Do we already have a flat tax?

by Ryan Streeter on November 18, 2012. Follow Ryan on Twitter.

Here’s Greg Mankiw:

The Congressional Budget Office has a new study of effective federal marginal tax rates for low and moderate income workers (those below 450 percent of the poverty line).  The study looks at the effects of income taxes, payroll taxes, and SNAP (the program formerly known as Food Stamps).  The bottom line is that the average household now faces an effective marginal tax rate of 30 percent.  In 2014, after various temporary tax provisions have expired and the newly passed health insurance subsidies go into effect, the average effective marginal tax rate will rise to 35 percent.

What struck me is how close these marginal tax rates are to the marginal tax rates at the top of the income distribution.  This means that we could repeal all these taxes and transfer programs, replace them with a flat tax along with a universal lump-sum grant, and achieve approximately the same overall degree of progressivity.

I’ve not read the CBO study yet, but his proposal sounds far more reasonable than the mess we currently call our tax system. Of course, I’d much rather have a lower rate and then get government to “fit” within that revenue structure…