The United States tax code is one of the most complicated systems in the world today. With thousands of pages, one can pretty much guarantee that accountants and tax professionals – maybe medical experts, too – are making a fortune off of the headaches that the Internal Revenue Service gives to taxpayers.
This is why the federal government should impose a standard, simple flat tax, at least according to Kentucky Republican Senator and potential 2016 presidential candidate Rand Paul.
Although he hasn’t determined what the precise percentage should be, interviews and media reports have suggested that the Tea Party favorite pegs the number anywhere from 15 to 18 percent. It would really depend on what tax breaks a possible Paul administration would entail, but it’s likely he would keep the typical deductions and personal exemptions.
How would a flat tax system work? Well, a taxpayer would pay a simple tax – let’s say 15 percent – on his or her salaries, wages and pensions. Other individual taxes would be eliminated, such as the capital gains tax, dividends and interest as well as the alternative minimum tax and estate tax.
Whatever the case may be, Senator Paul has said that he supports any tax reform initiatives that would reduce the burden of regulations and intricacies that the current system maintains.
“What you’d have is an attrition if not an outright elimination of the IRS because it would be so simple that people would comply, and it would be very simple to know whether they complied or not,” Paul told Fox News last summer.
During a speech and interview a couple of years ago, former Texas Republican Congressman and three-time presidential candidate Ron Paul suggested a 10 percent flat tax in order to opt out of all federal programs and to just have the government leave you alone. Of course, to Paul, the best income tax is zero percent.
“Now I would like to follow up on that because I think the question on taxes is generally misleading, because anytime you spend money it’s a tax,” Paul said in a 2012 presidential debate. “You might tax, you might borrow, you might inflate. The vicious tax that is attacking the American people, the retired people today, is the inflation tax. The devaluation of the currency. The standard of living is going down and you need to address that. And that is why I want to make the inflation tax zero as well.”
A similar proposal has been made called the FairTax – most may remember former New Mexico Republican Governor and Libertarian Party presidential candidate Gary Johnson promote a 23 percent consumption tax – other proposals call for 27 and 30 percent – in order to eliminate all the other taxes Americans currently pay.
Is a flat tax or even a FairTax a solution to a nation’s economic and financial problems? Not quite.
As Laurence M. Vance stated on Mises, “The flat tax is not flat and the FairTax is not fair.”
There a few issues wrong with a flat tax:
– It’s unlikely to stay at a certain percentage because government will aim to increase it
– It hurts the most vulnerable in society, such as youth, seniors and the poor
– A flat tax is still coercion and theft, even if it’s called by a different name
There are other issues with a FairTax:
– It’s again unlikely that the federal government would keep the rate at the desired amount
– It hurts the most vulnerable in society
– Businesses are transformed into tax collectors
– Since a FairTax would be high, an underground economy could flourish
Here is what Murray N. Rothbard wrote in his critique about a consumption tax:
“The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.”
A flat tax or a general consumption tax doesn’t necessarily diminish the size and scope of the federal government. The leviathan beast is always hungry and its masters are consistently seeking ways to spend other people’s money. Sure, a flat tax or a sales tax might be low upon implementation, but wait for another administration and it’ll certainly be increased.
No, Ron Paul has the best idea: let’s replace the tax code with nothing.
To even ask someone what they make is wrong and covetous and wrong.
The worst tax is the payroll tax because it imposes a tax on each job of 7.65% and another tax on worker income of 7.65% for a total of 15.3%. Two weeks ago Bill Gates said it should be replaced to create full employment. He was speaking at AEI and did not say how the revenue should be replaced. A VAT is considered the fairest tax worldwide and a good replacement for payroll tax revenue.
This leads to the flat tax of perhaps another 15% of income on top of 15.3% of payroll income below $115,000. If payroll taxes were not eliminated workers would be paying over 30% on income while high earners would be paying just a little more than 15%. If Rand Paul thinks this is fair he is worse than Mr. Romney and he might as well forget about running for the presidency.
The FairTax is a full replacement of both income and payroll and includes a large prebate to help low income workers. It is tempting but the economic problem is that the sales tax rate needs to be so high that most of the population would buy used goods (from clothing to furniture and everything in between) to avoid the tax. This would slow the economy by reducing the demand for new goods.
I have been for Flat tax for Years, with NO Write offs. This way everyone pays the same amount of tax, and the Rich can’t do all their write-offs and pay less them me when I was working. !!
The FairTax is a great idea, if you remove the prebate. All citizens should pay federal taxes, regardless of their income level. A national consumption/sales tax works because the pain of government spending is made obvious every time you buy something. The States should be handing social expenses, like welfare for their needy, not the federal government, so no prebate or exclusions to the tax.