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Monday, October 31, 2005

Flat Tax - Is the time finally here?

The President's advisory Panel on Federal Tax Reform is scheduled to release its final recommendations tomorrow, Nov. 1, 2005, and this could lead to an opportunity to finally enact a flat tax!
Steve Forbes has been advicating a flat tax for over a decade. A quick overview of his proposal as outlined in the October 2005 NewsMax magazine:
Under Forbes' flat-tax plan:
o 17% tax rate on personal income and corporate profits
o Individual deductions of $13,200 for adults and $4,000 for each child, plus $1,000 tax credit for each child aged 16 and under
o A Family of four would pay no federal income tax on its first $46,165 of income
o The capital gains tax would be eliminated, as would the Alternative Minimum Tax and estate tax (Death Tax)
o Companies could expense all investments at once - no more depreciation schedules
I believe that this overhaul of the tax system would bring about greater efficiency in many ways to the US economy and would be a much fairer system.
First, imagine all the billions of man-hours hours freed up from not having to file a complex tax form every year and all the documentation that goes with it. You could file a "postcard return" that could be completed in minutes. It has been estimated that compliance with the current Federal Tax system takes Americans 6 billion hours a year and costs $200 billion dollars.
Second, it would encourage individuals to invest more with gains from investments no longer taxed. This would be a good thing for our counrty with a current savings rate of nearly nothing and the federal government having to sell billions in treasury bonds monthly, mainly purchased by foreign lands, to finance the federal governments overspending. This increase in savings and investing would led to new businesses which would increase the the tax base, increase government revenue, and spur job growth. This job growth could help put to more productive use all the unemployed former IRS workers. Just think of all the money saved by the federal government from shutting down most of the IRS!
Third, with a flat tax of only 17% it would lessen the incentives for individuals to hide income that is currently taxed at much high rates, thus bringing more of the underground economy back into the legal economy.
Fourth, every one would be taxed at the 17% tax rate and individuals with the same income would pay nearly the same Federal tax. This would be much fairer then what we currently have to endure, individuals with the same income and one owns their home and the other doesn't paying vastly different Federal Tax bills. Every year the IRS tax code gets more and more complex as politicians manipulate the system to benefit special interest groups. Your tax bill will increase or decease depending on which loopholes you jump through or fail to jump through.
The Flat tax has a greater chance to pass now, than it has had in years with the successful enactment by Lithuania, Latvia, Estonia, Ukraine, Slovakia, Romania, Goergia, and Serbia. Even Russia adopted the Flat-Tax four years ago and revenue more than doubled.
I support the flat tax and encourage you to do the same.

Dan Collins

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