The Ten Percent Flat Tax

The present tax system is unfair.

The most serious fault with our present income tax system is that it has
so grossly unfair. Only half of our nations income sources are being
taxed so that the other half pays no taxes whatever. Our gross domestic
product (GDP) was over 7.2 trillion dollars in 1996 .(1). Our present
income tax system collects only 735 billion dollars or about 10% of our
nations income (1). But IRS statistics show that the middel income
workers pay average tax return contribution rate is 18% and a marginal
tax rate of 28% of taxable income(2). This means that our present tax
base (taxable income) is slightly less than half of total income or GDP.
Middle income wage earners are paying 18% instead of 10.2% so that
others can pay nothing, zip, zero! If all income producing sources were
taxed at a single unitary tax rate of 10% the federal government would
collect more in taxes than it does now and every one would pay his fair
share of taxes. The Ten Percent Flat Tax would be much easier to
administer because all income producing business transactions could be
taxed at their source without regard to who the recipient might or might
not be. At the end of the year, no private citizen would ever again owe
the IRS even one penny more on his wages, his dividends, or his
interest. No citizen who worked for wages would ever again have to file
a federal income tax return. Only those citizens with income property
and businesses would file income tax returns. The IRS would no longer
process over 100 million individual tax returns, but would only have to
process 10 million business returns. Hundreds of thousands of IRS agents
and tax accountants would then be free to live useful and productive lives.
A summary of the ten percent flat tax.

All real income will be taxed once at a flat rate of 10%.
There will be no deductions or exemptions of any kind.
There will be no tax credits of any kind.
The value of all benefits will be taxed. This includes welfare,
health insurance premiums , pension plan contributions, company cars, etc.
Taxes will be collected by businesses.
Individuals will no longer file income tax returns.·
Interest will be taxed at a rate of 5% in lieu of indexing for
inflation.
Dividends will be taxed at 10% but will be a deductible business
expense.
Short term capital gains will be taxed at 10%
Long term capital gains will be taxed at 5%
Estate taxes will be a flat 10%.
A tariff of 10% will be imposed on all imports.
The Minimum wage will be increased to compensate for taxation on
minimum wage workers and their loss of welfare benefits.
Health care insurance premiums will count toward meeting the
minimum wage.
Depreciation and interest expense will no longer be allowed.·

Part A. Taxes on personal income

1. Wages and earned income will be taxed at a flat rate of 10 % starting
with the first dollar earned. The taxes will be withheld from the
workers paycheck and the money remitted to the IRS just as is done
today. A W-2 form will be supplied to the worker but since all taxes due
will have been paid, the worker need not file an income tax report.

2.Health insurance premiums paid by the employer will be subject to the
10% tax. The employer will deduct 10% of the premium value paid on the
workers behalf from the employees pay check. The taxes will be remitted
by the employer to the IRS.

3 Pension plan premiums paid by the employer will be subject to the 10%
tax. The employer will deduct 10% of the premium value paid on the
workers behalf from the employees pay check. The taxes will be remitted
by the employer to the IRS.

4.Company Cars, housing allowances, and other company perks will be
subject to the 10% tax. The employer will deduct 10% of the value of
such perks from the workers pay check. The taxes will be remitted by the
employer to the IRS.

5. Interest received from banks, savings and loans, government bonds and
other financial instruments will be subject to a 5% tax. The financial
institution will deduct 5% from all interest distributions and remit the
tax to the IRS. The tax rate of 5% instead of 10% is imposed because
inflation reduces the value of savings by about ½ the going interest rate.

6 Dividends received on corporate stocks will be taxed at 10%. The
corporation will withhold 10% from all dividend distributions and remit
the tax to the IRS. Dividends will be a deductible business expense. We
will no longer have double taxation of dividends.

7. Short Term Capital Gains will be taxed at a rate of 10%. The
brokerage house or the escrow department will remit 10% of the short
term capital gains on the sale or exchange of property to the IRS. Short
term is any asset held less than seven years.

8. Long term capital gains will be taxed at a rate of 5%. The brokerage
house or the escrow department will remit 5% of the long term capital
gain on the sale or exchange of property to the IRS. We define "Long
Term" as any asset held for seven years or longer. The tax rate on long
term capital gains is 5% to compensate for the devaluation of the dollar
due to ever present inflation. A more precise alternative would be to
index all capital assets for inflation. But I believe that the 5%
rate after seven years accomplishes this objective and is much less
subject to debate.

9. No deduction or tax credit of any kind will be allowed for any
interest paid for any reason or purpose.

10. No other deductions or exemption will be allowed for any reason.

11. Estate taxes will be a flat 10%. There will be no exemptions or
deductions of any kind. This tax will start at the first penny of
inheritance.
Part B . Taxes on business

1. All net profits will be subject to a 10% tax.

2. Interest paid will no longer be a deductible expense. Companies built
with sweat equity and money equity will no longer suffer discrimination
relative to companies built on borrowed money.

3. Depreciation will no longer be a deductible expense.

4. Losses will no longer be carried forward. Profits will be determined
year to year.

5. Losses will no longer be transferred from one company to another.

6. Dividends paid out will be a deductible expense. No more double
taxation of dividends.

7. Executive salaries. Any salary in excess of 200,000 dollar per year (
the salary of the president of the United States) will be declared
excessive. That portion of the salary in excess of 200,000 dollars will
be subject to a 10% surcharge and paid by the corporation. Some may
argue that an excessive salary tax is not fair or flat. But there is a
real problem with CEO and other high paid executives taking obscene
salaries and perks while the owners of the companies, the stock holders
get next to nothing in dividends. Let these wizz kids get their extra
bonus out of dividends like the owners and investors in the companies.

8. Company Cars. The value of any company car provided to an employee by
a company will be subject to a 10% tax. This tax will be withheld from
the employees pay check and the tax remitted to the IRS by the company.
The same rule shall apply to any other company perk like company
housing, paid vacation trips, or any other perk.
Part C. Taxes on the Working Poor.

federal transfer payments and tax forgiveness of low wage workers amount
to a negative income tax in the order of 150 billion dollare each year.
This loss to the federal treasury is almost 20% of total income tax
revenues. If this drain on our treasury is not stopped we will not be
able to have a balanced budget with a 10% flat tax but would have to
increase the rate to about 13%. We are not talking about unemployed
here. We are talking about people working for substandard wages. If all
our workers earned a living wage these government handouts would be
unnecessary.

1.The ten percent income tax shall be levied on all earned income
no matter how small. The income tax shall start with the first penny
earned and will finish with the last penny earned.
We acknowledge that the present minimum wage is not a living wage
and that we cannot expect any worker making the present minimum wage to
pay this tax. But we must insist that all citizens pay their fair share
to support our government. For this reason we demand that the minimum
wage be increased by $0.50 per hour each year over the next five years
as this ten percent flat tax is instituted.
For the first year that the flat tax is instituted the minimum wage
increase will just keep up with the tax increase so the minimum wage
worker will just break even. For that reason we will not start
dismantling the earned income credits until the third year.
All earned income tax credits will be completely phased out over
the third, fourth and fifth year of the ten percent flat tax plan.
All food stamps and housing assistance for the working poor will be
phased out over the first five years of the flat tax plan.

Part D. Tariffs and Most Favored Nations

All work has dignity and therefore all workers deserve a living wage. We
must recognize that we live in a global economy where transport over
intercontinental distances is no longer expensive. We must also
recognize that in many countries child labor, slave labor, and prison
labor are commonplace. These same countries have very low or non
existent minimum wage laws, fair labor standards, and no workman
compensation system. If our companies have to compete in a price war
with competitors in these countries we will loose even more good jobs.
Our workers need protection from these unfair competitors. We do not
mean to stifle honest competition but we do need to even the playing field.

1. All nations having most favored nation trading status with the United
States will have a flat Tariff of 10% levied on all goods of any kind
and description coming into our country.

2. No nation will be granted most favored nation status if its negative
trade balance with the United States exceeds ten percent in the past
calendar year.

3. Nations such as China an Japan who do not meet this criterion will
have an additional 10 percent duty or a total tariff of 20% on all goods
of any kind and description.
Part E. Examples of the 10% flat tax on various classes of individuals
as defined by the Kathy Kristol article in the Los Angeles times. I have
added the 10% column for comparison.

Kathy Kristol publihed an income tax chart in the Los Angeles Times
showing winners and loosers if the Forbes 17% tax plan were inacted into
law. Her argument was that the forbes plan was unfair because the more
wealty of our citizens would get the largest tax break. She failed to
point out the obvious inequality in both the present tax scheme and the
forbes plan. Both plans are unfair because people with identical incomes
pay vastly different taxes. I used her data for the present system and
for the
forbes plan. I the applied my tax plan to these hypothtetical
individuals. the results are shown below. In my plan all taxes are equal
except for small differences for the retired people who happen to
receive their income from dividends, interest, and capital gains instead
of wages. I do not want to defend how typical each of these particular
groups is or is not. The important thing is that people and famillies
with equal income do not pay the same taxes..this in not fair in my
judgment.
Classification Gross Income Present Tax 17% Tax Plan 10% Tax Plan
Single- Renter $30,500 $3,713 $3,320 $3,050
Single Home Owner $30,500 $3,158 $3,230 $3,050
Single- Retired $30,500 $3,713 $4,500 $3,050
Married no kids Renter $61,000 $7,235 $6,460 $6,100
Married no kids home owner $61,000 $5,404 $6,460 $6,100
Married no kids retired $61,000 $7,235 ZERO $6,100
Married,2 kids renter $61,000 $6484 $4,760 $6,100
Married, 2 kids home owner $61,000 $3,904 $4.760 $6,100
Married retired no mortgage $61,000 $7,235 ZERO $6,100
Married 2 kids renter $230,000 $54,561 $20,060 $22,250
Married 2 kids Home owner $230,000 $45,553 $20,060 $22,250
Married Retired no mortgage $230,000 $54,561 $49,801 $20,000
Part F. Taxes collected in the year 1993 in billions of dollars.(1)
Income Category Tax Base Taxes Collected Ave. Tax Rate
Personal income $5,429 $509.7 9.4%
Social Security $2,940 $214.2 7.3%
Excise Taxes $500 $48.1 9.6%
Estate Taxes $50.4 $12.6 25%
Total personal taxes $5,429 $784.6 14.5%

Business Taxes Tax Base Taxes collected Ave. Tax Rate
Income taxes $467.3 $117.5 25.1%
Social Security $2,940 $214.2 7.3%
Customs Duties $500 $18.8 3.8%
Fed Reserve Deposits $500 $14.9 3%
Total business taxes $4,407 $365.4 8%

Total of all Taxes $6,358 $1,150 18.1%

Part G. Taxes that would have been collected in 1993 if we had the 10%
flat tax.(3)
Income category Tax Base Tax Collected Ave. Tax Rate
Personal income $2,940 $294.2 10%
Social Security $2,940 $214.2 7.3%
Interest $695 $34.8 5%
Dividends $158 $15.8 10%
Self Employment $722 $72.2 10%
Health and Pensions $585 $58.5 10%
Gov. Transfer payments $890 $89 10%
Total Individual Taxes $5,990 $778.7 13%

Corporate profits $467 $46.7 10%
Corporate Dividends $158 zero zero
Business interest $695 69.5 10%
Depreciation $671 67.1 10%
Social Security $2,940 $214.2 7.3%
Customs Duties $500 $50 10%
Fed Reserve Deposits $500 $14.9 3%
Total corporate taxes $5990 $462.4 7.5%

Total of all tax receipts $6,358 $1,241.1 19.5%