An optional flat tax creates the tax system overhaul we need

TRUE OR FALSE?
Nearly half of Americans will pay no federal income taxes at all for 2009. The bottom 40 percent of those Americans, on average, actually make a profit from the federal income tax system.

TRUE OR FALSE?
Twenty percent of Americans pay over 80 percent of all federal income taxes.

TRUE OR FALSE?
The average taxpayer spends an average of 37 hours preparing the basic short form, and Americans as a whole spend $29 billion a year out-of-pocket for tax software, preparation and services.

THE ANSWERS?
They are all true, according to reports from the Tax Policy Center and the nonpartisan Congressional Budget Office (CBO). For many folks in America, April 15 has essentially become an extra pay day from the federal government. For many others, however, April 15 is anything but a pay day – it is a dreaded, time-consuming deadline each year.

These reports from the Tax Policy Center and CBO are glaring indicators of what’s wrong with our system: It’s complicated, it’s unpredictable and it’s unfair. The reality is that we are living with a tax system that eats up almost an entire work week just to file taxes and it exempts almost half of the United States from paying for programs that benefit everyone – like public safety, national defense and infrastructure.

Over the past several years, tax policy in the U.S. has largely been focused on how we pay for a growing government budget and increasing government programs, rather than on how we grow American businesses and empower American taxpayers. Unfortunately, this type of a system is a huge strain on our economy and our families, discouraging savings and investment and inhibiting business growth.

We need lasting solutions to our tax policy in America to reduce taxes, simplify the process, add certainty for consumers and businesses and encourage people to make financial decisions based on common-sense economics. An optional flat tax, which I’ve cosponsored, creates the kind of overhaul we need in our tax system to create a simpler, fairer plan for American families.

Here’s how an optional flat tax would work:

If you prefer filing your income taxes under the current system, for any reason, then you could continue to do so. However, you would also have the option to file your taxes under the optional flat tax. This would allow an individual or business person to opt out of the current tax system for a flat tax of 19 percent for the first two years and 17 percent thereafter. There would be no deductions aside from the basic standard exemption – a generous allowance based on family size. The business tax would consist of the total costs of taxed inputs subtracted from total sales; only employee wages and pensions would be deductible.

The optional flat tax proposal, H.R. 1040, would also:

  • Eliminate the marriage penalty
  • Repeal the death tax
  • Abolish the Alternative Minimum Tax
  • Eliminate capital gains taxes
  • Allow for immediate expensing for business capital equipment

The current IRS tax code – roughly seven times the size of the Bible - would be replaced with a brief set of instructions small enough to fit on a postcard-sized form, allowing individuals to accomplish their taxes on a one-page form in 30 minutes.

Perhaps most importantly, though, the optional flat tax would eliminate the ability of the government to micromanage taxpayers’ hard-earned dollars, and it would prevent lawmakers from creating tax policy based on special interest.

Of course, to say something meaningful about taxes, we must also say something about expenditures. The CBO has said that if future taxes are held at the historical average, entitlement spending alone will consume all tax revenues by 2052, leaving no revenue to pay for other government spending, including spending mandated by the Constitution, like defense. Lawmakers cannot simply cut taxes without addressing federal spending and national debt. That is why I have introduced legislation that would cut discretionary spending by 40 percent over the next five years and I am pushing bills to balance our budget and address rapid growth in entitlements.

Making these changes would go a long way in reforming our tax code into a simpler, less costly and more equitable system. Perhaps then if we asked Americans to respond to the question, “True or false? Our tax system is simple and clear cut,” the answer would be a resounding “True.”

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