January 21, 2008

Adopting a Flat Tax: Reforming America by Reforming Taxes

By Hillary Pulsipher
4 May 2007

Civilizations have long sought answers to their economic needs. Whether the money collected was for the benefit of the governors, or those being governed, it has indeed become a staple of modern societies. In the United States the results of tax institution and collection have ranged from mediocre to appalling, rarely mirroring the democratic spirit proposed by her founding fathers. For a nation that revolted at the idea of paying a mere two percent of their income to an overseas nation, the American people have become resigned to the idea that high taxes are an unchangeable aspect of life. To rejuvenate both business and personal economy, large scale tax reform must take place, and to reap full benefits, a flat tax should replace the current system.

Taxes at Present
To understand why a new tax system is in order, one must understand, or at least attempt to understand, how Americans are currently taxed, particularly when it comes to income taxation. The particular method used to acquire money from American citizens is commonly referred to as a progressive or graduated tax. Within this theory, the more income that is acquired, via working, social security, interest, inheritance, et cetera, the higher percentage of taxes the person pays. The idea is that the rich have more money and can therefore afford to give more money to the government. Also, that because the government is protecting their assets to a greater extent, they almost owe it to them (Jurinski). The poor, who require a larger percentage of their money to go toward basic necessities, pay less. In addition, the middle class pays a variety of percentages based on their earnings. Amounts paid are based on filing status as well. A person who is single will receive a different rate than a married couple filing jointly. There are six brackets, or percentages to be paid, ranging from ten percent to thirty-five percent (“Tax Brackets”).
Based on that, the tax system sounds simple, and if the calculation of taxes stopped at income, it would be. However, ever since the introduction of the income tax, it has been subject to numerous changes. Deductions are the most complicated part of paying taxes. Deductions are now offered for having children, giving to charity, purchasing work related material, and dozens upon dozens of other payments and investments. Such complicated procedure requires an extensive branch of law to process the money and forms as well as hunt down and prosecute those who do not pay enough. The IRS has long been the most despised of all government branches since its institution. With both the number of deductions and the size of the IRS rapidly expanding, it is clear why calculating an income tax has become a stressful and difficult process for many Americans.

The Reason for a New System
The most prominent reason why the American progressive tax should be scrapped is the sheer complication of it all. Every year the code is revised, often adding more deductions. Because of the constant changes, forms, computer programs and other tools must be updated from year to year. To help all of the citizens who cannot keep up with these changes, professional accountants can be hired. However, this costs money. A booming industry has been created as a by product of a tax system run amok. Naturally, companies similar to these would disappear with the introduction of a simpler method. A simpler method of tax collection would also reduce tax evasion (Maital, 32). Paying taxes takes time and money, gratifying the payee with headaches and economical turmoil. If the tax system was not so complicated that people had to hire outside help to pay taxes, tax evasion would decrease. Of course nobody wants to pay taxes, but for an extensive democratic government such as this, it is a necessity for everyone to pay. In trying to add deductions to make people feel like they are not paying as many taxes, the government only makes the tax code more complicated, creating the opposite effect and increasing evasion.
Many politicians argue that the answer to reducing the federal deficit lies in increasing taxes on the upper class. Such alterations, however, would only give the government more leeway in their own inefficiency. While many Americans connect their tax payments to presidents and governors, they do not always relate them to the numerous politicians behind closed doors who rewrite the tax code simply to give themselves a well paying job. A more straightforward tax code would reduce the need for these workers, taking them off of government payroll and saving money. The IRS is in a similar position. Millions of dollars are spent every year providing the workers with a paycheck and the means to track down evaders. Again, a more direct form of taxation would not require as much work from the IRS to process forms and payments, as fewer people would be needed. Less tax evasion means a direct reduction in the money spent of searching for people who do not pay their taxes. The money saved through these measures would be used in other branches of government to better the nation, rather than one man’s circumstance.
A more controversial aspect of changing the tax system is the idea of not only getting rid of reductions, but getting rid of the progressive system as a whole. Some say that the graduated system creates equality by bringing people closer to the same level economically. However, this is not true equality. By punishing the middle and upper class for taking economic risks via investments and savings, the government is subjugating their desire to work hard. This in turn reduces innovation. Why should anyone feel compelled to introduce new ideas if a lot of their earnings will be taken by the government? On the other hand the poorer class must depend on a greater majority of their earnings to survive. They cannot be expected to pay as much dollar wise as the rich do, however, as it is now, many citizens of the lower class get off without paying any taxes, or even receiving more in a tax refund than they initially paid. Every person’s life is slightly different, complicating the idea of fair taxes. While the writers of the tax code may have good intentions, they have obviously gotten muddled along the way creating an unjust system.

A Remedy for Modern Taxation
The answer to a call for a more simplistic method of taxing income is the proposal of a federal flat tax. The flat tax, formally known as a regressive tax, not because it causes society to regress, is most commonly supported by conservatives. While it is not currently the system used for income tax, many states have integrated consumption, or sales, tax on most purchased goods. Understanding the sales tax is understanding the flat tax plan. When one purchases an object they pay an extra percentage of the price as a tax. When applied to income tax, a person pays a set percentage, usually between fifteen and twenty percent, of their earnings to the IRS. So far, this sounds similar to a progressive tax. The main difference is that the rate is exactly the same for everyone. For instance, the rich and the poor would all pay seventeen percent of their income. No matter what their personal circumstance, no matter how much they earn they would pay the same percentage of the money they earn through working. While all of the other deductions that apply now, would disappear, one based on family size would remain (McTague, 21). Also in this system, money earned due to receiving inheritance, interest and dividends are not taxed, reducing the amount of taxable income for everyone (Jurinski). All in all, the flat tax grants a return to simple taxing, with far less figuring. Flat tax supporters such as former presidential candidate, Stephen Forbes, and Texas state representative, Dick Armey, even say that the method used to determine how much one will pay is so simple that it will require only one piece of paper, the size of a postcard, to figure and file one’s taxes.
There are many reasons to support a flat tax, aside from the sheer simplicity of the process. This method of taxation is fair, works well and increases efficiency within the government. The flat tax does have its critics, who claim that it is unfair (Dunn). They claim that the poor would be hurt economically and that the rich would pay barely any taxes. While plans to appease these critics have been set forth, by saying that anyone earning under a certain income would not be required to pay taxes, if every money earning person paid taxes it would be the most fair of any system. To say that the rich owe more to society is to say that they are unequally exalted above the lower and middle classes. While they are obviously unequal in an economical sense, their rights to property must be equally protected by the government. By saying that everyone pays the same percentage of their income, equality is insured. Of course the millionaires will still end up paying more than the people of the working class, but they will all have the same percentage left over. Those who need to hire an accountant to help with their taxes and are crunched for the money to do so will no longer be faced with such a problem. Without complicated deductions, workers will be able to figure their own taxes. The lack of deductions also ensures that a member of the upper class will not receive a tax cut simply for owning a certain type of car, while a member of the working class cannot afford a car at all. All of these create a fair tax system, which leads to more fairness in government and societal progression.
In addition to creating a balanced America, these simple taxes would make the government more efficient. Worthless politicians would no longer earn a living from tinkering with the tax laws. The IRS would shrink along with their budget (Mitchell, “Reasons”). Election time would no longer be muddled with money issues. All classes would be able to come together to solve real problems, not just elect someone who will keep them from paying taxes, or punishing the rich by making them pay more. The American people would be able to take full advantage of the democratic system of government and the government would be able to protect the people in justice.
The flat tax is the true democratic system of taxation for a free capitalist country. It takes needed money for the government, while still awarding the citizens for their hard work and investments. Being a fair system, the flat tax has been chosen as the method of taxation in many Eastern European nations that once lived under communist rule (Mitchell, “Flat-Out,” par. 7). In Estonia, it helped them achieve a six percent growth in gross domestic product (Maital, 32). Since the beginning of the millennium, and the institution of their flat tax, these countries, including Georgia, Latvia and Romania, these countries have experienced rapid economic growth. While it can be assumed that results in a society such as this would differ slightly, more growth could be expected from the willingness to take risks and become innovative (Mitchell, par. 24).
Even though the flat tax does not have the ability to solve all economic problems in the United States, it would solve many. All people would be brought to fair terms of taxation, the rich and middle class would be able to invest, spend and support banks. The middle and lower class would have more incentive to work hard and look for that next opportunity that will put them in a better place, without constantly leaning on the government. The best part for the common American, come April, would be its beautiful simplicity. The ability to file one’s taxes on a postcard sized document would reduce the amount of time, money and stress wasted every year by millions of Americans on taxes. Benjamin Franklin put it well when he said, “In this world nothing can be said to be certain, except death and taxes” (Saplinsley). We will always have to pay taxes to support our country, but there is no excuse to have a corruptive, wasteful and disastrous tax system like that of the United States of America.
Works Cited

Dunn, Doug. “Flat Tax Fiasco.” World Wizards. 2006. 15 Mar. 2007 http://www.worldwiz72.com/flattax.html.

Jurinski, James J. Tax Reform. Contemporary World Issues. Santa Barbara: ABC-CLIO, 2000.
Maital, Shlomo. “Wonderland.” The Jerusalem Report. 5 Mar. 2007: 32. ProQuest. 16 Mar. 2007 http://proquest.umi.com/pqdweb?did=122777160&sid=1&Fmt=clientId=23138&RQT=309&VName=PQD.

McTague, Jim. “Trashing The Tax Code.” Barron’s. 14 Feb 2005. 21. eLibrary. Proquest. 2 Apr. 2007 http://elibrary.bigchalk.com.

Mitchell, Daniel J. “577,951,692,634 Reasons...And Counting: Why a Flat Tax is Needed to Reform the IRS.” The Heritage Foundation 2 Apr. 1997. 22 Mar. 2007 http://www.heritage.org/Research/Taxes/BG1107.cfm.

Mitchell, Daniel J. “A Brief Guide to the Flat Tax.” The Heritage Foundation. 7 July 2005. 15 Mar. 2007 http://www.heritage.org/Research/Taxes/gb1866.cfm.

Mitchell, Daniel J. “A Flat-Out Case for Tax Reform.” Capitalism Magazine. 15 Apr. 2005. 23 Mar. 2007 http://www.capmag.com/article.asp?ID=41947.

Saplinsley, Barbara. Taxes. Issues In American History. New York: Franklin Watts, 1986.
“Tax Brackets.” MoneyChimp 25 Apr. 2007. 3 May 2007 http://www.moneychimp.com/features/tax_brackets.htm.

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