The Pros And Cons Of A Flat Tax System

Flat Tax
A flat tax is a system that applies the same tax rate to every taxpayer regardless of income bracket. Typically, a flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed, but some politicians such as Ted Cruz and Rand Paul have proposed flat tax systems that keep certain deductions in place. Most flat tax systems or proposals do not tax income from dividends, distributions, capital gains and other investments. Supporters of a flat tax system propose that it gives taxpayers incentive to earn more because they are not penalized with a higher tax bracket. In addition, flat tax systems make filing easier. Critics of flat taxes argue the system places an unfair burden on low-wage earners in exchange
Offering tax breaks for those at the bottom should, in theory, give those taxpayers the opportunity to increase their wealth and work their way out of poverty. And, of course, progressive tax should encourage the distribution of wealth. People don’t like a progressive tax because it treats people differently: those at the top are charged with paying more, as a percentage of income, than those at the bottom. While it’s true that some taxpayers - like Warren Buffett - pay a lower effective tax rate than many in the middle class, the U.S. still has one of the most progressive systems in the world, collecting the largest share of taxes from those at the top. According to the Tax Foundation, the top 1% of taxpayers have consistently paid more in federal income taxes than the bottom 90% since 2003 and that share has increased almost every year since 1980 . This is true even when paying more in taxes does not necessarily result in increased services. Progressive taxes are also considered more complicated than other forms of
It differs from both the progressive income tax system and the flat tax in this way: it is not a tax on income. The Fair Tax would replace all existing income taxes - as well as payroll taxes - with a single consumption tax. The tax, as proposed, would be a 23% tax on purchases of new goods and services, excluding necessities due to a "prebate." The "prebate" is akin to a refund and is offered at the beginning of each month so that certain purchases are essentially tax-free. People like a Fair Tax because it eliminates taxes on payroll and income: taxpayers get to keep their entire check and won’t have to make those dreaded estimated payments. It’s considered more fair than a progressive income tax since taxpayers are taxed on consumption of goods and services which are, on some level, expenditures that can be controlled at will . Additionally, since certain kinds of goods and services are always going to be in demand, a tax on consumption is considered more stable than a tax on wages.People also like a Fair Tax because, since retailers would collect and remit taxes directly to the Treasury, the IRS could be eliminated. People don’t like a Fair Tax because it has never been tried in any other country in the world causing some to fear that it is too experimental (a transitional hybrid system combining income and Fair Tax has been floated). The Fair Tax is also considered by some to be regressive since necessities are