Flat Tax

Flat Tax

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Flat Tax

Let’s Hear it for the Flat Tax

Do you think we should abolish the Internal Revenue Service? If you were to ask your family, friends and neighbors, you would get a resounding YES! That was my outcome when I, as an income tax preparer, surveyed my clients as well as my family, friends and neighbors. The comments ran from “It’s too complex”, “It’s unfair” to “They are too powerful”. Not one person was happy with the tax code as it currently stands. That is not to say people do not want to pay their fair share. They just want an easier, fairer way to do it. To prove the complexity of the IRS Code, Money Magazine asked fifty “tax experts” to figure hypothetical family’s tax liability each year from 1988 through 1992 and published the results in their March issues. The best year’s result was 1990 when only 48 of the responses were incorrect. If a tax expert could not figure the liability properly how can anyone expect the everyday taxpayer to do it? The solution quite possibly is the Flat Tax.

What will the Flat Tax do for us? The current proposed tax rate of 17% for all income will be more fair. It is much simpler; the tax return for an individual and a business will be postcard size both having only ten lines on them. The proposed flat tax eliminates the tax at a personal level for interest, dividends and capital gains as well as allowing businesses to deduct capital assets in the year of purchase. Currently a capital asset is expensed by taking depreciation over the useful life of the item. Many economists believe these features in the flat tax will stimulate economic growth. According to the Bureau of National Affairs Banking Report “Some 55 percent of the 156 analysts polled by the National Association of Business Economist think the economy would benefit from some type of flat tax…” Compliance is the final benefit of the flat tax.

There will be a higher compliance in filing and paying Federal Income Tax. The flat tax removes the three primary excuses for non-compliance: the complexity, low likelihood of being caught and fact that the current system seems to favor special interests "at my expense”.

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The cost of compliance will drop dramatically also. Back in 1995, JD Foster estimated a $100 billion cost saving to the American people by adopting a flat tax. The Texas Citizen for a Sound Economy Foundation estimated the savings of a little over $131 billion a year just by scraping the nearly 8000 pages of tax code.

The Flat Tax has both supporters and opponents as most issues do but the facts in this case should speak for themselves. Every dollar earned will be taxed at either the personal level or the business level just once and at an equal rate of 17%. There is only one exception to this rule; it is on the proposed Individual Wage Return, the family allowances. They are $11,350 for a single person and $22,700 for a married couple (note there is no marriage penalty) and an additional deduction for each dependent of $5,300. The only deductions allowed on a business return are either income for another business or to an individual. Take a moment and use this formula on your income remembering only wages, salary and retirement go into your taxable income, and you will see a reduction in your tax. We sampled several of my clients and everyone’s tax was lower. The Flat Tax will resolve the murky unfair taxing process in the United States and we should implement it immediately.

BIBLIOGRAPHY

BOOKS

1. Hall, Robert E. & Rabushka, Alvin, The Flat Tax – Second Edition.
United States of America: Hoover Institution Press Publications, 1995

2. Peachman, Joseph A., A Citizens Guide to the New Tax Reforms
New Jersey: Rowman & Allanheld Publishers, 1985

PERIODICALS

1. Anrig, Jr. Greg, “Even Seasoned Pros Are Confused This Year”;
From Money Magazine, March 1988.

2. Anrig, Jr. Greg, “The Pro Flunked Our New Tax Return Test”;
From Money Magazine, March 1989.

3. Topolnicki. Denise M., “ The Pro Flunk Our Third Annual Tax-Return Test”;
From Money Magazine, March 1990.

4. Tritchm, Teresa & Lohse, Deborah, “The Pros Flub Our Tax Test (Again)”;
From Money Magazine, March 1991.

5. Tritchm, Teresa & Lohse, Deborah, “Tax Payers – Start Worrying”;
From Money Magazine, March 1992.

6. Columnist, “Business Economists Say Some Type of Flat Tax Would Benefit Growth”;
From Bureau of National Affairs Banking Report, 4 March 1996, 358.

7. Breyer, R. Michelle, “Flat Tax Would Benefit Texas, Study Maintains”;
From The Austin American-Statesman, 21 February 1996, D1

INTERNET

1. www “A Friendly Critique of the Flat Tax” article by Foster J.D. 11 August 1995.
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