August 21, 2005


One Simple Rate: A flat tax would unleash a stupendous economic boom. (STEVE FORBES, August 21, 2005, Opinion Journal)

My flat tax plan has one simple rate, on the federal level: 17% on personal income and 17% on corporate profits. There would be generous exemptions for individuals: $13,200 for each adult; $4,000 for each child or dependent, and a refundable tax credit of $1,000 per child 16 or younger. A family of four would pay no federal income tax on its first $46,165 of income. Exemptions for a family of six--mom, dad, four kids--would be $65,930. No anti-risk-taking capital gains levy; the capital gains tax would go to zero. The abusive Alternative Minimum (really maximum) Tax would be abolished. No more death tax: You'd leave the world unmolested by the IRS. No taxation without respiration!

Corporate profits would be taxed at a rate of 17%. Companies could expense all investments at once: no more depreciation schedules. If these instant write-offs produce a loss, that could be carried forward to use against future profits for as many years as necessary to use it up. And businesses would be taxed only on income made in the U.S.

The economic boom the flat tax would unleash would be stupendous, ushering in a long-term, noninflationary expansion of historic proportions. The current expansion would pale in comparison. Once again, we would be the clear global leader in high-tech and medical innovations--unlike today, when our lead, thanks in no small part to the tax code, is now under increasing assault.

How would a flat tax do this? What so many "experts" can't grasp is that taxes are not only a means of raising revenue for governments but also a price and a burden. The tax you pay on income is the price you pay for working; the tax on profits is the price you pay for being successful, and the levy on capital gains is the price you pay for taking risks that work out. When you lower the price of good things, such as productive work, success and risk taking, you get more of them. The flat tax does that dramatically.

If Mr. Forbes wants his proposal to be taken up he should win the soon to be open NJ Senate seat and introduce a bill in Washington.

Posted by Orrin Judd at August 21, 2005 9:21 PM

Mr. Forbes suffers from a charisma deficit.

Posted by: erp at August 21, 2005 9:54 PM

I like him - he's just not an inspiring speaker.

The capital gains tax should be 17%, as well, or people like myself will drive a truck through that loophole.

Actually, 12% should do it, since it's cheaper and easier to just do what they want you to do.

Posted by: Michael Herdegen at August 21, 2005 10:11 PM

I wish him luck, but I suspect the home mortgage deduction will be impossible to get rid of.

Posted by: PapayaSF at August 21, 2005 11:28 PM

What bothers me most about any flat tax is its similarty to the VAT taxes so popular in Europe. Once we let the government tax individuals at a flat rate they will want still more money and the VAT tax is allegedly painless and is sure to unleash an EU type of government. I also agree that elimination of the mortgage deduction is DOA. For those of you unfamiliar with the Value Added Tax system, each product is taxed just a little bit as it goes down the line to final consumer: the farmet is taxed for the cherry, the company loading the cherry on the truck is taxed, the truck driving the cherry to the rail head is taxed, the railroad is taxed, the people who offload the cherry from the train is taxed and so on. And you never feel it. The Flat Tax is the opiate of the middle class, something to put us to sleep while government goes just a little further day by day.....

Posted by: Howard Veit at August 22, 2005 12:46 AM

A VAT would be preferable because it's a consumption tax.

Posted by: oj at August 22, 2005 8:49 AM

The rate could be reduced simply by adding Capital gains, interest, & rental income to the mix.

It is absurd to argue that these items have "already been taxed".

The Achilles heel of this plan has always been the exemption of investment income. It strikes too many reasonable people as hopelessly slanted toward the so-called "rich."

Tax every dime of income and you can drop the rate to 10 or 12 percent. Of course, we should retroactively index capital gains to inflation, which would be huge tax cut for investors.

Posted by: Bruno at August 22, 2005 10:39 AM

Everytime I hear this proposal (or others like it), a big selling point is that "the poor" don't pay anything. Forgive me, but that is just a narcotic. A simplified 'flat' tax, where the "poor" pay a small amount (say 5%), would be much better.

Even the "poor" in the US live better than the middle-class in almost every other part of the world (outside of Scandanavia, Singapore, and a few other places). I think it is a big mistake to forego taxation at the lower income levels just to gussy up some new idea. One of the big problems with taxation today is that the media and the left keep lying about who pays what - let's make it nice and simple and have everyone pay something. 4-5% for the lowest incomes, 7-9% for the middle range, and 18% for the upper range.

Posted by: jim hamlen at August 22, 2005 10:39 AM

Tax reform that eliminates the IRS is a sure winner for a political campaign - Forbes couldn't do it because he is such a dork - if an attractive and well spoken candidate would take it up it would do quite well. And Jim, just resign yourself to knowing that those who make under 20k will always pay little or no taxes - its a third rail in American politics.

Posted by: Shelton at August 22, 2005 12:01 PM