A New Tax Code...and Idea. Thoughts?

Question

OK, it's very simple.

You pay a 5% flat tax on all income. No deductions. AND you pay a 5% consumption tax on everything purchased.

We raise the "poverty level" to something that makes sense, and those that are below this, get all their 5% flat tax refunded. But they still have to pay the 5% consumption tax (of course, welfare will still be there to supplement to some degree).

Perhaps we could exclude certain necessities (prescriptions, basic foods, etc.)

Businesses would pay either 5% of profit...or 2% of revenues...WHICHEVER IS THE GREATEST. Why? Because if it's whichever is the least, they'll make sure that the figure it such that their profits are virtually non-existent.

Takes away the 1000's of pages of income tax prep.

Congress doesn't get as much? TOUGH! Learn to make the wise, hard decisions the rest of us have to make ever payday. Forced efficiency will result. Forget "revenue neutral."

Thoughts?

Answer 1

Nice thought, but a couple problems.
1) Not enough money raised. Most proponents of the flat tax suggest 10-15% rate to raise the current level of taxation.
2) consumption taxes are much harder to collect. Ask any state sales tax authority. The underground economy would flourish.
3) Unless you include value added provisions, prices would rise dramatically on some goods. Everytime goods change hands, you have a tax.
4) Probably MOST IMPORTANT. Our tax system now effects social policy changes. We have the EIC to help the poor, homeowner deductions to spur ownership, charitable organizations are supported because they provide services so the government doesn't have to, etc, etc.

These are just a few, but probably issues you can't overcome.

Answer 2

There are a large number of problems with what you propose - and your idea isn't exactly something new that's never been proposed before.

Just a few problems: the percents you propose don't come close to providing the money now coming in. You say let congress make the hard decisions - what will you say when social security is cut in half or down to a third? Or highways aren't repaired? And/or medicare and medicaid aren't available? It's not as easy as you make it out. I'm not saying no money is wasted - obviously some is. But most of the money goes to administering and providing services to the citizens of the country.

You say give back the 5% income tax to the guy making below the poverty level. So the guy making $1 more gets hit with the whole 5%? Somehow that doesn't seem real fair.

Welfare will be there to supplement? Maybe not, since it got cut badly in those "hard decisions" that congress had to make.

Who's going to decide what's a necessity so shouldn't be taxed? Exceptions are what got us to the mess of a tax code we have today.

Your proposal for business tax makes no sense at all. And remember, taxes on business are ultimately paid by their customers.

The rich do much better overall under your plan - the poor do much worse, and the middle class probably does somewhat worse. Hey, great idea!

Answer 3

5% won't even come close to covering the revenue from the current graduated system. You'd need a flat tax at 25% - 27% to break even with the current system. You could combine a sales tax and share the rates, but a total of 10% isn't going to come close.

Unfortunately the folks who would win would be the wealthy - that's the prime reason that folks like Steve Forbes support the idea as they'd see massive tax cuts. Of course, when you give away to one group, you have to make it up somewhere and that usually falls on the shoulders of the middle class. A flat tax or heavy sales tax burden would buckle the middle class at the knees. And it would devestate the working poor.

Crunch some numbers using YOUR tax return and you'll see what I'm saying is true. (But don't kid yourself using 5%. That won't work, pure and simple.)

Answer 4

One thought....10% is nowhere near enough. My effective rate is 8% and I'm a middle-of-the road taxpayer, just above national median income. Higher earners can look forward to paying 25% of their income in tax. Why should they only pay 10% tops? What about those who currently have no tax liability - working families for instance? Are we just going to ask them to suffer? Or are we going to institute some form of welfare? That would cost money to administer, of course. More than it costs to give it through the tax system.

Of course the tax code needs improving but flat taxes are not the answer. You see, the tax wouldn't stay flat for very long. Some special interest group would bleat about the help that they need to regenerate their industry and Congress would vote them an exemption. Then it starts all over again.

Answer 5

Well I've been around for over 6 decades and I still like the idea of a FLAT 10% TAX! It's been good enough for the church's and all of them combined probably have more money than our government. If your income is over the poverty level you pay 10%. Make a $1000 you pay $100, make a million dollars you pay $100,000 etc. No loop holes, tax breaks or deductions. Ten percent of your gross please. Thank you very much, see you next year. And if your caught lying, OH BOY! You'll pay twice again what your original tax amount sould have been! NO APPEALS!

I can see the head lines now, "IRS FORCED TO LAY OFF TWO MILLION. PRESENT NUMBER OF EMPLOYEES NO LONGER NEED!" Tax collections now out sourced to India. Full story at six.

"TAX COURTS NO LONGER NEEDED, JUDGES FORCED TO FIND REAL JOBS!"

"WELFARE CASES INCREASE AS TAX ATTORNEYS ARE FORCED OUT OF WORK!"

Answer 6

Skip the income tax part. Repeal the 16th amendment. Businesses don't pay taxes. Their customers do. Quit pretending otherwise.

Answer 7

This concept or variations has been arround the hill for several decades and has not found support. Makes sense but can't get through Congress at this time.