Flat tax... wouldn't it discourage spending?

Question

I mean basically the cost of EVERYTHING would rise by at least 10 percent... I wouldn't want to buy as much if that was the case... and people with even more money to spend than I do, probably would cut back their spending even more....

I know many people that spend money before taxes in order to get tax cuts... like buying new cars for a business... but under a flat tax that would be discouraged.... if they keep their money, it's tax free...

and also, those in poverty would have a tremendous increas in the amount of taxes they pay, since they basically pay none now...

so how would it not be putting a larger burden on the poor and discouraging the wealthy from spending?

dapixelat: well, it seems that people are calling a " big national sales tax" a flat or fair tax... I've heard several refer to it either way...

Answer 1

Look at the bright side, drug dealers, pimps and illegal aliens would pay the tax every time they spent money. That's a big change from the way things are now.

Answer 2

I think you're confusing two types of taxes. The flat tax and sales tax schemes are two different things. You're suggesting a sales tax.

And yes, it would discourage some spending. Although, really, if you need a car, you'll buy it. If you want that new gizmo TV or stereo, you'll buy it. People do it all the time in different countries. Sales taxes tend to be regressive (e.g. harder on people with less money) unless you exempt certain things (e.g. food, medicine, etc). Even then, it still tends to be regressive.

A flat tax on income could probably work but it would be a raise in taxes for some (lower income) and a big reduction for others (upper income).

Answer 3

Interesting question, but your arguement clearly shows that you do not understand what the flat tax is.

The flat tax would replace the current income tax structure and tax brackets. It would tax everyone the same rate, regardless of income, investments or other assets. I think I have heard it proposed at 15%. I don't know how the flat tax proposal effects other tax codes like adjusted taxes or credits.

What you are referring to is the national sales tax or Fair Tax. The FairTax (H.R.25/S.25) is a proposal for changing United States tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, FICA (Social Security and Medicare tax), corporate taxes, capital gains taxes, gift taxes and inheritance taxes with a national retail sales tax, to be levied once at the point of purchase on new goods and services. The tax would be 23% of the total cash register price when calculated the same way that income tax is calculated, which is the same as a 30% traditional sales tax. The proposal also calls for a monthly tax rebate to households of citizens and legal resident aliens, to "untax" purchases up to the poverty level. The FairTax would not change government funded programs such as Social Security, Medicare, and Medicaid.

Because the current income tax structure of the United States introduces embedded tax costs in goods and services, the FairTax is expected to decrease production costs after business taxes and compliance costs are removed. This is predicted to offset a portion of the FairTax amount. Many expect the FairTax to have positive ramifications for savings and investment, tax burden visibility, ease of compliance with the tax code, economic growth, international business locality, and U.S. international competitiveness and could have challenges with an underground economy and the permanent repeal of income taxation.


Lots of details are found at the link below.

Answer 4

The flat tax is a great idea...
No, it would not discourage spending..