Liberals admit that doing neither is double taxation, but justify it on pure income-redistribution grounds. This means either taxing once when the income is first earned, but then leaving the returns alone (the Hall-Rabushka approach), or not taxing income that is saved, but taxing the interest and principal when spent (the IRA approach). Even liberal economists admit that the core principle of the flat tax is to tax income only once. Perhaps the most glaring error is Garrison’s claim that income from savings is not taxed under a flat tax. Since the tax rate will come down under a flat tax, there actually will be less income shifting. The incentive to play that game, however, depends on the tax rate. Garrison also claims that huge problems would be created as taxpayers reclassify W-2 income as business income in order to take advantage of business deductions. It is certainly true that there is no free lunch, but there certainly are ways to reduce the cost of the lunch, and tax reform provides those efficiencies. No longer would individuals or businesses have to worry about capital gains, depreciation, estates and gifts, alternative minimum tax, foreign tax provisions, inventory accounting, phase-outs, itemized deductions, and so forth. Given that the flat tax eliminates all the most difficult and confusing aspects of the current system, this assertion is quite puzzling. Garrison argues that the tax system cannot be simplified. As such, adoption of a flat tax presumably would impose limits on the growth of taxes on the federal level (primarily because politicians would have a harder time using divide-and-conquer tactics). Moreover, evidence from the states shows that single-rate tax systems make it harder for states to raise taxes. Since the vast majority of flat-tax supporters are big advocates of lower taxes, and since all the major flat-tax proposals include a significant tax reduction, this claim is somewhat confusing. In his article “The Flat Tax: Simplicity Desimplified” ( The Freeman, October 1996), Roger Garrison implies that those who favor the flat tax do not care about the size of the tax burden.
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