Flat Tax: Possible or Impossible?

Today is April 15th, a day that strikes fear in many hearts across America given that it is income tax filing deadline day…except for the fact that today is also Emancipation day and that has caused the government, in its benevolence, to tell us we have until Monday, April 18th to file this year to avoid late-filing penalties.

This is also the time of year when we hear fleeting references to a flat tax that would replace our current income tax approach.  “You can file on a postcard” is a favorite phrase used to advance the concept.  Would a true flat tax be possible?  What would the implications of a flat tax be to us besides making our lives quite a bit simpler?

There are many approaches to a flat tax, but there is usually a marginal rate applied after a certain amount of income is reached for individuals with the income beneath that level being tax-free.  Businesses would also see a marginal flat tax rate.  There are at least as many variations on a theme as there are proposals for a flat tax system.

One thing that most of these plans have in common is this:  The Internal Revenue Service, or is it the infernal revenue service, would be largely done away with along with the hundreds of thousands of pages of tax code mumbo jumbo.  On the surface, all that sounds good unless you are a tax attorney or an accountant earning a sizeable portion of your income providing advice to clients on this, that and the other approach to minimizing tax impact.

Probably the single biggest stumbling block to the implementation of a flat tax is our Congress.  Those we elect to Congress can become enamored of the tool that is the tax code since they can manipulate it to benefit their constituents even though it might damage another’s constituents.  They can reward entities that financially support their re-election campaigns by favoring those donors when bills make their way through the House and the Senate.

Isn’t it amazing how much a person can be worth financially after serving in the U.S. House or Senate for several terms when he or she was much like you or me when elected the first time?   I am not so much saying that we elect honest people who become less that way after being in Washington for a few terms, as I am saying they find themselves in positions to be rewarded for votes taken in some cases without regard to the pros and cons of that vote as it impacts multiple constituencies.

When we look at where Bill and Hillary Clinton began financially and where they are today, it is simply difficult to see how that could’ve happened without a lot of friends  feeling indebted to them for favors gained.  I don’t think either is worth what they’ve been paid in the recent past for speaking if it weren’t simply seen as an investment in the future by those inviting them and paying them.  You can draw your own conclusions.

Staggeringly complex tax codes play a part in that dance.  Those codes create winners and losers, and, unfortunately, as we know ‘when the elephants dance, we mice best get out of the way’.

Could a flat tax code work?  Yes.  Will we ever see a flat tax code?  Probably not; for obvious reasons.

 

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