Tags: Favoring | Flat | Tax | Proposal

Favoring a Flat Tax Proposal

Monday, 18 April 2005 12:00 AM

In all these years we never have asked for an extension. Even when we know we might get a substantial refund, the tax return almost always is filed upon the last day. Taxes so intimidate Joyce that she doesn't want to do them until she absolutely must.

From the first return she prepared in 1963, we had something unusual. I had outside income from free-lance reporting in addition to income from full-time employment. It has been like that for all these years.

When we later acquired some stocks and bonds, the reporting got even more complex. This year I have never seen Joyce so frustrated as over an annuity that my beloved uncle Ralph Wickstrom left us after he passed away unexpectedly last summer. Among other complications, there are two different ways that an annuity could be calculated for tax purposes. Joyce did the calculations both ways, which required some calls to IRS for clarification.

Joyce is a woman who ordinarily looks far younger than her actual age, but not when she is doing the taxes. I swear she looks a decade older than she is when she finishes.

There is no reason that it should take a whole book to calculate our taxes. Our taxes are not nearly as complex as are those of other folks we know. Other than our home we own no property. In talking with my contemporaries, I understand investment property ownership can get terribly complex.

I mention this because President Bush wants to change the tax code. A solid majority of Americans believes the tax code is unfair and wants it changed.

Yet at the same time Americans think that the tax code is unfair, only 40 percent support a flat tax. The nearly 60 percent who don't think the tax code is unfair are adamantly opposed to a flat tax.

Why? With a flat tax, deductions for mortgage interest and charitable contributions would be eliminated. Americans cherish those two deductions more than the child care credit or the deductions for family members or other beneficial tax breaks.

Some politicians have proposed a modified flat tax, keeping both the mortgage interest and charitable contribution deductions. The problem would be that the so-called flat tax, which would no longer be completely flat, would need to include an unreasonably high tax rate to compensate deductions.

The remaining opposition comes from those who believe that with a flat tax the rich would not pay their fair share. I don't know what a fair share is to upper-income people. I do know this. The top 5 percent of current taxpayers pays almost 75 percent of all federal income taxes.

The public thinks that is fair because for years liberals have pounded away that it is disgraceful to be a wealthy American. If you have money, even if you earned it through an invention or by management of a large corporation, then somehow you are evil. No matter how much you pay in taxes, it is never enough.

President Bush's tax cuts, which Congress enacted and which will expire at various times over the next decade, not only stimulated the recovery from the nasty recession of 2001 but also produced record revenues for the Treasury.

The liberals look at the federal deficit and blame it on the tax cuts. Consider the record. It is NOT the tax cuts that are responsible for the deficit. It is excessive federal spending by Congress, sanctioned by the president, which has produced the deficit.

Getting back to a flat tax, as long as the rate is reasonable, it is, in fact, a fair tax. The rich now can find ways to shelter money from taxation, although many tax shelters were abolished over the years. A flat tax would eliminate deductions. The little tax savings from mortgage interest would be compensated by lower taxes. Same for charitable giving.

There is a myth that if taxes are reduced, charitable giving will suffer. Has it ever happened? Beginning with President Reagan in 1981, we have had tax cuts. Presidents George Herbert Walker Bush and Bill Clinton raised taxes. President George W. Bush has brought them back down. Every time taxes are lowered, charitable giving rises. A flat tax, for the average taxpayer, would amount to a further reduction.

Tax reductions always have stimulated more economic activity and employment, which always has resulted in more taxes collected.

If a 15 percent flat tax rate were imposed, for example, and a taxpayer earned $40,000, his taxes would be $6,000. But in later years, through hard work and inventiveness, if he earned $1 million, he would pay $150,000 in taxes.

America is unique in that it enables those who are enterprising to prosper. The current tax debacle is a deterrent to entrepreneurs. It takes far too much of their earnings, to the point that it is hard for them to re-invest.

The vast majority of new jobs in America are created by small companies. Most of those are Subchapter S corporations, meaning the owners get the revenues from the corporations and can re-invest extra money in their companies. The more money they would have available to re-invest, the more employment we would have. A flat tax would help to accomplish that.

I know the president is continuing his Social Security tour, which has convinced people that there is a problem. The president yet must succeed in getting the public to accept his solution. At some point, he must assess the status of the Social Security fight and either postpone his initiative or call for action. At that point, presumably, he will switch to tax code amendment proposals.

He has a bipartisan commission which will recommend to him changes in the tax code. I hope that commission will recommend a flat tax and, if so, that the president will go all out to sell it. If the public really understands how fair a flat tax could be, the public would buy it. And then at tax time it would take Joyce about an hour to do our taxes. She would not age in doing so and we would be taxed fairly, which would mean more money for church and charities.

America is an incredibly generous nation. Put more money in the pockets of Americans and much of it will end up in the bank accounts of organizations such as the Salvation Army, which truly helps the poor.

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In all these years we never have asked for an extension. Even when we know we might get a substantial refund, the tax return almost always is filed upon the last day. Taxes so intimidate Joyce that she doesn't want to do them until she absolutely must. From the first...
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2005-00-18
Monday, 18 April 2005 12:00 AM
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