It’s not the Balanced Budget Amendment, though that’s a good second choice. It’s certainly not senseless and impossible ideas like impeaching Obama or suing over birth certificates.
Instead, we should push an idea that’s ripe for quick passage. It’s an idea that cheers political moderates and conservatives. And it doesn’t immediately turn off liberals.
What is it?
It’s time to implement the Flat Tax. Here’s why:
1. Flat Tax Closes Idiotic Loopholes: I know that many Tea Partiers oppose legislation to close tax loopholes. I do, too, if it’s done to punish certain classes of business. But there’s really no good reason why General Electric paid no taxes on $5+ billion in profits.
2. Flat Tax Eliminates Innocent Mistakes: Flat tax is almost fool-proof. We can test that theory on Tim Geithner. When the formula is Tax = (Income – $30,000) * n (where n = rate), it’s hard to screw up. The current tax code is so complex that the Secretary of the Treasury cannot understand it.
3. Flat Tax Eliminates Same-Sex Marriage Argument: The individual flat tax is per person, not per household. There is no marriage penalty or marriage benefit. Since marriage isn’t mentioned in the Constitution, it makes sense that our tax code ignore it, too.
4. Flat Tax Increases Revenue: Yes, revenue will increase. Some, including many rich, will see their effective rate increase. Others will see their effective risk fall. Some who pay nothing today will begin contributing to functioning of government—legitimizing their opinion. With a $14.3 trillion mortgage that grows every day, we need to increase revenue.
5. Flat Tax Is Marketable: Don’t underestimate the importance of marketability. Great ideas (like the Fair Tax) are often stillborn because of their complexity. Ninety percent (or more) of people don’t want to spend a week studying the effects of government policy on them. Complex tax codes strike people as crooked schemes designed to hide something. The flat tax sells because it’s simple and obviously fair.
6. Flat Tax Eliminates Bracket Creep: You pay a flat percentage of your income above a flat, inflation-indexed deduction of about $30,000. The poor pay no taxes. Everyone pays an identical amount. Without bracket creep, the marginal tax rate is constant, encouraging additional activity.
7. Flat Tax Solves the Warren Buffett Problem: Billionaire Warren Buffett (incorrectly) claims that his secretary pays more in taxes than he does. (So why doesn’t Warren increase her salary until she hits his happy bracket?) Although Buffett’s argument is nonsense, many smart people take him at his word. The flat tax solves the problem of high income people avoiding taxes.
There’s no reason why the Flat Tax cannot proceed in parallel with the Balanced Budget Amendment, which I came out for in The Conservative Manifesto in 1993. But the BBA will take a while to get through Congress and 38 states. The flat tax have to be phased in over a few years to prevent too large a jolt. If Congress passes it 2011, it can be fully implemented by 2014 or 2015.
While the flat tax may not be perfect, it’s the best tax reform that’s possible.