Though It Would Be An Improvement, a Flat Tax Is a Wealth Tax

California must have the best tax code of any U.S. state. How else to explain that in the past year the Golden State attracted three times more investment than all 49 other U.S. states combined?

Except that California doesn’t have a good tax system, as readers know. With a top income tax rate of 13%, California excessively taxes wealth.

Still, the truth about California’s towering prosperity relative to other U.S. states rates mention as a way of questioning a recent paper by Cato’s Adam Michel about “The Flat Tax Advantage.” About it, there’s no disagreeing with Michel that a flat tax exceeds graduated income taxes that ultimately render city, state and national tax codes indecipherable. Better to keep it simple.

Just the same, Cato Institute President Peter Goettler has long made a case against results-based commentary. Of views similar to those of Cato co-founder Ed Crane, Goettler has said that the aim should be liberty, not economic results. California instructs on this.

Despite its tax code, the California economy is exponentially larger than that of Colorado. As made plain in my upcoming book (co-authored with Oklahoma State’s Steve Trost), California Freedom, California’s economy runs circles around those of other U.S. states (rest assured that this was true before the AI boom too), and none really come close.

Yet no one would make a case for California’s tax code. Which is the point about Michel’s piece: make a flat tax case based on freedom, not about growth. If so, freedom critics from the left wing are given an opening to promote California’s tax rate.

About what’s been said, it’s once again not a knock on a flat tax. As has been written here over the years, Steve Forbes’s (my hero) mainstreaming of the flat tax transformed Republican presidential politics. Thanks to Forbes, running on a much lower taxes (including a flat tax rate) is generally the proverbial price of admission for would-be Republican nominees.

Just the same, Forbes wouldn’t deny what’s true: as is the case with graduated taxes, or even sales taxes, they’re all wealth taxes. Think about it. And in thinking about it, contemplate Duke instructor Richard Salsman’s recent comment that a flat tax offers a “uniform% rate for all, whether rich, middle, or poor – which is not only good economically and fair morally but unlike today’s grotesque “progressive” schemes, consistent with the 14 th Amendment’s requirement of equal protection under law.”

About Salsman’s characterization of the flat tax, he’s certainly correct that it’s better than today’s “grotesque ‘progressive’ schemes,” but keep in mind that Salsman’s an Ayn Rand disciple of high standing within the tribe, and who rightly puts wealth creation on the highest of pedestals.

Which raises an obvious question about what he deems the "morality" of a flat tax. Would Jeff Bezos, Jensen Huang, and Elon Musk owe far more under any flat tax than he would? The question answers itself, at which point we can ask what is moral about such a tax.

As for equal protection under the law, while everyone is equal in a rate sense with a flat tax, that’s kind of missing the point, no? Implied in a flat rate is that the rich will get crushed relative to the rest of us.

Is a flat tax better than a graduated income tax like that of California? No question, but talk about a low bar. And that’s rooted in the fact that a flat tax, like a graduated tax, implies that the rich, merely for being rich, must pay exponentially more in taxes. No thanks.

Originally published on Real Clear Markets.