Flat Tax Trilogy

The Washington Times features a series of excerpts from Steve Forbes' flat tax book.

It's a three-part series:

Americans deserve flat tax

A lower rate and simpler structure for Federal taxes will ease the burden on the taxpayer and stimulate growth, which will increase revenues.

A fair and simple flat tax

Among key features of the flat tax: Generous and refundable exemptions for adults and children. First, the tax rate is 17%. Period. That's seventeen percent of all money above the exemption amount. All adults get a $13,200 exemption. Any single adult making less than $13,201 pays no taxes at all. Married couples pool their exemptions, so as long as the household income is below $26,401, no tax is owed. Single heads of households get a $17,160 exemption to compensate for the additional burden of raising a child alone. Families would receive generous exemptions for dependents: a $4,000 exemption for each child or dependent, and a refundable tax credit of $1,000 per child age 16 or younger. Parents of eligible children will receive the $1,000 tax credit for each child, as under the current system. In addition, if the child tax credit exceeds federal taxes owed, the family can receive a refund. For example, if a family makes $15,000 but paid zero dollars of tax they can still receive $600 of the child credit (15 percent of the $4,000 of income over $11,000), even though they paid absolutely no federal income tax. A quick back-of-the-envelope calculation shows my taxes, as a single homeowner, would go up by 14%. I suspect other factors would offset that, both in personal savings (no more paying a tax preparer every year, for instance) and in shifts in the economy. For example, not all my gross income is subject to taxes. The flat tax plan would boost the taxes on my taxable income by half a percent. If the goal is to make sure no one pays more under the flat tax than they do under the current system, it seems to be pretty successful.

Flat tax vs. national sales tax

Many like the idea of a national sales tax, and doing away with the income tax altogether. But there are problems. First of all, it will increase the price of everything by whatever tax rate you propose – some plans advocate 30%. Your $2 gallon of gasoline will immediately go to $2.60. Will this be offset by higher take-home pay, or by savings elsewhere? Maybe. But aside from the increase in take-home pay, changes from lower costs take time to ripple through the economy. Possibly too long for short attention spans to take note of them and decide they believe in them.