The Single Rate tax: Better than fair, fairer than flattened

The 'fair tax' consumption tax is too complicated. Sen. Mike Lee's tax is unfair. The 'Single Payer' tax is just right.

America and the Three Taxes
America and the Three Taxes

WASHINGTON, March 6, 2015 — Almost everyone agrees that the current multi-million word tax code must be replaced. One alternative is the “fair tax” on consumption. Another is Sen. Mike Lee’s plan to reduce the number of tax brackets to two, 15 and 35 percent while eliminating taxes on capital gains and dividends. Lee’s plan also eliminates almost all deductions except for charitable donations and mortgage interest expense.

Does either plan make sense?

The consumption tax is a national sales tax. The logic is that people should be taxed on what they take out of the system rather than what they are paid. This plan virtually eliminates the IRS.

Read Also: The fix for government spending, taxes and economic growth

While consumption taxes are regressive, the proponents of this plan propose varying sales tax rates based on products purchased, with pre-bates given to offset any tax burden on low-income consumers. The problem is that any tax on consumption will always place a higher relative tax burden on the lowest income earners: Low income earners spend all of their income, meaning they pay tax on all income.

While complicated schemes may help reduce the burden, this is clearly a tax cut for the wealthy. The wealthy spend smaller portions of their income; someone with a $1 million income may spend only a few hundred thousand and save or invest the rest. The very successful individual with $10 million income may spend only $1 or $2 million; the remainder will not be taxed. The very wealthy could see their tax rate as a percent of income—which is usually how tax burden is measured—fall dramatically.

Any tax on consumption is regressive, no matter what schemes may accompany it.

Utah Republican Lee has a different idea. His plan reduces the tax brackets to 15 percent and 35 percent for individuals, while retaining deductions for politically sensitive items like charitable deductions and home mortgage interest expense. This is popular in the housing industry, but it distorts the market and causes long-term problems. Remember the mortgage crisis that led to the financial meltdown and to the severe recession?

Lee would also eliminate taxes on capital gains, meaning he would tax capital at a lower rate than labor. Many argue that’s not fair. His plan would also add significantly to the deficit, probably increasing it by about $240 billion per year for the next 10 years. But it should add significantly to economic growth, which is really the solution to our long-term problems, including public debt.

Read Also:  Would the fair tax mean fewer taxes for Americans?

There is a much better alternative. The single rate tax plan is really the best for the majority of people. The plan says that all income above a livable minimum will be taxed at a 15 percent rate, no matter how much income is earned or how the income is spent.

There would be no deductions for anything. In addition, business would be taxed on cash flow rather than income, so that capital purchases are completely expensed each year.

Capital gains and dividend income would also be taxed at 15 percent. The livable minimum would be set at two times the poverty rate. Corporations would also be taxed at 15 percent.

This plan treats all taxpayers exactly the same. It does not favor home-owners over renters, avoiding market distortions. It raises an additional $200 billion per year in tax revenue, adds significantly to economic growth, taxes labor and capital at the same rate, eliminates all loopholes, virtually eliminates the IRS, brings corporate funds earned outside of the United States back here, and may even encourage foreign companies to locate here. It removes the divisive nature of the current code, since everyone is treated exactly the same.

In addition, the tax filing at year’s end is simple. An individual simply adds up all of his or her income from wages and salaries, rent, interest, profits, capital gains and dividends, then subtracts the livable minimum. The balance is multiplied by .15, and that’s the tax that is due.

Simple, easy and fair.

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  • This 1 rate plan is somewhat s similar to HR 1040.
    But, why should dividends be taxed at all, if the corporation paid the 15% tax.
    Why is there an exemption for twice the poverty level? Everyone who can vote should have skin in the game. Alternative: Don’t pay the Tax – don’t vote.

    • I like that you think that only tax payers should have the vote. Good luck trying to get that one though. the have nots will revolt.

      • Buildgera,
        They might, but not because they care about general matters – they might just because they know that it would means less theft and redistribution TO THEM.

        So, you say let’s not try to save our own skins by stopping the thieves from stealing and redistributing our money BECAUSE they will get mad. I say – Let them revolt.

    • Corporations don’t pay taxes, they only collect them and pass them on to the govt. ALL TAXES ARE PERSONAL!!!!!!!

    • JWPicht

      Not taxing dividends makes sense to me – the corporate tax is double taxation – but taxing people in poverty or not letting them vote is political nonsense. I personally would prefer that everyone who has a vote also have “skin in the game,” but that’s something that you shout about with the other old angry guys in your lunch group. I also want them to bring back my favorite TV shows and I want teenagers to have better manners. I’m stuck with reality, though.

      • JWPicht,
        I raise my valid point, ONLY to generate a discussion – it is not a derious LEGISLSTIVE proposal.
        Having said that, originally, we could not vote unless we owned property (and paid property taxes), so the concept is not foreign.
        More importantly, it is practical insanity to allow “takers” to be able to vote themselves put money.
        Actually, I modified my “discussion-only” proposal a while back to be that the poor who don’t pay a certain minimum dollar amount of tax, would get 1 vote, while those who do pay that minimum would get say 1,000,000 votes.

        BTW, many Tea Party people love the idea.

  • There are misrepresentations and misunderstandings in your analysis of the fair tax.
    First, there is only one tax rate, 23% inclusive, not multiple tax rates based on the product.
    the pre-bate untaxes everyone up to thew poverty level. No one is
    discriminated against. Everyone treated equally. the wealthy spend more
    and therefore will pay more. This is a tax on wealth, not income.
    Third, April 15 will just become another spring day, not a day that is feared. No one will have to file a tax return.
    A tax with any sort of claim on income still leaves the government
    involved in your personal life and we all know where that leads.
    Only law abiding citizens and legal aliens file tax returns. With the
    FairTax everyone pays. Illegals, drug dealers, tourists, everyone
    Sixth. With any kind of income tax the politicians just
    can’t help themselves. they will tinker with the code, play favorites by
    giving breaks to their friends and crone capitalism will continue.
    Remember, under Reagan we got down to 2 brackets, almost a flat tax and
    look where we are now. a totally broken and indecipherable system.
    FaitTax is the fairest system out there. It is not perfect, no system
    is. There will be a few cheats, but no where the amount we have now.
    there are may other advantages to the FairTax, just too many to list here.

    • JWPicht

      Fair is subjective. If you can convince most Americans that it’s fair for a middle-class, middle-income earner to have a tax burden (as a percentage of income) several times greater than someone who makes ten or a hundred times as much, then you can convince them that the “Fair Tax” is really fair Good luck with that, though. If someone makes $100,000/year and spends it all (not hard to do if you have kids and live in New York), he pays $23,000. He’s not likely to say, “yeah, the billionaire down the road payed as much in tax as I earned, so that’s fair.” He’s more likely going to notice that the billionaire’s effective tax rate was minuscule compared to his.

      Whatever the advantages of the Fair Tax are, they don’t include an easy sell or broad appeal. Tax policy isn’t just about economics, but also politics. The Fair Tax is a political dud that will go nowhere, and that will be seen by almost no one who didn’t vote for Ron Paul as fair. A flat income tax has a much better chance. Two of them, in fact: fat and slim.

      And under Reagan, we got nowhere near a flat tax. The code was still full of exemptions, deductions and tax incentives. A truly flat tax that could be written up in a page would be much more difficult to corrupt. Reagan’s code was a vast improvement over what came before, but as a flat-tax project, it was a failure from the very beginning.

  • Chuck Burns

    Lee’s plan and your single rate plan are still income taxes. That is just a variation on what we have now. Lee is already offering deductions and trying to make taxation “fair”. Lte’s adopt the consumption tax with NO Deductions. Just a sales tax at the cash register. If lee or you or anyone else wants to make taxation more “fair” then cut the lower income citizens a check. Keep the collection of revenue to operate the government simple. No deductions at all just everyone pays the tax. Do not use revenue collection as a means of redistribution. Keep it simple no filing no forms, the government doesn’t need to know your income. The income tax started out with two pages now it is over 70, 000 thanks to our politicians. The Fair Tax bill is less than 150 pages.

  • Fremont V. Brown III

    Flat Tax Plan of 2010 proposed by Fremont V. Brown III


    5% tax on every individual of their taxable earned income.

    Taxable earned income would be considered income earned and earned
    income would be considered wages, salaries, or professional fees
    received from sources within the United States for personal services
    actually rendered.

    Business, Corporate or Trades

    5% on every person engaged in a business activity located in the
    United States on business taxable income of such person on the
    taxpayer’s share of the net profits of such business, corporation or
    trade, received from sources within the United States shall be
    considered as earned income. Net profit is income from sales or services
    minus standard business expensive.

    The present U.S. Income Tax act would be completely repealed.

    Also, the following taxes and programs in placed now would be
    completely repealed: Estate Tax, Capital Gains Tax, Dividend Taxes,
    Payroll Taxes, Taxes on Social Security payments to retirees,
    Unemployment Taxes, all Welfare and Foreign Aid programs.

    Social Security would be phased out. People would become responsible for their own retirement programs.

    Also, all tax-exempt organizations and non-profits would no longer be exempt from income taxes.

    Included in the above Act is the following, Congress would add an
    amendment to the U.S. Constitution, that Senate and Representatives
    could not spend more then 80% of the income taxes received from the
    previous year. Also, included would be a law that the 20% balance of the
    taxes collected the year before MUST be used to pay down the debt till
    it is paid off. Once the debt is paid in full, the 20% then could be
    used as the above 80%. NO NEW DEBT EVER, programs can only be funded
    from year to year.

    The 16th Amendment which states: The Congress shall have the power to
    lay and collect taxes on incomes, from whatever source derived, without
    apportionment among the several States, and without regard to any
    census and enumeration. A new amendment replacing the 16th will need to
    read: The Congress shall have the power to lay and collect taxes on
    incomes earned from within the borders of the USA, without apportionment
    among the several States, and without regard to any census and
    enumeration. At a rate no higher then 5% for individuals, corporations
    and trades.

    Reasons and benefits to the Flat Tax Plan of 2010 proposed by Fremont V. Brown III

    By repealing the Estate Tax, which steals the American Dream of
    someone building a foundation for their family to grow and prosper. And
    by repealing the Capital Gains Tax and Dividend Tax will cause more
    investment in companies and they will build and invest and in the
    process create jobs.

    The Flat Tax would draw businesses that left the US back as the
    Corporate Tax would be about 34% less then it is now. Also, it should
    bring new businesses to the US as our Corporate Tax would be much lower
    then many other countries.

    Once Unemployment Taxes are repealed and the income to the Government
    increases due to the lower income tax rate, retraining programs could
    be started. But, if the education system was changed at the local level
    to say something like: First through sixth grade the teachers must teach
    the students the BASICS like math, speaking, spelling, reading and
    writing. Teach math without calculators. Teach the student what type
    questions to ask themselves to reason out the answers for themselves.
    Teach US history with solid knowledge of the Constitution and Bill of
    Rights, plus world history and geography are a must. Then starting in
    7th grade the courses change to three hours a day for courses to prepare
    the student for college. One hour a day for a course called LIFE. This
    course would teach the student EVERYTHING they need to know once they
    begin life after 12th grade. Like cooking, washing the clothes, balance
    the checkbook, understanding the interest rates on loans, how to do a
    budget and stick to it, etc. Then four hours of vocation/trade skills.
    These courses would teach skills to be a plumber, carpenter, chef,
    landscaper, auto mechanic, dental tech, nursing, etc. The courses would
    also include management, purchasing, accounting and all of the skills
    needed to run a business. At the end of the courses the instructors
    would or would not issue a certificate that guarantees the employer that
    the student can do the job without supervision and correctly. The
    student could in many cases finish school with three to six skills. I am
    pretty sure the drop out rate would be much lower then it is now. And
    the students would be more prepared to start life on their own. And if,
    they loose a job will not need any retraining.

    The Flat Tax would take less time and money to prepare at the end of
    the year. For Individuals, the tax return would be the size of a 3″ x 5″
    index card. For Business, Corporations or the Trades the tax return
    would be the size of a 8.5″ x 11″ sheet of paper. It would, also greatly
    reduce the size of the IRS. As the tax returns would be much smaller
    and less complex, there would be much less for them to do.

    Flat Tax would be a job creator as with more money left in the
    taxpayer and businesses pockets, they will have more money to spend and
    save. To spend on hobbies, vacations, fixing things around the house,
    buying a second home, etc.

    Flat Tax would also, create lower prices as less taxes means less
    cost added into the products and services which equals lower wholesale,
    distributor and retail prices. The cost of living goes down. Even more
    money left in the taxpayers pockets.

    Something to think about: Everyone should support their country, as
    their country should treat all of its citizens equally. As all men are
    created equal, everyone should pay the same percentage.

    It is a proven fact that lower tax rates increase revenue to the
    taxing agency, because people have more money in their pocket to spend
    on investments, goods, and savings, etc. This creates more jobs and

    Higher taxes give people reasons to not report or under report income
    or to earn less income. Higher taxes are one of the reasons for lower
    productivity and lower living standards of the people. Along with to
    much government regulation. It is also the cause of less money for
    research and development expenditures. It removes money from the private
    sector. The private sector is where wealth is created. The Government
    sector does not create wealth. The larger the government the more it
    takes from the people and produces nothing, but overhead (expenses) in

  • Fremont V. Brown III

    Problems with the FairTax


    (a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.

    Problems, I see with the FairTax

    FairTax tax rate of 23% = 30% + NC state sales tax = 37% plus out of your pocket, for each dollar you spend.

    As the tax is figured on the selling price: Say on a house you wish
    to clear $250,250 on you would need to mark up 30% to sell it for
    $325,000. Subtract 23% tax ($74,750) off the $325,00 selling price to
    clear $250,250 on the house.

    Something to think about if, the FairTax applies to new houses, new
    cars and other high ticket items: Purchase a new house and then 33.8%
    (30% plus the new 3.8% Fed. Home Tax) really hits you. Say you purchase a
    house for $250,250 the tax added on to the cost would be at least
    $74,750 with just the 30% tax. Then the Fed’s jump in with their 3.8%
    sales tax and you add $12,350 making the total $337,350. That’s $87,100
    more. Then add the cost of financing over a 30 year period. Sounds like a
    great buy doesn’t? Will the banks finance the $87,100 in taxes along
    with the house loan? I don’t think so. Now, figure the FairTax on a new
    car with the state tax figured in – think, you may think twice before
    you buy?

    The FairTax would hurt sales of new homes because of the size of the
    tax. Which in turn would hurt contractors, painters, cement companies,
    lumber companies, etc.. Plus, it could cause people to purchase used
    homes, driving the availability down and the cost up. The same problem
    with vehicles and other high priced items.

    Because of the problems, caused with homes new and used, stated
    above, more people may rent. Causing a shortage problem and higher
    rental prices of Apartments.

    Will make customers think twice about a purchase when they see the 30
    cents plus NC state sales tax of 7% added in to the cost for each for
    each dollar. Most likely it will reduce sales. Less sales, less jobs,
    less merchandise sold, and around and around we go. FairTax states why
    punish the producer? Well it does, with less sales there are less items
    to be produced. Less items produced the less jobs, etc.

    Why the Prebate check? The Prebate makes the FairTax more complicated
    then is needed.. Lower the tax rate. Delete the Prebate. Plus, where’s
    the government getting the money to pay the prebate, if its mailed
    before they collect tax? What about the cost of figuring, processing and
    mailing of the prebate checks?

    Is this the first “Small” step toward a VAT tax? Is that the “REAL
    PLAN”? What’s to stop the government from changing the FairTax into a
    VAT tax by charging the 23% gross tax at the manufacturing and
    distributor level? Once the consumer gets use to the tax. Note: a VAT
    tax is not a value added tax. Tax does not add value. VAT taxes the
    market value of a product or the material added at each step of
    manufacture or distribution. It’s a CAT, a cost added tax. All taxes add
    to the cost of whatever it taxes.

    Most (99%) of the people in business I ask how they feel about the
    FairTax, state they don’t like it, mostly for the above reasons. The
    number one reason is they feel it would drive sales down and hurt the
    economy. And keep it down.

    Does not abolish the IRS, as the IRS or United States Department of
    Revenue, or whatever they will call it, will be needed to collect the
    taxes collected by the States. The States will also need to be audited.
    The States will need to audit the merchants who collect the FairTax from
    their customers. This plan also moves the balk of the cost of
    collecting the tax to the States. See processing of prebate checks
    above, as the IRS will be needed to process the prebate checks.

    Been introduced each year in Congress for the last 12 years or so.
    And still no go. Why? Maybe, because it gives the states control of
    collecting the tax giving Congress the hebeegeebees. Will the states
    submit the funds to the US Treasury if, they get ticked off at the
    Federal Government?

    Consumption tax ie the Nat Sales Tax, is still a tax on income as
    without income you have no money to spend on consuming goods. The theory
    is that you are earning more then your spending. Not, so for many
    people – as most people are in debt – they spend more then they earn.
    So, they are being taxed more with a consumption tax.
    My conclusion the FairTax is an economy-killer.

    • Fremont, Good Job!

      No, the banks will NOT lend on the sales taxes. Some States
      forbid lending in sales taxes. Banks cannot afford to take the future tax risks
      that I identified (late repeal of FT, later exemption for new homes, repeal of
      exemption for used property) because that would cause the value of the security
      to dropa nd thus put the loan under water. Thus, the buyer must may about 40%
      MORE and make a nearly 50% down payment AND assume that future tax risk. Existing
      home buyers would be in the same predicament.

      Yes, the “IRS” is still alive and well. The FT”s “IRS” the STAA) is fully in charge of this FEDERAL tax and would write all the rules. It may audit CIONSUMERS which could be far more invasive than current dits. Congress would surely repeal the
      FT’s laughable Sunset Claus, and with the 16th Amendment not repealed any time soon and with the giant FT shortfall (from their absurd X+ZERO evasion/avoidance “assumption”), Congress would use that excuse to enact the NEW Income Tax.

      This is the FT’s 17th year and thus far, its Congressional sponsorship is lagging the prior Congress.