Don’t Be Fooled by the “Flat-Tax” Reform Plans and their Promise of a Postcard-Tax Return

The FreedomTax would have a design structure freeing most Americans from ever having to file a tax return again, not even a postcard.  In most cases, the income tax would be collected at the source of payment.  It would substantially reduce income-tax compliance burdens. It would end the present tax system’s drag on the economy and on job and wage growth. It would save the Treasury billions in tax administration costs, and the IRS would be massively downsized into a little-noticed ministerial tax-collection agency.

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By James K. Jeanblanc | April 13, 2016

don't bee fooled

None of the “flat-tax” proposals will achieve real and lasting income-tax reform. The promise that only a postcard-tax return would be required is dependent upon the blind trust that the IRS (or successor agency) would not require more.

They Are Not Flat Tax Plans

Despite the hype, these “flat-tax” plans are not proposals to have a flat tax. Rather, they are proposals for single-tax-bracket taxation. Under these plans, the first level of a taxpayer’s income would be zero-taxed (because of allowed deductions and exclusions), and then the single tax bracket (the so-called “flat tax”) would be applied to the income above that level.  In this regard, the “flat-tax” plans are common, like other income-tax reform plans proposing to reduce the number of existing tax brackets from seven down to four, three, or two brackets. What distinguishes these “flat-tax” plans is that they propose taking that reduction down to one bracket.

These “flat-tax” plans are also common to other tax-reform plans in retaining the person-tax structure of the present tax system. Every taxpayer would continue to file a personal return (postcard) with the IRS (or successor tax agency) to report all of his income, to claim his personal exclusions and any other allowed tax breaks, and to compute the tax to be personally assessed against him. So, person taxation would continue, and there still would be a rarity to find any two persons with the same total income, paying the same effective tax rate.

This stands in stark contrast to the true flat tax, which would be fully focused upon what’s supposed to be taxed. Unlike person taxation, the true flat tax would tax all income uniformly, at the same rate, and without regard to income type, income source, income recipient, or how income is spent or invested.

Not Likely to be Long-Lasting

One can only guess how long these proposed “flat-tax” systems might last. Because the person-tax structure of the existing system would not be junked, one should not be fooled into thinking that a future Congress would not take easy advantage of the omission to return to multiple tax-brackets, higher tax rates, and the dispensing of more personal tax breaks. For those who might be fooled, the aftermath of the 1986 Tax Reform Act (a reform which left the person-taxation structure in tact) provides an instructive lesson.

In short, these “flat-tax” plans are road maps to the high-speed road back to the tax mess.

The Answer

To have real and lasting income-tax reform, the existing person-tax structure must be junked.  It should be junked for a modern, efficient system directed at the taxation of income, not people. Then, a simple low-rate income tax would be possible to maintain.

To this end, the FreedomTax is the only income-tax reform proposal to achieve that goal.

The FreedomTax would have a design structure freeing most Americans from ever having to file a tax return again, not even a postcard.  In most cases, the income tax would be collected at the source of payment.  It would substantially reduce income-tax compliance burdens. It would end the present tax system’s drag on the economy and on job and wage growth. It would save the Treasury billions in tax administration costs, and the IRS would be massively downsized into a little-noticed ministerial tax-collection agency.


James K. Jeanblanc is a CPA and Tax Counsel to the law firm Grove, Jaskiewicz & Cobert in Washington, DC. He is also Senior Fellow for Tax Policy at the Selous Foundation for Public Policy Research, author of The FreedomTax and a contributor to SFPPR News & Analysis.

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