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Wednesday, November 30, 2005

Give Me a Tax I Like

The flat tax I believe would yield vast benefits for Americans. Specifically, these benefits would include:
Fairness. Most Americans believe the tax code is riddled with discrimination. They are right. The government either imposes tax penalties or grants tax preferences depending on the source, use, or level of income. All of these special provisions violate the principle that all citizens should be treated equally by the law. The flat tax would restore fairness in the system by ensuring that all taxpayers, and all income are treated the same.

Economic growth. The flat tax would minimize the tax rate imposed on productive behavior and eliminate the numerous forms of double taxation in the current code. Consequently, it would boost the economy's potential growth rate and cause permanent increases in economic output. How much the economy would benefit is not easy to predict, but many economists project that, within 10 years, the economy would be 5 percent to 10 percent larger than it would be under the current tax structure. Faster growth and a bigger economy also translate into higher standards of living.

Higher incomes. Tax reform increases income in two ways. Simply stated, when people get to keep more of what they earn, they want to earn more. A low tax rate increases the incentives to work and the desire to work longer hours. The second, and far more important, reason tax reform causes income to rise is that workers become more productive. Because the flat tax would eliminate the bias against savings and investment, companies would be willing to invest in upgrading their production capabilities, giving their employees better machinery, tools, equipment, and technology with which to work more efficiently and hence become more productive.

These are only a few of the many benefits Americans would encounter. The flat tax is regarded frequently as a simplified version of the current income tax. The existing loopholes, discriminatory rate structure, and different ways the government taxes the same income more than once would disappear, but collection of the tax would be similar to the manner in which taxes are collected today.

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