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NATIONAL CENTER FOR POLICY ANALYSIS
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Tax Code Makes No Sense
Daily Policy Digest

Tax Issues / Flat Tax & Deductions

Monday, April 15, 2002
From almost any standpoint, the tax code makes no ideological or analytical sense. Over the years, any number of politicians have suggested replacing our impossibly complex tax system with a flat tax. But the political system seems incapable of processing such a large restructure in one fell swoop.

  • To begin with, homeowners fear the value of their homes would fall if the mortgage interest deduction were eliminated under a flat tax.
  • If it is retained, it becomes difficult to scrap deductions for state and local taxes, health insurance and charitable contributions.
  • Without wiping the slate clean and abolishing all deductions except the personal exemption, the tax rate necessary to equal current revenues would be too high.
  • The bottom line is that although a tax rate of about 15 percent would equal current individual income tax revenues if there were no exemptions, deductions or credits, this is not a viable option.
Recognizing reality, most flat-tax supporters have moved away from scrapping the code completely and adopted a gradualist approach. And to this end, President Bush should spell out his plans to reform the system.

Source: Bruce Bartlett (National Center for Policy Analysis), "Tax Torture Is Flat Wrong," Wall Street Journal, April 15, 2002.

For text (WSJ subscribers) http://online.wsj.com/article/0,,SB1018817141550915760,00.htm

For more on Flat Tax & Deductions http://www.ncpa.org/iss/tax/
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