Tax System Problems and Flat Tax Solutions

1. Tax System ProblemsandFlat Tax Solutions Presented by: Dick Armey Co-Chairman, FreedomWorks To The President’s Commission on Tax Reform

2. The Tax System is Broken • “The American people deserve—and our economic future demands—a simpler, fairer, pro-growth system.” • President George W. Bush, Republican National Convention, 2004 • This is what the American people want

3. The Tax System is Broken • The American People know the system: • Is too complex • Is unfair • Hinders economic opportunity, savings, investment, and job creation • Undermines good government

4. How to Fix the Tax System • There is considerable agreement that the current system needs to be scrapped for one that is simpler, fairer, and pro-growth • Less agreement on what it should be replaced with • Flat Tax best addresses these concerns • National sales tax should not be introduced unless 16th Amendment is repealed, otherwise we could have European-level taxation with both income tax and sales tax

5. What a Flat Tax Would Look Like • Liberating in its simplicity • Starts with scrapping current code • All income—business and individual—would be taxed only once and at one rate • Only exemption: personal exemption so every family can cover their expenses before paying the government

6. What a Flat Tax Would Look Like • All deductions and credits eliminated • No breaks for special interests • No loopholes for powerful lobbies • No favoritism towards some citizens and harassment of others • No tax breaks for corporations • No tax shelters • No depreciation schedules • No tables • All Americans treated equally

7. Flat Tax Solves Current Tax Code Problems • Current Problem: Complexity • 8 billion pages of forms from IRS yearly • Compliance time: 6.6 billion hours • More than spent building every motor vehicle in the country • Compliance costs: $194 billion annually • Over 26 hours to complete 1040 • Flat Tax Solution: Simplicity • One post card per taxpayer • Income – personal exemption x rate = tax liability • That’s it

8. Flat Tax Solves Current Tax Code Problems • Current Problem: Unfair • All Americans not treated equally • Taxpayers with similar incomes can pay vastly different amounts • Flat Tax Solution: Fairness • All Americans treated equally • Still progressive

9. Flat Tax Solves Current Tax Code Problems • Current Problem: Hinders Economy • Punishes savings, work, and entrepreneurship • Reduces investment • Distorts financial decisions • Jorgenson: $1 raised costs economy $1.39 • Flat Tax Solution: Prosperity • All economic activity treated equally, promoting economic efficiency, increasing prosperity • Savings not discouraged, increasing productivity

10. Flat Tax Solves Current Tax Code Problems • Current Problem: Undermines Good Governance • Lobby industry is DC’s biggest private sector employer • Since 1998 alone: 483 companies have lobbied the IRS with 2,884 tax lobbyists • Flat Tax Solution: Transparency • No special interest deductions for which to lobby • See chart

11. More tax code, More lobbyists

12. Common Concerns • Mortgage Deduction • Flat tax would lower interest rate by more than loss of deduction • Increase deficit? • No, can be revenue neutral • Progressivity? • Flat and still progressive • Index family allowance? • Yes

13. Common Concerns • Will charities suffer? • No, charitable donations track income, not tax benefits

14. Flat Tax Solves Current Tax Code Problems • It’s simple • (Income – Personal Deduction) x Rate = Tax • It’s fair • Popular with Americans because it embraces core American belief: That we should all be treated equally • It’s pro-growth • Ends distortions by treating all economic activity equally • It’s the right thing to do