Flat Tax Research Paper Examples

Arguably, taxes are part of experience in which human beings undergo in any nations. The global economy depends tremendously on tax, the only variation comes are a result of the type of tax system implemented. Taxation rules and tax systems are critically complicated in most countries. In fact, an economy that receives very small percentage of income from tax mainly operates at a deficit due to failure to sustain itself. Hence, they are forced to borrow from other nation or international organizations such as the World Bank. Globally, many nations have cut their corporate tax rates and implemented flat tax rate. Perhaps, to many individuals this is the most striking tax development in the globe.
Flat tax refers to a system that incorporates the same rate of tax to each taxpayer regardless of different income brackets investments of other financial issues. This implies that taxpayers receive the same tax rate with no exceptions or deductions allowed. Moreover, flat tax has a constant MRT (Marginal Tax Rate). As a matter of fact, this tax system applies to corporate income or individuals that will undergo taxation at single marginal ratei. In this case, the tax is taken to be flat because if it is graphed against various factors, the ultimate result will be a flat line. This scenario will imply that the generations of revenue do not vary with the individual’s budgetary position. For many, year’s economics and politicians have continuously proposed a flat tax rate so as to replace the graduated system of taxation.
Certainly, those in support of flat tax system assert that, the system will give the taxpayer incentives and an opportunity to earn more. This is because they will not receive a higher rate of penalty at a higher income bracket. Additionally, others view the tax as been fair because it does not discriminate tax imposition based on income. Undeniably, there is the difference in flat tax depending on what is subjected to. Some of the examples of flat tax are True flat rate income tax, minimal deductions flat tax, marginal flat tax, negative income tax, Hall-Rabushka flat tax, as well as capped flat taxii.
In every nation, tax has an impact on the economy regardless of the type of tax system the nation uses. Perhaps, in many situations there exist mixes in the economy, whereby various types of tax systems are exercised in a nation. Therefore, the imposition of flat tax has various impacts in the economy. Tax reforms associated to the flat tax system influence the economy profoundly. The impacts of flat tax vary, and it influences working conditions, capital formation, entrepreneurial activity, living standards, as well as national output. As a matter of fact, every economist and business person will favor such forms of economic renaissanceiii.
The flat tax has an impact on government spending. Economically, government spending is very important component of economic development and growth. Stakeholders in flat tax system assert that there is a likelihood that the tax will positively the economy through a discouraging factor on public spendingiv. The reasoning behind this impact is that an increase in flat tax will affect the taxpayers. In an economy, there are situations that the government convinces people on the increase of tax in order to gather for public spending. Hopefully, the taxpayers believe that the government will be very efficient in spending the taxes.
Additionally, flat tax system has an impact in the production. The imposition of equal tax to all sorts of industrial inputs will automatically lead to tremendous growth in industrial production. The growth will be high in those industries that supply raw material to other industries. Furthermore, flat tax affects the consumption; consumption is an important component of gross domestic productv. It affects consumption by leading to a growth in income aftertax as well as removing distortions that are caused by varying rates of tax on production or consumed products. The housing sector too benefits from the flat tax. Research shows that the flat tax leads to a growth in the housing sector in the economy. Critically, there are no reductions in the interest of house mortgages under the flat tax system, but the improvement of the housing sector is attributed to rise in disposable income for entire income groups in the economyvi.
An economy that uses flat tax system will enjoy economic growth through an increase in savings. As a matter of fact, an increase in savings will automatically case an increase in GDP (Gross Domestic Product). Savings in both developed and developing economies fuels economic growth needed in the future. Impacts of flat tax on the economy through savings are attributed to untaxed interest and dividends either at the household or individual level. This will encourage individuals in the economy to invest. Generally, in a flat tax system, the income of individuals and households increase in all groups, this implies that all income groups will have much to save. Flat tax system simplifies the complexities attached to taxations systems.
Undeniably, a flat tax rate enhances the incentives on labor supply. The tax reduces the tax brackets but still the impact in the labor sector is still achievable. Additionally, imposing flat tax leads to a reduction of those who evade to pay taxes as well as increasing tax compliance. This economic impact of flat tax is profoundly witnessed in developing nations, but the argument is weaker when related to developed nations. On the other hand, the impacts of imposing flat tax in the economy can lead to severe drawbacks. Its impact is on the distribution of burdens related to income. It limits spread of burden in developed economies. Nevertheless, it increases the level of inequality, poverty and polarizationvii.
Basically, the flat tax would in one way of another change the current tax system situations. The current tax systems are believed to be complex to operate, but the introduction of flat tax will tremendously make the taxation simpler. In fact, it will save the government alt of money in implementing the flat tax system to households or individuals. Currently, the Internal Revenue Service uses a lot of money and time in implementing and investigating the files related to taxationviii. Logically, it actually makes no sense collect revenue from tax, and spend all of it in maintaining and investigating the current tax systems. The flat tax system will lead to savings and proper use of taxpayers’ money. Furthermore, flat tax system will change the current tax situation by making it fairer. The flat system will eliminate the discrimination that is advocated by current tax situations. Flat tax endure that tax is imposed equally regardless of income and other financial status.
Conversably, there are various arguments raised for and against the flat tax system. In the society today, it has been discovered current system of taxation in most countries is biased. The biasness affects those who belong to a lower rank in income groups. As a matter of fact, there are various tax brackets, whereby an individual must fall in one of it. On e of the argument for the flat tax, is that it ensures that people in the nation pay the tax rate, which is specific. This has a positive implication in collecting and payment of tax. People will willingly pay the tax because there is no variation in application of tax rateix. For example, currently and individual who earns a lot of income will pay more, but when flat tax is introduced same person will pay less; hence, individuals will be encouraged to be more productive leading to economic growth.
Additionally, flat tax eliminates the issues of double taxation. This is because taxes on capital gains, dividends and investment are removed. When individuals are not taxed on those issues, they will invest more, whereby a lot of job opportunities will be created. Another argument for the flat tax is that it reduces filling work making the entire taxation process fair and easy. For example, in other tax systems a lot of money and time is wasted in finding loopholes and exceptions in the taxpayers recordsx. Due to its impact on tax evasion, money that could be used to hire accountants and lawyers to push for tax evasion, can now be used productively in the economy. Those who support the flat tax assert that the flat tax will encourage both economic development and growth. This is achieved through avoiding high level of taxes for earning a lot of money and being productive.
On the other hand, arguments against flat tax are that it puts a lot of unnecessary burden to those in the middle class and low earners. This is because flat tax removes deductions and at the same time expands the tax base. Comparably, opponents of flat tax claim that progressive taxation is fair because it implements tax on disposable income. In this scenario, the fairness comes in because the rich pay more, and the poor in society pay less. This procedure will reduce the gap between the rich and the pooxir. But, the flat tax does not improve the level of poverty and inequality. To some extent, adopting flat tax will reduce the tax revenue. Generally, economists argue that when flat tax is adopted it means that a regressive tax system is encouraged.