Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Flat Tax Revolution
04/01/2006 12:00 am EST
Kudos to Steve Forbes for persisting with his dream of a flat tax for all Americans. Although his plan has–and will continue to meet–tremendous resistance among the politicos and their lobbyists, he should be congratulated for his determination to single-handedly overturn this nine million page brute-of-a-tax-code that Americans are saddled with.
His mission is admirable. Forbes' proposal is to eliminate taxes on the first $43,765 of income, then apply a flat tax of 17 cents to every dollar earned above that level–minus liberal exemptions for marriage and children. But our sacred-cow deductions of mortgage interest, charitable contributions, state and local taxes, business interest deductions and depreciation, would no longer be permitted. On the other hand, death taxes, taxes on social security, savings, dividends and capital gains (our double taxation menaces) would be eliminated.
Forbes? contention is that counterbalancing the previously high taxes against the former generous deductions would be more than a wash. The average American and corporation would, in the end, come out ahead, dollar-wise–and without the thousands of hours spent on whittling our tax burdens down to the smallest denominator.
His aim: A fair tax, equally applied to all.
Forbes' flat tax plan is obviously the result of hundreds of hours of research, constructed by well-meaning and intelligent scholars. I applaud his attempt to reduce the $200 billion + (and increasing) annual cost Americans pay–in time and money–to comply with our horrific tax code. And, who can fault his effort to purge our system of the $85 billion in revenue that the GAO reports we have lost in abusive tax shelters–just since 1993? How many more Enrons do we need? That company?s leading executives are currently on trial for abuses, including creating 881 foreign subsidiaries to shelter taxes, a great contribution to Enron's ultimate ruin–as well as the vast damage done to its employees and shareholders.
Forbes' intent is to make the tax code so simple that Americans can complete their taxes on a postcard. He believes that a flat tax would create a thriving economy in which entrepreneurs would flourish, business coffers would be so saturated with cash that innovation and production would soar, and the average American would be so flush with extra disposable income that he would line up to increase his savings and rush to open health savings accounts to pay for his own health care costs.
Over a decade, Forbes estimates a flat tax would create $6 trillion in new assets and $892 billion in additional payroll tax receipts. Additionally, it would generate $56 billion more than the current tax code to net government income, during that same period.
Sounds great, doesn't it? And it has the capacity to be, if Forbes and his associates can realign the thinking of these three groups:
The lobbyists and politicians who make their living off of creating more and more complicated regulations that serve mostly to insure their own job security. America's corporations who have been conditioned to play games with their financial statements to prop up earnings for the benefit of Wall Street, not necessarily their shareholders or employees. The individual taxpayer, who has been trained to rely on the government or his employer–and not himself–to save the money for his retirement.
Forbes makes a convincing argument for the benefits of his flat tax, yet obviously understands the challenges ahead. He admits he needs the assistance of the public and attempts to enlist their help by pointing out the steps they can take to join his effort–a commendable endeavor to create a non-stoppable grass roots movement. We wish him well.
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