Q: does IRS restructuring need a flat tax more than a consumption tax? Yes: a flat tax will close loopholes for the rich, reduce IRS bureaucracy and encourage savings

0 Comments | Insight on the News, Nov 3, 1997 | by Richard K. Armey

Yes: A flat tax will close loopholes for the rich, reduce IRS bureaucracy and encourage savings.

Any taxpayer who has struggled with tax returns or encountered the wrath of the IRS knows that the current tax code is complex and unfair, and it has given rise to a tax-collection bureaucracy that all too often treats law-abiding citizens with contempt. It is a system that is corrupt to its core and an insult to the character of the American people. The current income-tax system must be eliminated.

The recent U.S. Senate hearings on the abuses and misconduct of the IRS sounded an alarm across the nation reminding taxpayers of the anxiety and frustration they feel every spring as they begin the annual ritual of filing their tax returns. On talk-radio shows, news programs and the editorial pages of newspapers across the country, Americans voiced their frustrations and demanded relief.

Given renewed public pressure to civilize the IRS and reform the tax code, I predict that a flat-tax world is not far away. And what a world it will be; a world with a tax code that is so simple it can be understood by all; a tax code that's so fair it treats every American the same.

Imagine filing your tax return on a postcard. You write down your total wage and pension income. Subtract a generous family allowance ($33,800 for a family of four) and take 17 percent of the balance. That's your tax bill. There is no death tax, no capital-gains tax, no marriage penalty and no Social Security benefit tax. You make out a check, drop it in the mail and you're finished with the IRS for the next 12 months.

Instead of taking 11 hours to calculate your taxes, under a flat tax you do it in 11 minutes.

Business income would be handled with equal simplicity. Businesses, from the mom-and-pop grocery store to the Fortune 500 company, would subtract expenses from revenues and pay 17 percent on the remainder. All business income -- including corporate, partnership, professional, sole proprietorship, farm, rents, royalties and interest -- would be taxed.

Gone will be the current 480 IRS tax forms and the 280 IRS forms that explain how to fill out the 480 forms. Gone will be the hordes of high-priced lobbyist who roam the halls of the Capitol in search of special favors, deductions, loopholes, shelters and credits.

Gone will be the existing armies of IRS agents and auditors, along with the aggravation, humiliation and anger they visit upon Americans today. Instead of harassing the weak and the powerless, tax collectors silently will be sitting at their desks, feeling bored and, I suspect, a little lonely. Once again IRS employees will be servants of the people, not our supervisors.

Since introducing my flat-tax legislation in June 1994, I have received thousands of letters of support. In coffee shops, on the Internet (http://flattax.house.gov) and around kitchen tables across America, people are enthusiastically praising the flat tax for three key reasons: It's simple, it's fair and it's pro-growth.

First, the simplicity. After seven decades of amendments, revisions, exceptions, loopholes, extenders and the occasional overhaul, the current tax code is a monument to complexity. Working Americans spend 5.4 billion man-hours learning the tax laws, finding the right forms, gathering their receipts and canceled checks, completing their returns and dealing with IRS problems. That's more time than is spent producing every car, truck and van manufactured in the United States. By one estimate, the needless time and paperwork costs our economy a staggering $200 billion a year.

The current tax code isn't just confusing to the average American, it's even confusing to professional tax preparers. Last November, Money magazine asked 45 tax professionals to prepare a return for a fictional family. The results: No two came up with the same tax total and not one preparer calculated what Money believed to be the correct federal income tax. Fewer than one in four came within $1,000 of that figure.

What's worse is that even the people at the IRS, whose job it is to provide answers to taxpayer questions, don't always understand the tax code. In 1993, for example, the IRS provided confused taxpayers with 8.5 million incorrect or incomplete answers. A flat tax would replace mountains of forms, schedules and instructions with two postcard-size forms, one for individual wages and one for business income. According to the Tax Foundation, the flat tax would reduce compliance costs by 94 percent, freeing up resources that are wasted on record keeping, filing forms, learning the tax code, litigation and tax avoidance.

No longer will families have to maintain shoe boxes filled with receipts and canceled checks. Instead of fighting with your spouse about who lost what receipt, in a flat-tax world you'll be able to spend quiet evenings and long weekends together enjoying the peaceful springtime.

In short, the simplicity of the flat tax will end for individual Americans the anguish about a system that treats them like second-class citizens.