Most Americans support tax reform because they want fairness. The current system is a crapshoot riddled with corrupt provisions, and the tax treatment of upper-income households is a good example, says Daniel Mitchell, a senior fellow with the Cato Institute.
- Sometimes rich people are hit with punitive tax rates; this is not good for them, but it also hurts the rest of us by reducing investment and entrepreneurship.
- Many wealthy taxpayers, though, scam the system by using lawyers, lobbyists, and accountants; that also is bad for the rest of us since funds are allocated inefficiently.
With a flat tax, there are no special preferences or special penalties based on income. Economists like the flat tax since it would increase growth and job creation, while also making America more competitive. This is because a flat tax means a low tax rate. By replacing high tax rates with a low flat rate (probably 17 percent), the flat tax will encourage more productive behavior, says Mitchell.
A flat tax:
- Eliminates double taxation; by getting rid of the tax bias against saving and investment, the flat tax will encourage more capital formation.
- Reduces compliance costs; according to the Tax Foundation, dealing with the tax code will cost us $338 billion this year; this tax on paying taxes will fall by more than 90 percent with a flat tax.
- Shrinks the Internal Revenue Service; the IRS has morphed into an enormous bureaucracy costing $12 billion each year.
Tax reform may seem like an impossible dream, but it can happen. Achieving a flat tax in America will not be easy. Everyone who benefits from the current system -- politicians, accountants, bureaucrats, and lobbyists -- will fight to keep the IRS. But if the American people get angry enough, anything is possible, says Mitchell.
Source: Daniel Mitchell, "Eliminate Tax Brackets and Complicated Forms with a Flat Tax," U.S. News & World Report, April 12, 2010.
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