WASHINGTON -- In an address to the Detroit Economic Club billed as a "major economic speech" by his office, Rep. Mike Pence (R-Ind.) laid out his vision for restoring "American exceptionalism" and "a prescription for a fresh start for the American economy." One of the most notable proposals was a flat tax, which is likely to endear Pence to conservative activists for a possible 2012 presidential run.
"The time, has come for Congress and this administration to take bold action to simplify our tax system and lower people's taxes," said Pence in his prepared remarks, adding, "I believe it is time that America adopted a flat tax and scrapped the current system once and for all."
Pence's call for a flat tax isn't new; he has periodically brought up the issue over the years.
The idea is also a favorite of Tea Party activists. "We want to scrap our confusing, unfair tax code and replace it with a simple flat tax of one low rate with no deductions or special interest loopholes," notes FreedomWorks on its website, which has a whole page dedicated to the flat tax.
"This is like Groundhog Day," responded Dean Baker, co-director of the Center for Economic and Policy Research. "We keep hearing about a flat tax in spite of the fact that there is no evidence that it will be a boon to growth or has anything to do with our current economic problems. Maybe Mr. Pence is too young to remember the '50s and '60s when the economy boomed with tax rates that peaked at 70-90 percent. One would hope that he could at least remember the boom of the '90s when the top tax rate was 39.6 percent. The economic crisis was brought on by a collapse of a housing bubble -- not high tax rates."
During the 2008 presidential campaign, former Arkansas governor and current Fox News pundit Mike Huckabee prominently pushed the flat tax, which has also been heavily pushed by right-wing talk radio hosts and was developed by a group called Americans for Fair Taxation. The proposal -- which isn't really conservative at all -- would scrap the current U.S. tax code and replace it with, essentially, a national retail sales tax.
Pence also argued that the flat tax would be effective at creating jobs, and more than 20 countries around the world have one in place.
"The flat tax eliminates all of the credits and deductions and special preferences and tax loopholes that Congress and an army of lobbyists have built into the tax code over time," he remarked. "These fuel special interests and generally benefit one person, business or industry over another. Our tax system should not pick winners and losers, but should treat every business, small and large, with the same basic rules."
In remarks in Buffalo, N.Y. on May 13, President Obama commented on the work of his fiscal commission, saying he hoped members on the panel would simplify the tax code. He warned, however, about the complications of a flat tax:
The main argument, and the last point I'll make on this, on the fair tax, the main argument that people make against the fair tax is right now we've got a progressive income tax. I made a lot of money last year because my book sold a lot, and so I wrote a really big check to Uncle Sam. My rate was higher than somebody who made $40,000 a year. So we've got a progressive income tax, meaning that the more you make the higher your tax rate goes, up until a certain amount.
Now, if you have a flat tax and everybody is -- let's say everybody was -- had a -- was paying 10 percent. That means Warren Buffett is paying 10 percent. It means the construction worker is paying 10 percent. It means somebody who has got a minimum-wage job is paying 10 percent. And the question is does that 10 percent take a bigger bite out of the cashier at the supermarket than it does out of Warren Buffett? Because she is paying more of her income in food and rent and just basic necessities, and so does it make sense for Warren Buffett to be paying a little bit more?
In order to have a flat tax that was revenue-neutral, that didn't add to the deficit, it'd have to be a pretty substantial tax, but it would mean a huge tax break for Warren Buffett. And so the question is, is there a way of achieving simplification, but still having some element of progressivity and some element of fairness in the tax system? That's part of what makes it complicated.
During the question and answer portion of his appearance at the Detroit Economic Club, Pence said a flat tax could be a "major bit of tax relief" for most Americans.
Also on the issue of taxes in his speech, Pence called for a 21st-century tax system, where members of the public could file their taxes more readily. "How about a system where you could file your taxes on a Blackberry, or a system where you might even be able to file a return with 140 characters or less?" he remarked. "How would you like to tweet your taxes?"