Wednesday, March 4, 2009

A Pro-Growth Flat Tax
  Economics piece by FreeCongressFoundation: E. Ralph Hostetter

The Internal Revenue Service (IRS) requires all income to be recorded and reported. All taxes on personal income from nannies to CEOs must be collected and reported on a quarterly basis and remitted to the IRS. This includes taxes on the self-employed.

American multi-millionaire and former presidential candidate Steve Forbes is proposing another method for collecting and reporting personal income taxes. He calls his plan a “Pro-Growth Flat Tax.” Here’s how Forbes describes it: “I am talking about across-the-board tax cuts that are deep and wide and permanent…that get the suffocating weight of the IRS off [peoples’] backs. I start by scrapping the tax code…. Junk it. Throw it out. Bury it.“

Representative Rob Portman (R-OH) describes “Title 26” of the U.S. Tax Code and its associated regulations as containing about 5.6 million words — seven times as many as the Holy Bible. “Taxpayers spend about 5.4 billion hours a year trying to comply with its more than 2,500 pages of regulations,“ he says. Representative Jo Ann Emerson (R-MO) says, “The Bible, guide of our lives, is 1,291 pages and contains 774,746 words. But the Tax Code and its regulations, which are referred to by some as ‘a person’s worst nightmare come true,‘ are 9,471 pages and over 7 million words.“ The U.S. Government Printing Office is offering a printed version of the entire U.S. Tax Code with all 16,845 pages.

Under a new, pro-growth “flat tax,“ a family of four would pay no taxes on the first $36,000 of income. Taxes would begin at 17% after personal income became more than $36,000 per year and would continue at 17% into the future. There would be no tax on Social Security income, no tax on pension income, no tax on personal savings. Capital gains taxes would be zeroed out. Barriers to risk-taking would be lowered.

Political corruption would be reduced in Washington as trading tax loopholes for campaign cash would cease. At present, for example, there exists for 2001 a substantial tax gap of $345 billion between the taxes that were due and what was paid. Enforcement efforts and late payments brought the gap down to $290 billion.

Disturbing tax issues were exposed during President Barack H. Obama’s efforts to appoint candidates for some Cabinet positions. Three of his nominees for Cabinet posts were found to be delinquents on their taxes. Treasury Secretary Timothy F. Geithner was appointed and confirmed in spite of his failure to pay $34,000 in self-employment taxes he knew he was required to pay. Lobbyist and defeated Senator Thomas L. Daschle, nominee for Secretary of Health and Human Services, and Nancy Killefer, nominee for Chief Performance Officer, both withdrew from consideration because of their tax problems.

If three of these government officials were tax cheats, how many other government officials in high positions have failed to pay their taxes as well? Apparently many high-level government officials have come to believe they are exempt from taxation. Complicated investigations and tax audits cost both the taxpayer and the government billions of dollars each year. IRS requires 93,000 employees to staff its offices and provide all its legal services.

There are two principal arguments favoring a flat tax.  The infrastructure necessary to operate IRS would be less.  The bureaucracy itself would be much smaller.

E. Ralph Hostetter

E. Ralph Hostetter, a prominent businessman and publisher, also is an award-winning columnist and Vice Chairman of the Free Congress Foundation Board of Directors.

Posted by FreeCongressFoundation: E. Ralph Hostetter on 3/4/09

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