Adopting a Single Rate Flat Tax System

Flat tax is a system that would impose a single tax rate on all income subject to tax. Income would be taxed once and only once. Individuals and businesses would pay the same rate. The plan eliminates all deductions and credits. The only income not subject to tax would be a generous personal exemption that every American would receive. And no loopholes. Just a simple tax system that treats every American the same.

"A revolutionary change in our tax system is fundamental to re-energizing the American economy and restoring the American dream" (Moore 1). Currently, there are two major plans being considered to try and fix the tax system in the United States. These two plans are the Flat Tax and the National Retail Sales Tax. "Both the Flat Tax and a National Sales Tax would replace today's discriminatory tax structure with a single low rate. Either plan would promote the kind of capital formation that America needs to boost workers' incomes and raise long-term economic growth" (Mitchell 1). This means that the flat tax would take away the savings from the government and pass them on to the citizens and businesses. By doing this, there would be a rise in long-term economic growth.

A progressive income tax system is what most countries have adopted for taxation purposes. It appears as if this is the most suitable method as rates increase more to those who can afford to pay them. As taxes continue to increase, more and more people start talking about viable options that would benefit bottom line taxpayers. An option that has been proposed by some is the idea of having a flat rate that in theory would eliminate the concept of inequality by taxing everyone and everything at the same rate.

Taxes are a necessary component for operating a government, however, they are also the source of great debate within our society. Especially when considering what types of taxes to use, and how much to tax the population without negatively impacting the economy. Income taxes are currently one of the biggest sources of income for the government, but are also one of the biggest concerns given the level of complication involved with the current tax system. Although many argue that the current progressive tax system contributes to our country’s economic growth, research indicates there may be benefits for simplifying the income tax system without stalling growth. One theory indicates implementing a flat tax system would not only provide consistency for businesses and consumers, it would positively impact economic growth. If given the appropriate considerations, including an equitable rate, a flat tax would increase consumer confidence and lead to an increase in consumption, and ultimately growing real gross domestic product (GDP).

Simplicity is a benefit of the flat tax system. One rate makes it easy to calculate taxes. It is easier to understand and report flat taxes, because it taxes only one income. The flat tax gets rid of double taxation on savings and dividends, because families are not required to report dividends, interest and other business-related income, which is taxed at the business level. A flat tax employs territorial taxation and eliminates global taxation. A flat tax promotes fairness, because no matter how much money one makes they would pay the same percentage of taxes. Therefore, this tax system does not discriminate based on income.

The national debt is growing and the government is unable to keep up under the current Progressive tax system, in the United States. A solution for the United States debt is to switch to a flat tax system. A switch to a flat tax system would simplify the tax process, it would make taxes fair and even, and it would allow the government to reduce the United States national debt. A flat tax system is a system that taxes every individual at the same percentage. It is not like any system the United States has seen before.

“The present treatment, which imposes no limit on the portion of his income that an individual may exclude from tax, results in an unfair distribution of the tax burden. This treatment results in large variations of the tax burdens placed on individuals who receive different kinds of income. In general, high-income taxpayers, who get the bulk of their income from personal services, are taxed at high rates. On the other hand, those who get the bulk of their income from such sources as tax-exempt interest and capital gains or who can benefit from accelerated depreciation on real estate pay relatively low rates of tax. In fact, individuals with high incomes who can benefit from these provisions may pay lower average rates of tax than many individuals with modest incomes. In extreme cases, individuals may enjoy large economic incomes without paying any tax at all,” (U.S. Congress, Joint Committee on Internal Revenue Taxation and Committee on Finance, 1969).

Today, America’s tax system is an extremely complex system full of loopholes influenced by special interest groups and lobbyists crafted to benefit these interest groups to the furthest degree. But under a flat tax system, a fair, singe, unbiased percentage is taxed to all incomes for individuals and businesses. This one rate of taxation provides no room for loopholes due to the fact that deductions are removed and an individual’s income would be taxed entirely. The implementation of a flat tax system paired with a balanced federal budget would lay the foundation for economic growth and expansion for future years. This tax system would help to increase the economy at a stable, manageable rate by facing Americans fewer taxes, and more opportunities to save and invest. Despite many believing that a flat tax system was crafted to give tax breaks for the top 1%, it is an ideal system to reform our taxation system with because it would simplify our system drastically by removing deductions and loopholes, it would provide Americans with a fair system which would benefit all taxpayers with a tax cut, and finally America would

Policy makers have introduced a solution to the staggering proportion of taxes that Americans spend. The flat tax, based on an idea developed by Professors Robert Hall and Alvin Rabushka of Stanford University to create a fair, simple, and pro-growth tax system (Mitchell 1, 11). There are four basic criteria that make up a flat tax. First is a single low rate on taxable income, the baseline for taxable income would be raised to a certain amount dictated by a personal exemption. Second is simplicity, all Americans would fill out the same postcard-sized form to pay their taxes. Third is the reduction or elimination of deductions, credits, and exemptions, depending

For around three decades, the effects of the US tax policy have been an issue because it has created inequality. According to Bargain (2015), the main idea about tax system policy is that inequality remains in the United states and it isn’t a system fair. Furthermore, no one enjoys paying taxes yet all but the extreme libertarians agree as Oliver Wendell Holmes said “that taxes are the price we pay for civilized society. It shouldn’t take U.S taxpayer 6% billion hours and 168% billion per year to file their taxes”. The burden of paying that price has been distributed in increasingly unfair ways. Taxes on wealth, such as capital gains, are often more subject to a lower tax rate than wages and salaries, which the vast majority of every day.

If Oliver Wendell Homes once said ”Taxes are the price we pay for a civilized society” (Spilker et al., 2014, p. 1-3), then progressive tax would be the perfect tax structure to choose. This is a system where the tax rate increases as the taxable base increases as well. As we recall from history, President George Bush had enacted a tax cut from 2001 – 2010. Over this ten year Americas wealthiest had received tax cuts totaling almost half a trillion. By 2010 while Bush’s tax reductions were still in place 52 percent of the tax cuts had gone to the 1 percent richest whose average income was 1.5 million “Their tax-cut windfall in that year alone will average $85,000 each” ("Tax cuts for the rich," June 12, 2002, p. 1). Subsequently we

“1. Tax all income with no deductions except a generous allowance based on family size. Today's complex system could be replaced by two simple, postcard-size forms, one for business and one for individuals.

The modern concept of a flat tax was popularized by Stephen Forbes in his 1996 presidential campaign when he proposed a universal income tax rate of 17 percent. Republicans have been advocating for a flat tax plan ever since and the latest crop of presidential hopefuls eclipsed by Donald Trump, proposed similar plans. Ted Cruz was talking about a flat 10 percent while Bush, Huckabee, Carson, Rubio and Rand Paul all had similar ideas. The 2016 Republican nominee, Donald Trump, also advocates for a reduction in tax brackets closely resembling a flat tax rate, since he is a reported billionaire. (Shlaes, 2015)

This type of tax system would eliminate incentives to shift activities from one period to another. If there is no income tax, there is no more consideration for timing or considerations of yearly income. I think that there would still be incentives to shift activities from one type to another, but it would be a different shift. For instance, for corporations, there are many things that are considered tax deductible, but with a flat tax, this would be irrelevant because there would be no itemized deductions allowed. Such a tax system would not eliminate incentives to shift activities from one pocket to another because low-income taxpayers would not have to file tax returns, so other taxpayers would want to shift activities to the low-income tax bracket to avoid having to pay the flat tax.

Flat tax, the tax is the same for all income levels. Regressive, the tax rate is the same regardless of income level, proportion of the income that goes towards taxes decreases as you earn more income. Progressive as your income increases so does the percentage of taxes you pay.