Pro: Flat taxes are working around the globe; America needs them
As we celebrate our independence this Fourth of July, it’s important to remember that unfair taxation was a key cause of our revolution.
When the population of the colonies felt that high taxes imposed by powerful elites in faraway London were unfair, intrusive and unjust, a revolution followed.
Today, Americans can see the federal government in Washington shoveling their tax dollars out the door faster than you can say King George III.
Democrats and Republicans are in stormy negotiations to curb runaway spending and trim a bloated deficit, but any revolution in spending habits must be coupled with a simple, flat-tax system if it is to provide America with long-lasting prosperity.
The flat tax should more correctly be called the “fair tax.” It is the type of tax envisioned, proposed and supported when the 16th Amendment was passed in 1913 allowing for direct taxation of citizens by the federal government.
The tax that was supported in the amendment was 1 percent on the first $20,000 of income—$425,000 of earnings today considering inflation over the last 98 years—with a surcharge of 6 percent for income exceeding $500,000. The form and instructions were four pages and the return was filed on a post card.
Over the years, the tax code has become an incomprehensible monstrosity that imposes taxes and grants exceptions based upon political power rather than economic reason. It has become a major source of campaign funds for politicians. And it has created the most feared of all government agencies, the Internal Revenue Service.
To stay competitive, the United States must reform the tax system and a return to the simplicity envisioned when the 16th Amendment was proposed and passed is a good starting point. It is ironic that many countries around the world, including a number of former Soviet bloc nations, are adopting the flat-tax model as the most simple and direct way to collect taxes.
The advantages of a flat tax are numerous and well documented, including:
—Elimination of political favored deductions for well-connected industries and individuals and back-door social engineering.
—Vastly reducing the volumes of tax code that even the experts admit they don’t understand as well as reduce the size of the tax collection bureaucracy.
—Spurring economic growth by eliminating taxation on savings and investing so that prudent productive individuals and businesses would prosper. And it would also eliminate the huge costs of preparing mountains of tax returns for the government.
—And, perhaps most important, positioning the United States at the forefront of the world as a country where individuals and businesses can grow and create jobs.
Critics’ objection that the flat tax is unfair to the poor is demonstrably wrong. Depending upon the threshold set for the personal deduction, people on the lower side of the economic scale would owe no taxes.
The other major objection to the flat tax is that it won’t raise enough money to fund the government. As is now evident to all thinking Americans, government has a spending problem, not a revenue problem.
In 1970, the federal tax revenue was $192 billion; in 2010, tax revenue was $2.1 trillion—and it still isn’t enough money to pay for all the programs politicians want.
Making changes is not simple or quick but with a sustained effort of returning some common sense to taxation through the political process it is possible.
Right now, the people who write the tax laws often need a battery of accountants to comply with them. Joe and Jane Sixpack can’t afford that expense, so they struggle for long hours trying to decode tax instructions that at times are unfathomable even to a Harvard economics professor.
The opportunity is now and the benefits of flat tax will bring prosperity to our children and beyond. It’s time for Congress to seize the moment.
Peter Rush is the author of “Class Tax, Mass Tax.” Readers may write to him at 1500, 355 Lexington Ave., New York, N.Y. 10017.