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'Flat tax' is another alternative tax system
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IRS Shakedown
No one doubts that serious economic reform is needed, and I and more knowledgeable people than
me agree that continuing various forms of bailouts that raise the national deficit to a record level well above one trillion dollars is not the solution.
I do think that reforming and simplifying our income tax system would be a good step in the right direction. My entry yesterday advocated a national sales tax as a substitute for a federal income tax, and I still believe that that is the best solution.
I did want to also share the basic concept of a flat-tax; I do not like this option as well as a sales tax but like the simplicity that it offers. Like my writing about the sales tax, this entry will be merely a brief overview of a complex issue.
Under our current income tax system, the amount that you must pay on your taxable income starts at 10 percent and rises as that income rises. The current maximum is 35-percent, which applies to people with annual taxable incomes over $357,500. Anyone who has completed an income-tax return will recognize that this is not entirely accurate, but I ask that you please remember that I am trying to provide the briefest and most broad idea of our current system.
Under a pure flat tax system, virtually all income from every source would be taxable and everyone would pay the same percentage of that income in tax and there would not be any deductions. However, the history of our current tax system indicates that the simplicity and the lack of deductions would not last for many years.
A pure flat-tax system would be easy to administer in the sense that you would simply need to multiply your annual taxable income by the percentage that the federal government has established. However, we would still have the problem that we have under the current system regarding not all taxable income become reported and taxes being paid on it.
The tax gap that people not paying their required share has caused is a significant reason that the federal deficit is so high. Just consider the effect that customers and friends not paying what they owe you have on you and multiply that by a huge number of your choosing.
The issue of fairness is also tricky. It can be argued that having everyone pay the same percentage of his or her taxable income is fair. It can be argued as well that making wealthier people pay a higher percentage of their taxable income is fair because they can absorb that expense. This is one that the folks who are more knowledgeable than me regarding this are still debating.
I hope that this provides at least a general sense of the concept of flat taxes, and I welcome your comments as additions to this entry or as e-mail to nelsonexaminer@gmail.com.
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