American Flat Federal Income Tax
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American Flat Federal Income Tax David M Severance [email protected] 720-392-0420 ACCT525 Current Issues in Accounting Victoria Marschner August 18, 2012 American Flat Federal Income Tax Table of Contents Introduction ................................................................................................................................................ 2 A Brief History of the US Income Tax ....................................................................................................... 3 Definitions .................................................................................................................................................... 4 Progressive Income Tax .......................................................................................................................... 4 Value Added Tax (VAT) ........................................................................................................................... 5 Flat tax ...................................................................................................................................................... 5 Flat Tax Proponents .................................................................................................................................. 6 Rick Perry .................................................................................................................................................. 6 Newt Gingrich ............................................................................................................................................ 7 Herman Cain ............................................................................................................................................. 7 Malcolm S Forbes Jr. ............................................................................................................................... 8 Rep. Dick Armey ....................................................................................................................................... 8 Daniel Mitchell .......................................................................................................................................... 9 Flat Tax Opponents ................................................................................................................................... 9 Holley Ulbrich ............................................................................................................................................ 9 Linda Beale ............................................................................................................................................. 10 The Popular Flat Tax Plans ..................................................................................................................... 10 The Forbes Plan ...................................................................................................................................... 11 The Armey Plan ....................................................................................................................................... 11 Replace the Income Tax with a Flat 17% Tax ....................................................................................... 11 Individual Wage Tax ................................................................................................................................ 12 Business Tax .......................................................................................................................................... 12 Guards against Higher Taxes ................................................................................................................ 12 The Rick Perry Plan ................................................................................................................................ 13 The Gingrich Plan.................................................................................................................................... 13 The Cain 9-9-9 Plan ................................................................................................................................ 13 Economics ............................................................................................................................................... 14 Simplicity ................................................................................................................................................. 14 Economic Growth .................................................................................................................................... 15 Eliminate the Tax Lobby ......................................................................................................................... 16 Global Competitiveness .......................................................................................................................... 16 Conclusion .............................................................................................................................................. 17 Works Cited .......................................................................................................................................... 21 Works Cited Continued……………………………………………………………………………………...22-23 Page 1 of 23 American Flat Federal Income Tax Introduction One might think it would be considered economic suicide for a Tax Accountant to write a paper on the concept of the United States(US) changing to a flat income tax. The approach will be to balance strong opinion from the author that will be that will be backed up by research to support many of these opinions. The main reason for this approach is because this Tax Accountant is an American first and has grown sick and tired of special interests running our lives. As will be discussed further, the idea of why switching to a flat tax and eliminating the majority of all “tax deductions” which have been lobbied by the various special interests like the National Association of Realtors (Rohrlich, 2012). Additionally, according to a report from the nonpartisan reform group Public Campaign; Thirty large American corporations spent more money on lobbying than they paid in federal taxes from 2008 to 2010 (Murphy, 2011). Steve Forbes writes in his book, one in six private sector employees in Washington DC are employed by the lobbing industry. Half of their efforts are directed at wrangling changes to the tax code (Forbes, 2005, p. 8). America seems to be is broken; political and corporate corruption and lack of ethics in Washington DC and on Wall Street. Read on and you will understand how the adoption of the Flat Tax is the road map to taking back our country. A Brief History of the US Income Tax Article I, Section 8, Clause 1 of the United States Constitution, reads “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to Page 2 of 23 American Flat Federal Income Tax pay the Debts and provide for the common defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States”; but is the current progressive Income Tax uniform throughout the United States? Assuming the 16th amendment was ratified, does this ratification allow for a progressive Income Tax under the US Constitution. Does that change the original document calling for uniformity constitutional? The nation had few taxes in its early history. From 1791 to 1802, the United States government was supported by excise taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves. The high cost of the War of 1812 brought about the nation's first sales taxes on Luxury items (gold, silverware, jewelry, and watches) for 5 years but in in 1817, Congress did away with all excise taxes in favor of tariffs on imported goods to provide sufficient funds for running the government. In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. This temporarily created the Bureau of Internal Revenue that managed tax collection duties. The income tax increasing government coffers by an estimated $340 million during the 10 year period it existed (Investopedia US, 2012). The Bureau of Internal Revenue is known today as the Internal Revenue Service (IRS). The name was changed to emphasize a greater focus on serving the public rather than merely collecting taxes. Today the IRS is a massive bureau; in 2004 the agency collected over $2 trillion in revenue processing more that 224 million tax returns (Investopedia US, 2012). In 1913, the 16th Amendment to the Constitution made the income tax a Page 3 of 23 American Flat Federal Income Tax permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. While Bill Benson makes quite the argument that the sixteenth amendment was never ratified (Benson & Beckman, 1985); the fact remains, since the ratification of the 16th Amendment to the Constitution, debate has existed over the merits of how best to levy the income tax (Teller, 2011). Definitions Progressive Income Tax A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. The United States income tax is considered progressive: in 2010, individuals who earned up to $8,375 fell into the 10% tax bracket, while individuals earning $373,650 or