Posted on 05/27/2005 10:53:33 PM PDT by Extremely Extreme Extremist
President Bush is calling for a complete overhaul of the broken U.S. tax code, and his Advisory Panel is holding hearings to make recommendations for reform. As I testified to the Panel earlier this month, instituting the flat tax is the right answer.
Our current income tax system is a catalog of favors for special interests and a chamber of horrors for the rest of America. As a country, we spend more time filing taxes than we spend building every car, truck, and van produced in the United States. To put this in perspective, it takes the average taxpayer over 26 hours to file a standard 1040, which has caused over 60 percent of Americans to pay a professional to complete their taxes. Simply complying with the complex tax code costs $194 billion each year, or about $650 for every man, woman, and child in America.
Aside from the tax system’s complexity and unfairness, it also inhibits saving, investment, and job creation; it imposes a heavy burden on working families; and it undermines the integrity of the democratic process. The U.S. tax system cannot be repaired by tinkering or fine-tuning. It must be completely replaced with a simple and more efficient alternative. Of the many proposed reform measures, the flat tax best meets the goal of collecting revenue in the simplest, fairest, and most transparent manner possible.
The flat tax will replace the current tax code with a flat-rate income tax that treats all Americans equally. All income is taxed only once and at one rate. There are no breaks for special interests and no loopholes for powerful lobbies, just a simple tax system that treats every American the same.
Individuals and businesses will simply complete a tax return the size of a postcard. All deductions and credits would be eliminated, while the only income not subject to tax would be a generous personal exemption for every American. For example, a family of four could be exempt from the first $40,000 of income. This personal deduction would be indexed to inflation and the flat tax rate could be calculated to be revenue neutral, so as to not increase the deficit in the process of enacting this important reform. Additionally, according to a study by the former chief economist for Congress’ Joint Committee on Taxation, national income would be 5.7 percent larger after five year under the flat tax than under the current system. That means over $500 billion in increased output or more than $3,000 in additional income for a typical family of four.
One competing idea-- the national sales tax-- exhibits the perception of efficiency, but we cannot introduce such a powerful new tax collecting regime unless the 16th Amendment to the Constitution is repealed (a highly unlikely event). Otherwise, we risk the harmful reality of having to pay both a national sales tax and a federal income tax. Therefore, those in favor of modernizing the current code should work towards enacting the flat tax. It solves the problem and it is politically achievable.
Every American will benefit under a flat tax system. An increase in national income will increase charitable giving, lower interest rates will more than offset the loss of the mortgage deduction in the current system, the income exemption will continue the tax code's progressive precedent, saving for your retirement or children’s education will be easier, the marriage penalty will be eliminated, the deduction for dependent children will double, and every taxpayer will see their tax rates reduced.
For the sake of fairness, simplicity, and an improved economy, I strongly urge the President’s Advisory Panel on Federal Tax Reform to recommend the flat tax.
Former House Majority Leader Dick Armey currently serves as co-chairman of FreedomWorks, a national grassroots organization fighting for lower taxes, less government, and more freedom.
"I think it would be quicker and simpler to just do away with the concept of payroll witholding. Require every American to sit down once a month and figure their witholding and write a check to the treasury."
Any idea how many people would have to be added to the IRS to track down all the non-filers under such a system? I believe the current headcount of the IRS is about 100,000. Do you think we could expand the IRS to 500,000 to maintain minimal compliance under such a system, or do you think it would take more than that?
"They all pay Social Security."
Are you proposing that Social Security taxes no longer be withheld, also?
Well that is what the bill HR25/Fairtax states.
Do you have a problem with the IRS being abolished?
"There is no imbedded taxes with the flat tax. Workers and businesses are only taxed once."
Incorrect. Profits are only taxed once. However, each level in the supply chain adds corporate income and payroll taxes to the cost which accumulates as products move up through the system. That makes US goods less competitive in the global economy than they should be.
So a Flat Tax is an indirect VAT (value added tax) tax.
"Consider that 2018 is the year when social security obligations begin to exceed collections. The number of income earners paying social security taxes and contributing to 401k/mutual funds/stocks will be less than the number of retirees extracting benefits.
The impact of the changing income earner vs retiree demographic is going to eclipse the problem of how taxes are collected. It is just rearranging the deck chairs on the Titanic."
Incorrect. The number of income earners vs retirees, which is the central problem of Social Security, is addressed by the FairTax by converting the revenue base of Social Security from payroll to a more broad-based general sales tax. Therefore, if we double the size of the US economy over the next 15 years, as Tom Delay has suggested as a goal, then we double the Social Security revenue base. There is no way that we do that with a payroll tax base.
Therefore, contrary to your assertion that Fundamental Tax Reform is peripheral to the problem of Social Security's insolvency, it is indeed a major step toward addressing that exact issue.
"So a Flat Tax is an indirect VAT (value added tax) tax."
In the sense that it accumulates through the supply chain, that is correct. However, unlike a VAT, no corporate income tax (flat or progressive) has a mechanism for relieving the burden when the product leaves our borders.
"Would it surprise you that, as a percentage of GDP, tax receipts are at their lowest since 1959 and that they really haven't varied much in the last 60 years? It would by looking at that table."
The graph has nothing to do with the point you are making. The graph is about spending, not taxes. Would it surprise you to learn that since spending has gone up and taxes haven't kept pace, that we would have a deficit?
The graph has nothing to do with the point you are making. The graph is about spending, not taxes.Really? When I look at the graph in #82 I see a big, all-caps "TAXES" underneath it. Don't you see it?
You counter AG's graphs with such monumental facts as: "You are the stupidist man I know."That was before pigdog came back on the scene!
So a Flat Tax is an indirect VAT (value added tax) tax.
Indirect heck!!
None other than the father of the flat tax, Robert Hall of Stanford University (along with Alvin Rabushka), in his 1995 Ways and Means Committee testimony said, "The Hall-Rabushka flat tax is a value-added tax."
Which was pointed out again in additional hearings in April of 2000:
http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm
"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"
"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
| In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write. Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive. To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following: Total revenue from sales of goods and services less purchases of inputs from other firms less wages, salaries, and pensions paid to workers less purchases of plant and equipment The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances. |
Some days you call it an income tax, other days it's a VAT. Pick one.So a Flat Tax is an indirect VAT (value added tax) tax.Indirect heck!!
"Some days you call it an income tax, other days it's a VAT. Pick one."
Why should he? Some days you prefer a flat tax; others a VAT. Where is it written that only FairTaxers have to be consistent?
What makes it unreliable (actually, more pointless) is that the chart isn't adjusted for inflation, population, or the size of the economy.
As if inflation was not a function government monetary policy and just as much a tax as a stamp tax on a pack of cigarettes.
http://ingrimayne.saintjoe.edu/econ/optional/HideTaxes.html
- Taxing with Inflation. Deficit financing and inflation are other ways to hide taxes.
Variations on these methods have a very ancient history.
See more ==> Google Search: "inflation tax"
Would it surprise you that, as a percentage of GDP, tax receipts are at their lowest since 1959 and that they really haven't varied much in the last 60 years?
Government should grow as fast as the economy? I don't think so:
For growth of government and taxation serves as a very heavy drag on the economy:
Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "
It really "shows" nothing.
To those who figure the inflated growth of government is a good thing perhaps.
Would it surprise you to learn that since spending has gone up and taxes haven't kept pace,...
Is that the official goal of the Fairtax, keeping taxes up to pace with spending, rather than spending with taxes?
You, being a spokesperson for the Fairtax...
Some days you call it an income tax, other days it's a VAT. Pick one.
Pick one?
It is both, a progressive individual income tax coupled with a subtraction method VAT. As described by it's authors and many others as well.
FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:
- "The flat tax is essentially a VAT, with a personalized element for wages. Thus, the business tax allows deduction of all purchases -- as does a VAT -- but also allows deduction of wages. The wage income that is taken out of the VAT base, however, is also taxed, but is assessed against the individual wage-earner, not against the business."
Concerning Proposals for a Flat-Rate Consumption Tax
Before the Joint Economic Committee, Statement of Robert S. McIntyre
Director, Citizens for Tax Justice May 17, 1995
- The Hall-Rabushka flat tax, and its Armey and Specter variants, would replace the current personal and corporate income taxes with a new tax that is conceptually identical to a "subtraction-method" value-added tax, a version of a national sales tax, with two major modifications: First, imports would be exempt from the flat tax, while exports would be subject to tax. Second, to mitigate the regressivity of the VAT, cash wages, pensions received and other cash earned income would be taken out of the VAT base (i.e., deducted by businesses) and taxed directly to individuals, with exemptions. Thus, structurally, the flat tax is exactly equal to a value-added tax with an import incentive, an export disincentive and a personal rebate based on a percentage of a capped amount of cash wages, pensions and other earned income.
But then you are the resident proponent and expert of VATs & Flat Tax, so you should know that well.
Which is your favorite today VAT or "Flat Tax"??
As if inflation was not a function government monetary policy and just as much a tax as a stamp tax on a pack of cigarettes.So you were just trying to show how inflation was a tax?
It is both, a progressive individual income tax coupled with a subtraction method VAT. As described by it's authors and many others as well.Interesting that none of your cut & pasties say that the flat tax is a "progressive individual income tax." You want to go down the list of cut & pasties till we get to one that does?
You've identifed the fly in the ointment. Success is predicated on doubling the economy in 15 years. I expect the opposite. 75 million baby boomers with high paying jobs will retire. Instead of putting (tax deferred) income in the stock market, they will remove it (as required by law) to cover living expenses. Most will find their retirement resources inadequately funded. They will spend only what is necessary to get by.
It's almost laughable to think that taxing retirees to extract money to pay them social security benefits is a workable approach. It is cow sucking its own udder to survive. Money to cover such obligations must be acquired by a wealth transfer (taxation) from employed persons to retired recipients. The ratio of employed persons with disposable income to retirees expecting benefits is going to drop radically in about 10 years. Socialism and ponzi schemes never work as intended.
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