Both the American people and members of the Federal Government have long griped about the current U.S. Personal Income Tax System. Bush’s Advisory Panel for Federal Tax Reform stated that, “the complexity of our tax code breeds a perception of unfairness and creates
opportunities for manipulation of the rules to reduce tax”. The Tax Foundation estimates that $338 billion of time, energy, money, and other resources, are spent annually completing tax returns. Three main proposals, the Flat Tax, the VAT Tax, and the FairTax, are being hailed on the Hill today as the solution to our current onerous tax system. While all have benefits and draw backs, the FairTax is the best alternative to the U.S. Tax System in that it is the only tax that reduces the tax burden on Americans by taxing the underground economy, simplifies the tax system, and taxes consumption instead of savings.
One of the simplest options proposed currently on the Hill is the Flat Tax, a system where both businesses and people are taxed a fix percent of their income. With the Flat Tax, just one simple post card would be needed for a family to file their personal income tax. Based on their labor income (found on the W-2) they would be taxed a flat rate on this amount, without taking into account any deductions. Of the three proposals, the Flat Tax is the most similar to the current tax code, in that it continues to tax income, yet still varies in that it does not allow deductions. Some see the end of deductions as a drastic change in a country where many people make decisions based on the tax effect, but in the long run people would learn to adapt. For example, currently half of the money given to charity is not even claimed as a deduction. Furthermore, earlier tax cuts imposed by Reagan on the rich were met with a similar worry about making charitable deductions less tax beneficial, yet contributions were found to double. The second... [continues]
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