Every year around this time Americans come face to face with our complex tax code. Taxpayers struggle to comply with tax laws so complicated that even the IRS cannot figure them out. IRS commissioner Douglas Shulman recently stated that “I find the tax code complex so I use a preparer.” A whopping 89 percent of Americans also use a tax preparer. The Internal Revenue Code is 3.8 million words. That’s over 11,000 single-spaced typed pages. It is nearly universally agreed upon that we must make our tax code more simple and fair.
Every year taxes become more time-consuming with waves of new tax rules. The average American spends 26 hours on their taxes each year. This means that Americans will spend half of the typical work week or 6.1 billion hours in total on their taxes. Even still, many well-intentioned Americans make honest mistakes when filing their taxes. Due to numerous tax loopholes and special preferences in the tax law, taxpayers with similar incomes can pay vastly different amounts in taxes. A survey by the Tax Foundation and Harris Interactive found that 85 percent of Americans find the federal tax code to be too complex. It costs taxpayers approximately $163 billion annually to comply with the tax code.
Let’s scrap the entire tax system and replace it with one that is simple, low and fairer. The best and most practical solution is to implement a flat tax. Unlike the other tax reform proposals, this can easily be done without repealing any constitutional amendments. While other tax reform options have merit, it will prove to be an arduous process to amend the Constitution. To repeal the 16th amendment—which established the federal income tax—we will need the support of 290 house members, 67 senators, the majority of legislatures of three-fourth of the states and the president. Introducing a reform such as the FairTax, which is a broad-based consumption tax on retail goods and services, without first repealing the 16th amendment is risky business. We could end up with both a national sales tax and a federal income tax.
Only one constitutional amendment has ever been repealed in our nation’s history. That doesn’t mean that it would be impossible to repeal the 16th amendment. It just means that those in favor of scrapping the tax code would be wise to focus on enacting a flat tax in the interim. A flat tax could be passed within the normal legislative process. As difficult as this could be, it will be much easier than going through the process of amending the U.S. Constitution.
With a Republican controlled House of Representatives, the flat tax is gaining momentum again. Rep. Burgess (R-Texas) has introduced the Freedom Flat Tax Act to implement an optional flat-rate tax system. It would phase in the flat-tax over a three-year period, with a 19-percent rate for the first two years and a 17-percent rate for the subsequent years. Unlike many other flat tax proposals, the Freedom Flat Tax Act that would allow individuals and businesses to choose if and when they opt into the system. These Americans would be able to file their taxes in just a few short minutes. A flat tax is a simple tax system that treats every American the same. It’s a huge improvement from the current tax code.
The flat tax is far from radical. Our tax code is one of the most complicated in the world. Over two dozen countries have already adopted a single-rate flat tax system. Nearly all of these nations have tax rates below 20 percent. Nearly all of these nations have experienced economic growth and lower unemployment rates after implementing a flat tax. Those countries include many Eastern European countries including Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Romania and Slovakia. It has been reported that Hungary, Poland, Greece and even China may be considering a flat tax. It is past due that the United States joins the flat tax revolution.
Russia is one of the prime examples of the success of the flat tax. In 2001, Russia replaced its progressive tax code with a single flat rate of 13 percent for all. The results have been outstanding. When people find their taxes to be low and sensible, they are willing to produce and invest more. In just the first year of implementation, Russia’s GDP grew a dramatic 5 percent. Between 2001 and 2004, The Hoover Institute found that tax revenue actually rose by 79.7 percent. Of course the flat tax is not a cure-all. Many of Russia’s problems can be blamed on other factors such as lack of property rights and excessive government intervention in the economy.
Imagine filling out your tax form within five minutes and not needing to hire a tax professional for hundreds of dollars. A simple flat tax would allow Americans to file their taxes on a form the size of a postcard. Taxpayers would be spared the many headaches that come along with filing annual income taxes. The flat tax would treat people the same while eliminating special interests from the tax code. Even Albert Einstein said that “the hardest thing in the world to understand is the income tax.” The flat tax only requires one simple calculation: income, minus personal deduction, times tax rate. It’s a simple idea that works.
Matt Kibbe is president and CEO of FreedomWorks, a nation-wide grassroots organization fighting for lower taxes, less government and freedom and the author of "Give Us Liberty: A Tea Party Manifesto."