On its face, the flat tax will strike most of us as a hair-brained idea. For those of us on the top of the income scale, it fails to acknowledge the qualitatively more productive character of our investments and therefore does not allow us the write-offs for investments to which we have grown accustomed over the past thirty years. For those of us in the lower range, it takes away allowances to which we have grown accustomed. (Should families living in poverty pay taxes at a rate similar to those living off of their investments?)
Robert Lucas’s “Supply-Side Economics: An Analytical Review” is an invidious article. If you read it with ease, you are ready for Basic Course 301. If not, you will, I am afraid, not make the cut.
No matter. You are still undergraduate students and still have time to build up your “Calc Cred.”
Nevertheless the essential point in Lucas’s article is clear, even without the calculus. The current tax code punishes those whose wealth generates efficiency while rewarding economic actors whose contributions lie in the wings so to speak. If we remove all policy goals from the tax code and allow each economic actor the luxury of being taxed at the same rate irrespective of the volume of their capital gain (or loss), Lucas estimates that we could increase our capital stock by 35%, which of course is huge.
Here is the flat tax’s economist. Here is the mathematician who will show (1) that the free market is the only and best form of democracy; and (2) that this democracy works only when capital is its only citizen.