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Monday, August 22, 2005

Forbes On The Flat Tax

Steve Forbes writes in the WSJ Opinion Journal about upcoming tax reform proposals and advocates the flat tax:
A major domestic battle looms this fall, when tax reform--a centerpiece of the president's bold domestic agenda--will finally be on the table. The President's Advisory Panel on Federal Tax Reform is expected to release its findings by the end of September. After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code....

The code corrupts our system of government by encouraging the crassest political conduct and by creating a massive, intrusive federal bureaucracy. One-sixth of the private-sector employees in Washington are employed by the lobbying industry. Half their efforts are directed at wangling changes in the tax code....

My flat tax plan has one simple rate, on the federal level: 17% on personal income and 17% on corporate profits. There would be generous exemptions for individuals: $13,200 for each adult; $4,000 for each child or dependent, and a refundable tax credit of $1,000 per child 16 or younger. A family of four would pay no federal income tax on its first $46,165 of income.
I am no economist, but the flat tax is gaining popularity around the world. When even Germany is discussing it as a way to break out of their economic doldrums, I think it is foolish to dismiss it off-hand. What may have seemed a wild and largely untested theory a decade or two ago is now a very common tax reform. Poland is now going flat-tax. Greece may try it.

One of the ways the flat tax works to boost revenue is that it boosts compliance. The rates involved are lower and the compliance cost is just about nil, so it becomes a better deal to pay the tax. This boosts revenue. The results in the countries that have tried it appear to show that it promotes economic growth.

Every country that has tried the flat tax has seen their economies grow. The best example is Ireland which has had it for a while now. They are one of the hotest economies in Europe. As well, when Russia went to the 13 % flat tax revenue to the government began to increase. People were pulling their money out of their matresses.
Gindy, yes, I think we would see the same thing here. I also think we would see less of a black market economy.
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