Tags: Flat | Tax | Economic | Stimulus

Flat Tax Would Provide Real Economic Stimulus

Wednesday, 26 Oct 2011 09:30 AM

By Michael Carr

Herman Cain started his presidential campaign with 9-9-9, the idea that taxes should be simple and fair.

With Rick Perry now supporting a flat tax, a significant overhaul of the tax code could easily become a part of the 2012 election. The concept is to eliminate most, if not all deductions, and apply a single tax rate to all income.

A simple tax code would provide a tremendous boost to the economy.

The average cost of preparing the simplest tax returns is $129, and $100 more for families that itemize deductions. Eliminating this expense would be equivalent to about a $0.16 per gallon drop in gasoline prices, allowing families to increase their discretionary spending.

On the macroeconomic level, the results would be more dramatic.

Countries that grew out of the former Soviet Union have largely adopted flat taxes and have seen average economic growth of about double the global average.

According to IRS data, taxpayers devote more than 6 billion hours a year to filling out forms. Most of that time is unproductive and detracts from growth. At the average hourly wage reported by the Bureau of Labor Statistics, that time is worth almost $138 billion, nearly 1 percent of the GDP.

Christina Romer, the former head of President’s Obama Council of Economic Advisors, found that a 1 percent tax cut boosts GDP growth by 3 percent.

A flat tax would deliver growth from reduced rates and the lower cost of compliance. With a simple flat tax, the US economy could once again see economic growth of 5 percent.

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