Flat tax works here and makes sense for rest of the nation
by Barbara Anderson

The Salem News
Thursday, November 3, 2011

The flat tax is back!

When Rick Perry announced his support for this particular tax reform, he reinvigorated an issue that hasn't been heavily discussed since Steve Forbes first ran for president in 1996. My copy of Robert Hall and Alvin Rabushka's "The Flat Tax" was signed by Alvin, for whom I helped set up a local media tour: "To Barbara Anderson, fellow flat taxer, who saved it in Massachusetts to help in the national effort to get one."

Actually, we taxpayers saved the Massachusetts flat tax to help ourselves, to keep the one advantage we have over our political system the fact that it can't pick us off one tax bracket at a time by changing the rate for just one group of wage-earners and taxpayers. Our state constitution wisely requires a flat-rate income tax, and the only way to change this is with a constitutional amendment that must be approved by voters on a statewide election ballot.

Liberals and most politicians, longing to utilize class warfare to raise taxes on all of us, starting with "the rich" and working their way down to where the majority of taxpayers reside, have placed a "graduated income tax" constitutional amendment on the ballot five times. Citizens for Limited Taxation was formed in 1974 to fight an early attempt, and it led the most recent and successful "save the flat tax" battle in 1994.

Of course we would like to share the concept with our fellow taxpayers across the nation.

One reason: It's fair. Everyone pays the same rate, though of course that rate applied to various incomes requires higher earners to pay more in actual dollars. Though "progressives" always talk about making the rich pay their "fair share," no one has ever explained to me what that means.

Envy and the need to penalize the financially successful was traditionally an un-American concept. It probably still is; the "tax the rich more" rhetoric we hear today is aimed not so much at the productive wealthy, but at those who have worked with our federal political system to buy themselves favored treatment within the tax structure.

The flat tax is often linked with the idea of "tax simplification," whose image is a postcard once held aloft by Steve Forbes and now by his endorsed presidential candidate, Rick Perry. If you want a rough idea of how it could work for you, take your annual gross income, subtract your standard deduction and any other deductions for which you are eligible, then apply the flat rate to what's left.

In Perry's plan, the standard deduction is $12,500 (if you earn less than half a million dollars), then you can deduct your mortgage interest, charitable giving and state taxes.

I did a quick computation for myself, using what applied I don't have a mortgage and ended up paying a couple hundred more than I paid last year. Then I subtracted what I pay my tax preparer. Even though I personally have a very simple economic structure, I've been afraid to do my own taxes since my teacher-husband and I tried it in 1965 and determined that we owed thousands of dollars on an income of roughly $5,000. (He was not a math teacher.)

I still can't cope with thousands of pages of federal tax code with provisions that change every year.

Perry's tax reform plan also eliminates taxes on Social Security, estates, capital gains and dividends. Recent professional analyses indicate that I might save around $200. But I'd be willing to pay a little more if I had to in return for a simpler system. I recall 1992 presidential candidate Ross Perot explaining how Congress alternately threatens or rewards various taxpaying entities in order to get them to contribute to its re-election campaigns.

Corruption, corporate welfare, crony capitalism and the general culture of Washington insider games, are fed by the complicated tax code.

If I were creating a national flat tax, there would be a standard deduction and nothing else. I would probably have to grandfather the mortgage interest deduction for now, but it's important to recognize that all this deduction does is drive up the cost of the house to what a buyer perceives he can afford because of the deduction. The exclusion from taxes of employer-provided health insurance has the same artificial impact on health care costs.

Rabushka and Hall's version of a flat tax has been rejected by most Washington politicians who love complexity and campaign contributions. However, the authors' advocacy led to the adoption of a flat tax in other countries, most notably those that were emerging from the communist bloc. Apparently people who had lived with another postcard concept "How much do you earn? It belongs to the government, here's your food allowance" found the flat rate helped them adjust to the free market.

The flat tax doesn't directly address the deficit. Perry also proposes spending cuts, entitlement reforms and other reforms that favor job creation.

Other Republican candidates have various economic plans of their own.

Everything must be on the table, with the primary focus on eventually reducing the national debt and restoring citizen confidence.

The comments made and opinions expressed in her columns are those of Barbara Anderson
and do not necessarily reflect those of Citizens for Limited Taxation.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her column appears weekly in the Salem News and other Eagle Tribune newspapers; bi-weekly in the Tinytown Gazette.

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