As election season rolls around, one controversial topic will be forefront on the minds of millions of Americans: taxes. Surely, taxes will be a key element that all presidential candidates must address if they want to help bring prosperity back to the United States. With a struggling economy and high unemployment, we are in desperate need of tax reform.
No one can deny the incredible complexity and inefficiency of our current tax system. According to a study in 2010 by the Tax Foundation, “dealing with the tax code — measured by the time, energy, money and other resources that we devote to simply trying to figure out the right number to put on our tax returns — will cost us $338 billion next year.”
This is an enormous waste of our precious time and money, and it doesn’t even account for what we actually pay in taxes. Amongst all of the tax reform plans circulating the political arena, one stands out for its simplicity, efficiency, ability to promote global competitiveness and fairness. What is this plan? The flat tax.
Simply put, a flat tax would eliminate our current tax system and require everyone to pay the same rate. It would replace the current progressive income tax, and would completely eliminate the payroll tax, death tax and excise taxes. Also, it would remove a number of loopholes that allow individuals and businesses to get out of paying their fair share.
The Heritage Foundation has laid out a specific plan for a flat tax as part of “The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity.” They have suggested a tax rate that falls between 25 percent and 28 percent.
Under this proposal, working class families would end up paying either the same or significantly less than they currently pay to the federal government. Even though families making between $12,401 and $47,350 currently pays a payroll tax of 15 percent, they must pay an additional tax that ranges from 10 percent to 28 percent for the individual income tax rate. This means that they pay between 25.3 percent and 43.3 percent annually.
Families earning more than $388,351 would have their rates reduced from 35 percent, which would encourage them to create jobs and re-invest in the economy. The lower rate would also encourage them to actually pay the amount due, rather than find any possible way to avoid the excessive taxes.
One extremely appealing aspect of the flat tax is its simplicity. Currently, Americans must fill out 893 forms to file their taxes every April. With a fair tax system in place, there would be only two post-card sized forms; one would be used by individuals and families, and the other by businesses. This would make drastic cuts to the amount of paperwork, which would be a major cost- and time-saving factor. Additionally, Americans wouldn’t need to pay as much to get the help they need to navigate the complex tax code.
In addition to cutting out the massive amount of paperwork, a flat tax would drastically decrease the number of tax credits that further complicate our system. As college students at a private university, we know all too well about the rising tuition rates. The flat tax plan put forth by The Heritage Foundation would provide a deduction to help with the cost of college.
The deduction for charitable giving would be maintained under this plan. Additionally, homeowners can choose to deduct their mortgage interest. To help the lower class, there would be a $3,500 cut for families and $2,000 cut for individuals to take the burden off of paying for health insurance.
One very important reason that we need to implement this fair tax is so that we can regain our competitive edge in the global business environment. Historically, we have had a favorable tax code that encourages businesses to come to America. However, we are losing companies to foreign countries because we currently have the highest corporate tax rate among all industrialized nations. This loss of business is slowing down our economic growth and contributing to the high unemployment rate.
There are currently 23 foreign countries that have a flat tax. Eight of these are members of the former Soviet Union. The economies in these countries are growing much faster than the economies of Western Europe, which has the highest tax rates in the world.
In 2004, Slovakia chose to implement a flat tax and experienced tremendous growth. The government “swept away 21 categories of personal income taxes, five tax brackets, and scores of exemptions and deductions, replacing them with a flat 19% rate.”
Foreign investments increased by 600 percent and the country’s friendly business environment attracted many employers. If the United States implemented this system, it would encourage businesses to come and invest here, therefore increasing revenues and providing thousands of jobs.
Many people believe that we must raise the tax rate on the wealthiest Americans because it is “only fair,” but what could be more fair than asking every American to pay an equal percentage? Clearly, we value the idea of “equal justice under the law,” because it is a central theme of our Constitution. It is definitely not equal justice if a small number of Americans must pay a large percentage of their wealth, while a majority don’t pay anything or pay very little.
One common misconception about the flat tax is that everyone is paying the same amount, when in fact they are just paying the same percentage. A flat tax system would still have the wealthy paying a much higher amount of money than the poor. If someone makes 100 times more money than his or her neighbor, that person will pay 100 times more in taxes.
Our current tax code is clearly failing us and is contributing to our economic difficulties. If we want a true reform that will simplify our taxes and help restore the economy, we must seriously consider implementing a flat tax rate.
Hubbart is a sophomore majoring in business management. Comments can be sent to [email protected].
