The Flat Tax, The Gold Standard And Other Right-Wing Economic BS Debunked (Op-Ed)


While the madness that is Donald Trump slowly consumed the news cycle back in June, another presidential candidate, Rand Paul, announced his tax plan in a column he wrote for the Wall Street Journal. Unsurprisingly, Paul’s panacea for America’s economic woes is the so-called “flat tax,” which he and other neoliberals think is the best thing ever.

But is it really?

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The short answer is no. The long answer is, like other favorite economic myths perpetuated by libertarians like Rand Paul, absolutely not.

From the Austrian School of Economic Theology to your IRS forms

Some people are nominally Catholic. Others, nominally Baptist or Lutheran.

Paul is nominally Libertarian.

This is most obvious in his flat tax proposal, but it exists in other areas: Paul has spoken approvingly of the gold standard, and he has called for “auditing the fed” in the past. That Paul also opposes gay marriage, abortion, and his father’s connection with Christian Reconstructionists is conveniently overlooked. In fact, Paul’s old man, Ron Paul, worked with R.J. Rushdoony to coin the term “Theocratic Libertarianism.”

Given his socially conservative planks, Paul’s not given any reason to think that the apple fell far from the tree.

Of course, that’s not to suggest Paul’s other ideas are good, either. In fact, his ideas of economics are just as dangerous and damaging as his socially conservative ideas.

Myth 1: The Flat Tax

The flat tax is an economic thought-terminating cliche. It’s an appealing one, however; Americans, for some reason, assume they know more than they actually do about economics, and the flat tax takes full advantage of that.

Yes, a flat tax will save you money on your taxes. But it scales, so the more money you make, the more money you end up saving.

That’s not an economic panacea, that’s a less Byzantine version of our current tax code once you factor in all the loopholes, exceptions, and other write-offs available only to the wealthy and powerful.

A flat tax stands in contrast with the idealized progressive tax model. The idea behind a flat tax is that everyone pays a certain percentage of their income to the federal government; so if the flat tax is set at, say, 30%, then everyone is going to pay 30%.

It doesn’t take a rocket scientist to see why this isn’t a good thing:

What flat tax advocates never seem to note about their own proposals is that they would represent a severe regression of our tax code against the interests of the poor and in favor of the interests of the wealthy. Our whole progressive tax code, in which tax rates go up as income rises (broadly speaking), is based on the idea that as people get richer and richer, they can afford to contribute more to the public good, whereas people who are very poor cannot afford to contribute as great a percentage, because they need that money in a much more acute way. The progressive tax code, in other words, is based upon reality. A flat tax is based upon a fantasy that a millionaire and a minimum wage earner can both afford to pay the same percentage their salary towards the public treasury.

Paul’s proposed flat tax was 14.5%, which is even lower than the current tax on the wealthy and lower than the current capital gains tax.

The conservative-leaning Tax Foundation even admits that the wealthier taxpayers are going to be the biggest winners under Paul’s plan. The director of federal projects, Andrew Lundeen, broke down just how much of a boost in after-tax income people would see based on income:

— Income of $40,000 or less: 0-2%

— Between $40,000 and $200,000: 3% increase

— Between $200,000 and $500,000: 4% – 7% increase

— $500,000 and above: 10% increase

The flat tax is another way for the rich to rip off the poor people, sticking the poor people with the bill for running society. Taxes are how society makes money; taxes cover all of the benefits that you use on a daily basis. How about, rather than demanding less taxes, you start demanding to get what you pay for from the Republicans who run the federal government?

Myth 2: The Gold Standard

You might remember when Glenn Beck and other right-wingers were pushing the gold meme really hard. Buy gold, they said. Gold is a solid investment; many believe it has an absolute and objective worth that can be measured and calculated.

This, of course, is wrong. Gold’s value is no more absolute than the value of a fiat currency — in fact, the value of gold has been in a tailspin now for the last few years, and is currently at a 7-year low.

Like any currency, the value of it fluctuates depending on what people are willing to accept for it. The fiat currency only works because everyone thinks it works — and the same thing is true for the gold standard, as well. The only reason people think gold is worth more is because gold is shiny, yellow, and, being a very ductile metal, it was easy to make things out of. It was also a rare metal to find, increasing the cost of labor to get it, thus increasing its worth in the process.

If the tables were turned and it were copper, not gold, that were harder to come buy, then the economic history of the two metals would be very different.

This hasn’t stopped Republicans from calling for a return to the gold standard however, even though almost every modern economist thinks that it’s a disastrous idea. And while it can be argued that it has some advantages, the number of argued disadvantages outweighs them. For instance, the damage it’d do to our economy and the economic vulnerability it’d leave us with:

If the United States were to return to the gold standard, it would first have to decide the dollar price of gold. Set the value of the dollar too high, and America’s exports would dry up; set the value too low and virtually all of America’s gold would soon leave the country. Even worse, because of the volatility of gold prices, the dollar could be overvalued one week and undervalued the next, leading to severe instability in US financial markets. Of course, since China and Russia are two of the world’s four top gold-producing nations, we can be sure that these two staunch allies would do their utmost to stabilize gold prices in order to help support American financial stability.

Like the flat tax, this appeals to American ignorance, though. People want to assume that things like gold, which historically have had a high value, have a high objective value — and that’s just not the case.

Myth 3: Auditing the Federal Reserve

Paul and other libertarians also have it out for the Federal Reserve, which is basically the central bank of the United States. There’s a long and colorful history of arguments over the idea of a national bank, but it really can’t be argued against that the creation of the Federal Reserve has had a positive impact on monetary policy.

Not that Republicans don’t try.

Paul has said in the past that he was going to “fight” the Federal Reserve to get a bill that would audit them. Never mind that the Government Accountability Office and the Office of Inspector General already do that; there are other reasons why this is a terrible idea:

However, the GAO and OIG audits exclude a few parts of the Fed’s policymaking, including transactions by the Federal Open Market Committee. Paul’s bill removes those exclusions and requires “recommendations for legislative or administrative action” from the Comptroller General. Sounds innocuous, right? It’s not. That would significantly damage the Fed’s independence, which exists so that politicians cannot influence the central bank for their own political purposes. In other words, “Audit the Fed” would lead legislators to interfere with monetary policy matters and put the entire economy at risk.

Of course, that’s a feature, not a bug. I’m sure the Koch brothers and other libertarians would love to be able to interfere with our monetary policy.

Runners up: Taxes Are Theft

There’s a popular meme that circles on the political right that taxes are theft. You might have run across it if you debated the particular class of libertarian that believes this.

So why is this wrong?

Well, the money that you pay taxes with is money that the federal government produces. Contrary to popular belief, yes, the federal government can just print more money — that’s one of the privileges of being a federal government. It comes at a cost — inflation — but inflation, like arsenic, is good and even essential in small amounts.

The money that you hold in your wallet isn’t actually your money. That money is the property of the United States government, and the only reason it works is because other citizens in the United States have decided that it works. Without the rest of us, without our society, you’re holding cloth. And gold can’t help here, as I’ve noted above.

By paying taxes, you’re paying back into the society that makes that money worth something in the first place. If you were to end taxes, you would end the society that the taxes support, which would mean your money stops meaning anything. You’d still have wealth you purchased with that money prior, but without a society to protect and feed you, how long would that wealth last?

Paul and other libertarians are appealing to a world that’s a lot simpler than it actually is. Their policies might work if the world was fundamentally different on a number of levels, but it’s not, so they never will.


Feature image via Carolyn Tiry on Flickr

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