Flat tax revisited

In his speech to the Republican National Convention in 2004, President Bush called for substantial reforms to America’s fundamental economic systems, including the tax code, which Mr. Bush criticized as “a complicated mess, filled with special interest loopholes, saddling our people with more than 6 billion hours of paperwork and headache every year.”

Traditional reform, however, may not be sufficient; adding provisions — even those intended to simplify the code — into what is already a 9 million-word tome could lead to more confusion, more creative interpretation and more detrimental loopholes. Americans now spend on average over 28 hours each year filing their personal income taxes, and the total cost of all compliance was a staggering $200 billion in 2004. This burden is hampering the U.S. economy, drawing money away from potentially valuable initiatives and investments and into the non-productive business of creating tax shelters and developing various other tax-avoidance schemes.

Through abusive tax shelters, tax-avoidance has cost the government $85 billion over the past decade, according to the Government Accountability Office. Successful schemes save money and result in both a continued incentive to exploit tax loopholes and a greater tax burden on any one without the resources to find and pursue the often obscure and complex tax exemptions.

Steve Forbes, a longtime proponent of the flat tax system, has released a revised prescription for America’s burdensome tax laws, and presents his argument in his new book, “Flat Tax Revolution” (exclusive excerpts begin today on our Op-ed page). The Forbes flat tax — a 17 percent tax on all personal income, with simple and generous exemptions — is the kind of idea that should inspire tax reformers. “Think of it this way,” Mr. Forbes writes, “Washington politicians take one dollar from your pocket — and then return fifty cents in various tax deductions. Wouldn’t it be better if they taxed you only that fifty cents in the first place?”

Using historical and international examples, Mr. Forbes introduces several precedents for the success of the flat tax system. With abundant economic analyses, Mr. Forbes responds to his challengers’ allegations that a flat-tax would bankrupt the government or curb charitable giving.

In all, the flat tax may not be as straightforward as Mr. Forbes believes, but his rational thinking should be welcome in shaping subsequent tax-reform discussion.

Part II

Steve Forbes is the author of “Flat Tax Revolution.” The excerpts are from that book.

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