MAKING THE TAX SYSTEM LESS TAXING
May 31, 2005
Any attempt at federal tax reform must address two issues: the complexity of the tax code and the burden it imposes on the economy, says Steve Forbes.
In testimony before the President's Advisory Panel on Federal Tax Reform on May 11, Forbes made several key points:
- The tax code has been amended 14,000 times and grown by 3 million words since 1986, to a total of about 9 million words.
- Over the past 17 years, the time it takes for a taxpayer to file a regular Form 1040 has increased from about 17 hours and 7 minutes to 26 hours and 48 minutes.
- Tax compliance costs billions of hours in productivity -- equal to about 3.3 million full-times jobs.
- The current tax code encourages "abusive" tax shelters -- transactions made for the sole purpose of avoiding taxes -- costing the government $85 billion in tax revenue.
Forbes recommends the flat tax as a remedy. It would be simple, transparent and fair, and it would put an end to abusive tax shelters and tax distortions. Best of all, it would increase tax revenues:
- A flat-tax form could entail a single sheet of paper, with an exemption for the first $46,165 of income for a family of four, and then a flat rate of 17 percent for any income above that threshold.
- Business taxes would be simplified by assessing a flat rate of 17 percent on profits, after deducting for salaries and business expenses; additionally, investments would be expensed immediately to eliminate the need for depreciation schedules.
- By 2015, the economy would grow by about $2 trillion more under a flat tax than under the current tax regime.
Source: Steve Forbes, "May 11, 2005 testimony before the President's Advisory Panel on Federal Tax Reform," Forbes, June 6, 2005.
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