CBC Posts a Funny April Fool's Joke: Flat Tax

Ha ha ha, good one CBC:

5 benefits of a flat-tax system, and why it still isn't likely in Canada

Graduated income tiers a disincentive to work, economist says

 I know you're laughing already, but wait, there's more:

For Niels Veldhuis, senior economist with the Fraser Institute, the argument for changing the tax system isn't about burdens but about productivity. He says a flat tax would increase the incentive for Canadians to work, earn more money and, in turn, invest that money back into the economy.

The current system of graduated rates takes a larger percentage of a person’s income the more money they make, and this is a disincentive for hard work, he says.

“You’re sending a signal to young, aggressive Canadians who want to take risks, who want to start businesses, who want to save and invest. And what you’re telling them is the more successful you become, the more and more we’re going to penalize you,” Veldhuis says.

See, Canada is chalk full of little John Galts, sitting idly in their own private Galt Gulches just waiting to unleash their productivity if only the big mean old government would stop punishing them for success (because Taxes aren't actually how we pay for civilization, no, they are actually a criminal penalty!) 

Now some silly people on the left will tell you that eliminating progressive taxation will starve government of revenue needed to maintain vital programs and services, but no, Mr. Fraser Economist will set you straight:

Unleashing that entrepreneurial spirit, so the argument goes, will create more investment, jobs and opportunities which will, in turn, increase government tax revenues.

See, cutting taxes will raise revenues!  Just like it did...well, Mr. Fraser doesn't say anywhere this has actually worked out, but the theory was proposed by a guy named Laffer so we know it's a great idea. 

Now I know we all want to rush out and tell our MPs to implement this fantastic idea on Canada, but we really should be prudent and check some references, just to cover our bases.  Tell us, where has this fantastic idea been tried?  It must be sweeping the world, because it all sounds so great!

A number of countries, including Russia, Czech Republic and Slovakia, have instituted single-rate systems over the past decade or so. 

I also hear that Ogdenville, North Haverbrook and Brockway love their new monorails.

For some actual worthwhile discussion on the radical flat tax experiments underway in various former Communist eastern eurpoean nations, see here, and here and here.  Quote from the last one:

The positive effects of the flat tax are at least ambiguous. There are no Laffer curve signals, a correlation proved between the fiscal relaxation through the flat tax and the increase in the budgetary revenues (Keen et al, 2006). Moreover, the budgetary revenues do not automatically get increased as a result of this measure. For example, in the case of Estonia, even under the terms of a high rate of economic growth, the share of the returns
from the direct taxes got decreased from 12% (in 1994) to 7.5% in 2008. Also, in the case of Slovakia, there have been made estimates that the revenues from the income
taxes and from the taxes on profit were up to 1% lower than under the terms of not introducing the tax reform (Odor, 2007).

You'll also learn that Flat Tax countries also find it necessary to institute hefty 20% VAT (sales taxes) and keep substantial payroll taxes to fund their minimal social safety nets.

Has Heritage's farcical 2.8% unemployment prediction hurt them?

In the Ryan plan fiasco, I had hoped some focus would go to the Heritage Foundation rather than all to Ryan. Ryan is just one lousy actor in the current iteration of a long series of terrible plays that comprise conservativism, while Heritage is a big ticket promoter, working to fill the seats in show after show.  The actors come and go, but thanks to groups like Heritage, the theatre never closes.  So I'm glad for Krugman's note today:

So, has Heritage declined and lost its way? Actually, no — it was always like this.

And one of the unexpected benefits of the whole budget fiasco might be that Washington conventional wisdom starts to realize that there’s not a lot of thinking going on at these tanks.

Of course, it's difficult to get a Village to understand something when their tax cuts and spectator wars depend on not understanding it, but one can hope this has some real impact, it really was far beyond the pale of defensible analysis, which I'm guessing is why Heritage tried to quietly hide the most laughably silly part of the whole thing. 

It's also encouraging to see the whole Vast Conspiracy foul up so obviously.  Predicting 2.8% unemployment was just blatantly ridiculous and the Ryan plan itself seems to be collapsing under its own weight as the attempt to redefine destroying Medicare as some cutesy buzz phrase falls dead flat.  I'm sure there are larger strategic views under which the scheme may not be a total loss, but I doubt the forces behind it were hoping that Heritage would have to run yelping away from their own preposterous modelling and Ryan's plan would go so quickly from "courageous" to something Republicans are already running away from.  They were hoping to shift the goal posts and maybe it still will somewhat, but at least it has cost them more than these ploys usually do.  Heritage is probably their most established and respected welfare institution, and Ryan just about the only federally elected Republican given any policy credibility and both have been bloodied by this. 

They're not omnicient and for the all the advantages they have; rivers of corporate cash, private sources of information and immediate access to major media platforms, they're still at heart a bunch of ideologues with a puerile world-view that just doesn't work and isn't broadly shared once you go beyond sound bites.  I would guess they believe their own spin about the public's level of concern with the deficit, and maybe think that the disapproval of the ACA somehow translates into disapproval of Medicare too, but whatever the cause, it's nice to see even just as a reminder that they can be beaten.