IOWA CITY — Pitching the current 72,000-page U.S. tax code and replacing it with a flat income tax, as a majority of Republican presidential candidates propose, may be a pipe dream.
For now, the plans “amount to a good conversation-starter,” said National Taxpayers Union Executive Vice President Pete Sepp. The nonprofit, nonpartisan citizen group advocates for lower taxes and small government at all levels, including here via Iowans for Tax Relief.
“The idea of a much simpler tax system is not that difficult for most people to grasp,” Sepp told IowaPolitics.com. “It’s the commitment on the part of elected officials that many folks continue to doubt.”
The flat tax plan, endorsed this week by Texas Gov. Rick Perry and former U.S. House Speaker Newt Gingrich and advocated by former Godfather’s Pizza CEO Herman Cain, can trace its lineage to a long-shot proposal in Congress.
Rep. Michael Burgess, R-TX, introduced the Freedom Flat Tax Act, an optional 19-percent flat tax that drops to 17 percent after two years, in each session of Congress since he was elected in 2002. The proposals have died without congressional action.
University of Iowa political science professor Tim Hagle said promises by presidential candidates that they will scrap the current tax code with an executive order on their first day in the White House are unrealistic.
The process would require Congress to approve some version of their proposal.
The basic idea behind the drive for tax reform is that the “tax code in its current form is incredibly complex, very long, very hard to get through and people have to spend an awful lot of time and money to file their taxes,” Hagle told IowaPolitics.com.
Ensuring that the incentives now cluttering the tax code do not creep back in would be tough, he said.
As the tax code is written now, the more a taxpayer earns, the higher his tax rate. But Republican candidates have aligned themselves with the flat tax proposal as a way to make filing taxes fairer and simpler. They say collecting the same percentage of revenue from all American wages would unleash a torrent of economic growth.
“The net benefit will be more money in Americans’ pockets, with greater investment in the private economy instead of the federal government,” Perry said on Tuesday, when he proposed a 20-percent flat individual tax rate.
Flat tax proponents insist that the tax is a competitive alternative to the tax code that would close corporate loopholes carved out during the years by corporate lobbying, and make it easier for taxpayers to comply come tax time.
“We think it saves hundreds of billions of dollars in compliance taxes paid to accountants and lawyers,” Gingrich told a crowd in Davenport on Monday, when he unveiled his 15-percent flat tax option, which comes with a $12,000 deduction.
Under Gingrich’s and Perry’s plans, the tax code would remain, but taxpayers could choose to pay the flat tax.
The idea isn’t new — members of Congress frequently propose flat tax legislation, and billionaire publisher Steve Forbes of Forbes Magazine-fame, campaigned for president on the proposal in 1996 and 2000 — but it does appear to be gaining traction.
Cain suggested a flat income tax rate of 9 percent. Minnesota U.S. Rep. Michele Bachmann has called for a flatter tax, without providing specific details, and Texas U.S. Rep. Ron Paul has called for abolishing the individual income tax altogether.
“I think you have a situation where people understand that government really limits the ability of this country to grow, and become great,” said Des Moines lobbyist Ed Failor Jr., former president of Iowans for Tax Relief.
Longtime flat-tax advocates might not recognize the reforms being proposed by the current GOP field as the same idea they have championed.
Cain’s proposal, part of his 9-9-9 plan, ties the flat tax to a 9 percent national sales tax to help raise revenues.
Perry and Gingrich have crafted flat taxes that keep some popular deductions, for mortgage interest and charitable donations. While those deductions are incentives that encourage home ownership and philanthropy, they also take away from the flat tax’s simplicity.
Failor said allowing people those tax breaks is a necessary balance for the system. Those write-offs help the middle class, he said.
The current system peaks at 35 percent, the rate collected on income earned above $379,150.
But Democrats object.
“What they’re trying to do is figure out some way to fool the American people into more tax cuts for the wealthy,” said Ken Sagar, president of Iowa Federation of Labor, AFL-CIO, which represents more than 50,000 Iowans in 520 unions.
Sagar and other critics worry that flat taxes decrease revenue, blowing a hole in the deficit and services provided by the government.
“Do we want a society in which food is safe, or water is safe, or that we have safe workplaces?” Sagar said, “Or, do we want to make sure that we give more money to Warren Buffet and those Wall Street fat cats?”
James Kvaal, policy director of Obama for America, President Barack Obama’s re-election campaign, said in a statement Tuesday that Perry’s flat tax plan “radically restructures the tax system and shifts a greater burden” onto middle-income taxpayers.
Americans are split on the idea, according to a poll an ABC News/Washington Post poll conducted Oct. 19-23.
Results show 47 percent supported the notion of a flat tax, and 48 percent oppose it among a random national sample of 1,019 people. The survey was conducted by Lager Research Associates, a national public opinion polling team, and has a margin of error of plus or minus 3.5 percentage points.
Hannah Hess covers government and politics for IowaPolitics,com, which is owned by the Franklin Center for Government and Public Integrity.
