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- Should we have a flat tax? Why or why not?
The idea of a flat tax in the U.S develops after the 1996 presidential campaign of the Republican Steve Forbes. The flat tax, obligating all taxpayers to pay the same tax rate, regardless of their income, is already functional in some U.S states, such as Colorado, Illinois, Indiana and Pennsylvania. Supporters of the flat tax system believe that this tax reform would motivate tax payers to work and thus earn more, because they would not be “penalized” with a higher tax percent. Furthermore, they believe that the flat tax is the fairest reform, since it will oblige everybody to pay the same amount of taxes while eliminating deductions, tax credits and complex tax brackets, thus providing unbiased and easy compliance procedure.
Regardless of the potential gains of flat tax, the consideration of such U.S. tax reform seems to have more negativism than positivism. There are many debates about the fairness of implementing a flat tax reform in the U.S. Opponents of the idea claim that such tax system would shift the tax burden from the rich to the poor and those would be the most effected and least able to pay taxes. By exempting unearned income such as dividends or interest rate, the opponents of the flat income tax system believe that the working class would support the richest part of the population and thus not only inequality but also the inability to gather taxes would increase. Instead, the opponents of the flat tax argue that the economy would be better off if the tax on the middle class, the largest part of the US population, decrease so that there is more income to be spent on products.
- What other tax-based reforms (if any) do you suggest?
Instead of a flat tax, many suggest the implementation of a Fair Tax which based on consumption instead on individual’s income. Followers of the idea for fair tax reform point out that the maximization of taxation on consumption would lead to a minimizing the taxation on investment, capital and employment. This, on the other hand, would not only decrease the US government’s deficit but would also contribute the federal revenues by bringing more economic activities and spending power (McGrath, What’s the difference between a flat tax and a fair tax).
The main advantage of the Fair Tax system though, is considered to be the abolishment of Federal income, corporate tax and Revenue Service. Instead, it would combine all those three into one, national sales tax that would take revenue from what is spent rather than what is earned (FairTax.org).
Works cited
Caucutt , Joshua . "Is the FairTax the Best Solution to Tax Reform? - Forbes." Information for the World's Business Leaders - Forbes.com. 5 Feb. 2012. Web. 11 June 2013. http://www.forbes.com/sites/moneycrashers/2012/05/02/is-the-fairtax-the-best-solution-to-tax-reform/
McGrath, Jane. "Flat Tax vs. Fair Tax". "How Stuff Works: Business & Money". Web. 11 June 2013. http://money.howstuffworks.com/personal-finance/personal-income-taxes/flat-tax-fair-tax1.htm
Moreno, Tonya. "What Is a Flat Income Tax”. About Taxes - Federal Tax Tips, News, and Planning Advice from About.com. Web. 11 June 2013. http://taxes.about.com/od/statetaxes/a/Flat-tax.htm
