The Case Against the IRS and the “Progressive” Income Tax

December 16, 2014

Tax reform along the lines of some sort of flat tax or a national sales tax, along with reduction in the size of government, would go a long way towards generating prosperity here again. It would also make statist heads explode — a win-win situation!

International Liberty

Genuine tax reform would be the second-best fiscal policy reform to boost economic growth.*

With a simple and fair tax system, we could get rid of high tax rates that penalize productive behavior. We could eliminate the double taxation that discourages saving and investment. And we could wipe out the rat’s nest of deductions, credits, exemptions, preferences, exclusions, and other loopholes that bribe people into making economically unwise decisions.

When pushing for tax reform, I normally cite the flat tax, but there are many roads that lead to Rome. I’ve also pointed out that other tax reform plans have similar attributes. Here’s what I wrote, for instance, when comparing the flat tax and national sales tax.

In simple terms, a national sales tax (such as the Fair Tax) is like a flat tax but with a different collection point.the two plans are different…

View original post 1,238 more words

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See 20-20? Dial 9-9-9? Which plan is the right plan? — Updated

October 25, 2011

One of the big issues on the Right side of American politics is large-scale tax reform: not just tinkering with rates or eliminating this or that deduction, but massive changes that would amount to junking the current byzantine progressive tax code that punishes wealth creation and saving and hobbles our economy by replacing it with something much simpler and, in the mind of most Americans, much fairer. Generally a flat income tax or a “fair tax” — a national sales tax.

Today Governor Rick Perry issued his proposals for tax reform to spur economic growth — the 20-20 Plan:

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs. By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs, inspires Americans to work hard and forms the foundation of a strong economy. My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.

My plan restores American competitiveness in the global marketplace and provides strong incentives for U.S.-based employers to build new factories and create thousands of jobs here at home.

First, we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%. And third, we will transition to a “territorial tax system”—as seen in Hong Kong and France, for example—that only taxes in-country income.

20-20 would also end the taxation of Social Security income, qualified dividends (It’s unclear what “qualified” means here), and long-term capital gains. A family of four would see their first $50,000 of income exempt from taxes, and the end of the death tax would mean that small family businesses wouldn’t have to be broken up to meet taxes.

One thing not often noted in reports I’ve seen is that 20-20 would cap spending would both cap spending at 18% of GDP, the modern historical average for tax revenues, and seek a balanced budget amendment. I consider these strong selling points, a simple fiscal restraint will take advantage of normal economic growth to balance the budget.

20-20 is in reply to Herman Cain’s 9-9-9 plan, which would impose a 9% personal income tax, 9% corporate income tax, and 9% national sales tax.

Let’s stipulate three things at the beginning: either plan would be better than the current mess, both have their strong points, and both have criticizable aspects.

Cain’s plan has been accused of disguising a Value-Added Tax (VAT) as a corporate income tax, and for giving the government an added revenue stream by creating both an income and a national sales tax.  I also have constitutional questions about a national sales tax: where is the federal authority to tax any sales transactions, especially if they stay within the boundaries of a single state?

Supporters, on the other hand, correctly point out that Cain’s plan is a transitional phase to a single Fair Tax.

Perry’s plan, meanwhile, retains more deductions (home mortgage, charitable, &c.), which leaves room for special interests to game the system, as they do now. However, I don’t think it’s likely, politics being the art of the possible, that one will be able to eliminate the home mortgage exemption, for example, especially in bad economic times. In that regard, 20-20 may be more practical than 9-9-9.

So, which is better? I’m not sure (no one would ever accuse me of being a numbers-guy), but, like Dan Mitchell, I lean toward 20-20 because it aims for the same goals while avoiding the VAT and tricky constitutional questions. And I’ll note the Club For Growth has endorsed 20-20.

Like I said, though, in the end, either would be better than what we have.

Which do you prefer?

LINKS: Ed Morrissey on the Perry conference call about 20-20. Tom Maguire thinks it’s a gimmick. Perry supporter Bryan Preston provides more details.

PS: I looked through the Romney site and could find no mention of a tax reform plan. If I’ve missed it, please post a link in the comments and I’ll add an update.

UPDATE: Okay, I found Mitt’s tax plan. It’s on page 37 of his Plan for Jobs and Economic Growth. The first thing I see is that it retains the current marginal rates and sets a “flatter, fairer, simpler structure” as a long-term goal. Ummm…. No, thanks.

(Crossposted at Sister Toldjah)


Why a flat tax is a good idea

January 31, 2011

I believe I’ve posted this before, but, since tax season is fast approaching with all its wrangling over this rule and that deduction, I thought it worthwhile to offer again. In it, the Cato Institute’s Dan Mitchell explains how a flat tax would work and why it would be better for the country than the current Byzantine system we have:

And, speaking of those Mitchell mentions who benefit from the current tax code, I’m sure the tax-prep industry would just hate this.

via International Liberty

(Crossposted at Sister Toldjah)


Taxes: the cost of compliance

April 12, 2010

Tax Day is coming, and in its honor we have another video from the Center for Freedom and Prosperity, in which Hiwa Alaghebandian discusses the enormous amounts it costs our economy just to comply with IRS regulations:

Either a flat income tax or a VAT as a replacement for the income tax seems more and more attractive all the time.

(via Dan Mitchell)

LINKS: More at Hot Air.


The Flat Tax: Good for America, Bad for Washington

March 29, 2010

Dan Mitchell of the Cato Institute and the Center for Freedom and Prosperity has just released a video explaining why he believes a flat tax would be better for the country and fairer overall:

Here’s what he says about the “progressive taxes are more fair” argument favored by the left-liberals:

There are two big hurdles that must be overcome to achieve tax reform. The first obstacle is that the class-warfare crowd wants the tax code to penalize success with high tax rates. That issue is addressed in the video in a couple of ways. I explain that fairness should be defined as treating all people equally, and I also point out that upper-income taxpayers are far more likely to benefit from all the deductions, credits, exemptions, preferences, and other loopholes in the tax code.

You can read the other reason in his article at Big Government.

Personally, I’m drawn to the idea of a national sales tax or VAT as a replacement for the income tax. It makes sense to tax consumption instead of productive work, though I recognize some fear that it would be a hidden tax that fuels government growth.

Regardless, I think we can all* agree that the current tax system is a nightmare that needs to end.

*(Except for Democrats progressive statists and the tax-prep industry.)

LINKS: More at Hot Air.