The American Tax System And The Flat Tax Solution Essays - Flat Tax

The American Tax System And The Flat Tax Solution The Tax System The current income tax system is in terrible shape. It is complex; unfair; inhibits saving, investment and job creation; imposes a heavy burden on families; and undermines the integrity of the democratic process. The system cannot be repaired by simple tinkering and fine-tuning, it must be completely repealed and replaced. The U.S. income tax code is a monument to unnecessary waste. The income tax system is so complex, the Internal Revenue Service (IRS) publishes number 480 tax Forms and 280 Forms to explain the 480 Forms. The IRS sends out eight billion pages of forms and instructions each year which, if laid end to end, would circle the earth 28 times. Nearly 300,000 trees are cut down each year to produce the paper on which IRS forms and instructions are printed. But the administrative costs of the tax system far exceed those borne directly by the IRS. Each year Americans devote 5.4 billion hours complying with the tax code, which is more time than it takes to build every car, tru ck and van produced in the United States. The cost of complying with the tax system totals about $200 billion annually or when broken down: $700 for every man, woman and child in America. The main reason the tax code is so complex is the proliferation of deductions, credits and other special preferences in the tax law. Because of these loopholes, taxpayers with similar incomes can pay vastly different amounts in taxes. This uneven treatment of taxpayers is fundamentally unfair and is at odds with the American value of equality under the law. The American people are beleaguered by the highest tax burden in American history. Taxes represent a larger share of the U.S. economy than ever before. In fact, the typical American family now pays more in taxes than it spends on food, clothing, transportation and shelter combined. The tax burden on families with children has risen dramatically during the last few decades. High taxes have fueled unparalleled growth in government. The U.S. public sector is now larger than the entire economy of any country in the world except Japan and the United States itself. The tax code reduces incomes through punitive taxes on saving, work and entrepreneurship. It places multiple layers of tax on saving, thus reducing investments in new machines and technology that make American workers more efficient and competitive. High marginal tax rates (the tax rate on the last dollar earned) discourage work, saving and entrepreneurial activity, which leads to a smaller economy. By favoring certain economic activities over others, the tax code distorts financial decisions and reduces economic efficiency. According to a study by an economist with the Congressional Research Service, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury. Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises through the current system co sts the economy $1.39. The tax code does more than complicate people's lives during tax season and reduce living standards. It pollutes Washington's political culture. As special-interest provisions have been added to the tax code, Washington's lobbying industry has flourished. Washington's lobbying industry, which is the largest private employer in the nation's capital, generates $8.4 billion in revenue each year. If the lobbying industry were its own economy, it would be larger than the economies of 57 countries. While the thousands of lobbyists in Washington have prospered in an environment of tax favoritism, the typical taxpayer has not. The flat rate income tax bill, numbered H.R. 1040, proposed by Dick Armey (Rep., TX) and Co-sponsored by Bob Barr (Rep., GA) does away with the entire income tax code and replaces it with a flat-rate income tax that treats all Americans the same. This plan would simplify the tax code, promote economic opportunity, and restore fairness and integrity to the tax system. The flat rate would be phased-in over a three-year period, with a 19 percent rate for the first two years and a 17 percent rate for subsequent years. Individuals and businesses would pay the same rate. The plan eliminates all deductions and