Why wouldn't a flat tax work?

Question

It seems like a fool-proof way of doing business. Come up with a budget--divide by the total earnings in the USA, get your percentage and leave us alone.

Other than putting countless Tax Lawyers and Acccountants out of business--where is the down side?

Answer 1

It could be made to work easily, if allowed to.

Answer 2

To put it simply, the only taxpayers that would get a break would the the ultra-rich. Low and middle income taxpayers would pay much higher taxes.

To replace our current graduated tax system with a flat rate tax on every dollar would require a rate of around 22%. Even though my marginal rate is 28%, my net tax rate (taxes paid divided by total income) is around 17% due to exemptions, deductions, etc. That probably wouldn't kill me, but consider a friend of mine.

Single parent, 2 kids, with about $16k in gross income. She pays no federal taxes due to her income. She gets about $5k a year in credits which make survival possible at a very basic level. A flat tax rate of 22% would put her tax bill at $3,520. With the loss of the credits, her income would plummet by over $8,500 a year. She and her kids would be on the streets.

On the other hand, Bill Gates' tax bill would probably drop by 50%. Nice trade-off, huh? The ultra-rich get even richer, and the working poor are tossed into the streets. Sorry, Bud, but that's not my view of America.

Answer 3

When most people discuss flat tax, they have the mistaken impression that going to a "flat tax" means they would just multiply their income by x% and that'd be all there is to it. They think "no more complex tax forms!".

What they fail to realize, is that the term "flat tax" is very misleading, for it's not the tax calculation that thows people into a tizzy,-- it's the computation of what's taxable and what isn't taxable.

People don't go to CPA's because they can't multiply their taxable income by a certain tax rate, they go to CPA's to determine what is and what isn't taxable income.

That will never change.

In you question you say "divide by the total earnings".

What is earnings? That's the question........

Answer 4

People think of income tax as a revenue gathering instrument. It is of course, but I believe a large reason for the tax codes is to influence people's behavior. Example.

If you buy a house you get tax breaks on the interest and re taxes.You are being encouraged to buy property using the tax code. Theoretically property owners make better citizens.

If you go to college you have tax deductions for the money you spend for tuition. You are being encouraged to go to college using the tax code.

Answer 5

The liberals will claim that the poor are paying too much and the rich aren't paying enough. Of course they are already saying that the rich don't pay their "fair share."

BTW, the "rich" are already paying the majority of all the taxes. They are being taxed to death!!! We have clients that are paying more in state taxes than most people earn in one year. Of course what is "rich" in Kansas wouldn't be "rich" in CA.

Beware of a value added tax - the politicians will want more money and start adding back in an income tax to make up for the shortfalls. We might have both.

Answer 6

Because it is normal for governments to want to tax the rich at a greater percentage than the poor, as the assumption is that the rich don't need the money, and they get way more taxes that way.

You think it's bad in the US, come to Canada. Our Tax Freedom Day is in late June - almost half our income goes to the government.

Answer 7

The downside? Low income people who don't pay federal income taxes now would be paying over 20% extra for everything they buy - doesn't sound fair somehow. And if you start exempting some items, and giving back a rebate like the fairtax proposal proposes, then you're right back where you started from.

Answer 8

liberals...tax and spend schemes will fast outpace it and they wouldnt be able to do favors for special interest and downtrodden...nice idea but liberals wont let it pass.