California Should Consider the Flat Tax

I lived in California during the "Golden Years" following World War II through the 1960's. Military service, advanced education degrees and my career took me away from California until my return in 1988. While excited to return, I soon realized that California had become almost ungovernable, careening back and forth from financial boom to bust. And today? The "golden" has turned into $25 billion of red ink debt overseen by a largely dysfunctional legislature risking actual bankruptcy in a month.

While the $25 billion dollar financial genie has to be crammed back into his bottle--and it will, but only temporarily--California needs fundamental reform. A constitutional convention needs to be convened to consider fundamental reform to the governance system. I would, however, agree with Governor Schwarzenegger (disclosure: I am an independent with no particular love for him) that the appointed commission that is currently studying an overhaul of the State's tax system should consider recommending replacing California's current tax system with a flat tax. The Governor has proposed a 15% flat tax to apply to all income.

The flat tax is simple and easy to understand, fair and good for economic growth. Instead of the complicated documents, instructional manuals, and myriad forms required by the current system, a flat tax would require only two postcard-sized forms. One form would report labor income and a second form would report business and capital income.

While there are a few minor variations, common characteristics of a flat tax system include:

• A single flat rate, usually less than 20%.
• Elimination of provisions of the tax code that provide preferential treatment on certain behaviors and activities.
• No double taxation of savings and incentives.
• Household exemption based on family size.

Proponents for a flat tax argue that it would increase compliance with the tax code for all of the above reasons. Opponents dislike it primarily because it taxes all individuals at the same rate, not differentiating wealthy from poor.

A flat tax may not be the golden spike. It would, however, be an improvement over California's current dysfunctional tax system.

Coming Soon. . .

1). City taxpayers guarantee another business loan?

2). Come fly with us but first experience the redwoods.

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