Much has been made of the "flat tax" lately in Washington. At least one candidate based his Presidential campaign on it. Why is this so appealing and how would it affect you? First, a definition:

Flat Tax = "An income tax involving a single rate of taxation. For example, a taxing authority may levy a flat tax of 3% against gross income."

Q: What's your take on flat tax proposals?

A: With any flat tax system, you still have to arrive at a number called "Taxable Income." As long as Uncle Sam wants you to compute taxable income, exceptions (i.e., exclusions and deductions) will be granted that will cause taxable income to be adjusted in one way or another, and as long as taxpayers have to arrive at taxable income on which to base their tax computation, I'll still be in business.

What most people don't seem to understand is that even if the government threw out all deductions, taxable income would still have to be computed. Even if all deductions were removed, there would still have to be allowances, adjustments, or credits directly against gross income. For example, if you have a small business and have gross income (income before direct expenses) of $100,000, you can be sure that you won't be paying taxes on the full $100,000. There will be deductions allowed against this $100,000. But what will those deductions be? Auto expenses? Club dues? Depreciation? Entertainment? There's your rat's nest.

So we may well find out that, in the words of the Gumpster, simple is as simple does. Once the details are on the table, it may be that this so-called simple system might turn into something almost as muddled as the system we currently use. The devil is in the details. Until the details are really unwrapped, I can't get too excited about the flat tax, one way or the other. More sizzle than steak at this time, IMHO.

- Article 12

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