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?
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:
- A flat tax closes loopholes and reduces special interest lobbying
- A flat tax reduces cheating
- 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.
- 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)
- 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)
- 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)
- 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)