An Argument for the Flat Tax
Remember Leona Helmsley, who reportedly said, “Only the little people pay taxes.” This is a table prepared by Martin A. Sullivan at tax.com, comparing the average tax rates of millionaires who live in the Helmsley building and blue collar workers.
Very interesting chart … but how does it fit into the notion that almost half of Americans don’t pay any income taxes?
http://www.taxpolicycenter.org/publications/url.cfm?ID=1001289
Good point. Taxes should be much lower, but that’s linked to profligate government spending. But if we’re to have taxes, all but the poorest of our citizens must pay them. The best and most effective tax reform?–repeal withholding! I wonder, how far and fast would our tax bills would drop–and how much more attention would be paid to government spending at every level–if every American had to write a check, pay cash or swipe a debit card every time their tax bill came due? And imagine the relief from the administrative burden for the average business, even the corporate reduction in expense just to make sure the government is well-fed.
I like Ian’s idea to eliminate withholding. Also, I would move Tax Day to October 15 — the middle of the campaign season and a few weeks before the November election.
This table makes a good case for why liberals should favor the flat tax.
The problem with the flat tax is that most of its claimed benefits come from the elimination of two large tax expenditures: the mortgage interest deduction, and the tax exclusion for employer-sponsored health insurance. But if it were politically feasible to eliminate these two tax expenditures, we would already have something approaching a flat tax.
The most important reason for a flat tax is to avoid businesses performing inefficient activities to minimize taxes. Small firms — the type that create most of the jobs in the United States — are especially prone to view tax avoidance as a strategy when planning. If depreciation rules are lax, equipment purchases become cheaper. If capital gains taxes are lower than income tax, more income is shifted to longer term gains. The economy works best when entrepreneurs have consistent regulations and taxes that encourage growth for the sake of profits rather than legal tax minimization.