It Is Time For A Simple Federal 60 / 30 Flat Income Tax

It’s time for a simplified personal income tax system — a flat personal income tax.  And, it’s time to end class warfare revolving around it.

But, before we begin . . . 

Your personal income tax preparer does NOT have your best interests at heart.  They want personal income tax returns to be so complex that you are helpless without them.  For business owners, can you explain how your Section 199A deduction is computed?  On the same topic, don’t be naive to think your tax preparer knows all of the steps necessary to qualify a business owner for that deduction — after all, Satan himself wrote that Code section.  Every time the topic of tax simplification comes up, they oppose it — oppose simplification of rules that so many of them don’t even understand.  Sad.

Then, there are the real estate agents.  If a flat tax is adopted, there’s no mortgage deduction.  And, if there’s no mortgage deduction, they fear that no one will ever want to buy a home.  So, they will oppose it.

Next, there will be those who will say a flat tax system (as proposed below) will allow some to pay nothing, which is a moral hazard.   But, low income employed individual do pay something — they still pay 7.65% in payroll taxes.  So, they are paying something.  Separately, if low income retirees end up paying no income tax, fine.

Finally, there are our elected leaders. They will oppose it. As one illustrious U.S. senator purportedly said, “If we solved all of the problems, why would they need us?”

According to statistics published by the Tax Foundation, ranking personal income tax returns by income, the bottom 50% accounts for only 3.1% of income taxes paid.  These returns reflect incomes of roughly $42,000 or less.  Is all of the political angst worth the measly 3.1% in tax revenue?  All the venom that is injected into our national conversation?  Aren’t there bigger issues to tackle?

With that out of the way, let’s move on . . .

Currently, we have a high standard deduction by historical standards.  But, let’s consider raising it to $60,000 — hence, the “60” in the title.  Then, let’s apply a 30% flat tax on adjusted gross income above that $60,000 standard deduction — hence, the “30” in the title.  (It is worth noting that we revert to the former personal income tax system in 2026, so use of adjusted gross income is relevant.)  For legislative types in the crowd, the proposed system would be revenue neutral.

Based on the same statistics published by the Tax Foundation, here is what would happen to average tax rates for those with incomes below $500,000:

Below $60,000 / Current 4.0% / As Proposed 0.0%

$60,000 to $85,000 / Current 16.0% / As Proposed 5.2%

$85,000 to $145,000 / Current 18.2% / As Proposed 13.5%

$145,000 to $200,000 / Current 21.5% / As Proposed 19.5%

$200,000 to $500,000 / Current 23.7% / As Proposed 23.9%

A key point is that while the average tax rates under the current system are computed against adjusted gross income, the tax imposed used in that calculation is after deductions.  So, the flat tax system as proposed would see lower average tax rates in spite of there being no deductions.

In the end . . .

This is not a “sock it to the rich” tax system.  It is the sort of tax system Ronald Reagan was trying to implement.  It’s about closing loopholes and making tax compliance easier.  And, given the ease of compliance, perhaps we don’t need as many IRS agents.  Perhaps, payroll at the IRS gets smaller and with it the federal budget . . . which leads to lower taxes.  Hmmm.