The Corner

Would Perry’s Flat Tax Reduce Compliance Costs?

Rick Perry is absolutely correct that the federal tax code is too complex and imposes substantial costs on individuals and businesses relating to tax preparation and compliance with the code. If that is the case, why does he propose to keep the existing system in place?

He proposes to allow an opt-in to a flat tax:

Under the new flat tax system, taxpayers will have the ability to opt-in to the new system or remain under the existing tax code. Those families or small business owners who made investment decisions years ago based upon the structure of the existing tax code will have the freedom to remain in the current system if they so choose. And taxpayers who desire a simpler, less expensive system are free to move into the optional new flat tax system and take advantage of a postcard-sized tax return that could be filled out in minutes.

Would this really save taxpayers any time and resources? Wouldn’t any rational taxpayer want to compare the flat tax with the tax payable under the current regime before opting in? For some taxpayers, that means calculating the tax under Perry’s proposal, under the regular income-tax code, and under the alt-min tax, making three separate calculations. Granted, the calculation under Perry’s proposed opt-in flat tax would be relatively simple. And there may be taxpayers for whom the flat tax is obviously preferential, thus relieving them of making two or three separate calculations. But for the large number of taxpayers in the gray area, it would not seem to have the benefit Perry attributes to it –  alleviating the costs and burdens of calculating taxes under the existing system. Instead, it seems to be taking a relatively simple idea with great appeal — the flat tax — and layering all the complications of the current tax system on it. (I use “seems to be” intentionally here, since I hope there is an explanation more favorable to Perry’s proposal.)