We Need More Tax Brackets, Not Fewer

EH asks, “Hey Matt, I was curious whether there’s any combination of rate and exemption under which you could, in theory, support a flat tax. I ask because the structure of the flat tax with exemption is technically progressive; it’s just that all real-world flat tax proposals are extremely regressive with respect to the status quo.”

Short answer, you might be able to design a tax like this that I would prefer to the status quo. There’s more to taxes than progressivity, so a well-designed “flat” tax with generous exemption might score well enough on other fronts (simplicity, adequacy of revenue) as to make it an OK idea. But note that a tax of this form isn’t really flat at all. It’s a tax code with two brackets, one at 0 percent and one at some higher figure. And I see no real reason to think that quantity of tax brackets is a problem with the current tax code. Back when we didn’t have computers, bracket structure was arguably a source of complicatedness. Having a hundred different brackets would make it very hard to write down or understand the tables used to calculate what you owe. But thanks to computers, once you’ve calculated your taxable income there’s nothing left to do. You just plug the figure into a computer and out pops what you know. The tax could could have 10,000 brackets and it’d be just as easy for TurboTax to run the numbers. Indeed, the tax code could — and probably should — be a smooth function that asymptotically approaches some number. It’s easy enough to program a computer to take an integral.