Flat Tax in the News

There is nothing new about the idea of a flat tax. This writer first investigated it in 1995 when Rep. Dick Armey of Texas was advocating changing to the flat tax. 

At that time, I read a book entitled "The Flat Tax" written by Robert E. Hall and Alvin Rabuska. These authors base their system of a flat tax on a basic principle:

"Income should be taxed exactly once, as close as possible to its source." 

These authors also explain that all income would be taxed at the same rate.  Following this principle, if I made widgets and sell them and gain income, I would be taxed because the source of the income would be the manufacture of the widget. It would also follow that if there were various components to my widgets which were made by other entrepreneurs, the components maker's income would be taxed in a similar manner.

In 1995 the authors of this book were advocating for a rate of 19% and contended that using that rate, the same amount of revenue would be generated as was currently being generated with the old system.

There were some other benefits of their tax. The biggest one was simplification. They contended that the average tax payer could send in a return on the back of a post card. And that a farmer's return would have a total of 10 lines. That would be a vast improvement from what we now use. It is at least 15 pages - (I did not take the time to dig one out and count the pages - but I am in the general vicinity.) 

The authors suggested ways to limit the burden on low income families by setting a threshold where low income earners would be free of a tax. Herein lies the rub. Once exceptions are made or special credits given, the PANDORA'S BOX is opened.

As with every proposal, the devil is in the details and the reform of the flat tax might end up being no reform at all if the special interests, and lobbyists have their way with our elected representatives. We should not give up on tax reform. It should be a very high priority. Time will tell. end.