In 1913, when President Woodrow Wilson signed into law the Underwood Simmons Tariff Act which inaugurated the federal income tax system, he said, "we have done the rank and file of the people of this country a great service." There are few taxpaying Americans today who would agree.
President Wilson had no idea that nearly 70 years later the system would grow into a shameful and inequitable hodge-podge costing taxpayers an estimated $60 billion a year just to comply or take advantage of IRS regulations.
In recent years, other presidents have spoken out against the complexities of the present system. Richard Nixon declared in 1969 that "reform of our federal income tax system is long overdue." Jimmy Carter termed the IRS Code "a disgrace to the human race."
Former Treasury Secretary William Simon has called for scrapping the U.S. income tax system and replacing it with a simpler, more efficient and more equitable system.
For many, many years politicians have been calling for tax simplification and closing of tax loopholes. Eight times since 1954, Congress has enacted bills intended to offset the cumulative tax increase arising from the progressive structure of our tax system.
Unfortunately, our system of taxation is not only unnecessarily complicated, but it is unfair. It is shameful that some Americans with sizable incomes pay little or not tax.
I have introduced the SELF-Tax Plan Act of 1982, a proposal to replace the current income tax structure with a simplified two-rate tax schedule for individuals and a single, flat-rate tax for business.
This plan would eliminate all special tax preferences for individuals, but would permit a $600 allowance for dependents. Special business tax subsidies would also be eliminated, except for deductions for ordinary business expenses.
The SELF-Tax plan includes the following:
Income of 0 to $17,500 e 0 percent tax.
Income of $17,500 to $50,000 e 18 percent tax.
Income over $50,000 e 25 percent tax.
Corporation income e 20 percent tax.
If my proposal were in effect this year, based on analysis of 1981 tax receipts, the poor would have paid no taxes, the middle income group would have paid less. The over $50,000 income group would have paid slightly more, while revenues from business income taxes would have been 17 percent of total federal revenues collected, compared to 8 percent under current law.
Total revenues under my plan would have been nearly $30 billion more than will be collected under the present tax laws.
Beyond its potential for collecting the necessary revenues, the SELF-tax plan will go a long way toward restoring the principles of Simplicity, Efficiency, Low Rates and Fairness to our tax code.
One of the significant parts of the simplification plan is the method of filing. Under this proposal, all of the complicated IRS forms could be replaced with a simple postcard, that each taxpayer could file without professional help.
Today, our tax structure is more complex than it has ever been. In 1954, only 18 percent of American taxpayers had someone prepared their income tax returns. In 1981, 52.4 percent of all 1040 forms were prepared by specialists as were 16.9 percent of all 1040A forms.
In 1977, the Commissioner of Internal Revenue summarized the difficulty clearly when he said the basic filing requirements for U.S. tax returns are "beyond the comprehension of a large portion of the adult population."
There was a time when Americans proudly paid their income tax. Efficiency of collection surpassed the efforts of most other nations, with relatively few tax collectors and special inforcement mechanisms. Today, this situation is dramatically different.
The underground economy has become another significant problem. Billions of dollars in taxes are going unpaid, hidden in the flow of unreported income. A simpler, more equitable system of taxation should encourage many, otherwise law-abiding citizens to pay their fair share.
There is growing sentiment that the progressive income tax has outlived its usefulness and support is building for a simple flat rate tax system.