paint the flat tax as flowing logically from Americans' embrace of simplicity. Especially since Sullivan has completely imagined this embrace.

The irony, in fact, is that the flat tax is the perfect relic of an era when a lack of computing power and of information made it difficult to make meaningful distinctions between groups of people, let alone individuals. But today the trend is in the exact opposite direction from the one Sullivan conjures up. When it came to pay, we used to live in a world of job classifications and pay grades, where everyone who did the "same" work got the same pay. Increasingly, we now live in a world of dramatic differentiation in pay. The whole idea of a "pay grade," in fact, would seem like complete nonsense at most Silicon Valley and Internet companies.

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The same is true in marketing and manufacturing. Sullivan argues that companies today try to "project a simple image, a single product, and a recognizable, simple brand," and to be sure, there's plenty of nonsense out there about the centrality of the brand. But what's really going on is the move toward customization. Dell builds my computer literally to order. Amazon makes recommendations to me based on other things that I've bought, not based on what the masses are buying. Toyota is already talking about building custom cars. Of course there will always be a place for the Gap, with its piles of khakis and white T-shirts, and for Coke, with its one-taste-for-all soda. But companies are getting much better, not worse, at treating each consumer differently, which means, in some sense, becoming a different company for everyone who buys from them.

The same sort of fine-graining is going on with prices. Once, when you took an airline flight, you could be fairly certain that most of the people on the plane paid the same price for their tickets that you did for yours. Today, you can be fairly certain most people paid different prices. And that's not because of Priceline.com. It's because airlines have gotten increasingly adept at using computers to distinguish between different kinds of fliers, and charging different kinds of fliers different fares. On the Internet, shopping engines perform the same function in reverse, while Priceline has taken the idea of differential pricing to its market-driven extreme. And what is eBay if not the antithesis of fixed pricing? There are places where one-price-fits-all thinking rules, like in the current long-distance market. But even there, consumers happily leap from plan to plan, and bargain with long-distance providers to cut special deals. The real one-price-fits-all days, in fact, were the days when only AT&T provided long distance. And I don't hear too many people calling for the return of Ma Bell anymore.

If anything, then, a tax system in which everyone paid his or her own particular tax rate would be more in tune with our world, and the possibilities created by the computer, than the flat tax. (There are, though, excellent economic and political reasons not to want that fine-grained a system.) A culture and economy of simplicity? I don't think things have ever been more complex.