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Flat and “Fair” Taxes

Essence of the basic plans:

The Forbes flat tax plan is a flat federal income tax of 17% replacing the current complex income tax rules for individuals, businesses and corporations (eliminating dividend and interest taxes, income taxes on social security benefits, alternate minimum taxes, capital gains taxes, and estate taxes).   It allows expensing all investment property and applies only to income earned in the U.S. It reduces federal individual income tax reporting to a postcard. 

It just replaces the current complex income tax code with one flat rate after deductions minus a child tax credit and an earned income credit.  An individual or company can opt for the existing income tax.

It uses the existing IRS mechanism for collecting taxes. 

The Bortz "fair" tax plan replaces all current federal taxes (including social security taxes, medicare taxes, and all other federal payroll taxes, estate taxes, income – individual, alternate minimum, corporate and business, capital gains, gift) with one tax at final sale (not like the European Value Added Tax that taxes at every stage of production).  Unlike the current system, it puts the burden of proof for factual reporting on the federal government rather than the individual.

It would pay the states and individual businesses ¼ % of what they each collect. 

Forbes Plan

The Forbes plan flat income tax form for an individual:

The above Forbes Plan source is from the book Flat Tax Revolution by Steve Forbes

Bortz

The Bortz plan taxes medical care, attorney fees, internet sales, catalog sales, and the state, local and federal governments which may end unfair competition by the government with private enterprise.  The 23% tax counterbalances the currently taxes imbedded in product sales; competitive free market forces will drive all prices down correspondingly.

To cover basic necessities, everyone would get “prebates” in a monthly check from the federal government or “prebate cards similar to debit cards with the same monthly starting balances.  As an example, the prebates for 2005 would be as shown in the table on the next page

The above Boortz plan information is from The Fair Tax Book by Neal Boortz and Congressman John Linder.  An additional source with accompanying detail is www.fairtax.org including its own plain English summary of the plan.

Either plan

U.S. History: when taxes go down, government revenues go up.

Harding-Coolidge, Kennedy, Reagan, Bush

Either would help U.S. companies overseas.

Loopholes are no longer there for those with the resources for armies of lawyers and lobbyists.

Each plan is designed to be revenue neutral.

Forbes Plan Use Experience:

Booming economic and government  revenues -- Hong Kong (separate tax system from the rest of China), Russia, Estonia, Latvia, Lithuania, Ukraine, Serbia, Romania, Georgia, Slovakia, Iraq (now by Paul Bremmer), Channel Islands.

Read Jack Kemp- http://www.townhall.com/opinion/columns/jackkemp/2003/11/10/170395.html and The Economist - http://www.economist.com/opinion/displayStory.cfm?story_id=3861190 for more on foreign flat tax experience. Townhall.com gives a favorable but muted book review - http://www.townhall.com/opinion/books_entertainment/reviews/joelkurtzman/141063.html

Boortz Plan Use Experience:

I believe, none.

Other Plan Considerations:

The Federal government now sends 48 million Social Security checks a month as well as checks to other government employees so issuing prebates as required in the Boortz plan is not a monumental problem and, of course, a prebate card similar to a debit card could also be used.

Forbes quotes comparing his plan favorably to a plan such as the Boortz plan:

“The flat tax is a better idea than the NRST [national retail sales tax] for a multiplicity of reasons. . .  . But it should be stressed that supporters of a sales tax have their hearts in the right place – they rightfully believe that what we have today is an abomination, that we are overtaxed and that we are all subject to abuse from the IRS.

Abstract of Forbes named NRST problems (they refund monthly set amounts for necessities such as food, clothing, and shelter:

1. Need to repeal the sixteenth amendment to the constitution that allows imposition of the income tax.
2. If exempts used and business-to-business items, what is the definition of new?  What constitutes a business?
3. Sellers may eventually lower their prices by the amount of the taxes they no longer have to pay and employers may be able to raise their wage in the long run, but is this certain and how soon?
4. Fixed rebates favor those who live in low-cost areas.
5. Temptation for bureaucracy to succumb to political pressure for another entitlement program to differentiate the rebates based on income.
6. NRST would mean a new, high cost bureaucracy (effectively the IRS again)
7. NRST would devastate the new home market.
8. NRST would apply to already soaring education costs
9. NRST would stifle the online industry
10. In a recession incomes go down with no proportional income tax type relief.
11. Business-to-business exemptions may not be honored as they frequently are not now for smaller businesses with the resulting cascading taxation.
12. Requires uniformity across states as some states now exempt groceries, others just exempt prescription drugs, etc.
13. NRST likely to increase tax evasion.  Organization for Economic Co-operation and Development: “Governments have gone on record as saying a retail sales tax of more than 10 or 12 percent is too fragile to tax evasion possibilities. . . “
14. With NRST, retailers are put in the position of policing that purchased items sold will be used for business purpose
15. Number of taxpayers would increase above the current system with NRST.
16. NRST would apply to government purchases, further inflating government costs to the taxpayer.

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