Forbes Inc. CEO and former presidential candidate Steve Forbes says a major domestic battle looms this fall when the President’s Advisory Panel on Federal Tax Reform releases its findings.
But the re-examination of the tax code offers a historic opportunity to fix a system that has been broken for a long time, according to Forbes.
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Writing in the Wall Street Journal, Forbes said: "After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code."
Such a course would have "perilous consequences," economically and politically, Forbes believes.
Instead, he strongly urges consideration of a major overhaul in the tax code and the replacement of the current system with a flat tax for both individuals and corporations.
Americans waste more than $200 billion and over 6 billion hours each year filling out tax forms and engage in "all kinds of useless economic activity intended to take advantage of the code's complicated maze of deductions and to reduce taxes," Forbes writes.
Under Forbes' flat-tax plan:
The tax rate would be 17 percent on personal income and corporate profits.
There would be generous exemptions for individuals: $13,200 for each adult and $4,000 for each child or dependent, plus a $1,000 tax credit for each child age 16 and under.
A family of four would pay no federal income tax on its first $46,165 of income.
The capital gains tax would be eliminated.
The Alternative Minimum Tax would be abolished, as would the death tax.
Companies could expense all investments at once – no more depreciation schedules.
"The economic boom the flat tax would unleash would be stupendous," said Forbes.
That's largely because the flat tax would encourage hard work and productivity, corporate expansion and investment, according to Forbes.
He cited an analysis of the flat tax by Fiscal Associates of Alexandria, Va., an economic consulting firm, which found that between 2005 and 2015 Forbes' plan would generate $56 billion more in new government revenue than the current tax code.
It would also create $6 trillion in additional assets and lead to nearly 3.5 million new jobs.
Other countries, especially in Eastern Europe, have already gone over to a flat-tax system, Forbes points out.
Russia instituted a flat tax four years ago and saw revenue more than double in real terms. Hong Kong has had a variation of the flat tax for 60 years, and in recent years the flat tax has been successfully adopted by Lithuania, Latvia, Estonia, Ukraine, Slovakia, Romania, Georgia and Serbia.
For skeptics of his proposal, Forbes offers a choice: File a "postcard return" under the flat-tax system, or continue to file under the old system.
"See for yourself which is better," he said. "I think most would conclude that the flat tax is best."
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