The Flat Tax: Why It Won't Work for America

By Scott E. Hicko

On the surface, the concept of a flat tax sounds good—it would simplify tax preparation and lower most people's taxes. However, according to Scott E. Hicko, a flat tax would increase taxes for the average worker and destroy the American dream. Under such tax legislation, the super wealthy would pay less tax while the nations's working class sould carry the nation's tax burden. First introduced in the 1970's, the flat tax concept will continue to be debated as the government seeks ways to streamline, says Hicko. And, most people do not understand the realities of it. The Flat Tax: Why it Won'T Work for America is the first book to outline the negative impact a flat tax sould create on the American economy.

• Language: English
• Publisher: Independent Publishers Group
• Release date: Aug 1, 2013
• ISBN: 9781938803901

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INTRODUCTION

There are many so-called Flat Tax proposals currently being perpetrated on the American Middle Class. Many of these quick fix solutions to our current tax system have their own idiosyncrasies. However, many of them share, in some form or another, the following basic precepts:

1) A single Flat Tax percentage that would be assessed on all Americans, regardless of their income.

2) Abolishment of the current Internal Revenue Code.

3) Preparation of a new and simple Internal Revenue Code.

4) Elimination (or reduction) of taxation on interest income, dividend income and capital gain income.

5) Elimination of all current individual tax deductions (incentives).

6) Abolishment of the federal estate and gift tax.

The Great Flat Tax has been described by many of its proponents as the picture of simplicity. I like to refer to it as FRAUD. Pure and simple fraud on the American Middle Class. Not fraud in the sense of legality. If the American people allow Congress to enact Flat Tax legislation, it would be legal. I use the word fraud to demonstrate the deception of the Flat Tax concept on the struggling American Middle Class. Let’s face it! Americans are frustrated with our current system of taxation, and it definitely needs to be cleaned up. My objection is to the sales rhetoric of the Flat Tax proponents. Their obvious attempt to scrap our current system of marginal taxation with a self serving, unproven system to protect the pocketbooks of America’s super wealthy. And they do this by feeding on the untested principles of simplicity and fairness of a Flat Tax program. If the Flat Tax becomes a reality in any form that has been proposed to date, the winners will be the super wealthy and the losers will be Middle- and Lower-Class Americans.

Why would so many apparently honest and well-intentioned politicians support the Flat Tax concept? That support, in my opinion, can only be driven by one of two forces. Either greed or ignorance. I think most of you would agree that neither is a desirable propelling force for the future of the American economy. Make no mistake about it, the Flat Tax is a politically correct position, but at what cost to the majority of Americans?

There is no question in my mind that the Flat Tax is simply a Manifesto for the super wealthy. What, exactly, do I mean by Manifesto? Many of the wealthy of this country proclaim their right to unlimited accumulation of wealth regardless of the social and economic consequences. I, for one, believe that all successful Americans owe a small debt to society for the opportunity for success that has been bestowed on us by virtue of our citizenship in this country. The Flat Tax proponents, on the other hand, profess that all Americans, regardless of their economic means, should share the burdens of our society equally. I strongly believe that this type of thinking and the ultimate Manifesto are the products of a warped sense of values and responsibilities. One may be able to successfully argue that there should be no cost associated with the opportunity for success. But how can one defend the precept that there should not be a cost associated with the attainment of success? After all, the opportunity for our success wouldn’t even exist today if our forefathers had decided they were not willing to pay the price for their success.

I’m sure that many of you have heard the following definition of ethics. Ethics is a set of rules and regulations, set forth by wealthy individuals, detailing on a step-by-step basis on how they made their lives a success for the purpose of ensuring that no one else will ever have those same opportunities in the future. As amusing as this definition is, it really hits home when one considers the hidden agenda in the back pockets of many Flat Tax proponents. The Flat Tax is simply a means by which the super wealthy Americans can increase that already impenetrable wall to super wealth while protecting and increasing what they already have. To which I respond, How much, just how much, is enough? I have always said that I would never mind paying $1 million in income tax, so long as I had made $2 million. Maybe one of you Flat Tax proponents can answer a question for me. What can you buy with $10 million a year that you can’t buy with $5 million a year? I really don’t know the answer. I can assure you of one thing, I have known people who earn $5 million a year, I have known people who earn $10 million a year, and I have known people who earn what many would consider a mere fraction of those amounts. The only conclusion I can come to is that happiness is not reciprocal to the amount of money you earn nor to the amount of tax you pay. Ben Franklin, said Two things in life are certain, death and taxes. He should have added to this proverb for the Flat Tax proponents, You can’t take it with you.

I have written this book to dispel the many myths that have been promulgated by the Flat Tax proponents. My ultimate mission in this book is to encourage the preservation and improvement of our current system of federal taxation while exposing the proponents of the Flat Tax for what they are, a bunch of super wealthy, greedy prima donnas who don’t want to pay their fair share.

Make no doubt about it, I dislike paying taxes as much as anyone else. But if God has given me the opportunity to be successful, I feel I have an obligation to help those less fortunate. Do I want the politicians in Washington deciding where my tax money goes? No! But if we abolish the Internal Revenue Code, we will give those politicians more power than they have ever dreamed of, and that is exactly what the Flat Tax will do.

As you read this book, keep in mind that there are, no doubt, inequities and useless garbage in the Internal Revenue Code. But our tax system and our economy are still the best in the world. Let’s not throw the baby away with the dirty bath water as the Flat Tax proponents would have us do. If the garage is messy, you clean it up, but you don’t tear it down.

1

THE INTERNAL REVENUE CODE

The Internal Revenue Code of the United States of America has been described in a number of different ways by the Flat Tax proponents: a grab bag of political favors, archaic, beyond the comprehension of mortals. In fact, the Internal Revenue Code is simply an operating manual for the collection of revenues for our multibillion-dollar economy. Without the Code, we would have no direction for the collection of revenue to fund the costs of running the U.S. economy.

FLAT TAX MYTH #1

THE PEOPLE IN CONGRESS TODAY ARE MORE COMPETENT AND POSSESS MORE INTEGRITY THAN ALL OF THEIR PREDECESSORS

Is the Code perfect in its present form? No! Can it be improved? Yes! Should it be scrapped in its entirety and started over again from scratch? Absolutely not! Unless, of course, you think the 435 representatives and the 100 senators sitting in Washington today are collectively wiser and more honest than all of their predecessors dating back to the early 1900s. We, as American citizens, cannot allow the current Congress to scrap the years of fiscal response to economic crisis contained in the current Code to promulgate a politically popular idea like the Flat Tax. Clean it up, don’t kill it. We cannot afford to give this kind of power to anyone just to experiment with what might happen.

The Code has a number of leaks, but they are not beyond repair. In defense of the Code, we must acknowledge that it is a historical compilation of years and years of experience of what does and doesn’t work. Sure, we have experienced failure after failure in our application of the Code. Sure, the government has given us deductions and then has taken them away, usually because they either didn’t do what they were supposed to or because they were no longer viable.

Remember, in life, experience is the sum total of failures and the corrective action taken to cure those failures. The Code contains a lot of failures in its long and illustrious history and, yeah, it has become a little clumsy as of late. But if we roll up our sleeves and put competent people in charge, we can get the Code walking tall again as it has for over eighty years.

FLAT TAX MYTH #2

THE FLAT TAX WOULD REPLACE THE CURRENT 100,000 PAGES OF THE INTERNAL REVENUE CODE WITH A SIMPLE, 22-PAGE DOCUMENT

Throughout my research of the Flat Tax, I have heard many different comments about the number of pages contained in the current Internal Revenue Code, ranging from 6,000 pages to in excess of 100,000 pages. The fact of the matter is that our Code currently encompasses approximately 4,000 pages of legislation. Granted, much of this data is highly technical. But I have an operator’s manual for my automobile that is in excess of 300 pages, so I am not the least bit amazed that the operator’s manual for the economy of the United States of America is over 4,000 pages in length. We are dealing with a multibillion-dollar economy here.

EXHIBIT 1-1

Internal Revenue Code Composition

Indeed, but the Code is difficult to understand. I agree, but I still have trouble understanding the operator’s manual for my VCR. I think even the strongest of the Flat Tax proponents would agree that the U.S. economy is a little more complicated than even my VCR. It is fiction for the Flat Tax Proponents to contend that the Code can be replaced by a simple 20-or 30-page document.

To illustrate my frustration, let’s take a look at the composition of the current Code. The Code is basically broken down into six separate areas:

1) Income tax

2) Estate and gift tax

3) Employment tax

4) Excise tax

5) Alcohol, tobacco, and miscellaneous taxes

6) Procedure and administration

Almost 2,400 pages of the Code (61 percent) is devoted to the explanation and definition of income tax. This encompasses areas of taxation for individuals, corporations, partnerships, non-profit, limited liability companies, etcetera. Estate and gift taxation is represented by 146 pages (4 percent); employment taxes have 168 pages (4 percent); excise taxes have 262 pages (7 percent); alcohol, tobacco, and miscellaneous taxes have 192 pages (5 percent); and procedure and administration have 748 pages (19 percent). (See Exhibit 1-1.)

So let’s give the Flat Tax people their due and assume that, in fact, they can condense the income tax section of the Code into 22 pages. That still leaves 39 percent (or approximately 1,560 pages) of the Code untouched. So our simple 22-page document has already swelled to over 1,500 pages. Why don’t they just tell us that?

It cannot be done. It will never work. Such an experiment could mean the end of the American Dream for all of us. I should mention at this time that approximately 2 pages of the current Code are dedicated to marginal versus Flat Tax concepts. The remainder of the Code is dedicated to the explanation of what is and is not taxable. This brings us to the next myth.

FLAT TAX MYTH #3

WITH THE PASSAGE OF A FLAT TAX, THE CODE WOULD BE DISSOLVED AND LOBBYISTS WOULD GO HOME

Nonsense! The Code wouldn’t go away. It would simply be rewritten by the current Congress. The blackboard would be wiped clean, and they would start over again. The lobbyists would be more prevalent than ever, and all of the special interests would be reenergized knowing that they would now have virgin territory to attack. It would clearly be open season in Washington, and anyone who tells you differently would be pulling