(Original Post)
Steve Forbes first made it fashionable. Now, some Republican presidential candidates endorse it. Even Rep. Paul Ryan advocates a version of it. I am talking about the flat tax.
Sounds pretty crazy, right? Actually, not at all, and Democrats who lament that wealthy individuals and corporations don't pay their fair share of taxes ought to get on board.
Warren Buffett famously proclaimed that he is paying income taxes at a lower rate than his secretary. In 2009, Forbes reported that the wealthiest 400 people in America paid an effective tax rate of only 17%. Likewise, the left-leaning Citizens for Tax Justice just released a study revealing that 280 of the largest publicly traded companies in the country incurred taxes equal to 18.5% of their profits during the past three years. Bear in mind that the maximum tax rate for both individuals and corporations is 35%.
What gives? The short answer is that interest groups continuously lobby Congress to insert tax breaks here or there, while shifting the cost to someone else. Pretty soon, the law bulges with tens of thousands of narrow provisions and exceptions that favor the well-connected. Our so-called progressive tax system has become a mirage.
A flat tax would rid us of multiple tax brackets and, more important, myriad "carrot and stick" provisions that now plague our system. Although Democrats cringe at being associated with Perry, et al, even a majority of President Barack Obama's own deficit reduction commission - Democrats and Republicans alike - supported the concept of a flatter, simpler tax with few or no deductions.
Apologists for the status quo aver that complexity can't be helped. They argue that since human transactions are complex, the tax rules governing those transactions must be, too. That's a cop-out. On rare occasion, Congress has demonstrated that tax laws can be dramatically simplified (see the 1986 Tax Act), and it could happen again.
A flat rate could be set to raise whatever is deemed to be the appropriate amount of income. And it would be fair because those who earn more would pay proportionately more. The exotic write-offs that their advisers find for them to drive down their effective tax rates would no longer exist.
As for the middle class, why would they care if, say, the mortgage interest deduction were curtailed, provided that their tax rate was adjusted accordingly? To the contrary, almost all would applaud getting to the bottom line of what they owe in taxes with a lot less gnashing of the teeth.
Corporations, too, would benefit from not having to devote inordinate resources to just preparing tax returns.
Aside from these pluses, a flat tax, with its simplicity and transparency, would engender more respect for our revenue system. That, in turn, would sharply reduce the level of tax noncompliance the government now encounters. Finally, a flat tax could also serve as a model for the states, including Wisconsin, that generally mimic the federal tax scheme.
True, transitioning to a flat tax would be a painful ordeal, much like it is for a heroin addict giving up his habit. But the system is broken; we can't afford to wait much longer to fix it.
Jay Miller of Whitefish Bay is a tax attorney. Email jay.miller7799@yahoo.com