Our friends at the Committee to Unleash Prosperity are free traders, but they are also intrigued by Trump's concept of taxing the consumption of imports more and taxing things made in places like Michigan, Maine and Maryland less. This would mean a 15% income tax
in exchange for, say, a 15% tariff.
CTUP co-founders Steve Forbes and Stephen Moore argued for a 15% flat tax in the WSJ recently, pointing out that collapsing the personal-income and corporate tax rates to 15% would have huge economic benefits. America would suddenly have one of the lowest tax rates in the world, resulting in trillions of dollars of new capital flow and a spike in take-home pay.
The simplicity of a flat tax would reduce the deadweight costs associated with tax compliance—and the headaches. The White House Office of Information and Regulatory Affairs calculates that Americans spent almost eight billion hours filling out tax forms in 2024. The Tax Foundation estimates that this cost the economy $413 billion in lost productivity, and the Internal Revenue Service estimates that we spent $133 billion on out-of-pocket compliance costs. That adds up to a burden of $546 billion, which could be eliminated by a flat tax.
Now, in the latest issue of the must-read Committee to Unleash Prosperity Hotline, Stephen Moore has suggested the flat tax concept could be combined with Trump's tariff idea: Tax everything at 15% - including wages and salaries, business income, capital gains, inheritances, dividends, and all imports.
The two charts above show that the American tax system is WAY too dependent on wage and income taxes - which discourage work and investment. Income/payroll taxes account for about 70% of federal revenues while tariffs and duties are closer to 2%. Most other nations gather a much higher share of their revenues via a VAT/tariff on American goods with a rate that can go as high as 20% to 25%.
The 15% tariff, combined with sharply cutting income tax rates to 15%, could be pro-growth and achieve Trump's goal of trade reciprocity, concluded Mr. Moore.
2024 Election
MAGA Agenda
Trump inauguration
tariffs
15 percent income tax
flat tax
corporate tax rate
take home pay
filing taxes
Committee to Unleash Prosperity
VAT
A better idea would be to repeal the 16th Amendment and do away with the IRS altogether and instead impose a national sales tax. By so doing, higher income people who spend more money would pay a larger portion of the taxes. As with state sales taxes, businesses would collect the tax and forward the money monthly, quarterly or annually to a much smaller office in the Treasury Dept. With a 15% flat tax, some of us would actually pay more than currently. Our effective tax rate is somewhere around 10%. I can't agree with Forbes and Moore.