Steve Forbes’ Corporate Flat Tax Plan

Beginning on page 66 of Flat Tax Revolution, Forbes maps out his corporate flat tax plan. Here’s the highlights:

  • 1. All profits would be taxed at the rate of 17 percent.
  • 2. Companies could expense all investments – no more depreciation schedules.
  • 3. Corporate loopholes, all of them, would be abolished under the flat tax.
  • 4. Interest payment deductions would also be eliminated under the flat tax.
  • 5. Both limited liability companies (LLCs) and S Corps are compatible with the flat tax.
  • 6. The flat tax will let companies increase dividends and benefit shareholders.
  • 7. The flat tax would encourage greater transparency.
  • 8. The flat tax will only tax companies on the income they make in the United States.
  • 9. The flat tax would create a more receptive environment to free-market benefit plans.

Would a Flat Tax Work?

I have been reading Steve Forbes’ Flat Tax Revolution. He talks about how confusing and complicated the current tax code is. I agree with that! After sitting through just two tax classes, I already can see just how complicated the tax code really is. So, the idea of simplifying the tax code makes a lot of sense to me.

That said, I don’t think Forbes’ solution is that simple either. His plan, detailed in chapter 4 of his book, proposes a single-rate of 17 percent for both individuals and corporations. Then, he starts adding in stuff like exemptions and tax credits (retaining the Earned Income Credit), which complicate matters. Granted, these aren’t as complicated as the current system, but they still aren’t as simple as Forbes claims they are. According to the book, a family of four would pay no federal income tax on its first $46,165 of income.

The part of his plan that I think most people will have a problem with is the elimination of taxes on dividends. The theory is that taxes were already paid at the corporate level so they shouldn’t be taxed again at the individual level. It makes sense but it looks awfully self-serving. I’d be curious to know what percentage of Forbes’ income comes from dividends.

I’m not against the flat tax by any means. I just think we need to make sure it is fair. I’m curious as to what you guys think.

Steve Forbes’ New Book

In case you haven’t noticed, Steve Forbes has come out with a new book called the Flat Tax Revolution. NOTE: One thing I noticed on Amazon is that most of the reviewers like the book except for two reviewers who rate it a one star. The funny thing is that although the reviews are “authored” by two different people, the reviews are EXACTLY the same.

I have not yet read it yet. I went to my local bookstore but couldn’t find it so I guess I’ll have to order it. I’m curious as to what he has to say.

For the most part, I’m for a flat tax. I think it is the fairest of all taxes. I liked the idea when Mr. Forbes started talking about in 1999 (or was it 1995?) However, I am not for excluding dividend income from taxes (an idea that Steve Forbes had a couple of years ago). I think the tax rate should include ALL income (even Social Security) except tax-sheltered income from Roth IRAs and such. The only deduction I think should be allowed is the mortgage interest deduction. Scrap everything else and make it one tax rate for everyone. Nice and simple.