Sunday, April 5, 2009

A New Tax Policy

According to the IRS website in 2008 over $11B was spent on operations, enforcement, and collections of taxes. Congress is looking to achieve ways to trim the budget so President Obama can spend $3T. A way is to rethink the IRS and the tax system. The current tax code is rooted with language that the common man cannot understand. To service the current system, the IRS has created 893 forms. It is time for Congress to take a hard look at the tax code.

It is time for a flat tax rate. The current system punishes success through a higher tax rate as one earns more. Moving to a flat tax rate will level the playing field and give the vast majority of Americans more money in their pockets. We hear of tax credits and Congress uses them as chess pieces. Part of going to a flat tax system is the elimination of all tax credits. I know that opponents will argue that a flat tax is not fair to the lower class. Well here is the solution to that.
The flat tax rate, 10-15%, will not start until the one earns $46,001. All the income prior to that will not be subject to taxation. By starting the flat tax at $46K negates the argument that the lower and middle class are hurt by it. It will also allow the lower and middle class to promote their standard of living since the Government will not be taking any of their money.

As for the upper class and parts of the middle class, the flat tax will lower their tax rate but may increase their overall dollars to Government as all tax credits are eliminated. The flat tax and elimination of tax credits will eliminate the need to file taxes on April 15th as no refund will be given. The only person that need to file in April is one that has a 1099 form issued to them.

The flat tax is a green policy change too. The IRS can reduce the number of forms required; currently 893. Unfortunately the flat tax will result in a slightly higher tax burden for the upper class as tax credits are eliminated but it will be offset by the ability to earn more and keep more of it. In the end America will see a less complicated tax code, reign in the need to cheat the system, reduce the size of government, reduce the amount of paper used on a yearly basis, and strengthen the economy by putting the money in the hands of those that spend it.