The Flat Tax – The Time Has Come

Steve Forbes, in his excellent book How Capitalism Will Save Us, urges the adoption of a flat tax to replace the cumbersome IRS code we currently have to struggle with every April 15^th.

He points out the obvious advantages:

1.     Every type of income, both personal and corporate, is taxed at the same rate.   He suggests a rate of 17% (currently the tax ranges from 10% to 35%).

2.    He would eliminate all other special taxes.  (currently we pay 15% for capital gains in addition to city, state and local taxes).

3.    He advocates a personal and family exemption schedule.

Forbes has a lot of company with the flat tax concept.

Another advocate is Daniel Mitchell of The Heritage Foundation.  Mitchell says that our present system has to be reformed.  He notes that many nations around the world are lowering their tax rates with positive results to their economies as

jobs and capital flow

to those nations

with the most favorable tax laws.

Even nine countries of the former Soviet Union bloc are implementing flat tax policies.

The flat tax treats all taxpayers equally, lowers the penalties for productive behavior, work, risk-taking and entrepreneurship.

Mitchell parts company with Forbes on exemptions as he is not infavor of any exemptions and eliminates all deductions, credits and other loopholes in his proposal.

All proponents of a flat tax stress that there is no double taxation on capital formation, savings, dividends or other investments.  There would be no death tax, capital gains or other taxes to contend with, either.

The Heritage Foundation uses Albania as a prime example of the advantages of a flat tax:

Albania now has the lowest taxes in Europe

and their GDP has shown the greatest increase in the world

with a 42% jump (since 2007).

This former Communist country instituted a flat tax when they adopted a Capitalist Democracy in the late 1990’s.  Since that time, they have operated with a 10% flat tax and have seen their unemployment drop, their poverty rate has declined, their infrastructure has undergone extensive repairs, corruption in government has been reduced and organized crime has become increasingly controlled. Albania is experiencing great increases in trade activities, improvements in property rights and increased foreign investment as well.  In June 2006, they took the first step towards joining the European Union by completing the formal application.

Albanian billionaire Sahit Muja says that the United States and the European Union should move to a flat tax. Tax revenues in Albania now generate 23.3% of GDP while government spending is only 29.3% of GDP.  Even with less bureaucracy, most of the government spending has been on education and infrastructure.  Albanians think that the United States and the European Union waste money on worthless social programs.

Our annual skirmish with tax forms consumes countless hours of time and great expenditures of our incomes which could be put to much more positive use with the introduction of the flat tax.  This is not to mention the savings at the federal level by the dismantling of the most despised government agency:  the Internal Revenue Service (all 115,000 agents and their staffs) – not to mention the elimination of thousands of lobbyists whose only reason for being in Washington is to influence the members of the Ways and Means Committee and the structure of the tax code.

Forbes sums it up best:  “The flat tax would allow the United States to once again become a business-friendly environment.  Nations around the world that have instituted a flat tax: from Lithuania and Romania to Mongolia and Russia, have seen their economies roar almost immediately.”