A Nobel Prize for the Flat Tax

Could the global economic establishment be warming to the idea of a Flat Tax on incomes? That’s the emerging question now that the Nobel prize for economics has been awarded to two American economists, Robert Hall and Michael Woodford, by the Royal Swedish Academy of Sciences at Stockholm. The prize amounts to a vindication for Mr. Hall’s vision, first mooted in 1985 with Alvin Rabushka, of a simplified single-rate income tax regime.More than four decades after Mr. Hall first floated the flat tax, the award of the Nobel for economics offers a moment to revisit the logic underpinning the idea. Another Nobel laureate in economics, Milton Friedman, hailed Mr. Hall’s proposal as “a radical, yet thoroughly practicable, alternative” to America’s “incredibly complicated tax system.” Friedman called a flat tax a “a major step forward toward revitalizing the U.S. economy.”Mr. Hall framed his proposal of “a single, uniform tax rate applicable to all individuals” around the idea of “inherent fairness.” Imposing “a single tax rate across all income levels,” per his book “The Flat Tax,” would end “the favoritism associated with personal deductions and credits that disproportionately benefit higher earners.” Plus, too, such a tax, in Mr. Hall’s telling, “would promote economic expansion, ultimately benefiting everyone.”While the Swedish academy did not explicitly mention Mr. Hall’s research on the flat tax, the clarity of the economist’s thinking is reflected in the work spotlighted by the award. The prize went to Messrs. Hall and Woodford for what the academy calls their “key contributions toward a new macroeconomic framework for monetary and fiscal stabilization policy.” The economists’ work is credited with helping to usher in the “New Keynesian model.”The Swedish academy points out that such models, “used by central banks and finance ministries around the world,” help “explain and quantify how stabilisation policy affects business cycles.” In more practical terms, though, Mr. Hall’s work on the flat tax has the potential to make a contribution to economic policy across the West, especially at a time when rising debt and slowing growth raise concerns about “secular stagnation.”This is among the reasons why publisher Steve Forbes placed a flat tax at the core of his bids in 1996 and 2000 for the presidency. He eyed an income tax rate of 17 percent, with substantial exemptions that would remove income tax liability for a broad swathe of middle-class families. The flat tax, per Mr. Forbes, had potential to boost incomes by 62 percent and create some 24.5 million jobs within a decade. Alas, Mr. Forbes failed to capture the GOP nod.Mr. Forbes calls the Nobel news “a major boost” for the flat tax cause. He tells us that “now we can say that one of its two designers — the other being Alvin Rabushka — is a Nobel Prize winner, a huge plus for credibility.” Mr. Forbes emphasizes that adopting a flat tax “would free up time, brain power and resources for truly productive activities instead of coping with an utterly incomprehensible, corruption-laden federal income tax code.”No wonder, with the 2028 presidential contest looming, some of the leading proponents of a flat tax are weighing bids for the White House. That could potentially revive Mr. Forbes’s signature issue on the hustings. Senator Ted Cruz has called a flat tax a reform “to fix the economy and take power away from Washington.” Senator Rand Paul eyes “a flat tax that pushes the rate down as low as we can get it,” with a rate potentially as low as 15 percent.Flat tax advocates, too, stress the need to cut the costs of complying with IRS regulations, pegged by the Tax Foundation at more than $500 billion a year. “Staggering” is Mr. Hall’s word for the burdens of the current regime. If the need for a flat tax is more resonant than ever, advocates of a fairer, more efficient system could well have the Swedish academy to thank for bringing Mr. Hall’s innovation back to the center of the political and economic debate.

A Nobel Prize for the Flat Tax

A Nobel Prize for the Flat Tax

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