What is the current system of individual taxation? What is a flat-tax system? So
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Question
What is the current system of individual taxation? What is a flat-tax system?
Some opponents say: there are too many loopholes which can help wealthy people reduce their taxation in the current individual income tax system. I wonder what are those loopholes?Can you explain as detailed as possible?
What are the differences between a flat-tax system and the current system of individual taxation? Can you compare these two systems and give me some examples and details of those differences?
What are the advantages of flat-tax system and what are the disadvantages of the current individual income tax system?
Why current individual income tax should change and how it has changed already?
Who is benefitting from each system?
Should current individual income tax system be replaced by flat-tax system?
Explanation / Answer
Current system of tax is progressive tax system where tax increases with increase in income on the other hand flat system is based on single rate of tax e.g 10% rate of tax whether you earn $1000 or $10000.
Some of the loopholes are summarized below:
Capital gains tax rate
The current 15 percent capital gains tax rate for most investors and zero percent rate for lower income taxpayers are part of the much ballyhooed George W. Bush-era tax cuts. The idea behind the lower capital gains tax is that it encourages investment, which helps create new companies that hire more people -- and we're all fat and happy thanks to this tax-subsidized investment chain.
Home mortgage interest deduction
The home mortgage interest deduction is the largest individual taxpayer cost to the U.S. Treasury. The mortgage interest deduction benefits also are geographically disproportionate. Just as high-income taxpayers get more out of it.
Flat tax system
Current Tax system
A flat tax is exactly what it sounds like: a consistent tax rate applied to all tax brackets. A true flat tax would mean, as Dr. Carson explained, that everyone would pay the same tax rate regardless of income (he suggested 10% since that “works for God”). Flat taxes are usually imposed on wages only, meaning that there’s no tax on capital gains or investments. Russia is considered to be the world’s largest economy with a flat tax (some of the Baltic states also have a flat tax).
This is the system that we have now. A progressive income tax is exactly what it sounds like: the rate of tax increases as income (however measured) increases. Technically, you can create a progressive income tax system even when stated tax rates remain flat by using personal exemptions, tax credits and tax deductions to alter the effective tax rate. Although our current system isn’t very popular at home, it’s perhaps the most common tax system used in developed countries around the world. Countries that use a progressive income tax system include China, Japan, Australia, France, Germany, Italy, Canada and the United Kingdom.
Flat Tax System-Advantages
Current Tax system Disvantages
1 Simplicity
2 Easy to understand
3 Elimination of double taxation
4 Reduced cost of administration and better administration
1 Complexity
2 Higher cost of administration
3 reduced efficiency due to more focus on compliance.
Flat tax system
Current Tax system
A flat tax is exactly what it sounds like: a consistent tax rate applied to all tax brackets. A true flat tax would mean, as Dr. Carson explained, that everyone would pay the same tax rate regardless of income (he suggested 10% since that “works for God”). Flat taxes are usually imposed on wages only, meaning that there’s no tax on capital gains or investments. Russia is considered to be the world’s largest economy with a flat tax (some of the Baltic states also have a flat tax).
This is the system that we have now. A progressive income tax is exactly what it sounds like: the rate of tax increases as income (however measured) increases. Technically, you can create a progressive income tax system even when stated tax rates remain flat by using personal exemptions, tax credits and tax deductions to alter the effective tax rate. Although our current system isn’t very popular at home, it’s perhaps the most common tax system used in developed countries around the world. Countries that use a progressive income tax system include China, Japan, Australia, France, Germany, Italy, Canada and the United Kingdom.
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