How can we make the complicated tax code simpler?
Steve Forbes explains what would work, in Forbes magazine.
NEXT TO THE UNSTABLE DOLLAR, the biggest deadweight today on the American economy is the horrific federal income tax code. It is past time we junked this incomprehensible, opportunity-killing and corrupting monstrosity and replaced it with a simple flat tax. The returns we, the people, must file by today (even if you file for an extension, you have to pay what you owe Uncle Sam by this date) should be the last time we have to suffer through this ordeal.
More than 40 countries and jurisdictions (such as Hong Kong) have variations of a flat tax, and those systems have worked well.
For those unfamiliar with the concept, a flat tax is a single-rate income tax system that has few or no deductions. You could literally fill out your return on a single sheet of paper or with a few keystrokes on your computer.
The most basic and profound argument for a flat tax is moral.
The IRS estimates we spend 6 billion hours a year filling out tax forms. Experts calculate we spend over $200 billion a year complying with the income tax code.
The nice thing about the flat tax is that you can already see what happens in countries that have adopted it, by looking at the change in GDP growth in the years before the flat tax was adopted compared to the years after the flat tax was adopted.
Here’s a comparison of 3 countries that adopted flat tax rates at different times:
As you can see, when people waste less time filling in their taxes, they have more time for productive activities. And don’t let anyone fool you: a productive economy creates more jobs, and builds the resumes of the workers so that they can be resilient to layoffs and other challenges to their peace of mind and security.
So which candidate is going to give us a flat tax, and the economic growth that goes with it?
The centrist Forbes magazine summarizes Cruz’s flat tax plan:
Ted Cruz claims that his tax plan would supercharge economic growth, boosting GDP by as much as 5% a year for a decade or more. That’s, umm, an ambitious goal to be sure. However, there is actually good reason to believe that he’s right. As long as we’re careful about how we define GDP growth and also as long as we consider all the ways in which his plan will change the economy. This does mean being a little perverse in our assumptions: but also correct in our assumptions.
The basics of the plan are that income taxes will be cut for all. Also, that pretty much all business taxation will be replaced with a 16% flat tax. It is claimed (and Cruz has Art Laffer there claiming it with him) that such a relief from the burdens of taxation will produce an explosion of economic growth. This is not, I feel, entirely believable to put it mildly. While there may well be specific bottlenecks in the taxation system the total take, at 35 to 36% of GDP, isn’t large enough for it to be causing a general lack of economic growth. Not in my opinion at least and in the opinion of vanishingly few economists too.
Conservative economist Stephen Moore says this about the Cruz plan in The American Spectator:
Senator Ted Cruz has a flat tax plan borrowed from a blueprint in a book by Arthur Laffer and me called, Return to Prosperity.
[…]Conservatives should be excited about the Cruz flat tax. It’s what tax filers have been waiting decades for:
First, the Cruz plan would give America the lowest tax rates since the income tax was devised 100 years ago. For this reason, these plan are estimated by the Tax Foundation to grow the economy by a gigantic $2 trillion extra GDP per year after 10 years. That’s exactly the opposite effect of the Hillary and Bernie show plans.
Second, Cruz’s plan eliminates almost all deductions and credits — which is how they get the rate so low. The IRS could be dramatically shrunk in size. Don’t forget, when there are fewer deductions, there are fewer ways to cheat on your taxes. The lower the tax rate, the less incentive to cheat, which means greater voluntary compliance.
Third, because the Cruz plan is “border adjustable,” imports are taxed at the flat rate when they are brought into the U.S., but American products sold abroad are not taxed at all. This would level the global playing field for American manufacturers, tech firms, and drug companies and bring these jobs scampering back to the U.S. Blue collar union workers should love this.
[…]Some conservatives complain that the tax is too efficient and so it will raise too much money.
Moore works for the Heritage Foundation, the number one conservative think tank, which features conservative policy on social, fiscal and foreign policy issues. My favorite think tank.
And famous economist Art Laffer says this: (H/T Dad)
Art Laffer is a speaker for the American Enterprise Institute, which champions the free enterprise system that made America great.
If you are nervous about the economy, you need to vote for Ted Cruz and get this plan enacted. Imagine not having to worry about losing your job, losing work hours, and so on. I would like to get in on a stock market boom so that I can pay off my mortgage faster. If you all join me in voting for Ted Cruz, we can all stop worrying about money for the next 10 years. But we need people to get behind economic policies that work. Steve Forbes, Stephen Moore and Art Laffer are experts in tax policy. We need to listen to the experts, and we need to do what has been proven to work, not what sounds good.
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