Mike Pence, in giving up his House leadership role, made it obvious he was going to run for something. Now, it seems clear he is more interested in the White House than the governor's office. And in a major speech in Michigan, he gave signs of the economic themes that will likely inform his candidacy:
He outlined his economic vision, saying the U.S. needs to implement a flat tax, a spending limit amendment to the Constitution and other reforms designed to put the country's “fiscal house in order.”
His plan could be summed up by five letters, he said: S-T-A-R-T, which stands for Sound monetary policy; Tax relief and reform; Access to American energy; Regulatory reform; and Trade.
“Detroit and America have seen better days, and I
Comments
I have looked at the flat tax idea years ago when I ran for US Congress. A group had approached me, sent me information on it and like so many other things with numbers, I began to look at line by line. What I found about this concept was the basis on which it is made, GDP. The problem with GDP is that it is not basis on which the flat tax is based. The flat tax is based on income. The income from all sources in the US is about $7 Trillion. All federal income, corporate, FICA, death, etc taxes total at most $3.2 Trillion.
The majority of Income tax is paid by the top 5% wage earners with a tax rate of ~30%. The majority of FICA taxes 15.3% of wages is paid by wage earners. Most families pay no federal income taxes while high income workers stop paying FICA taxes after $106,000. In essence we have two tax systems for two different purposes affecting two distinctly different groups and the object is to replace all of this with one flat tax.
The flat tax does not solve Social Security or Medicare problems. The flat tax would solve the General budget, but at the same time would increase the amount tax paid to support the general budget substantially on all those making less than $125,000 single and $250,000 married.
With 330 million in the US, allowing a dependency exemption of $5,000 per person excludes $1.65 trillion from taxation. Allowing a $10,000 standard taxpayer deduction eliminates another $1.6 Trillion from taxation. In the end the numbers I have seen show the taxable income after all adjustments is about $4 Trillion. From this we need to raise to balance the budget over $4 trillion.
The math is simple, the flat tax does not raise enough revenue to cover the short fall. In addition, the interest on the national debt currently at about $500 Billion to $600 billion a year could if rates rise back to historical levels, rise to well over $1.2 Trillion a year.
I contacted the group that was promoting the flat tax and sent them my analysis. Clearly FICA tax had not been part of the flat tax overall and they completely left this revenue/expense out of the equation. Do not take any politicians or groups analysis at face value. There is no free lunch, but someone wanting to eat your lunch as well at your expense.
A flat tax would solve many problems. It would eliminate the mortgage deduction and all other itemized deductions. It would allow people to spend money based on their desires/needs instead of being influenced by tax incentives. It would reduce the paper work as well.
A flat tax would leave intact the IRA, 401K and Roth IRA promises where as a national sales tax would subject Roth IRA