Nebraskans for Tyson Larson

The definition of a recession is two consecutive quarters of negative real economic growth, also known as gross domestic product. GDP is the sum of the nation's consumption, investments, government spending and net exports (that is, exports less imports).

GDP rises when people are consuming, investing and producing. As we all, unfortunately, know, in a recession we are not consuming, investing or producing as much.

It stands to reason that to get out of a recession we need to boost GDP. Everyone wants to boost GDP; it is the method by which we boost GDP that is the point of contention.

We've heard arguments for health care and stimulus packages, but lost in the fray is one of the central topics of the last presidential campaign: taxes.

Federally as well as in Nebraska we have a progressive tax policy. Progressive tax rates increase as a worker's taxable income increases. The harder we work, the more money we earn. But the more money we earn, the greater the percentage taken from us. In effect, we are penalized for succeeding in our jobs.

Proponents of progressive taxation believe this method is fair for two main reasons: (1) Individuals/companies who earn more income should pay a higher proportion of our income taxes; and (2) progressive taxation maximizes total revenue.

Our progressive tax system, however, is neither fair nor optimal; to the contrary, our tax code operates on large-scale redistributionist economics and encourages tax evasion.

More than 20 countries and seven states have realized the harmful inefficiencies of progressive taxes and have switched to the tax system that is not only fair across the board, but also more economically viable: the flat tax.

A flat tax system applies a uniform tax rate to all earners. As a consequence, a flat tax simplifies the tax code and thus increases tax compliance and decreases the cost of collecting taxes.

The flat tax offers a system where there no longer will be thousands of pages of statutory code and loopholes for tax-dodging individuals and companies; it offers a system where an entire tax code can be written in a few pages, thereby eliminating government bureaucracy and waste.

Proponents of progressive taxes believe that such a system will increase the government's tax revenue because they are able to get more from the highest earners. The dirty little secret of taxation, however, is that the actual tax rates in a progressive tax system do not matter, an observation first made in 1993 by Kurt Hauser (and now called Hauser's Law).

As you can see on the graphic accompanying this column, no matter where our government sets our national tax brackets, tax revenue as a percentage of GDP has remained flat. The moral of the story is simple: The surest way to increase tax revenue is to increase GDP.

If government income (and theoretically spending) is constant regardless of where we set tax brackets, why use a progressive tax system at all? A number of economic studies have shown that flat taxes incentivize work, lower the costs of doing business and diminish tax evasion. The net effect is that production, income and investment all increase, which in turn raises GDP.

In addition to the acceptance of the efficiency of flat tax by many economists, as mentioned above, there are also real-world examples of the flat tax. Many of the Baltic States switched to a flat tax and achieved the highest growth rates in the European Union immediately afterward. Russia, the G-8 country notoriously known for its shady business dealings, instituted a 13 percent flat tax and the country's income grew by 9 to 11 percent, windfall gains increased 4 to 5 percent and tax evasion dropped 10 to 11 percent. Almost all of the states that have instituted a flat income tax have seen GDP increase by more than 10 percent since 2005.

The flat tax is efficient, fair and embraces production and work. Are those not the principles on which America is built?

Our current government, nevertheless, dismisses the idea of creating a flat tax. The government should not punish the brightest minds and highest producers by looting their earnings because soon they will lose their willingness to produce.

When our producers are no longer willing to support the government that continually takes for granted their innovation and production, what will happen to us?

The flat tax system is one step in the right direction in order to ensure a productive economic future for our country and our state.

http://journalstar.com/news/opinion/editorial/columnists/article_a74f8c9...