Tag Archives: Flat Tax

A flat tax is the answer

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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Dan Mitchell hits the nail on the head again.

A Flat Tax Is the Answer

by Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

Added to cato.org on January 31, 2012

This article appeared on US News and World Report Online on January 31, 2012.

The class-warfare crowd is predictably outraged that Mitt Romney supposedly paid just 13.9 percent of his income to the crowd in Washington. Surely this is a sign of both inequity and iniquity. Meanwhile, previewing a theme for the general election, President Obama said in his State of the Union address that “millionaires and billionaires” should cough up at least 30 percent of their earnings to the IRS.

This is bad policy based on inaccurate data.

Let’s deal first with the flawed numbers. Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

More by Daniel J. Mitchell

Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.

Welcome to the world of double taxation.

The Obama approach is also bad economics. Every economic theory — even socialism and Marxism — agrees that saving and investment are the key to long-run growth and higher living standards. So does it make sense to deprive the economy of productive capital by imposing punitive layers of double taxation? To make matters worse, double taxation means transferring the money to the buffoons in Washington, where it will be squandered on inefficient and wasteful programs.

Europe’s welfare states are on the brink of collapse because they adopted the mentality that government spending was better than private saving and investment. Should we copy their failures?

The right way to ensure both fairness and growth is the flat tax. Get rid of the 72,000 pages of corruption and complexity in the Internal Revenue Service code and replace it with a postcard-sized flat tax. One low tax rate with no double taxation. That’s good for the economy and competitiveness.

And if Mitt Romney makes 100,000 times more than me, he’ll pay 100,000 times more in tax.

A flat tax is the answer

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

__________________________________

Dan Mitchell hits the nail on the head again.

A Flat Tax Is the Answer

by Daniel J. Mitchell

 

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

Added to cato.org on January 31, 2012

This article appeared on US News and World Report Online on January 31, 2012.

The class-warfare crowd is predictably outraged that Mitt Romney supposedly paid just 13.9 percent of his income to the crowd in Washington. Surely this is a sign of both inequity and iniquity. Meanwhile, previewing a theme for the general election, President Obama said in his State of the Union address that “millionaires and billionaires” should cough up at least 30 percent of their earnings to the IRS.

This is bad policy based on inaccurate data.

Let’s deal first with the flawed numbers. Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

 

More by Daniel J. Mitchell

 

Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.

Welcome to the world of double taxation.

The Obama approach is also bad economics. Every economic theory — even socialism and Marxism — agrees that saving and investment are the key to long-run growth and higher living standards. So does it make sense to deprive the economy of productive capital by imposing punitive layers of double taxation? To make matters worse, double taxation means transferring the money to the buffoons in Washington, where it will be squandered on inefficient and wasteful programs.

Europe’s welfare states are on the brink of collapse because they adopted the mentality that government spending was better than private saving and investment. Should we copy their failures?

The right way to ensure both fairness and growth is the flat tax. Get rid of the 72,000 pages of corruption and complexity in the Internal Revenue Service code and replace it with a postcard-sized flat tax. One low tax rate with no double taxation. That’s good for the economy and competitiveness.

And if Mitt Romney makes 100,000 times more than me, he’ll pay 100,000 times more in tax.

A solution to the fairness question that President Obama and John Brummett want solved.

John Brummett in his article, “Still a taxing issue,” Arkansas Democrat Gazette, Jan 31, 2012, asserts that the Republcans are on the wrong side of the tax issue and the people support the view that President Obama holds concerning fairness. According to Brummett “…the issue is that the government enhances wealth artificially with tax inequity that consolidates riches while mistreating and eroding the vital middle class….” and he also noted that Rich people are getting off too easy and the secretaries of the world are paying way too much and the rich are paying way too little.

Let me offer a solution. How about lowering the tax rates for the rich so they no longer will seek these tax shelters and also we have much less cheating on taxes too.

Dan Mitchell lays a great case for lowering taxes:

New Academic Study Confirms Previous IMF Analysis, Shows that Lower Tax Rates Are the Best Way to Reduce Tax Evasion

Posted by Daniel J. Mitchell

Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes.

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.

Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.

Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.

Here are some key findings from the study.

According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].

Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.

The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance – not more power for the IRS.

Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.

The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.

Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.

…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.

And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.

On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.

All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.

The Flat Tax: How it Works and Why it is Good for America

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.