It is by now I believe conventional wisdom that the federal income tax is complete absurd in its myriad carve-outs, deductions, credits, penalties, etc. Without altering any other portion of the tax code (which needs altering) what would a back of the envelope calculation be for moving from the Progressive tax to a flat-rate tax, applied broadly? The current rates go from 10% (on incomes below $16,750 for couples) to 35% (on incomes above $373,650 for couples) – soon to be rising.
The IRS reports in 2007 that:
In a world where we kept all deductions and exemptions and credits as we have today, this would imply that we could scrap the graduated system for a flat system with an 18.8% rate on taxable income with all of the loopholes, exemptions, etc.
What if we eliminated the silly exemptions and also brought all taxpayers into the system? From a justice standpoint this would seem to be desirable – we are at a point where nearly a majority of Americans can vote themselves goodies by taxing the rest of us without incurring a penny of cost themselves. Even if you favor a strong government, such a program is not healthy for a stable democracy – or revenue raising.
In order to continue to collect the $1.115 trillion in income taxes, the flat tax on all income (about $8.7 trillion) would only have to be 12.8%. You could also bet that if there was a flat tax of 12.8% with fewer exemptions, we would see property bubbles arise less frequently, we would see more income coming in to a clear and simple tax program rather than being sheltered and hidden in all manner of costly mechanisms, and we would likely see an increase in overall income because of the removal of massive inefficiencies the present graduated system inflicts on all of us.
Of course, layered on top of this are myriad payroll taxes, sales taxes, property taxes, excise taxes, estate taxes, and other fees which are not part of this calculation.