Ending the Revenue Rollercoaster – The Benefits of a Three Percent Flat Income Tax for California

The PRI flat-tax plan for California will greatly simplify the current tax code. It will completely eliminate the alternative minimum tax, as well as estate, inheritance, and gift taxes. It will also revamp the convoluted, loophole-ridden corporate and personal income-tax codes with a simple flat rate of 3 percent on personal and corporate net income.

There are many benefits to the PRI flat-tax plan. The recommended reforms will give tremendous supply-side incentives for stronger economic growth. By eliminating the current progressive tax system and replacing it with a single bracket of 3 percent, as well as eliminating the millionaires’ surcharge of 1 percent and the double taxation of corporate dividend payments, these reforms will make an enormous difference in after-tax earnings for the state’s most productive citizens.

The elimination of arbitrary tax credits and other loopholes, to be replaced by a neutral flat tax on all forms of income, will encourage businesses to make decisions on the basis of profitability, not the tax code.

The state treasury will benefit from the plan as well. Currently the highly progressive tax code causes huge swings in state revenues depending on the economy. The PRI flat tax will provide a more stable flow of revenue, helping to avoid future budget crises. Perhaps most important, the average taxpayer will literally be able to complete his or her tax return in minutes. All it will take is a list of major income from various sources, to be multiplied by 3 percent. The individual will literally file a return the size of a postcard. There will be no more saving of receipts, searching for eligible credits, or worrying at night over the legitimacy of a claimed deduction.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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