By Joe Palumbo
The two hot topics we’ve always been advised to avoid are religion and politics. But did you know the third? It’s taxes!
The tax structure in our nation is so complicated that the late Albert Einstein needed someone to prepare his. Why is such a complicated system kept running? Should we keep it and, if so, why? Should we finally implement true tax reform in the framework of a flat tax rate?
Laura Rosavich, an independent CPA located in the Bellerose area of Queens, said she is not in favor of a flat tax rate but a revised system that lessens many of the present existing complications. She pointed out that the advantage for the taxpayer is the allowable deductible structure.
A childless married couple (and this is strictly only estimated) with a combined annual income of $80,000 could actually wind up paying less than 9 percent in federal taxes when combining their state and city taxes, mortgage interest, eligible IRA, personal exemption allowance and charitable deductions. The figure could drop to less than 8 1/2 percent when implementing a 401K.
But it’s quite a different story for those who can only rent or do not qualify for an IRA. So the complications are not just limited to the tax code but spread throughout the various individual circumstances of the taxpayer. So what about a flat rate?
Those countries that have been employing them have been establishing quite successful track records. It’s no coincidence that the first three countries in Eastern Europe with flat tax rates — Estonia, Lithuania and Latvia — have the strongest economies in Eastern Europe. We all know about the success of Hong Kong. They, too, have a flat tax rate. And there are newcomers stepping up to the bar in the name of Slovakia and the Ukraine.
Even the last of the communist holdouts, such as China, is said to be designing a future flat tax code. Russia itself is a flat tax success story with a 13 percent rate. The Russian government has found there really is no incentive in evading flat tax rates. The United States is the world’s greatest economy, but holding that position may be quite contingent in employing a tax reform by divorcing itself from the presently cumbersome and complicated existing system.
So how’s business for flat rate tax reform? CPAs and accountants always will be needed for business. Perhaps the only real loser would be the IRS, but don’t look for the general public to go into mourning.
Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at palcogroup@aol.com or 718-461-8317.
