Taxes are interesting!
Currently we are not collecting enough taxes to pay for all of the expenses. If we are not ok with the deficits, then we need to raise taxes or cut spending. The largest overall discretionary expense is military spending which is $1 trillion(wars, benefits, interest on wars, capital expenditures, and personnel) of the $2.3 trillion that we collect in taxes and $3 trillion that we spend in total.
So any tax rate change needs to be revenue neutral or increase taxes paid in total to reduce the debt. Let's look at revenue neutral.
If you are decreasing the taxes paid by the top 5%, then the bottom 95% need to pick up the tab to keep it revenue neutral. The bottom 15% have no ability to pay any more as they currently can't support themselves. Therefore if you are looking at a flat tax and you make under $250k then you need to be looking at a sizable increase in your taxes to fund the drop in taxes paid by the top 5% and truthfully the top 1%.
For an individual with a W-2, no house, no rentals or complexities the tax return can be done online in 15 minutes. Very simple. The complexity is derived by providing incentives for doing various things and to ensure that people are not gaming the system.
As an example. If you have a flat tax and you buy a rental house that generates $10k in rental income and costs $100k to buy the land and building. How do you account for this on your tax return?
You have revenue of $10k and expenses of $100k. Hold on now, you can't deduct the cost of the house all at once. If there are no rules in place, then it would be fair to say the cost of buying a house, building, inventory, etc. is a deductible cost when purchased. The house will fall apart over time, so what do you do. Depreciate the house and the contents. Do you depreciate the refrigerator at the same rate as the house. More rules more complexity, less ability to game the system. If you say you can't depreciate or expense, then people would be less inclined to purchase depreciating type assets as they would get all the income with no corresponding reflection of the assets being depleted.
The biggest boon to the rich and tax preparers would be a flat tax because all the various regulations that were derived to keep people from gaming the system would be gone plus they would get a reduced tax rate. We would be able to take advantage of all of this stuff and eliminate all federal income taxes by structuring deals. Those with simple W-2 income would need to pay 100% of the taxes because the wealthy would be paying 0%.
The original tax return in 1913 was a very simple from, with like 5 lines. The rest of the complexity was added to ensure that people paid a fair amount of taxes and to ensure that the accountants and lawyers didn't game the system. Loopholes are being filled in at a fast pace, but new laws create new loopholes. Eliminating all the rules would be huge!!!
I would benefit significantly from a flat tax even without the games I described, but I feel it is not fair to make those making less than $250k pick up the tab. I have the discretionary income to pay my share of the cost of running the government.
