Date: April 22, 2014
Publication: ST. Louis Post-Dispatch
Edition: Five Star Lift
April 15 is a necessary date for keeping this wonderful country we call America running smoothly. It’s the day we have to pay for the car and upkeep of this beautiful automobile. But just imagine if at 9 p.m. on April 14 you sit down to do your 2013 taxes and by 9:15 p.m. the form is done and ready to be dropped off at the post office. Although this is wishful thinking on my part, a flat tax could make it a reality. And this time of the year the flat tax proposal is looking much better to many taxpayers.
The United States tax bureaucracy is the most sophisticated and complex tax system in the world. The IRS employs approximately 125,000 people to manage a 10,000-page tax code. It is a structure that has provided consistent results for many years. In fact, we don’t give the IRS the credit it deserves.
Today in excess of $100 billion is spent filling out all the necessary tax forms and an additional $100 billion is spent on investments made for tax-break purposes. Jobs have become the No. 1 export for America and some would claim that we are subsidizing imports and penalizing exports through our tax policy.
There is a growing consensus supporting the replacement of our tax system with another option that is: (1) fair to the entire population, (2) supportive of economic growth and (3) able to collect enough revenue to sustain the government in the long run. A flat tax can replace the current system, which lacks equity, discourages economic growth and lacks revenue potential to meet future needs. Under the current code, only individuals with additional disposable income can take advantage of the exemptions and loopholes. For example, only those who can afford a home can deduct home mortgage interest. The bigger the home, the bigger the deduction.
And the middle class should be the most outraged. Fixed in higher tax levels without the assets to take advantage of many tax breaks, the American middle class has borne the brunt of higher rates and of secondary taxes on savings, dividends and capital gains.
A pure flat tax system will impose a single rate on businesses and individuals with no deductions or credits. To generate the equivalent current government revenue, the rate would be roughly 22 percent. The tax form would be the size of a post card. On the first line, taxpayers would be asked to state their wages, salaries or pension/retirement. The second line would comprise the standard deduction, to be subtracted from the stated income on the first line. The third line would reflect the taxable income (subtracting the second line from the first line), taxed at a flat rate. The flat tax would not tax interest and dividend income.
The flat tax system renders thousands of pages of tax code obsolete. It also provides an equitable basis for the taxation of all citizens, regardless of income. Under that system, savings and investments should increase, and the resulting economic growth would create new jobs. An increase in the demand for labor would bring higher wages. Expanding the tax base and rising incomes would increase government revenues. Tax receipts grow faster in a low-taxed economy.
It’s worth the consideration.