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Although I agree with Badger's suggested guidelines under our current tax system, I disagree that the system is fair.

To be fair, a system must treat everyone equally, i.e., everyone should pay their fair share. Our voluminous tax code is nothing more than an enormous laundry list of exceptions, according special treatment to special groups. So how do we define a fair share?

Having lived in colonial Hong Kong for ten years, I think I know the answer: A flat tax.

In Hong Kong, the taxpayer is taxed a flat 15% percent of his earned income. If you earn $1,000,000 a year, you pay $150,000 in taxes. If you earn $100,000 a year, you pay $15,000. Simple isn't it? Everyone is paying according to his ability pay; everyone is paying the same percentage.

There are many advantages to a flat tax system, which I will explain shortly, but these advantages translate to disadvantages to politicians who would no longer be able to dole out special treatment to special interest groups. I'll explain that also.

It's obvious that the greatest advantage of a flat tax is it's fairness and simplicity. Everyone is treated equally, and everyone, once he determines what he has earned in a given year, knows precisely what his tax obligation is. No complicated returns, no need for tens of thousands of IRS employees to spend their lives pouring over complicated returns, and no need for one of the most powerful and complicated computer networks in the world. It saves the taxpayer money, and it saves the government money.

Everyone is taxed according to his ability to pay. The individual earning 100 large can reasonably be expected to pay $15,000; and the individual who earns a million can reasonably be expected to pay $150,000. I'm not suggesting that a U.S.flat tax rate should be 15%, the same as Hong Kong's. Perhaps we would need a rate of 18 or 19%. That would be a question for congress. I'm simply using the HK rate as an example because it makes the examples easy to follow.

Perhaps the greatest advantage of a flat tax system is that it would make congress more accountable. Right now, no one--not even the IRS--completely understands the tax code. Small tweaks to the incomprehensible code are attached to unrelated bills in congress. Generally the only people familiar with the thousands of changes passed every year are in the groups lobbying (paying) for the changes because those changes grant them favorable tax treatment. It's impossible for the average citizen to be aware of the endless provisions of and changes to the code. But if we had a flat tax, everyone paying the same rate, tax law would be easy to follow. If a congressman wished to change the rate, he would have to stand up in Congress and ask for a higher rate for everyone. He would also have to start looking for a new job. It would be impossible for a congressman to hide what he wanted to do to the tax code because each change would affect all of us.

The final advantage would be a reduction in government spending. We all believe that government wastes more than half of our tax money. If we had a flat tax system a congressman would be loathe to stand up and ask to raise the tax rate for all of his constituents, therefore we would likely see a reduction in government spending, a focus on essential government activities, and more efficient use of our tax money.

These advantages to the taxpayer are disadvantages to the professional politicians. After all, the power to tax is the power to control. What politician wishes to give up power? What politician wishes to surrender his ability to give special interests special, favorable tax treatment?

Every time someone raises his voice to support a flat tax, the media are flooded with commercials telling us that a flat tax rate favors the rich and hurts the middle class. Nothing could be further from the truth. It is the rich who seek and can pay for special tax treatment. If there were a flat tax with no deductions, the rich could not avoid paying their fair share. Nor could anyone else. They frighten us by telling us we will lose our deductions for dependents, we will lose our deduction for mortgage interest, and so forth. So what? If we are in a 30 or 39% tax bracket, your deductions may bring to down to an effective rate of 22 or 25%. But if you could have a lower flat tax rate of 19 or 20%, who cares about losing the deductions. In short, the government's strategy is divide and conquer: Make each group afraid to lose its special treatment, and the groups will never unite to seek equal treatment. In fact, we are holding ourselves back when we accept the government's line.

One final thought: Of course, there should be one bump in an otherwise flat tax system. Perhaps the first $10,000 or so of income should be excluded from taxation, so that the very poor are given some relief. Also interest income to individuals should not be taxed. That would encourage people to save and invest.
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