NEW YORK, N.Y. — The tax code of the United States is a disgrace. Everyone complains about it. No one understands it. And even if you try very hard, your chance of being wrong is high. And to make it worse, Congress continues to treat the tax code like a candy store for its most favored donors.
In February 2013, you can celebrate the one hundred birthday of the personal income tax. The income tax started out as a simple flat tax that could be filled out on a postcard.
The tax code now is comprised of 73,608 pages and counting. In the last 10 years it has grown more than 10,000 pages — most certainly not to the taxpayer’s advantage.
It is time to go back to the beginning and reinstitute the flat tax that is reasonable and understandable.
The first flat income tax was progressive. After a very generous exemption of the first $3000 of income — $65,000 today — being exempt from any tax, there were six income categories upon which a tax of from 1 to 6 percent was imposed. All income was taxed with little distinction of its source. And deductions were limited to the production of that income.
We can debate how many rate structures and what is a reasonable threshold for the income exemption, but the reinstitution of a flat tax would eliminate the debate about wealthy people paying lower tax rates than others. All income would be treated equally and deductions would be eliminated for the favored few.
Of course there is the political reality of the lobbyists for real estate, municipal bonds, charities, and on and on. But the more fundamental goals — fairness and simplicity would be achieved by a flat tax.
With the fiscal cliff in sight by January, does it take extraordinary leadership to embrace what for most people is common sense?
Reform of the tax system would stimulate the economy in a way that no fiscal stimulus could ever do. It would allow individuals and businesses to plan for the future knowing that the rules of the game would not change or that the favored few will not reap all the rewards.
Any change in the system should also come with a requirement for a super majority in Congress to make changes in the future so that some well-connected group won’t get a tax credit for red-feathered ostrich farming.
The advantages of a flat tax are numerous and well documented: It would create one tax rate for all income regardless of source thus eliminating the endless discussions of who paid what tax rate on what income.
It would end the argument about the rich paying their “fair” share because they would no longer be able to hide behind exemptions. The ordinary American would understand the fairness of the system hoping one day to be able to pay at the highest tax rate. The current Alternative Minimum Tax (ATM) which is applies to a certain portion of taxpayers is a basically a flat tax system.
The issue of business taxation is equally complicated but should be addressed with the same simple flat tax approach. Lowering the corporate rate to be competitive with the world rates as well as recognizing the multi-national nature of today’s business would bring a saner discussion to keeping companies American.
Democracy is a difficult process but change can and will occur when individual voices cut through the prepackaged political messages and ask the right questions.
With the multiple information channels now available through the internet, there is no reason that the general public cannot be engaged in the process.
It is time for bold leadership to address the many issues this country faces. But making our tax system simpler and fairer would go a long way to energize the dream of generations to get rich in America.
Peter Rush is CEO of Kellen Company and author of "Class Tax Mass Tax." Readers may write him at Kellen, 355 Lexington Ave, New York, NY 10017.
