I've always thought the virtues of the flat tax out weigh its disadvantages. However, there's one aspect of all the flat tax proposals that doom them from ever getting adopted. That aspect is the investment earnings exemption. The public will never perceive that as being fair and will always see it as a give-away to the rich. Now I'm aware of the argument that a tax on investment income is taxing the same money twice. First when it's earned by the corporation, and again when it's paid to the investor. That's true. It is taxing the same money twice and the argument against it is that doing so is inhibiting to investment and therefore slows economic expansion. Well, maybe so, but right now we seem to be doing pretty well generating economic investment with the current tax rates. If these rates were reduced, as they would be with a flat tax that includes investment income, investment should be additionally stimulated. (Especially, if investment income taxes were indexed to inflation, which would have to be part of the plan to get my support).My proposal, then, would be as follows:1. Implement a flat tax along the same lines as proposed by Forbes, but with the difference that investment income be included.2. Investment income for tax purposes would be reduced by the amount of inflation during the investment period. (E.g. If the interest was 6% and inflation was 3% you would only be taxed on half the amount earned. It seems to me immoral to tax someone for income they didn't get. (Your bank or broker could calculate the taxable income for you easily and include it on you 1098 or 1099 form, so it wouldn't have to be complicated).3. The tax rate would be set below the 19% and 17% proposed by Forbes in order to reflect the additional dollars collected by including investment income. (That would probably only reduce it 2 or 3 percentage points, however, not cut it to 10% as estimated in an earlier post).The above plan would have most of the economic and simplicity advantages of the current Forbes or Dick Armie plan, but would have the additional advantage of being perceived as fair and not “another rape of the middle class by the rich”. In other words, it might actually fly.What do you think? Is the above nonsense? Or, should I run for president?
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