ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, August 16, 2005

Eliminate Discrimination

based on income level.

Steve Forbes had an excellent article in the Wall Street Journal yesterday regarding his proposed Flat Tax. If you don't have a subscription to the WSJ, you should get one. The Flat Tax really is a win-win, although our comrades on the Left will surely shriek in terror at the thought (which tells me to push the idea).

One Simple Rate
August 15, 2005; Page A12

A major domestic battle looms this fall, when tax reform -- a centerpiece of the president's bold domestic agenda -- will finally be on the table. The President's Advisory Panel on Federal Tax Reform is expected to release its findings by the end of September. After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code.

Such a course would have perilous consequences, economically and politically.[...]

The current system is beyond redemption, a beast whose complexity, confusion and outright unfairness have corrupted our economy and society. Americans waste more than $200 billion and over six billion hours each year filling out tax forms. They engage in all kinds of useless economic activity intended to take advantage of the code's complicated maze of deductions and to reduce taxes -- from deducting donations of old socks to making unwanted investments. The waste of brainpower -- at a time of increasing global competition -- is incalculable.

The code corrupts our system of government by encouraging the crassest political conduct and by creating a massive, intrusive federal bureaucracy. One-sixth of the private-sector employees in Washington are employed by the lobbying industry. One-half of their efforts are directed at wrangling changes in the tax code. Few people realize that our health-care system, with its runaway costs, is, in fact, the ultimate product of the tax-code distortion in our economy. And last, but most definitely not least, we simply pay too much in tax. When you take into account all the taxes, fees and tolls paid to the government, the typical American pays somewhere around half or more of his income in taxes. Why do we the people accept this?

My flat tax plan has one simple rate, on the federal level: 17% on personal income; and 17% on corporate profits. There would be generous exemptions for individuals: $13,200 for each adult; $4,000 for each child or dependent and a refundable tax credit of $1,000 per child age 16 or younger. A family of four would pay no federal income tax on its first $46,165 of income. Exemptions for a family of six -- mom, dad, four kids -- would be $65,930. No anti-risktaking capital gains levy; the capital gains tax would go to 0%. The abusive Alternative Minimum (really maximum) Tax would be abolished. No more death tax: You'd leave the world unmolested by the IRS. No taxation without respiration!
To avoid puerile and divisive debate about who would gain and who would lose, my flat tax is designed to be a tax cut for all. Because some people will only focus on what they lose in the way of deductions under the flat tax -- ignoring the fact that their income tax payments would go down -- my plan gives you a choice: When the flat tax is implemented, you can file your postcard return under this new, simple system, or continue to file your tax returns, with all of their mind-numbing complexity, under the old system. See for yourself which is better. I think most would conclude that the flat tax is best.

Other countries are getting the message, even if we have yet to. Hong Kong has successfully had a variation of the flat tax for 60 years. Lithuania, Latvia and Estonia enacted flat taxes in the '90s that have been hugely successful. Russia put in a flat tax four years ago, and revenues have more than doubled in real terms. Ukraine, Slovakia, Romania, Georgia and Serbia have also successfully enacted flat taxes. How ironic that one-time Communist nations have been reaping the benefits of a flat tax before that bastion of free enterprise, the U.S.

President Bush should understand that trying to tinker with the tax beast won't work. In 1986, Ronald Reagan simplified the tax code somewhat: A number of tax shelters were eliminated and the number of tax brackets were cut to two: 28% and 15%. But the code remained intact. No sooner was the ink of Reagan's signature dry than Washington politicians slid back into their bad, old habits. Since his day, the federal income tax code has been amended 14,000 times. The tax system today is 60% larger than it was after the Reagan reforms. The flat tax's very simplicity makes such backsliding difficult: Any change would trigger a national debate. For insurance, the Forbes Flat Tax also contains a supermajority provision -- taxes can't be raised unless approved by a 60% vote in both the House and Senate.
That's why George Bush should pull a Ronald Reagan -- he should demand that Congress destroy this hideous tax system, the way Reagan demanded that Mikhail Gorbachev tear down the Berlin Wall. Should the president make such a plea, the American people would surprise the Washington cynics and give him a grateful, full-throated cry of support.

I am a supporter of the Flat Tax, and I especially like the choice option that Steve provides (although this invariably means that the IRS bureaucracy will continue in the short term). Secondarily, a National Sales Tax is perhaps worth discussing - as it's described in this Neil Boortz column. Unfortunately, Forbes raises some significant concerns regarding the Flat Tax in the article above which I removed. The worst of both worlds would be to tinker around the edges or even to simply implement a Reagan-esque two-tier system, as it would not be a reform at all.

Another Editorial by Steve Forbes on his Flat Tax proposal can be found in the Washington Times (which does not require a subscription)... click here for Part I and here for Part II

I hope that the President acts boldly... If only our Congressman & Senators retain the courage to follow his lead.

Your Co-Conspirator,
ARC: St Wendeler