The American Tax System And The Flat — страница 2

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income tax that treats all Americans the same. This plan would simplify the tax code, promote economic opportunity, and restore fairness and integrity to the tax system. The flat rate would be phased-in over a three-year period, with a 19 percent rate for the first two years and a 17 percent rate for subsequent years. Individuals and businesses would pay the same rate. The plan eliminates all deductions and credits. The only income not subject to tax would be a generous personal exemption that every American would receive. For a family of four, the first $35,400 in income would be exempt from tax. There are no breaks for special interests or loopholes, just a simple tax system that treats every American the same. The flat tax replaces the current income tax code, with its maze of

exemptions, loopholes, and targeted breaks, with a system so simple Americans could file their taxes on a postcard-size form. The Tax Foundation estimates that a flat tax would reduce compliance costs by 94 percent, saving taxpayers more than $100 billion in compliance costs each year. The flat tax will restore fairness to the tax law by treating everyone the same. No matter how much money made, or what kind of business, people will be taxed at the same rate as every other taxpayer. Because the flat tax treats all economic activity equally, it will promote greater economic efficiency and increased prosperity. When saving is no longer taxed twice, people will save and invest more, leading to higher productivity and greater take-home pay. When marginal tax rates are lower, people

will work more, start more businesses and devote fewer resources to tax avoidance and evasion. And because tax rules will be uniform, people will base their financial decisions on common-sense economics, not arcane tax law. According to one study by a former chief economist for Congress’ Joint Committee on Taxation, under the flat tax the economy would be 5.7 percent larger after five years than under the current system. That translates into $522 billion in higher output, or $3,000 in higher income for the typical family of four. Michael Boskin, a former chairman of the Council of Economic Advisors, estimates that the flat tax would increase the size of the economy by ten percent. Because of the high tax overpayment, there is room to provide tax relief. And the flat tax would

provide significant tax relief. When the rate is reduced to 17 percent in the third year of the proposal, there would be significant further tax reduction. The bill is carefully designed to safeguard taxpayers against a return to budget deficits, however. Rigid spending caps are included in the plan. Coupled with the additional economic growth the flat tax will spur, the tight spending controls will ensure that the budget reaches complete balance by 2002. Under the flat tax, the more you earn, the more you pay. In fact, because of the high family exemption, the more a taxpayer earns, the greater the share of his income he pays in tax. A family of four earning $25,000 would owe no tax under the proposal. A family of four earning $50,000 would pay only six percent of its income in

income taxes while a family earning $200,000 would pay 14 percent. The flat tax eliminates the marriage penalty and nearly doubles the deduction for dependent children. By ending the multiple taxation of saving, the flat tax provides all Americans with the tax equivalent of an unlimited IRA. This will make it easier for families to save for a home, a vacation, a college education or retirement. The flat tax trusts average Americans by giving them the freedom to make their own economic decisions. In addition, the flat tax includes a special safeguard against higher taxes. It requires a three-fifths super majority vote of Congress to raise the tax rate, lower the family allowance or add loopholes. By eliminating itemized deductions and special breaks, the flat tax would have a

chilling effect on special-interest lobbying and transform the political culture in Washington. Under a simple, transparent system that taxes all income one time–and requires a super majority vote to add a loophole–there will be far fewer lobbyists than under today’s special-interest, free-for-all tax system. According to a study by an economist at the Federal Reserve Bank of Kansas City, published in the Kansas City Federal Reserve’s Economic Review, the flat tax would reduce interest rates by 25 percent, or about two percentage points. Lower interest rates under the flat tax will not only reduce the costs of student, car and credit card loans, they will also offset the loss of the home mortgage interest deduction. According to reports by the Congressional Research