Flattening the tax

The tax laws cost Americans $200 billion and over six billion hours each year to comply with; therefore, President Bush should seize the opportunity to promote a flat tax system this fall when tax reform will be on the table, says Steve Forbes, president and CEO of Forbes, Inc.

The typical American pays about half or more of his or her income in taxes. A flat tax would be easy, fair and generate economic growth and tax revenues, says Forbes:

A flat tax of 17 per cent would apply to both individual and corporate income.

The first $13,200 of an individual's income would be exempt; families would receive a $4,000 tax exemption per child, and a tax credit of $1,000 for each child age 16 or younger.

Thus a family with two working parents and four children aged 16 or younger would be exempt from tax on the first $46,400 of income.

The capital gains tax, the estate tax and the Alternative Minimum Tax would be eliminated.

According to Fiscal Associates of Virginia, the flat tax plan proposed by Forbes would create about $6 trillion in additional assets between 2005 and 2015 and 3.5 million new jobs by 2011. How does the flat tax do this? It lowers the price of working, being successful and taking risks, so that there is an incentive for people to do more of those productive behaviours.

Even former communist countries such as the Ukraine, Romania and Slovakia have adopted successful flat tax systems. As a bastion of free enterprise, the United States should do the same, says Forbes.

Source: Steve Forbes, One Simply Rate, Wall Street Journal, August 15, 2005.

For text (subscription required): http://online.wsj.com/article/0,,SB112405912634312821,00.html

For more on Flat Tax: http://www.ncpa.org/iss/tax/

FMF Policy Bulletin/ 6 September 2005