The first one I'll write about is a flat tax. As you read in my first posting about U.S. personal income taxes, a flat tax of less than 12.7% would result in at least as much income tax revenue for the U.S. government as the current tax code.
Advantages of a flat tax over existing tax laws include the following:
- simple and easily understood
- everyone pays same percentage of their income
- tax can be accurately withheld from both earned and unearned income
- income tax can be collected when income is distributed (no free loans to individuals who underpay their taxes and pay rest when file, no free loans to government by people who overpay their taxes and get refund when file)
- potentially no individual tax forms to file and thus most individual tax documentation, preparation time and expenses may be eliminated
- reduced tax calculation errors (both unintentional and fraud)
- reduced costs for Internal Revenue Service (IRS): tax form publication, tax education, tax collection, and tax enforcement
Some disadvantages of a flat tax:
- reduced work for individual tax preparation businesses (accounting, filing, publishing, etc.)
Some differences:
- does not subsidize desired societal behaviors with special-interest tax incentives
- higher taxes than currently for people with low incomes
- higher taxes than currently for people who take advantage of special-interest tax laws
- lower taxes than currently for people with middle and high incomes who don't take advantage of special-interest tax laws
I'm particularly concerned about higher taxes for people with low incomes, so the next posting will look at multiple tax rates.
Posts
I'll be curious to see the tradeoffs of flat tax versus graduated. I think there's a tremendous advantage to graduated. Of course, easing the burden for lower income people is great. Also of importance is reducing the level of aristocracy. With sufficiently high taxes on the rich, their thildren can't simply be idle while spending their money on junk.
ReplyDeleteIf a graduated tax turns out to be too complex compared to a flat tax (for whatever reason), then one could "simulate" a flat tax by intalling a flat tax at a higher rate and then giving a flat rebate to all citizens (or all over 18, or whatever). Pretty much as simple as a flat tax with some graduated-like aspects.
Most important, though, is that a flat tax is far more palatable if we use it to substitute for all our regressive taxes, e.g. the sales tax and social security tax.
Michael
Thanks Michael. Great suggestion about simulating a graduated tax with a flat tax percentage and flat tax rebate amount. That solves one of the problems of a graduated tax, in that it is difficult to accurately withhold taxes with multiple income sources.
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