The great Flat Tax debate

Posted By on May 26, 2005

I’ve been a proponent of the Steve Forbes style “flat tax” since it was introduced durning his run for the presidency. Although I’m not comfortable with an over the board Flat Tax, I would like to see serious reform.

CNBC Flat Tax Poll
On a CNBC ‘unscientific’ poll of people watching Squawkbox or reading their website, other were of a similar mindset by a 2 to 1 margin.

Let’s start with the convoluted tax code of over 17,000 pages packed with special interest political kickbacks. Yes that is how many of the current credits and complications in the current tax code work. The average American has to sort through, or pay to have a professional sort through this maze of confusion just to file your taxes. Most of us give up on trying to keep up with long term changes and as a recognized financial host comments, “People just want a tax that is fair and simple.”

Simplicity and discouraging ‘cheats’ would be toward the top of my list of tax reform criteria. Fairness to all goes hand in hand as the simplicity discourages people from not paying their correct tax. The job of the IRS is made far easier as not having to check mega sized returns (many pages) they will be able to better assure us that each citizen is paying their fair share.

Many will argue that the poor will end up paying too much and they are the ones that can little afford paying additional taxes. There will still be room for a bottom limit (perhaps even higher than today) and larger exemptions for dependents. What’s wrong with that?

Next ‘tax related’ blog post will be on a self-named Petroleum Aquisition Adjustment. (PAA) This is a proposal being discussed occasionally on a forum I participate in. Check it out.

Comments

  • Mark

    Rich,
    I am also in favor of tax reform, but I’m not sure if a “flat tax” is the way to do it. The big question still comes down to what are we going to levy that flat tax rate against? The easy answer is “income”, but…what is income??

    For a normal, wage earning person, that answer is fairly easy – wages. But what about self employed people? What about corporations? Under today’s system, figuring the tax is the easy part – figuring out what to tax is where it takes knowledge of the tax code.

    Are you familiar with Neil Boortz’s “Fair Tax”? It’s basically a national sales tax that includes rebates to low income people. You can read more about it at boortz.com and also keep a look out for his book that’s due out sometime in the beginning of July.

    Incidentally, I used to be a practicing CPA. I’ve spent way too many months of my life figuring out “what is taxable income?”

    Regards,
    Mark.

  • Mark,

    Really appreciate your taking the time to comment … certainly there are many ways to skin a cat. I certainly appreciate your thoughts on ‘taxes.’ Personally I favor the national ‘transaction’ tax since we now transact heavily based on computers. The calculations and reporting would be at the banking level and would be so tiny that it would deter most from evading. (ie. every transaction that occurs whether buying or selling, depositing or withdrawing, cashing or sending would incur a transaction tax. Fair because it taxes those transaction more dollar heavier than those with less …. therefore progressive. Unfortunately the complexity and radical change would be something I see as impossible to implement ?

    The VAT or National Sales tax fits about every country in Europe and therefore out of ‘independence’ I generally protest. 🙂 Boortz … or Mighty Whitey (his name not mine) has some very interesting thoughts for a Libertarian and probably offends many proclaiming that political persuassion by supporting George W. Bush. The beauty of the sales tax is that it collected with a system already in place, but just like the implementation of the luxury tax can create some very painful changes in our economy.

    I suppose I favor moving toward the personal ‘modified’ flat income tax might be do-able because it slowly modifies our existing federal income tax structure. First it is in keeping with what we are familiar with (federal income based taxes), second it simplifies the congressionally controlled deductions and credits. By eliminating them and using a generous exemption structure for families the burden would be lightened on the lower and middle income families.

    If your family income was $50,000 and the ‘flat’ tax due was $10,000 but your family of 4 receives a $2500 exemption each then your total federal income tax would be $0. (same for anything under that) But on the otherhand …. if the same family earned $100,000 then your tax would be $5000. Similarly if you were single and earned $50,000 and the tax again was $10,000 but you only have one exemption then your tax due would be $7500. Some have suggested a slight progressive structure (I still prefer flat) and perhaps considering the negotiation nature of our congress there might need to be some give and take? (there might also need to be a poverty floor … although I personally believe every American wage earner should contribute no matter if its only a dollar as they have a responsibility to support our nation too.)

    On a side note … I also like Neil Boortz because we share a similar interest in aviation … he is a private pilot/instructor and quite the aviation buff.

  • Gina

    I finally found answers I’ve needed. This makes perfect sense and the info is easy to follow… and very much appreciated.

Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.