So far we’ve discussed tax issues including different types of taxes, fairness in taxes and the effect of taxes. This week we look at the flat tax. 

Our existing tax system is tiered and mired in political-social-based deductions-credits. 

It’s complicated. The tax code is now 3 million words. Nobody reads it. 

Last year, most of us spent about a week preparing our tax returns. During the years, “trial tax returns” were sent to professional tax preparers to test their knowledge. Rarely did a single preparer submit a perfectly completed return. 

Deeply troubling to us is the power government has to seize our money and property without due process. For example, if the IRS claims you owe back taxes, it can garnish your wages without going to court. If you want to stop the IRS officials, you must take legal action against them and suffer the economic consequences (court costs, legal fees, etc.). It’s almost like you are guilty until proven innocent.

A flat tax means that all citizens pay the same percentage or one tax rate, with that rate being significantly lower than the current highest rate.

This approach means your taxes would be easy to understand and file. Errors and fraud could be significantly reduced. 

The gained simplicity would significantly reduce the need for professional tax preparers and personnel at the IRS. Additionally, a flat tax would completely eliminate the Alternate Minimum Tax — known as the AMT.

We cannot stress enough how important eliminating the AMT will become. If there will be a politically-driven force behind overhauling our tax code, it will be the AMT, which is about to start applying to an ever-increasing and larger number of taxpayers.  

On the surface, a flat tax appears simple, but in application defining income for businesses adds significant complexity. Running and operating businesses means defining expenses. The question about taxing income versus capital suddenly becomes important. Should capital earnings be treated the same way as actual income? Is a different rate appropriate? 

In our opinion, there are two powerful immediate benefits of the flat tax. 

First, it removes political and social engineering from the tax code and the hands of politicians, leaving citizens free to choose their own paths and destiny.

Second, if you have one flat tax rate that does away with deductions for this and credits for that, people will make decisions based upon what makes economic sense for them or their business and not upon whether they can avoid or take advantage of tax incentives or loopholes. The result will be economic growth.

One of the drawbacks to a flat tax is that it is still income-driven. This means not everybody participates in funding our government.

For example, those who are paid in cash and don’t report it can avoid paying a flat tax. On the other hand, if all income earners — regardless of their economic status — were liable for the tax, it would give every wage earner a stake in how taxpayer funds are spent.   

Margaret Thatcher once said to her cabinet when it objected to taxing those who were less fortunate, “Nonsense! This is a simple proposition. If you live in this county, you must pay for the privilege, something, anything. If you pay nothing, you care nothing.”

By her comment, the “Iron Lady” was suggesting that if all paid at least something, they would start to care about how it is spent and used. A flat tax might move us in that direction. 

Bill Sargent, Mark Mansius and John Gay are writing a series of columns on timely issues for today. All three ran in the 14th Congressional District primary.

(10) comments

Norman Pappous

YES !!!!![thumbup]

Gary Miller

After the fall of the soviets Russia had a tax system much like ours. Not quite as complicated but with as many loopholes, political twists and exceptions.
Russia hired the Forbes economic team to rewrite their tax code.
The result was a flat tax set at 15 % to be revenue neutral. 15 % turned out to be too high and a burden on their economy. Revinue neutral forgot that millions of tax collectors and preparers earning their living from the old tax code would have nothing to offer with the flat tax.
Since the original flat tax was passed Rusia has reduced their rate every other year to 10.5 % today.
They are learning that every cut brings in more revinues.
The Forbes team had suggested that a flat tax of 8 % would be ideal.

Kevin Lang

Well, if it works in Russia, it's gotta work here. I imagine there's a few other things we could borrow from Russia and put in place here. Some, even, that you might not like.

Not sure that Russia is the best example to use on these forums ;-)

Lars Faltskog

Response to kevjlang posted at 3:56 pm on Mon, Mar 10, 2014:

What do we know that's good from Russia??

Russians have those nice, warm, supped up hats for wearing in frigid weather. They have balalaikas, those nice string instruments. That's it.

Gary Miller

The 59 countries that adopted the flat tax used it to replace, not adding it onto, all other national taxes.
The most successful tax all income with no exceptions or deductions. One tax replacing all other taxes.

Robert Buckner

Sverige, don't forget vodka and caviar. This flat tax sort of looks good.

Steve Fouga

I'm for a universal flat tax. Always have been, probably always will be. Simple is usually good. There are obvious exceptions, but generally simpler is better. (No doubt that's an oversimplification.)

I had not heard the Russian tax anecdote, so thanks for that, IHOG. It can be instructive to see what someone else does when adopting a system from scratch, without the burden of years of evolution.

And Lars, the Russians have also produced excellent gymnasts and skaters, the Faberge egg, and some of the world's most comical dictators.

Gary Miller

Jake.
A universal flat tax with universal school choice would just about eliminate the Democrat party.
Universal school choice may happen first. The majority of minority voters say they want it.

Kevin Lang

It would just about wipe out the Republican Party and the Tea Party, too. They all have significant constituencies that feed at the trough of loopholes and exemptions in the tax code. If you think our tax code is ugly now, just wait until they butcher up a "flat tax" to ensure that their key donors are AT WORST neutral with the new schedules.

Lars Faltskog

Response to Robert Buckner posted at 12:19 pm on Tue, Mar 11, 2014:

You are correct, those 2 a lot of folks like - credited to Russians. Not me....vodka's too strong and caviar is too high falutin', looks and tastes icky.

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