by Dolf

Created on: June 09, 2009   Last Updated: June 16, 2009

The federal income tax was enacted in 1913. Tax rates ranged from 1% to 7% (7% was on incomes over $500,000). In 1913, less than 1% of the population paid federal income tax. Of course a great deal has changed since 1913 and tax rates on income have soared. In our current era, not only have taxes on income grown outrageously, the tax code itself is poorly written and highly biased.

Few people realize that there are complete sections of the tax code that were written into law for specific individuals. How fair is that? In a nation of free people the tax burden should be shared equally. One solution is a flat tax, that is, a straight tax percentage as was done in 1913. This is one suggestion that has been put forth as an alternative to our present tax code.

This would mean that if the flat tax on income was 12%, everyone would pay 12% of their gross income. This is an attractive idea and one that is worth considering. The obvious problem is a person with a tax rate of 12% with an income under $50,000.00 per year will feel the tax bite much sharper than the person with an income in excess of $1,000,000.00 per year. The easiest solution is to reduce the % at the lower end of the spectrum and bump it slightly at the higher end. For example, 10% to $50,000.00 and 14% over that amount. Keep in mind that the majority of income taxes are now paid by individuals at the lower income levels.

The current tax code could be eliminated and filing one's income tax would be a very easy and non stressful exercise. The 1040 would be revised to show gross income from wages, gross income from investments, gross income from dividends, and gross income from interest. Multiply the total by the flat tax rate and one has the tax owed for the year. Simply deduct the taxes already withheld from the W-2's and 1099's and either attach a check for the shortfall or request a check for a refund.

All other forms would be eliminated. There would not be any deductions for anything. Charities should receive more as everyone would have more disposable income.

There would even be an advantage to a 1/2% federal sales tax and quite possibly a federal lottery. The proceeds from the federal lottery would be applied directly to the national debt. The proceeds of the federal sales tax would go into the national budget and be combined with income tax proceeds to fund the government.

In the United States of America, many of us have lost sight of the fact that we are the government. It isn't "them" it is "us". We are long overdue for tax reform. No one wants to touch it because it is such a hot issue. What would all the lawyers and tax accountants do if such a tax went into effect? They would still find work assisting corporations with their taxes.

The flat tax rate would be considered solely for individuals. Corporations and other business entities would fall under a different tax structure that would allow some latitude for risking capital and making capital expenditures. But even here the tax code could be simplified to promote investment and make it much easier to start a business.

One thing our history has shown us is that in times of low taxes, there is high prosperity. In times of high taxes there is low properity and high unemployment. Tax reform is woefully overdue. We need it now. This is surely one way to get the economy moving in the right direction and get everyone back to work, and not just working at lower paying jobs, but work that is challenging and pays well. That is what Americans want. That is what Americans need.

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