by Rod D. Martin
February 13, 2004
In an article last month entitled “Tax Reform for the New Century,” I made the case for replacing our oppressive and incomprehensible tax system with a flat tax.
As I noted, a flat tax would reward hard work, savings, and investment, creating real wealth for everyone. Given its single tax rate, and the absence of loopholes, it would be simpler and fairer than today’s monstrosity, which forces Americans to deal with over 1,100 forms and publications and spend 5.8 billion hours each year in compliance efforts alone. It would also make Washington radically more accountable for how it spends our money.
The case for a flat tax is compelling. But to the Beltway barons of the welfare state, the Ted Kennedys and Tom Daschles, a flat tax would be about as welcome as garlic is to vampires. These living fossils of liberalism would rather keep buying the votes of their political base by playing Robin Hood, soaking the “rich” to pay the poor. The “rich” could mean anyone, from a Rockefeller heir to a nurse and her fire-fighter husband whose family income falls far short of $100,000.
Indeed, a veritable army supports the status quo, from the ideologues of the left to the tax lawyers, CPAs and IRS auditors their philosophies enrich. That’s why even among flat tax supporters, a sizable number have declared any flat-tax proposal virtually dead on arrival.
So how do we get there from here? As in the old joke about eating an elephant, the answer is “one bite at a time.”
A near-critical mass on Capitol Hill has developed a strategy. Proponents, led by Grover Norquist’s Americans for Tax Reform, have identified five key consensus-building reforms, each essential in its own right, which together will deliver us almost to the doorstep of our goal.
For each reform, our coalition has established a Congressional caucus. In coming weeks, I’ll examine each of our proposed reforms in depth.
The Universal IRA Caucus seeks to eliminate taxes on all savings. Under the current code, working people who save are punished not once, not twice, but three times for their thrift. They are taxed as their income is earned, as it is saved, and when their savings are withdrawn.
The Zero Capital Gains Tax Caucus wants to do likewise with investments, helping average Americans build real wealth. The goal of this caucus — which helped pass last year’s Bush tax cut from 20% to 15% — is to lower capital gains tax rates and eventually eliminate them.
The End the Death Tax Caucus aims to permanently eliminate the onerous taxes that survivors pay when their loved ones die. President Bush’s 2001 tax cut repealed the Death Tax temporarily. If it is not repealed permanently, it will reappear in 2011 at the second highest rate in the developed world.
The Full Business Expensing Caucus aims at allowing businesses to adopt a system of “expensing” so they can deduct the entire cost of depreciation at once. Under the current system, businesses are forced to depreciate their investment over a period of time. That means their income is overstated, triggering a larger tax liability. This, in turn, puts a damper on investment projects and discourages capital formation, resulting in lower labor productivity and higher prices for goods produced.
Finally, the AMT Abolition Caucus seeks to abolish the Alternative Minimum Tax, which penalizes individuals and corporations that have deductions deemed “too high” compared to their income. Seemingly innocuous, this disgraceful tax is already sneaking up on middle-class America and will bite down hard in a few short years. The number of taxpayers subject to AMT will rise from just 155 when the tax was enacted to 1.5 million in 2001 and to 35.5 million by 2010. Unless it’s abolished, the AMT will also punish parts of corporate America — capital-intensive sectors such as manufacturing, mining, construction, transportation, and utilities — killing jobs while it siphons away huge portions of middle class America’s monthly budget.
Long a leader in the flat tax fight, my Vanguard PAC is a proud organizational member of each of these Congressional caucuses. We believe that, once these reforms are enacted, the heavy lifting will be done: the legal structure will exist for an easy transition to the flat tax. What’s more, once these issues are well understood by Congressmen and citizens alike, that understanding will combine to produce the consensus we need to completely reform the system.
For the sake of growth, opportunity and freedom, that is very good news indeed.
Read the Whole Flat Tax Series, by Rod Martin