There are various different flat-rate income tax plans floating around, in the form of bills, candidate platforms, and public interest group stances, amongst others. The plans vary from a “strict” flat-rate income tax on all earned income - both personal and business - to plans that have flat rates for businesses but varying rates on earned income. There are also proposals for replacing all income tax with a consumption tax (also known as a national sales tax). The most common and feasible proposal is changing the current multi-tiered income tax system of increasing tax rates tied to increasing income (known as a progressive tax rate system) to one tax rate for all individuals, regardless of income.
Critics believe that hundreds of thousands of jobs throughout the country would be lost. From the IRS to local-level government employees, to the paper industry and postal service, opponents believe that almost everyone who works at companies such as H&R Block and Jackson-Hewitt, many private CPAs, tax accountants, and tax lawyers would be out of a job, along with many of the support-personal for the tax industry. The ability to track illegal money actions, such as laundering, may be reduced. Many citizens state a flat rate income tax may result in an unfair burden on low-income people. The loss of popular tax deductions, especially mortgage interest and child credits, is very controversial: most “hybrid” plans, in fact, keep these two deductions in place. Many current tax evaders would probably continue to find ways to evade paying taxes.
A simple flat rate income tax will greatly reduce, if not eliminate, record keeping, tax preparation and filing costs, amongst other tax-related costs. By having their tax paid directly through their paycheck, as is currently done, but without the need of onerous record keeping and tax returns, most individuals will not have to file a return at all. In 2002, according to the IRS, 130,904,889 individual income tax returns were filed, of which 58.6% of those filers used professionals to prepare their returns (76.7 million tax-payers). At an average cost of $156 per return that results in about $11,966,801,340 - more than eleven billion dollars spent by U.S. individual tax payers just to prepare their income tax return (IRS). That is, eleven billion dollars without taking into account extra costs such as e-filing, postage, or tax-refund-advance loans, much less the costs of aspirin, ulcer medicine, after-filing drinks, hours of time that could be spent otherwise, and other subsidiary costs associated with the stress of dealing with one’s tax return. Of those 130 million individual income tax returns, 43.6% (57,074,532) took advantage of e-filing options at an average cost of $23.00 ($1,312,714,236 – another billion dollars), with the rest mailing their returns (IRS). Assuming all of the mailed returns cost the lowest possible postage of 34 cents, that is an additional cost of $25,102,321 ($25 million). Grand total: $13,304,617,897, $13.3 billion dollars, spent by individual tax payers just to cover some of the basic costs of preparing and filing their income tax returns. $156 may not seem like a lot of money to some, but for many people that money could cover their electric, provide food for their family, or pay for their medical insurance for a month.
The current tax system, with differing tax rates for different people, is patently unfair and very likely unconstitutional. The Constitution states that every individual is equal under the law. When one person is taxed at 15% while another is taxed at 32%, and yet another, because of the financial ability to take advantage of the many tax-shelters and legal tax-avoidance methods pays a net tax of 4%, we are not being treated equally under the law. Currently, people of very low income pay no taxes. In essence, they are getting a “free ride:” they get to enjoy the benefits provided by our government, without contributing to the costs of those benefits. They use the same tax-supported schools, hospitals, roads, police services, etc., without the burden of paying for them. It is unfair to burden businesses with the costs of collecting taxes – a cost that should be borne by the government. It is also unfair to expect a population where many people still cannot figure out how to set the clock on their VCRs to understand the more than 48,000 pages of the tax code. Without a doubt, the 94,838,748 calls and letters to the IRS requesting information and clarification of the tax code clearly demonstrates the complexity and confusion of the current tax system (IRS). The purpose of income tax is to raise revenue for the operation of governmental services; as the tax code is now, it often becomes a tool (or weapon) to engage in social engineering or income distribution (Wegner).
The Internal Revenue Service would likely end up being just a handful of employees.
By simplifying the tax code, tax evasion rates would be significantly lower. Much of the economic impact from the loss of jobs within the tax industry would be negated by the infusion of more than thirteen billion dollars into the pockets of taxpayers to be spent as they see fit. There would be a greater sense of privacy on how one spends one’s money, since there are so many personal spending habits found in a tax return. A flat rate income tax would be fairer, especially in how it treats the very wealthy and the very poor.
Written for Professor Sutter's English Composition I class at Pikes Peak Community College, 14th April 2004
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