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The Flat Tax, the Answer for America

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The Cato Institute’s Dan Mitchell explains that the Heritage Foundation’s Steve Moore thinks the flat tax has “political legs.” In the Weekly Standard, Moore writes, “The flat tax is again the rage in a presidential primary. A number of GOP candidates, including Rand Paul, Rick Perry, Ted Cruz, and Scott Walker, are looking to go flat tax with a radically simplified post card tax return. … Ripping up the 70,000 page tax code has visceral appeal to voters.”

I will not vote for a 2016 presidential candidate who does not lead his presidential platform list with just such a proposal. And as Dan Mitchell concludes, “I specifically agree that the best way of selling tax reform is to point out that it’s a Washington-versus-America issue.”

Dan writes:

Simply stated, if we’re going to have some sort of broad-based tax, it makes sense to collect revenue in the least-damaging fashion possible.

And a flat tax achieves that goal by adhering to the principles of good tax policy.

  1. A low tax rate – This is the best-known feature of the flat tax. A low tax rate is designed to minimize the penalty on work, entrepreneurship, and other forms of productive behavior.
  2. No double taxation of saving and investment – The flat tax gets rid of the tax bias against income that is saved and invested. The capital gains tax, double tax on dividends, and death tax are all abolished. Shifting to a system that taxes economic activity only one time will boost capital formation, thus facilitating an increase in productivity and wages.
  3. No distorting loopholes – With the exception of a family-based allowance designed to protect lower-income people, the flat tax eliminates all deductions, exemptions, shelters, preference, exclusions, and credits. By creating a neutral tax system, this ensures that decisions are made on the basis of economic fundamentals, not tax distortions.

All three features are equally important, sort of akin to the legs of a stool. And if we succeeded with fundamental reform, it would mean an end to the disgraceful internal revenue code.

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Richard C. Young

Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.