Taxation
An effective tax policy is crucial to the success of this nation. Taxes are the means in which this country is run, but they also have implications on both individuals and companies and what they themselves are capable. Lower taxes and a simpler tax structure can benefit everyone and put this country back on the right track.
Present Situation
The current state of the tax system in the United States is both complicated and extensive. According to the Government Printing Office, the tax code is comprised of a little over 16,800 pages and getting longer annually. If you factor in state and local tax laws, the task of complying with the different tax codes and correctly filling out tax returns can be time consuming and expensive to individuals and businesses.
According to the Internal Revenue Service, the average individual return costs $225 to prepare and file. In 2008, 155,490,000 individual income tax returns were filed in the U.S. Using the average cost per return, the amount of money spent just to prepare and file taxes in the United States was $34,985,250,000. Almost $35 billion was spent in 2008 just to prepare and file the returns to either pay taxes or seek a refund, and this is not even accounting for the costs of returns prepared and filed by corporations and partnerships.
The tax structure of the U.S. is progressive in nature, and receipts collected by the Federal Government during 2008 were $2.1 trillion. According to the Tax Foundation, the United States has the highest corporate tax rate when combining both the federal and state tax brackets. While only 24 states have higher rates than the top ranked Japanese, all 50 states have a tax rate higher than France, which has the 5th highest tax rate in the world.
Tax Reform
The tax structure needs to be reformed to make the system simpler and more understandable. Filing and paying taxes should not be a burden on anyone, and a change to the present system is needed, if not long overdue. Additionally, we cannot continue taxing our corporations at the highest rates in the world. It is putting our corporations at a competitive disadvantage and in turn the American worker.
There are several options available that would be practical to changing the current tax system, but I believe there are two structures that would benefit this country in the long run if adopted.
Flat Tax
The flat tax is a practical option to reform the current tax structure in America. It is a system that is easy to understand and has many advantages over the current tax system.
The flat tax system would replace the progressive nature of the present tax structure with a single rate for all individuals and businesses. It would eliminate the complicated and extensive amount of forms, instructions, and opinions issued by the IRS that the average American pays billions of dollars a year to understand. Implementing this system would keep dollars in the pockets of Americans in the form of cost savings.
A flat tax structure would also ensure that income is no longer taxed twice on investment income. Income derived from investments such as dividends would be taxed at the business level, not the individual level. While the current system provides for double taxation, the flat tax system would eliminate this. This system would also ensure that the capital gains tax and the death tax are eliminated. As a result of the elimination of the double taxation of income, there will be greater incentive to invest in businesses and in turn will result in economic growth.
The flat tax would require the elimination of many credits and deductions, though there can be variations. However, no person would be required to pay any tax if his or her income does not exceed a certain threshold. The threshold that is most cited is a single person would not be taxed on the first $25,000 of income. Additionally, there can be provisions that would allow for a system to include personal exemptions, charitable contributions, and medical expenses.
Fair Tax
Another option to reforming the tax system would be to implement a fair tax. A fair tax is essentially a national sales tax that would be placed on the purchase of all goods and services. The tax rate would be 23%. Used goods would not be covered under the Fair Tax system, however. It is a simple system that will do away with filing individual income tax returns and can provide for rebates to families that are living below the poverty level. Rebates can also be given to all people for consumables that would be considered everyday necessities. It also would allow for the elimination of FICA taxes and pay for Social Security as a part of the 23% tax on consumption.
The Fair Tax is unique in that this tax is a consumption tax, and as such any goods purchased within the borders of the United States are subject to tax. Under the current system, there is a large number of people in the United States that are not paying income tax, including illegal immigrants. With the implementation of the Fair Tax, it will help recover revenue that otherwise would not have been collected.
This system is also unique in that it can help stimulate exports. Goods sold within the U.S. are subject to the Fair Tax, but goods sold outside of the borders will not be subject to this tax. This will allow domestic businesses and corporations to be more competitive in the global economy. As a result, this would in turn reduce the trade deficit. Since goods sold overseas are exempt from taxation, it will allow for greater investment in our economy.
I believe either of these structures would be of tremendous benefit to the U.S. and would contribute to a growing economy. I would support either of these plans, provided a Constitutional Amendment is discussed when considering the Fair Tax as an option. I do not believe we can legally implement the Fair Tax without an Amendment, but it is something I would get behind when discussing different alternatives for tax reform.
