Have you recovered from your Tax Day hangover yet? It usually takes a few days before the headache of complying with 161 pages of IRS instructions goes away. Not to make it worse, but that’s triple the number of pages in 1985 and four times more than in 1975. That made it worse, didn’t it?
Despite all your hard work filing – Americans spend about 7.3 billion hours per year complying with all the IRS requirements – the United States still faces a budget deficit that is $1.3 trillion. President Obama and Democrats argue the answer to this is to raise taxes on the rich. Republicans disagree, but only about the raising the rate part.
That is what passes for a tax debate in Washington these days. Neither side wants to confront the reality that the only way to return a sense of sanity to the tax code is by scrapping the thing altogether. In it’s place? A tax code that is simple, low, fair, and honest. In other words, we need a flat tax that greatly eases the burden of compliance and stimulates the economy.
But how would that work?
Step 1: Scrap the code. Entirely. It’s not as impossible as it might sound. Even Obama’s own Bipartisan Deficit Commission, the so-called Simpson-Bowles Commission, called for tax reform that would lower rates and do away with many of the deductions and loopholes currently infecting the code. Not surprisingly, Obama ignored it.
Step 2: Establish a single, flat rate on personal and business income. Again, this isn’t as fantastic as it might sound. The key is in the process. You’ve probably heard that Warren Buffett pays a lower tax rate than his secretary. Let’s just assume this is true. Billionaires like Buffett, and even millionaires like Nancy Pelosi and Mitt Romney, can afford an army of tax lawyers to comb every word in the 3.6-million-word tax code looking for their deductions and loopholes. Can you afford such an army?
By eliminating every single deduction, credit, penalty, and loophole, we can erase the tax code’s inherent unfairness, which only benefits the Buffetts, Pelosis, and Romneys. Not only will this raise revenues, it will ensnare the tax cheats, expanding the nation’s taxable base. Next, you lower the rates considerably, doing away with brackets, until we have a single flat tax rate. In one popular flat tax proposal, a family of four would have the first $33,800 of its income tax free; any amount above this would be taxed at 17 percent – for everyone. No deductions, no loopholes.
Step 3: Do the same thing with corporate taxes. Right now, the U.S. has the highest corporate tax rate in the developed world. Even Obama has suggested it needs to go down. Like the individual flat tax, with the business flat tax income would be taxed once and only once. Businesses would calculate total revenue, subtract total expenses, and pay a flat tax on that amount.
Step 4: File your taxes on a postcard.
Step 5: Use all the time and money you’ve saved in the full pursuit of life, liberty and happiness.
That’s what a simple, low, fair, and honest tax code would look like. Many accuse the Tea Party of simply wanting lower taxes. We do, but lower rates are just part of fundamental tax reform. Many accuse the Tea Party of favoring the wealthy. These people have obviously never been to a Tea Party rally before. In fact, what the Tea Party wants is fairness – and not the faux class warfare “fairness” espoused by the Occupy Wall Street crowd.
Although the economic benefits of tax reform are important, the passion of grassroots activists is driven primarily by a set of simple values: Treat everyone the same as everyone else; don’t punish success; and simplicity equals transparency. Americans should know that there isn’t a better deal to be had if you can afford a lobbyist or a lawyer.
The reason Congress made 4,400 legislative changes to the tax code between 2000 and 2010 wasn’t to ensure that the U.S. Treasury was fat and full. It was because the tax code has become the plaything of Washington politicians, to be stuffed with as many little favors for select interests as possible.
It’s reforming that central unfairness that lies at the heart of the Tea Party Tax Code: Simple, low, fair, honest, and, most of all, flat.
Matt Kibbe @mkibbe is the president and CEO of FreedomWorks, co-author of “Give Us Liberty: a Tea Party Manifesto” and author of the upcoming book, “Hostile Takeover: Resisting Centralized Government’s Stranglehold on America."