The Case for a Flat Tax

The idea of a flat tax as applied to income is not a new one. In fact, the Member of Congress that held my seat prior to me, former Majority Leader Dick Armey, was a champion of the idea in the 1980's and 90's. Since 2003, at the beginning of every new Congress, I have introduced H.R. 1040, the Flat Tax Act. That means that I have introduced the Flat Tax Act six times during my tenure as the Congressman representing the 26th District of Texas.

Despite 10 states and 42 countries around the world enacting some form of a flat tax, the U.S. Federal Government has never coalesced around the notion. That is, until now.

Just last week, the House of Representatives passed H. Con. Res. 96 the House Republicans' Fiscal Year 2015 Budget. Budget Committee Chairman Paul Ryan (R-WI) once again put forth an economically responsible budget that will balance in 10 years while fostering a healthier economy. Within Chairman Ryan's budget there is support for H.R. 1040 as the resolution states that Congress should take a hard look at the Flat Tax Act.

While I was hopeful that comprehensive tax reform might become a reality, in an election year this may be a bridge too far. However, I am encouraged at the universality that the notion of a flat tax is beginning to achieve. Under Chairman Dave Camp's (R-MI) tax reform discussion draft, he lowered both the corporate and individual tax rates and began to take out deductions and expenditures within the code.

At its core, a flat tax is a simple notion: There exists one rate of taxation applied to a tax filer's income. Under my version of the flat tax, H.R. 1040 would dramatically simplify the tax code by offering taxpayers the option to pay a single rate of tax instead of navigating the web of confusing tax provisions. My legislation follows the principle of choice and allows individuals and businesses alike to opt into a 17% flat tax. However, those who want to remain in the current system can continue to file as before. My belief is that once a filer sees how easy filing a flat tax return is, they will not want to return to the previous, convoluted system.

The benefits of a flat tax are many. A flatter, fairer tax structure would be simple and tax returns would be done on a single page, maybe even on a postcard. Gone are the days of Americans spending over 6 billion hours filling out their tax forms. Yet another benefit of the Flat Tax Act is that it eliminates the Alternative Minimum Tax, capital gains taxes, the estate tax and the marriage penalty. These are federal gimmicks are unpopular, unfair and stymie economic growth.

Critics often point out that by lowering the rates and creating one flat rate for all tax filers, the tax will not raise enough revenue necessary for the federal government to function. However, historically, the amount of revenue that has been collected from an income tax necessary to sustain our federal government has been about 17%. That is precisely the number that I propose in the Flat Tax Act.

If one looks at other countries in which a flat tax was instituted, not only is adequate revenue generated, but there is a vast increase in both revenue and economic growth. The theory is that by lowering the tax rate, taxpayers become more productive and create more economic growth, which in turn, provides more tax revenue because businesses are more successful and the economy is operating at a higher level.

Believe it or not, around the world, Russia is a considered a prime case of the success of a flat tax. After the first year of its introduction in the country, the real revenues from its personal income tax rose by 25% followed by a 24% increase in the second year and a 15% increase in the third year.

Likewise, several U.S. states have also implemented a single flat tax. Americans from Utah to Massachusetts have realized the benefits of switching to a flat rate of tax as applied to their income. State revenues have increased because of a flat tax as well.

There is a clear trend developing here. As evidenced by the recent actions by Chairmen Ryan and Camp, more and more budget and tax experts are supporting a flat rate of tax. I am very encouraged by this sign. For far too long, our tax system has been one of complexity, confusion and disenfranchisement. A flatter and simpler tax where all taxpayers are equal is the answer to the ills of the present tax code.

I applaud the House of Representatives for passing a fiscally responsible budget. I applaud the consideration of H.R. 1040 within the House's budget. Now, let's consider how the right change to the tax code could improve an antiquated system, save Americans time and money, and most importantly, deliver enduring prosperity for all.