Our current income tax system today is very complex, unfair, inhibits saving, investment and job creation, imposes a heavy burden on families, and weakens the integrity of the democratic process. It can’t be fixed and must be replaced. The U.S. income tax code is a long and complex system. The income tax system is so complex; the IRS publishes 480 tax forms and 280 forms to explain the 480 forms. The IRS sends out eight billion pages of forms and instructions each year. 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, truck, and van produced in the U.S. The cost of complying with the tax system totals about $200 billion annually, or $700 for every man, woman, and child in America.
The main reason the tax code is so complex is the increase of deductions, credits and other special preferences in the tax law. Because of these loopholes, taxpayer with similar incomes can pay various different amounts in taxes. This uneven treatment of taxpayers is basically unfair and is at odds with American value of equality under the law. The American people are under pressure by the highest tax burden in American history. Taxes represent a larger share of the U.S. economy than ever before. The tax burden on families with children has risen dramatically during the last few decades. High taxes helped the fast growth in government. The tax codes reduce incomes through punitive taxes on savings, thus reducing investments in new machines and technology that make American workers more efficient and competitive. High tax rates discourage work, savings, and commercial activity, which lead to a smaller economy. By favoring certain economic activities over others, the tax code distorts financial decisions and reduces economic efficiency.
Flat tax is a system that would impose a single tax rate on all income subject to tax. Income would be taxed once and only once. Individuals and businesses would pay the same rate. The plan eliminates all deductions and credits. The only income not subject to tax would be a generous personal exemption that every American would receive. And no loopholes. Just a simple tax system that treats every American the same.
The Armey-Shelby flat tax proposal will scraps 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.
The flat tax replaces the current income tax code, with its maze of exemptions, loopholes, and targeted breaks, with a system so simple Americans could file their taxes on a postcard-size form.
The Tax Foundation estimates that a flat tax would reduce compliance costs by 94 percent, saving taxpayers more than $100 billion dollars in compliance costs each year.
The flat tax will restore fairness to the tax law by treating everyone the same. No matter how much money you make, what kind of business you’re in, you will be taxed at the same rate as every other taxpayer. Because the flat tax treats all economic activity equally, it will promote greater economic efficiency and increased prosperity. When saving is no longer taxed twice, people will save and invest more, leading to higher productivity and greater take-home pay. When marginal tax rates are lower, people will work more, start more businesses, and devote fewer resources to tax evasion. And because tax rules will be uniform, people will base their financial decisions on common-sense economics, not mysterious tax laws.
Under the flat tax, the more you earn, the more you pay. In fact, because of the high family exemption, the more a taxpayer earns, the greater the share of his income he pays in tax. A family of four earning $25,000 would owe no tax under the proposal. A family of four earning $50,000 would pay only six percent of its income in income taxes while a family earning $200,000 would pay 14 percent.
The flat tax eliminates the marriage penalty and nearly doubles the deduction for dependent children. By ending the multiple taxation of saving, the flat tax provides all Americans with the tax equivalent of an unlimited IRA. This will make it easier for families to save for a home, a vacation, a college education, or retirement.
The bill repeals the current income tax in total and replaces it with a low, simple flat tax. Under the bill, every dollar of income in the economy is taxed one time at the same rate. Wage and pension income is collected from individuals. All other income, including investment income, is collected from businesses. Business owners pay the same tax rate and would file an equally straightforward tax form.
COMPARISON BETWEEN FLAT TAX AND THE CURRENT TAX SYSTEM
COST OF FILLINGExpensive! Costs $600 billion plus per year.Somewhat reduced.
COMPLEXITYVery complex! Over 2,000 Internal Revenue Code pages, 12,000 pages of regulations and 200,000 Court pages.Withholding continues. Individuals and businesses must still track income and file tax forms.
HOURS TO COMPLYOver 5.4 billion hours per year.Reduced depending on the flat Tax plan.
PENALTIESSevere, arbitrary Severe, arbitrary
ECONOMYIncreases prices, hurts wages results in decreased savings and investment.Tax burden still hidden in goods and services. No increase in wages.
INTREST RATESPushes rates up by reducing savings.Pates reduced if investment income not taxed.
INVESTMENTLow.Increased if investment income not taxed.
JOBHurts U.S. companies and decreases available jobs.Hurts U.S. companies less.
SAVINGSDecreases savings.Increases savings.
Under this tax proposal, both individual taxpayers and businesses would enjoy benefits achieved by this alternative tax system. First of all, we would like to talk about the individual taxpayers benefits. This tax proposal would free savings and investments from double taxation. This mean that after an individual’s income is taxed at a low, flat rate, and if they save it or invest it, the interest or dividends are not taxed again. Another benefit is that it ends the taxation of capital gains. Which means that when a person buys a home or small business and they decide to sell it, they would not have to pay any penalizing double taxation. It also would get rid of estate and gift taxes that represent double taxation and unfairly transfer income from families to the government. The flat tax would shorten the tax form to a post card size form. As we all know the forms that we have now are long and complicated, the new form would short and simple to understand. It would also reduce interest rates on home mortgages credit cards, and auto loans. How this works is that since interest is no longer taxable under this proposal, the rates would drop to reflect the tax-free status of interest. The next benefit is one that most working people would love. This tax system would stop the punishment of individuals and families who work longer and harder to improve their lives. With only one low tax rate, the government would no longer be able to take a large bite in people’s income. It also means that a spouse’s income would no longer push a family into a higher tax bracket. People would also be able to keep more of the money they earned and this tax proposal would end the government’s current micro-management of how the way people act through the tax code. A flat rate would reduce the IRS’s infringements on privacy. Now that we got through the benefits for the individual taxpayers, we would like to mention about the benefits for businesses.
A benefit that businesses would enjoy is this system would end penalizing double taxation of business income and would encourage increased savings and investments needed for development and expansion. Since flat tax would end individual capital gains and dividend taxation, it would encourage more corporate investment. This system would also eliminate one of the biggest accounting nightmares and numerous depreciation schedules that can stretch up to 40 years by allowing a 100 percent first year spending on new business investments. This system also eliminates the large cost of keeping track all interest and dividends paid out. This is possible because income would only be taxed at the business level and corporate income would not be taxed again when interest and dividends are paid to the individuals. It also would get rid of the growth discouragement caused by high marginal tax rates now faced by expanding businesses. And finally it would eliminate the corporate Alternative Minimum Tax or AMT. AMT forces many businesses to figure out their taxes twice under two different methods. The flat tax would reduce the complicated taxation of multinational corporations and it would only apply to domestic operations of all businesses, no matter if they are domestic, foreign, or mixed ownership, only the revenue from sales of a product within the U.S. and the value of products at export would be reported.
In conclusion, the current tax system has been reformed and played with for the last eighty years, playing with it only made it more complex and harder to understand. The time has come to try out a new system that is easier to understand and helps out the people who work hard for their money. Using the flat tax is not a crazy idea. In fact, except for the income tax, flat tax is already being used. The Social Security tax, Medicare tax, sales taxes, property taxes, and user fees all use a single fixed rate no matter how much income you make. The flat tax would end the unfairness, difficulty, government micro management, and economic damage caused by the current income tax system. Implementing the flat tax would encourage economic growth and opportunity while providing everyone in the United States with a higher standard of living. We support this tax alternative because it will be easier to file and easier to understand and it will make us all smile when we see our paychecks with a little bit more money.
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