David Walker in today's Guardian seems rather unhappy with the idea of a flat tax and specifically with the ASI for proposing one. This is a touch unfortunate as his unhappiness doesn't seem to be caused by any knowledge of the facts.

This summer's buzz is "flat tax", the proposition that matters fiscal would be dramatically simplified if we all paid a single rate on all the income we earned.

Well, no. No one, and most especially not the ASI, is proposing that all income should be subject to one tax rate.

But the basic case for progressivity remains the one made by that celebrated socialist Adam Smith, who said taxes should be based on equality of sacrifice. The extra income earned by a rich person is simply worth less than the extra pound in a poor household. Which is why a flat tax was, and is now, evidently unfair.

To get round this fundamental objection, flat taxers start talking about allowances. A recent pamphlet from the Adam Smith Institute reserved a flat tax for incomes above £12,000, which would exempt a fifth of all households from paying any tax at all.

Ah, he noticed.

But that would involve a huge loss of government revenue, £50bn or so - two-thirds of the cost of the NHS.

Which rather begs the question, what on earth are they doing with the other 450 billion? What’s being missed here is that having a large personal allowance is actually driven by a belief in egalitarianism of a kind. The poor should not be taxed to provide for the State, the rich should. If we cannot get enough from the rich to pay for all of the things desired from that State, perhaps we should change the things we ask the state to do rather than steal the crusts from the mouths of poor children? The idea that we should be taxing the poor to pay for the desires of the middle classes strikes me as profoundly inegalitarian.

So the flat taxers then deploy the Laffer curve (a back-of-the-envelope job from Arthur Laffer, an economist much lauded in the Reagan White House) and claim that cutting taxes will make us all work harder, earn more and - eventually - boost the Treasury's take. Eventually is a long time in politics and, surprise, in the meantime, public spending would have to be cut.

It was a napkin not an envelope, but to deride the Laffer Curve in this manner is obtuse. We’ve known of the existence of this curve since David Hume. The argument is always about where exactly on the curve we are. Are taxes so high that they cripple incentives and thus reduce total revenues? Or are we to the left of the curve, where taxes can be raised and the damage to incentives so small that revenues do rise? That's an empirical question, not an ideological one (we might also note that lowering top income tax rates from 83% and 98% on unearned income certainly seemed to show that we were to the right of the curve a couple of decades ago).

The Adam Smith Institute proposal is that tax is paid at 22% on income over £12,000. On the basis of a single such £12,000 allowance to each household, affluent households do well, but it could be that not everyone is as better off as the top fifth of households.

This is really quite remarkable. Yes, everyone is better off. But because some will be more better off than others the idea must be rejected? There is one further line that has me gasping with incredulity:

These days, everyone approves of incentives.

Does he mean that, finally, we’ve managed to teach everyone the first of Glenn Whitman's Two Things about Economics?

“You know, the Two Things. For every subject, there are really only two things you really need to know. Everything else is the application of those two things, or just not important.”

“Oh,” I said. “Okay, here are the Two Things about economics. One: Incentives matter. Two: There’s no such thing as a free lunch.”

The education system seems to be in better shape than I'd thought. There is also a much larger point to be made here. Walker is assuming that a flat tax will increase inequality and thus must be opposed on those grounds. As pointed out at the excellent Stumbling and Mumbling this is not necessarily true as this Spanish paper (pdf) shows:

Of course, the Spanish tax system is different to ours, so the results don't translate directly to the UK. But there are lessons in the paper: 1. It describes how we should set about analyzing the issue. 2.It disposes of two common arguments against a flat tax - that it is necessarily inegalitarian and is only applicable to post-communist economies rather than maturer capitalist ones. 3. It shows that there is a potential trade-off between efficiency gains and equality. To maximize efficiency gains, a flat tax should have low marginal tax rates. But that means low allowances, which is more regressive than the current system. A more egalitarian flat tax would have bigger allowances which means higher marginal tax rates. But this reduces the efficiency gains. However, Gonzales and Pijoan-Mas show that the current Spanish tax system is sufficiently bad that it's possible to increase both equality and efficiency, and this trade-off merely applies to how we apportion the gains.

Which rather goes to show the point made up above, that the ASI proposal is in fact driven by (at least in part) a desire for equality as it does precisely what is suggested, provides a high allowance, thus meaning higher marginal tax rates and thus, arguably, being more progressive than the current system.
Walker's real fear is this:

However, flat tax isn't really about tax at all. It's about spending. Look at the idea's provenance: the Hoover and Adam Smith Institutes. Their game is cutting government.

A slightly odd statement given that, within the assumptions of the plan itself, it is revenue neutral.

Back to everyday politics in the Blair third term - how to convince people public services, paid for by progressive taxes, are a necessary, irreplaceable part of their "income".

And that, unfortunately, is his real point. Nothing at all to do with how the money is raised, all to do with how it is spent. Nothing must be allowed to disturb the cosy system whereby we the citizens get what we are given by our enlightened bureaucracy in this most perfect of all possible worlds.

David Walker edits Public, the Guardian's monthly magazine for public-sector executives.

Well, yes, I suppose if I had that job I'd have to try and convince myself of that as well.

(Tim Worstall writes here).