The benefits of a flatter, fairer tax system

A few weeks ago a Republican member of the U.S. House Ways and Means Committee presented a plan to offer Americans a simplified income tax system. A few days ago, former U.S. Senator and Republican presidential aspirant Fred Thompson endorsed much of the proposal.

Though not a pure flat tax, in which one tax rate applies to all taxable income, the proposal has a similar aim: to achieve a more simple, fair and transparent tax system.

The centrepiece of the proposal is allowing taxpayers to continue paying taxes under the existing system or to use a simplified tax system with two income tax rates: 10 per cent on taxable income up to $100,000 for joint filers and $50,000 for single filers; and 25 per cent on taxable income above these amounts.

Hong Kong has long been an economically vibrant beneficiary of a simple flat tax.

Many of the formerly communist nations of Eastern Europe are adopting the flat tax model, with wonderful economic results; Iceland recently became the first Western European industrial nation to adopt a flat tax.

Many analysts believe a simplified tax system would also benefit U.S. taxpayers and the government itself. The existing "progressive" income tax system has multiple tax rates and exemptions, deductions, credits and other features so bewildering, confusing and contradictory that it uses more than 1,600 tax forms, covers more than 67,000 pages and costs taxpayers well over $250 billion a year (including the value of their time) just to file their taxes.

Source: Steve Stanek, The Benefits of a Flatter, Fairer Tax System, Heartland Institute, December 2007.

For text: http://downloads.heartland.org/22411.pdf

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin/ 11 December 2007