Tax System Problems
and
Flat Tax Solutions
Presented by:
Dick Armey
Co-Chairman, FreedomWorks
To The President’s Commission on Tax
Reform
The Tax System is Broken
 “The American
people deserve—and our
economic future demands—a simpler,
fairer, pro-growth system.”
• President George W. Bush, Republican National
Convention, 2004
 This
is what the American people want
The Tax System is Broken
 The American




People know the system:
Is too complex
Is unfair
Hinders economic opportunity, savings,
investment, and job creation
Undermines good government
How to Fix the Tax System

There is considerable agreement that the
current system needs to be scrapped for one
that is simpler, fairer, and pro-growth
 Less agreement on what it should be replaced
with
 Flat Tax best addresses these concerns

National sales tax should not be introduced unless
16th Amendment is repealed, otherwise we could
have European-level taxation with both income tax
and sales tax
What a Flat Tax Would Look Like
 Liberating
in its simplicity
 Starts with scrapping current code
 All income—business and individual—
would be taxed only once and at one rate
 Only exemption: personal exemption so
every family can cover their expenses
before paying the government
What a Flat Tax Would Look Like

All deductions and credits eliminated







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No breaks for special interests
No loopholes for powerful lobbies
No favoritism towards some citizens and harassment
of others
No tax breaks for corporations
No tax shelters
No depreciation schedules
No tables
All Americans treated equally
Flat Tax Solves
Current Tax Code Problems

Current Problem:
Complexity


8 billion pages of
forms from IRS yearly
Compliance time:
6.6 billion hours
• More than spent
building every motor
vehicle in the country


Compliance costs:
$194 billion annually
Over 26 hours to
complete 1040

Flat Tax Solution:
Simplicity



One post card per
taxpayer
Income – personal
exemption x rate = tax
liability
That’s it
Flat Tax Solves
Current Tax Code Problems

Current Problem:
Unfair


All Americans not
treated equally
Taxpayers with similar
incomes can pay
vastly different
amounts

Flat Tax Solution:
Fairness


All Americans treated
equally
Still progressive
Flat Tax Solves
Current Tax Code Problems

Current Problem:
Hinders Economy




Punishes savings,
work, and
entrepreneurship
Reduces investment
Distorts financial
decisions
Jorgenson: $1 raised
costs economy $1.39

Flat Tax Solution:
Prosperity


All economic activity
treated equally,
promoting economic
efficiency, increasing
prosperity
Savings not
discouraged,
increasing productivity
Flat Tax Solves
Current Tax Code Problems

Current Problem:
Undermines Good
Governance


Lobby industry is DC’s
biggest private sector
employer
Since 1998 alone:
483 companies have
lobbied the IRS with
2,884 tax lobbyists

Flat Tax Solution:
Transparency


No special interest
deductions for which
to lobby
See chart
More tax code, More lobbyists
Common Concerns
 Mortgage


Deduction
Flat tax would lower interest rate by more
than loss of deduction
Increase deficit?

No, can be revenue neutral
 Progressivity?

Flat and still progressive
 Index

Yes
family allowance?
Common Concerns

Will charities suffer?

No, charitable
donations track
income, not tax
benefits
Flat Tax Solves
Current Tax Code Problems

It’s simple


It’s fair


Popular with Americans because it embraces core
American belief: That we should all be treated equally
It’s pro-growth


(Income – Personal Deduction) x Rate = Tax
Ends distortions by treating all economic activity
equally
It’s the right thing to do