Bill Overview
Title: To amend the Internal Revenue Code to establish a flat tax, and for other purposes.
Description: This bill imposes a 15% flat tax on the taxable income of each individual taxpayer. It defines taxable income as the excess of the sum of wages, taxable retirement distributions, plus unemployment compensation, over the standard deduction. The bill also imposes a 15% flat tax on business taxable income and on noncash compensation provided to employees not engaged in business activity. The bill repeals various existing tax provisions, including the alternative minimum tax, certain tax credits, and estate and gift taxes.
Sponsors: Rep. Gohmert, Louie [R-TX-1]
Target Audience
Population: Individuals and businesses subject to income tax
Estimated Size: 190000000
- All individual taxpayers who receive wages, taxable retirement distributions, or unemployment compensation will be affected by the 15% flat tax rate on their income.
- Businesses will be impacted by the 15% flat tax rate on their taxable income and on noncash compensation provided to employees.
- Individuals or entities involved in or affected by previously existing tax provisions such as the alternative minimum tax, certain tax credits, and estate and gift taxes will be impacted due to their repeal.
- The standard deduction mechanism will impact the calculation of taxable income, affecting all taxpayers using it.
Reasoning
- The main impact of the 15% flat tax will be on individual taxpayers who previously benefitted from deductions and credits that have been repealed. This group generally includes middle to upper-middle-class individuals who had more deductions available under the progressive tax code.
- Business owners will also experience a shift in their tax obligations due to the flat rate on business income. Small business owners, in particular, might see changes based on how noncash compensation is taxed.
- Individuals who benefitted from estate and gift taxes will see a significant change if they were using these to manage wealth transfer.
- The policy will have widespread impact given the large number of individuals and businesses that file taxes, but the degree of impact will vary considerably.
- Some individuals, particularly those with lower income who may not reach the taxable income threshold after standard deductions, will have minimal change in their wellbeing.
Simulated Interviews
Teacher (New York, NY)
Age: 34 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 10/20
Statement of Opinion:
- I feel like my taxes could go up because I don't have a lot of deductions.
- I'm worried about losing the education tax credits.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 6 |
| Year 2 | 5 | 6 |
| Year 3 | 4 | 6 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 7 | 7 |
Small business owner (Austin, TX)
Age: 45 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 8/20
Statement of Opinion:
- The flat tax could simplify things, but I'm uncertain about how noncash compensation will be handled.
- I lose some flexibility with deductions that I had before.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 7 | 9 |
| Year 3 | 8 | 9 |
| Year 5 | 9 | 9 |
| Year 10 | 9 | 10 |
| Year 20 | 9 | 10 |
Retired (Chicago, IL)
Age: 60 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- My pension is stable, but changes to retirement income taxes could make a difference.
- Phasing out estate taxes might benefit my estate plans though.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Startup employee (San Francisco, CA)
Age: 28 | Gender: other
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 6/20
Statement of Opinion:
- This could significantly affect my stock options and how they’re valued.
- I'm cautious but hopeful, as the tax filing might become simpler with flat rates.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 8 | 5 |
| Year 5 | 7 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 7 |
Corporate executive (Atlanta, GA)
Age: 50 | Gender: male
Wellbeing Before Policy: 9
Duration of Impact: 10.0 years
Commonness: 3/20
Statement of Opinion:
- With deductions gone, I might see a tax increase.
- Corporate restructuring will be required for noncash components.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 9 |
| Year 2 | 7 | 9 |
| Year 3 | 7 | 9 |
| Year 5 | 7 | 9 |
| Year 10 | 7 | 9 |
| Year 20 | 8 | 9 |
Freelancer (Denver, CO)
Age: 39 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 9/20
Statement of Opinion:
- The 15% tax might be higher than my current effective rate.
- It's crucial how the standard deduction is handled.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 7 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Server (Los Angeles, CA)
Age: 23 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 1.0 years
Commonness: 15/20
Statement of Opinion:
- It's unclear if the policy will affect me much, given my low income.
- I might not pay much tax post standard deduction.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 4 | 4 |
| Year 2 | 4 | 4 |
| Year 3 | 4 | 5 |
| Year 5 | 4 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 6 | 6 |
Real estate investor (Miami, FL)
Age: 66 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 20.0 years
Commonness: 2/20
Statement of Opinion:
- Repealing estate tax is a big win.
- My day-to-day taxes might not change if the rates align closely to my current setup.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 10 | 9 |
| Year 10 | 10 | 9 |
| Year 20 | 10 | 9 |
Software engineer (Seattle, WA)
Age: 57 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 7.0 years
Commonness: 4/20
Statement of Opinion:
- Losing education tax credits might hurt as my kids are in college.
- Expect some simplifications in tax filing though.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 7 | 8 |
| Year 3 | 8 | 9 |
| Year 5 | 8 | 9 |
| Year 10 | 9 | 9 |
| Year 20 | 9 | 9 |
Retired (Phoenix, AZ)
Age: 70 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 20.0 years
Commonness: 5/20
Statement of Opinion:
- With my focus on managing my estate, the new rules help a lot.
- Day-to-day taxes remain relatively stable.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 9 | 9 |
| Year 20 | 9 | 9 |
Cost Estimates
Year 1: $200000000000 (Low: $180000000000, High: $220000000000)
Year 2: $190000000000 (Low: $170000000000, High: $210000000000)
Year 3: $180000000000 (Low: $160000000000, High: $200000000000)
Year 5: $170000000000 (Low: $150000000000, High: $190000000000)
Year 10: $160000000000 (Low: $140000000000, High: $180000000000)
Year 100: $150000000000 (Low: $130000000000, High: $170000000000)
Key Considerations
- The transition to a flat tax will involve significant administrative changes, both in implementation and ensuring compliance.
- There may be pushback from specific groups benefiting from current deductions, credits, and exemptions.
- Long-term impacts on revenue depend on economic growth and taxpayer compliance.
- Uncertainty remains regarding short-term fluctuations in revenue collection as taxpayers and businesses adjust to the new system.