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An Argument for Flat Tax Rates

August 8, 2011

As America grapples with run away deficit, lowered credit ratings, government run amok, bleak job outlook, and corporate confusion, “uncertainty” is the word of the day. Businesses are uncertain about risks, the world is uncertain about America, and Americans are uncertain about what travesty will befall them next, especially at the hands of an intolerably disconnected government.

Now, more than ever, the American landscape is begging for stability. I believe that the best way to initiate a sense of stability is with flat tax rates, and a couple critical pieces of supportive legislation. Here is why.

The first thing to understand is the corporate tax rate. For the most part, but for all the loopholes, it would bankrupt even the most fiscally responsible company in no time. Huge mega corporation have found enough loopholes to the point that they pay virtually no taxes at all. But even then, they fear the closing of the loopholes, and have sent much of their operations overseas as a matter of self preservation.

The tax rate of 35% on corporations is insane on its face, and does nothing to solicit trust in the American government, nor a desire to maintain operations within America, nor to attract business to America. What makes it even worse is that States also charge corporate taxes up to 12% on top of that. Given that mega corporations pay virtually no taxes, the businesses that end up losing out are the smaller upstarts that are the backbone of the American business landscape.

The next thing to understand is personal income tax. Yes, the uber wealthy have a much higher tax rate than the middle-class, however, most of their income is capital gains which is taxed much lower. As a result, the uber wealthy actually pay about 1% less in taxes. Here again, the governments wheel of fortune tends to put the more wealthy on high alert, never knowing when their money stash will be attacked for more taxes. This impedes investment. The middle-class current pays roughly 17.5% and the uber wealthy about 16.5% on all income averaged out.

As of the time of this writing, and as I have experienced for myself, the tax laws are so huge and so convoluted, that not a single person seems to have a firm grip on them. This system is based more on insanity than sound fiscal policies.

What I propose is a flat income tax rate of 17% on all forms of income, including hourly, salary, capital gains, and retirements.

Further, to reverse the international outsourcing trends, a flat tax rate on corporate income at an internationally competitive rate of 6% with absolutely no loopholes, and regardless of where the labor is. If your operations are overseas, you still pay the tax.

The initial response from big business and the uber wealthy is likely to be that of criticism and resistance, but in the end, they will likely find the results favorable. Businesses don’t succeed if there is no one around to buy their products.

The next critical step is to enact two forms of legislation.

The first is to solidify the rates so that they cannot be changed at the whim of Congress. It is imperative that everyone be able to feel and maintain a sense of security so that they can plan. Along with cementing tax rates, minimum wage should also be left as is, never to be changed again. Minimum wage increases really don’t benefit anyone in the long run as they simply affect inflation to the point that the wage rate increases are left meaningless.

The second critical piece of legislation is a balanced budget protocol to never be encroached upon, ever. Deficit spending fouls the economy.

The main goal is stability. The best way to reach stability is to set rates and limits long term and at a rate everyone expects, can plan around, and is reasonable.

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