A flat-tax system and the progressive tax system
Abstract: flat-tax system has many supports all the time, they believe this system is easy to understand and is fairer to taxpayers. This paper starts with explaining the flat-tax system, then moves to the pros and cons within the flat-tax system. Then I use a model to explain the difference between flat tax and progressive tax, and concludes which tax system is better.
1. What is flat-tax system
Due to federal income tax’s lack of efficiency, lack of fairness and complicity. In December 1981, economists Robert Hall and Alvin Rabushka first proposed a “low, simple, flat tax” to replace the federal income tax.
Hall and Rabushka used a modified flat tax: each individual is taxed at the flat …show more content…
As we all know, in today’s individual tax system, tax base is your adjusted gross income which is a broad definition. It includes all your income except the deduction. Rich people may use these deductions to cut the tax. In flat tax system, the wages and salaries are the only tax base. There are no loopholes for people. Furthermore, there’s no tax on capital gain and investment. Investment could be exploded and thus stimulate economic growth. With the same tax rate, it seems “fair” for everyone to pay the same. But is it the true …show more content…
Taxpayers have less than $30,000 income would pay a little bit more, because under the flat tax there are no tax credits. For these taxpayers, child care credit would have a significant proportion under the current tax system. Taxpayers with income more than $200,000 will pay less tax under the flat tax, because their tax rate is lower than the current marginal rates. Taxpayers with an AGI of $30,000-$200,000 will pay more because there is no itemized deduction under the flat tax. It is clear that people have high income will pay less and the tax burden will shift to middle class and lower class, which is unfair. And in flat tax, charitable expense will not be deductible any more, people will lose the willingness to make charity contributions. This is another failure to ease the income gap. Tax is a tool for the redistribution; rich people should contribute more to the society, because the system is already good to them and they should help the poor. The decreased total tax revenue will reduce the social welfare, which would burden low-income people more.
3.
Abstract: flat-tax system has many supports all the time, they believe this system is easy to understand and is fairer to taxpayers. This paper starts with explaining the flat-tax system, then moves to the pros and cons within the flat-tax system. Then I use a model to explain the difference between flat tax and progressive tax, and concludes which tax system is better.
1. What is flat-tax system
Due to federal income tax’s lack of efficiency, lack of fairness and complicity. In December 1981, economists Robert Hall and Alvin Rabushka first proposed a “low, simple, flat tax” to replace the federal income tax.
Hall and Rabushka used a modified flat tax: each individual is taxed at the flat …show more content…
As we all know, in today’s individual tax system, tax base is your adjusted gross income which is a broad definition. It includes all your income except the deduction. Rich people may use these deductions to cut the tax. In flat tax system, the wages and salaries are the only tax base. There are no loopholes for people. Furthermore, there’s no tax on capital gain and investment. Investment could be exploded and thus stimulate economic growth. With the same tax rate, it seems “fair” for everyone to pay the same. But is it the true …show more content…
Taxpayers have less than $30,000 income would pay a little bit more, because under the flat tax there are no tax credits. For these taxpayers, child care credit would have a significant proportion under the current tax system. Taxpayers with income more than $200,000 will pay less tax under the flat tax, because their tax rate is lower than the current marginal rates. Taxpayers with an AGI of $30,000-$200,000 will pay more because there is no itemized deduction under the flat tax. It is clear that people have high income will pay less and the tax burden will shift to middle class and lower class, which is unfair. And in flat tax, charitable expense will not be deductible any more, people will lose the willingness to make charity contributions. This is another failure to ease the income gap. Tax is a tool for the redistribution; rich people should contribute more to the society, because the system is already good to them and they should help the poor. The decreased total tax revenue will reduce the social welfare, which would burden low-income people more.
3.