Tax System Problems and Flat Tax Solutions

1
Tax System ProblemsandFlat Tax Solutions

• Presented by
• Dick Armey
• Co-Chairman, FreedomWorks
• To The Presidents Commission on Tax Reform

2
The Tax System is Broken

• The American people deserveand our economic
  future demandsa simpler, fairer, pro-growth
  system.
• President George W. Bush, Republican National
  Convention, 2004
• This is what the American people want

3
The Tax System is Broken

• The American People know the system
• Is too complex
• Is unfair
• Hinders economic opportunity, savings,
  investment, and job creation
• Undermines good government

4
How to Fix the Tax System

• There is considerable agreement that the current
  system needs to be scrapped for one that is
  simpler, fairer, and pro-growth
• Less agreement on what it should be replaced with
• Flat Tax best addresses these concerns
• National sales tax should not be introduced
  unless 16th Amendment is repealed, otherwise we
  could have European-level taxation with both
  income tax and sales tax

5
What a Flat Tax Would Look Like

• Liberating in its simplicity
• Starts with scrapping current code
• All incomebusiness and individualwould be taxed
  only once and at one rate
• Only exemption personal exemption so every
  family can cover their expenses before paying the
  government

6
What a Flat Tax Would Look Like

• All deductions and credits eliminated
• No breaks for special interests
• No loopholes for powerful lobbies
• No favoritism towards some citizens and
  harassment of others
• No tax breaks for corporations
• No tax shelters
• No depreciation schedules
• No tables
• All Americans treated equally

7
Flat Tax Solves Current Tax Code Problems

• Current Problem Complexity
• 8 billion pages of forms from IRS yearly
• Compliance time 6.6 billion hours
• More than spent building every motor vehicle in
  the country
• Compliance costs 194 billion annually
• Over 26 hours to complete 1040

• Flat Tax Solution Simplicity
• One post card per taxpayer
• Income personal exemption x rate tax
  liability
• Thats it

8
Flat Tax Solves Current Tax Code Problems

• Current Problem Unfair
• All Americans not treated equally
• Taxpayers with similar incomes can pay vastly
  different amounts

• Flat Tax Solution Fairness
• All Americans treated equally
• Still progressive

9
Flat Tax Solves Current Tax Code Problems

• Current Problem Hinders Economy
• Punishes savings, work, and entrepreneurship
• Reduces investment
• Distorts financial decisions
• Jorgenson 1 raised costs economy 1.39

• Flat Tax Solution Prosperity
• All economic activity treated equally, promoting
  economic efficiency, increasing prosperity
• Savings not discouraged, increasing productivity

10
Flat Tax Solves Current Tax Code Problems

• Current Problem Undermines Good Governance
• Lobby industry is DCs biggest private sector
  employer
• Since 1998 alone 483 companies have lobbies
  theIRS with 2,884 tax lobbyists

• Flat Tax Solution Transparency
• No special interest deductions for which to lobby
• See chart

11
More tax code, More lobbyists
12
Common Concerns

• Mortgage Deduction
• Flat tax would lower interest rate by more than
  loss of deduction
• Increase deficit?
• No, can be revenue neutral
• Progressivity?
• Flat and still progressive
• Index family allowance?
• Yes

13
Common Concerns

• Will charities suffer?
• No, charitable donations track income, not tax
  benefits

14
Flat Tax Solves Current Tax Code Problems

• Its simple
• (Income Personal Deduction) x Rate Tax
• Its fair
• Popular with Americans because it embraces core
  American belief That we should all be treated
  equally
• Its pro-growth
• Ends distortions by treating all economic
  activity equally
• Its the right thing to do