Whats wrong with a flat tax?

Question

15% no loopholes everybodys pays the same rate. the rich pay 15% of their millions or billions that is a lot of trump.

so say if you make 30.000.00 per year and under .you pay no taxes

Answer 1

Three things:

For people at the very low end of the economic scale, 15% of a small number will make a big difference in their ability to pay rent, utilities, or put food on the table. Right now, if you earn less than $15,650 you only pay 10% of your income to federal taxes. If you are right on the edge, you'd pay $1560 in federal taxes, or $130 per month. If you earn $1 more, you'd pay $2348 in taxes, or $195 per month -- $65 more each month. That is totally unfair to people least able to afford higher taxes.

Secondly, according to most economic studies, a flat tax rate would need to be at least 25%, in order to have a revenue-neutral tax impact. The biggest question is what to do with the large deductions for state income and property taxes and mortgage interest. Keep them, and you need a higher flat tax rate. Eliminate them and you will have screaming and yelling like you've never heard.

Third, the entire housing industry is built around the twin deductions for mortgage interest and property taxes. A flat tax of 15% will eliminate that deduction, so that a lot of folks will have to suddenly pay more real taxes, and take away a whole lot of spendable money from the US economy. Prices of houses will be driven down, possibly as much as 30%, meaning a lot more houses will be defaulted upon (in addition to the ones currently in foreclosure these days) - and disrupt a very, very large part of the US economy. Everyone from banks and finance companies, to real estate agents and lawyers, construction industry, to even the vacation and leisure industry would be impacted. You would certainly push the economy into a recession.

Note that many other countries have some form of homeownership tax advantages. Either part of the mortgage principal, or the mortgage interest. As well as property taxes.

It's a tough decision with no easy answer.

Answer 2

Under a true flat tax, the upper income people would get a huge break, and the poor and the middle class would end up paying much more than today. And to maintain the same amount coming in as today, the rate would have to be much higher than 15%.

Old lady is wrong in her statements – today the top 50% of earners pay over 96% of the income taxes collected, and the top 5% pay over half of the income taxes collected. Repeating the misconception that the rich don’t pay taxes, and that the poor and middle class pay them all or most all, doesn’t make it true.

And Tom-SJ’s first point shows a total lack of understanding of how tax brackets work.

Answer 3

If rich people pay most of the taxes in this country and they do according to the Wall Street Journal, and the flat tax becomes law, wouldn't that be a tax cut for the rich?

If the rich pay less, who will have to pay more? Only leaves the poor and the middle class.

If you think you pay enough now, you will hate a flat tax because your taxes will go up.

Answer 4

Heh. Whomever told you that a 15% flat tax would derive the amount of revenue needed by the federal government is plain off his/her rocking chair. A flat tax would need to be closer to the 22%-24% rate in order to accomplish what you are proposing.

So, if you want to work for a measly $30K per year and pay about $7,000 of it in income tax, be my guest.

Answer 5

The problem is in individuals paying disproportionately more or less in real terms.

For instance, if one person earns $100 per week and another earns $1000, they will pay $15 and $150 respectively. For the person on a lower income, having $15 deducted from their paycheck will affect them disproportionately more than the person on the higher income, who still has $850 in their pocket each week.

The idea of incremental tax brackets is to minimize this effect so that each person pays a fair amount of tax. Remember, the definition of fair is that everyone has their needs met, not that everyone is required to put in or take out the same amount.

Answer 6

Nothing wrong at all. Do you know what the definition of socialism is? It is taking from the wealthy and distributing it to the poor. That is the very essence of tax brackets. It is amazing what the government gets away with under a so-called capitalist system.

Answer 7

That sounds good, but if you are living on $10.000 per year, a 15% tax is $1,500 - which leaves you with $8,500 per year.
If you are living on $1,000,000 per year, a 15% tax is $150,000, which leaves you with $850,000 per year. So, although the proportion might be the same, the end result is very, very different. On $8,500 per year, you aren't going to be able to feed, clothe and house your family. On $850,000 per year, you can do it easily and have enough left over for a holiday in Hawaii and a ski week in Aspen.
You need to have a floor on the tax, otherwise the people on the bottom of the scale are really hurting.

The sad truth is that, with fancy (and expensive) accounting most of the very wealthy end up paying nothing and the brunt of the tax burden falls on the poor and the middle class, who can least afford it.