Rss Feed Tweeter button Facebook button
Home > Weekend Investor > Weekend Investor: A Flat Tax Would Cause…More Unemployment

Weekend Investor: A Flat Tax Would Cause…More Unemployment

November 19th, 2011 Leave a comment Go to comments

For the first time a major Republican candidate (Rick Perry) has supported a Flat Tax proposal. Also, we can at least partially credit Herman Cain’s Flat Tax proposal (the so-called 9-9-9 plan) for elevating him to the top of the candidate heap. Flat Tax proposals have been around as long as taxes have existed. You may remember Steve Forbes, a second tier former presidential candidate who proposed such a tax plan when he ran in years 1996 and 2000. At that time it didn’t gain any traction.

Why are these proposals gaining traction now? The main reason is that economists, politicians, and other exports are realizing that as a country we are losing our competitiveness at least in part because of the tax system. There is pretty much a consensus in Washington that the Corporate Tax system is uncompetitive with other nations. The best that we could do is to at least get the U.S. back into the middle of the pack in tax competitiveness so that business decisions could be made on the other merits.

A simplified tax system would likely cause unemployment in the accounting, and tax preparation businesses. OK, I’m not going to shed a tear over that, but even a simplified system of personal and corporate taxation won’t completely put these professionals out of business. You have to think that the government wants compliance not only for the money but to also keep track of  activities to fight crime.

There’s a lot to be gained from a simplified Flat Tax. Here’s my own personal list.

No need for retirement/college accounts

Retirement accounts came into existence at a time when marginal tax rates nearly topped out at 70%. When rates get that high people seek shelters and this is one that we got. If rates topped out at say 20%, you wouldn’t need retirement accounts because the taxes don’t make it worth the effort to tie up your money. You could freely save as you see fit, and retire and use the money when you want to. Or, spend the money on what you think are relevant college expenses not what the government says are relevant.

No workplace hoops to jump through

At work there are many programs to save on taxes that promote some benefit or activity that Congress thought was worthwhile. These come to mind: commuter expense accounts, health care savings accounts, flexible health care/daycare savings accounts. All of these programs comes with there own systems, employees, companies. If tax rates are low enough, we can just fire them all and eliminate all this unnecessary bureaucratic red tape.

Everyone Pays Something

The current tax system gets criticized for its loopholes that enable high earner to lower their tax bills. These loopholes extend to everyone, especially the bottom and lower income earners who pay little or nothing in Federal income taxes. A flat tax would have everyone contribute, not just the high earners.

Better Government

The real threat to our republic is the over reaching power of the federal government. This centralized power, not campaign finance or money in politics, inevitably causes the rampant spread of lobbying and influence in government. A simplified system would reduce this excess influence because everyone would be treated similarly with fewer opportunities for special treatment. Is this a pipe dream? Perhaps, but it’s something to strive for.

There are so many benefits, the question is the political will there?

Categories: Weekend Investor Tags:
  1. No comments yet.