Archive for the ‘2h. Why We Need a Flat Tax’ Category.

The Global Flat Tax Revolution

The Global Flat Tax Revolution

In this video, Dr. Daniel Mitchell, Senior Fellow Cato Institute, reveals that many countries around the world have adopted the flat tax.

Here are some of the points that Dr. Mitchell makes:

There are approximately 24 countries (when the video was filmed) who have adopted the flat tax. Examples include Hong Kong, Estonia, and Iceland. In addition, many former Soviet-bloc nations have adopted it as well, an ironic development since Marx’s Communist Manifesto called for a progressive, not a flat tax.

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A Primer on the Flat Tax

A Primer on the Flat Tax

Dr. Daniel Mitchell, Senior Fellow Cato Institute, provides a good overview about the need for and benefits of a flat tax1.

Here are some of the points that Mitchell makes:

The present tax code is an unmanageable mess. It is extremely complex. It requires an inordinate about of time and expense to prepare the required forms. It does not treat everybody the same, but rather grants various deductions, exemptions, shelters, preference, exclusions, and credits to favored special interests. It’s time we junk it in favor of a flat tax.

Here are the benefits to a flat tax:

  • Improved growth – A flat tax with its low tax rate and absence of double taxation will provide an incentive for companies to hire and invest. This should contribute to economic growth.
  • Improved competitiveness – A flat tax will remake America as an attractive place to live and start a business because of the low tax rates.
  • Reduced corruption – Tax preferences (exemptions, deductions, etc.) are some of the main sources of political corruption in Washington. A flat tax eliminates most of these except for exemptions for low income households.
  • Simplicity – A flat tax would require a postage card-sized form and be very easy to prepare. This would eliminate errors and the need for a large IRS to check submitted forms.
  • Increased privacy – A flat tax, by eliminating double taxation and taxation on savings and investments at the business level, will also eliminate the need for people to tell the government what assets they own and how much they’re worth.
  • Protected civil liberties – A simple and fair tax system eliminates almost all sources of conflict between taxpayers and the IRS.

There is no reason for us to keep our incredibly complex and uncompetitive tax code.  Let’s adopt the flat tax!

References

  1. Daniel Mitchell, A Primer on the Flat Tax and Fundamental Tax Reform (Center for Freedom and Prosperity, August 12, 2012) Available at: http://freedomandprosperity.org/2012/blog/a-primer-on-the-flat-tax-and-fundamental-tax-reform/; (August 15, 2012)
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The Tax Code Is a Mess

The Tax Code Is a Mess

Chris Edwards, editor of DownsizingGovernment.org,1, explains why the tax code is an impossible mess and why we need a flat tax.

Here are some of the points that Edwards makes:

In the first year of the income tax (1913), the federal tax code was 400 pages long. Today, the federal tax code is 73,608 pages long and requires nine feet of shelf space. The code has tripled since 1970.

In 1913, the instructions to the 1040 tax form were one page long. Today, the 1040 instruction book is 189 pages long. However, that is only for the 1040 tax form. There are 500 other forms.

Not only is the tax code complex, it is constantly changing. In the last 10 years alone there have been 4,428 changes. Paperwork costs to comply with the federal tax code are estimated to be more than $160 billion a year. This is money that individuals and businesses must spend that does not create value, creates uncertainty, and limits business investment.

Why the complexity? Politicians that fall into two camps. There are the “Class Warriors” politicians who try to social engineer society and spread the wealth. there are also the “Subsidy Warriors,” who try to micromanage the economy by favoring certain industries and families.

What is the result? 1) A big time-wasting mess.  For example, money spent complying a complex law and filling out forms could go towards business investment and economic growth. 2) Unequal justice under the law. For example, why should homeowner and renter with similar incomes pay different taxes?

The answer? Let’s adopt a flat tax.

References

  1. Chris Edwards, The tax-code mess (The Daily Caller, April 16, 2012) Available at: http://dailycaller.com/2012/04/16/the-tax-code-mess/ (August 15, 2012)
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Three Reasons Why We Need a Flat Tax

Three Reasons Why We Need a Flat Tax

This week’s lesson explains why we need a flat tax. To start out, go to the Three Reasons section, where I provide three short videos on the following topics:

  1. The flat tax saves money because it is simple.
  2. A flat tax is more transparent.
  3. A flat tax closes loopholes and reduces special interest lobbying.
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Even Russia Has a Flat Tax!

Did you know that former Communist countries have seen the light and adopted the flat tax? These include Russia, Ukraine, Romania and others, as shown in the graphic below. If they can figure out the advantages to a flat tax, why can’t we?

(Source: Fusion, September 2010(1))

According to a 2010 Fusion article(1), 25 countries have adopted the flat tax as of 2008. These include Hong Kong (with an individual flat tax rate of 15% and a corporate tax rate of 16.5%) and even Russia (with an individual flat tax rate of 13% and a corporate tax rate of 24%). Here are some reasons why a flat tax is superior to the system we now have:

  1. A flat tax closes loopholes and reduces special interest lobbying
  2. A flat tax reduces cheating
  3. A flat tax is fairer

A flat tax closes loopholes and reduces special interest lobbying

The tax code now contains 72,000 pages of complex rules. Why do you think our tax form and instructions grew from 4 pages in 1913 to 176 pages today? Answer: special interest lobbying. What lobby is there for the working family in the U.S.? Why should different groups of people be treated differently than the average family? A flat tax treats everybody the same.

A flat tax reduces cheating

With high taxes, there are more tax cheats. With a low flat tax rate of about 17%, tax cheating will decrease. As Dr. Daniel Mitchell explains, “Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa….And when tax rates go up, sometimes they resort to illegal steps to protect themselves from the tax authority.” Mitchell cites an International Monetary Fund report that unambiguously concludes that high taxes are the main reason why people don’t comply with the law(2).

According to an Investopedia article, Walter Anderson, a former telecommunications executive, was accused of hiding his earnings, like $365 million. In 2006, he pled guilty to hiding approximately $365 million worth of income. He was sentenced to nine years in prison. His was the largest tax evasion case in the history of the United States. (3)

A flat tax is fairer

American taxpayers each spend on average 26.5 hours processing and preparing their tax returns(4). However companies and wealthy people hire teams of professionals to game the system. How is that fair? A flat tax treats everybody the same.  You don’t have to worry about missing deductions that the other guy is taking.

Twenty-five other countries in the world have adopted the flat tax, even former Communist countries. Why can’t we? Those other countries have understood that a flat tax reduces the incentive to game the system. Because of its simplicity and low tax rate, a flat tax encourages people to stop cheating and honestly report their income. They can be assured that both the rich and the poor are paying the same rates and taking the same deductions. We save time and money and make our country more competitive in the world.

References

  1. Chris Edwards, A Flat Tax To Restore Prosperity (Fusion, September, 2010) Available at: http://www.glennbeck.com/content/articles/article/259/45975/ (April 20, 2012)
  2. Daniel Mitchell, IRS Code: 72,000 Pages of Corruption and Sleaze(Townhall, January, 31, 2012) Available at: http://finance.townhall.com/columnists/danieljmitchell/2012/01/31/irs_code_72000_pages_of_corruption_and_sleaze/page/full/ (April 20, 2012)
  3. Tisa L. Silver, 5 Famous Tax Cheats (Investopedia, January 26, 2010 ) Available at: http://www.investopedia.com/financial-edge/0110/Five-Famous-Tax-Cheats.aspx#ixzz1sVR7tssq (April 20, 2012)
  4. David Keating, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens (National Taxpayers Union, April 18, 2011), 13. Available at: http://www.ntu.org/news-and-issues/taxes/tax-reform/ntupp130.html (April 20, 2012)
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Prepare a Postcard-Sized Tax Return in 10 Minutes

Our tax system is a monstrosity that began as a 4-page form for individuals to complete in 1913 and has grown to 176 pages, if you count today’s 1040 with instructions. For corporations, it’s even worse. The National Taxpayers Union reports that General Electric in 2006 set a record by filing a 24,000 page tax return! We waste 7.64 billion hours costing $227 billion trying to comply with the byzantine rules formulated over the years in response to special interest groups(1)

The flat tax saves money because it is simple

A flat tax would save time and money that could be spent on growing businesses and creating jobs. Here are the best reasons Tea Party Christians should favor a flat tax.

The current tax code contains 3.8 million words and takes a total of 7.6 billion hours and $227 billion to process/prepare tax returns(2). Now consider the flat-tax 10-line postage-card tax return above, where you basically enter your wages, subtract a couple of allowances, multiply the amount times 17%, subtract your withholding tax, and that’s it. Ten minutes tops.

Compare 10 minutes with the 24 hours it takes to process a typical 77-line 1040 form, not counting schedules. With the present 1040, to merely determine your income you must consider, wages, salaries, tips, taxable interest, tax-exempt interest, ordinary dividends, qualified dividends, taxable refunds, credits, or offsets of state and local income taxes, alimony received, business income or less, capital gain or loss, other gains or losses, IRA distributions, pensions and annuities, rental real estate, royalties, partnerships, S corporations, trusts, farm income or loss, unemployment compensation, social security benefits, other income. This is a joke!

According to the National Taxpayers Union, “The United States now ranks an embarrassing 124th out of 183 countries worldwide in total tax rate. Additionally, the U.S. ranked 66th worldwide for time spent complying with corporate tax filings, according to ‘Paying Taxes 2011,’ a study jointly published by the accounting firm PricewaterhouseCoopers and the World Bank Group” (3). We need to make the U.S. business friendly, attracting entrepreneurs from around the world not making it more burdensome.

The National Taxpayers Union states, “The Tax code is so convoluted that no one inside or outside the IRS understands it.” (4) They cite the 2007 USA Today story that asked five tax professionals to calculate a family’s tax bill and received five different answers. The National Taxpayers Union adds, “The IRS reported that taxpayers made an astounding 10.6 million math errors last year, up from 1.3 million the previous year” (5)

It need not be so. A flat tax would be simple, accurate, and efficient. We could collect the same total revenues, save time and money in the process, attract business entreprenuers and create jobs.

To Read More

David Keating, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens (National Taxpayers Union, April 18, 2011) Available at: http://www.ntu.org/news-and-issues/taxes/tax-reform/complexity.html (April 15, 2012)

References

  1. David Keating, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens (National Taxpayers Union, April 18, 2011) Available at: http://www.ntu.org/news-and-issues/taxes/tax-reform/complexity.html (April 15, 2012)
  2. Ibid, 1-2.
  3. Ibid, 5.
  4. Ibid, 14.
  5. Ibid, 2.

 

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