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As the dreaded April 15th deadline for filing tax returns quickly approaches, my thoughts once again turn towards the overwhelming complexity of the current tax code and simple, common-sense solutions that are available. Today, our tax code and its regulations total more than 60,000 pages which are complicated, confusing and costly to comply with.
A glaring example of this complexity is a finding by the IRS Inspector General that 19 out of 23 income tax returns completed and filed by employees at an IRS assistance center were erroneous. If the IRS, the federal agency charged with interpreting and enforcing our nation's tax laws, has an 80 percent failure rate, how can we expect the American people to understand the tax code, much less file error-free forms? The answer is - we can not. To expect more of taxpayers than can be delivered by the IRS is absurd, and maintaining the current system only contributes to the absurdity. I believe that most Americans want a simpler, less burdensome system for paying their taxes.
Recognizing this, on January 7, 2005, President Bush created a new Advisory Panel on Federal Tax Reform, charged with advising the Secretary of the Treasury on options to reform the tax code to make it simpler, fairer and more pro-growth. On November 1, 2005, the panel made its long delayed recommendations for tax reform. While we were hoping for a bold proposal, encompassing fundamental reform, we received a watered down version of the same old Washington style tax reform. Ignoring the plea of every American for a simpler, fairer and less intrusive system, the panel made few suggestions that would significantly change the tax code, much less overhaul it. Consolidating tax brackets, eliminating a few deductions and combining popular savings programs will not simplify our tax code and will certainly not make it fairer to all Americans.
Instead, I believe and have been a longtime advocate for the implementation of a flat tax system. On May 23, 2005, I introduced, S.1099, the Tax Simplification Act, which would ultimately establish a flat income tax of 17 percent on all income and place real spending limits on government. As drafted, my proposed flat tax would replace our current incomprehensible tax code with a flat rate of 17 percent on all wages, salaries, and pensions. The only exemptions would be a personal exemption of $12,790 for a single person; $16,330 for a head of household; $25,580 for a married couple filing jointly; and $5,510 for each dependent. These allowances would be indexed to inflation.
To prevent the double-taxation of income, earnings from savings would not be included as taxable income. This would result in a tax cut for virtually all taxpayers. Businesses would pay the same 17 percent rate on the difference (if positive) between revenue and expenses. The rate of taxation would be 19 percent in the first two years of the flat tax and then lowered to the desired rate of 17 percent in the third year. While the original flat tax bill found 19 percent to be revenue neutral, with the most recent tax cuts in 2003, I believe that a 17 percent flat tax will be revenue neutral by the time it is fully implemented in 2008.
I believe that the flat tax would revolutionize the way our government operates. Today, if a flat tax were in place, taxpayers would file a return the size of a postcard. Rather than spending hours poring over convoluted IRS forms, or resorting to professional tax assistance, the flat tax would allow taxpayers to complete their taxes quickly and easily. The flat tax would decrease the cost of compliance to the government and would represent a massive reduction in the tax burden carried by hardworking Americans. I intend to continue to work with my colleagues to enact my flat tax proposal and provide these much-needed benefits to the American taxpayer.
Over the years, many have argued that I should support a national sales tax rather than a flat tax. While I support the concept of a national sales tax, I have concerns about implementing such policies without a simultaneous repeal of the 16th Amendment to the Constitution. The 16th Amendment allows Congress to "collect taxes on incomes, from whatever sources derived, without apportionment among the States, and without regard to any census or enumeration." Enactment of a national sales tax without repeal of the 16th Amendment could ultimately result in Congress levying both a federal income tax and a national sales tax, further increasing the tax burden on the American people.
Instead, I support a flat tax, which would work within our current structure without requiring a repeal of the 16th Amendment. I believe that the flat tax encourages savings in a more efficient manner without leaving the federal budget vulnerable to fluctuations in our economy. Under a flat tax, government revenues would not fluctuate as severely because of changes in the economy as they would with a national sales tax. This is the same problem that many state budgets are facing today because they spend too much on sales taxes.
The time for significant reform of our tax code is now. Proposed amendments to the current tax code only perpetuate the complexities and inequalities of the current system. We have a small but clear window of opportunity to overhaul our tax code, and it is time that the United States Congress seriously considers comprehensive tax reform. While it is unclear what reform will ultimately be considered, I believe that a flat tax should be part of the debate. A flat tax would not only simplify the tax code so that all taxpayers could easily complete their own returns, it would also treat Americans equally. Only by treating every taxpayer equally can our tax code achieve true fairness.
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