Have you heard about proposals for a \"flat tax\"? The idea is to have our feder

Question

Have you heard about proposals for a "flat tax"? The idea is to have our federal income tax be extremely simplified, with almost all income being taxed, and almost no deductions allowed; however, the tax would be a much lower percentage, like maybe a 15% across the board tax, and with everyone paying the same tax rate. They would also exempt a large part of income from any tax, so that the first $25,000 income per family for example would be tax free. Thus, a family making only $50,000 has half its income tax free, but a wealthy family making $200,000 has 88% of its income subject to tax. Some argue it still benefits the rich, others argue it does not, and that a flat tax would give much less incentive to cheat on taxes or hide income since the tax rate is only 15%. Do a little online research on the flat tax (there's plenty of comment on the internet) and discuss what you think of it.

Explanation / Answer

A progressive tax is far better than flat tax. A progressive tax collects more taxes from the people with more money. The idea behind the progressive tax is that people with more money can afford it. Another reason is that to some extent progressive tax reduces income inequalities.

Progressive tax is needed to counter balance the regressive taxes. We would have a lot of regressive taxes in our country, the biggest offender being sales tax. When we have heard a flat tax proposal, it is usually pitched at ridiculously low rate like 15% so it probably doesn't raise enough money to almost fund the government.

Capital gains could be considered regressive, since it takes investment based income at a much lower rate than wages (given that the income is prevalent at the top of the economic spectrum). Even with progressive income tax, the system is only progressive as it is. With a flat income tax, there would be a lot of regressivity in the system and nothing progressive to balance it out.

In the given case, when some part is exempted from tax, 88% of income of wealthy family is subjected to tax whereas incase of family making $50000, only 50% is subjected to tax. Every system causes pain to certain sections of people. But the system which is benfibenef to maximum extent of population should be opted. In this regard flat tax is behind the progressive tax.

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