Argument: Progressive taxation is an inefficient and costly system
Friedrich A. Hayek. "Taxation and Redistribution". The Constitution of Liberty. 1960 - If, in addition, we consider the waste of energy and effort which progressive taxation in so many ways leads to, it should not be impossible to convince reasonable people of its undesirability.
"Flat Tax: What Would It Do For Ireland?". Business and Finance Magazine. 5 May 2005 - In all cases of adopting the flat tax, tax compliance costs were reduced by 75% to 95%. Since these costs run on average between 5% and 10% of the payroll costs, translated into per capita GDP these savings amount to approximately Eur1390 to Eur2780 per working Irish person per annum.
Niels Veldhuis. "Imagine! A postcard-size return". The Gazette (Montreal). April 30, 2008 - Today is the tax-filing deadline. As we hunkered down over our computers and waded through piles of receipts and pages of complicated forms this month, many of us rightly questioned the complexity of Canada's tax system.
The total costs associated with paying personal income taxes and the cost of tax software and accounting services amount to upward of $3.9 billion a year.
It need not be this way. If Canada adopted a flat tax, taxpayers could complete and file their taxes in about five minutes on a postcard-size tax form.
A recent study, A Flat Tax for Canada, by tax expert and University of Stanford Professor Alvin Rabushka, proposes just that: a 15-per-cent flat tax and postcard-size tax returns for both individuals and businesses. The 15-per- cent flat tax would collect the same amount of revenue as the federal government currently collects but do so in a manner that is much less damaging and distorting.
The flat tax would simplify Canada's tax code through the elimination of nearly all deductions, exemptions and credits that complicate the current tax system. For individuals, only a few basic calculations would be needed to determine the amount of tax owing or refund due. Simply add up one's income from wages, salaries, and retirement benefits; subtract the basic personal exemption (the amount of income individuals can earn tax free); and multiply the remainder by 15 per cent.
Gone are the numerous and interlinked tax forms of the present personal-income-tax system; gone are the myriad of tax credits and deductions; and gone is the complicated and time-consuming paperwork.
[Eric Beauchesne. "Flat tax simpler and as lucrative, report argues; 15% rate would apply to everyone". CanWest News Service. 4 Jan. 2008]
Linda Leatherdale, Business Editor for Toronto Sun. "Flat is where it's at". Toronto Sun. 13 Jan 2008. - with a flat tax on our incomes, what a fairer, simpler world it would be.
Imagine being able to complete your income tax return in just five minutes on a post-card-sized form. That's what's possible if Canada would adopt a 15% flat tax, says Dr. Alvin Rabushka, an internationally renowned tax reform expert with the Hoover Institution at Stanford University.
Think about it: No more high-paid accountants and lawyers. No more shoe boxes full of receipts. And no more auditors trying to bully you into admitting you intentionally cheated. It would be so simple, who'd want to cheat?
FUND WAR EFFORT
Rabushka estimates it costs Canadians $30 billion a year to comply with our complicated income tax system, which began as a simple 10-page Income Tax Act in 1917.
Back then, Canadians were told income taxes were a temporary measure to fund the war effort.
Ninety years later, we're still paying, with Canada home to the highest personal income taxes in the industrialized world, ahead of France and Italy -- while the Income Tax Act has become a bureaucrat's wet dream, with more than 3,000 pages of complicated tax wizardry.
Matthew Krieger. "Lack of competitive tax system costs foreign investment, study finds". The Jerusalem Post. 6 Nov. 2007 - According to the report when Russia instituted a flat-tax system about seven years ago revenue from personal income tax rose 25.2 percent in 2001 and 24.6% in 2002 an increase of 56% in two years while Lithuania enjoyed a 182% increase in tax income over the first two years after introducing a flat-tax. Meanwhile the GDP growth rate of the countries examined in the report rose an average of 8.45% in the two years following the implementation of the reforms.
"If Israel were to enjoy similar success as Russia we might say that such an effect would mean an increase of NIS 55 billion in state income from direct taxes and GDP growth of 13.55% by 2009 noted Shlush.
Additionally, in 1998, when compliance costs were last calculated, the Israeli government collected NIS 64 billion in taxes, while compliance costs reached NIS 31.5b., equaling 7.67% of the GDP at the time.
Compliance costs take into account the time spent in accounting, reporting, audits, appeals and negotiations with the tax authorities.
It cannot be that a tax system which throws away half of what it collects is the best that it can be Shlush said.