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Add to FavoritesShould the US adopt the Flat Tax Amendment? The question is simple and the answer is also simple. Yes there should be a flat tax in the United States. It would equal out the tax burden.
Without getting into any politics just do the math at a 5% tax rate:
Income Level Yearly Tax Weekly Payment
$ 25,000 $ 1,250 $ 24.04
$ 30,000 $ 1,500 $ 28.85
$ 48,000 $ 2,000 $ 38.46
$ 75,000 $ 3,750 $ 72.11
$ 100,000 $ 5,000 $ 96.15
$1,000,000 $50,000 $961.54
Let us think, who would be opposed to this? Below is a list of the people who would oppose a flat tax and some of their possible reasons.
1. The very rich will not like a flat tax. Sorry Oprah, Hillary Clinton, Tom Brady, Roger Clemens, Brad Pitt, Paris Hilton, Bill Gates, and George W. Bush. I am talking about all of you. We know that if we take away all the special deductions and credits the rich will have to pay more. No more charitable contribution deduction, no more business write off. You would have to pay taxes based on income not after you take advantage of as many deductions as you can find. Sorry, the middle class thinks its time the rich pay too.
2. Tax Accountants. These people make a ton of revenue because of the April 15th tax return deadline. I can assure everyone they do not want this money taken away from them.
3. The current employees of the IRS. Some of them would still be needed, maybe you could even move some of them to the compliance department, but lets face it some people would have to get other jobs. If the US has a flat tax you won't need all those employees processing returns. The businesses are already set up to make automatic payments from people's pay.
4. There are the charitable organizations. Now this is a bothersome one because they struggle as it is, without a deduction for people to give to them what will happen? I can not predict what everyone would do but I would venture to say that there are a lot of caring folks in the U.S. who would continue to help.
Let's be clear, according to the government the median income in the US for 2006 was $48,000. Personally I think this number is high but I will use it since it's an official number. According to the math above the people with median income would have a tax burden of about $39 per week. Maybe we should find out what the average American thinks about this.
I think a ballot question during elections would be a super way to find out. Are you in favor of a flat tax? That would be the question no qualifications, no special wording, just let people vote on if they would want it or not.
To the writer the answer is simple. A flat tax in the United States should be instituted as soon as possible. If 5 percent is too high for the rich then make it 2 percent, just make it the same for everyone.
Learn more about this author, Suzie Jane.
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No
I am completely sympathetic with people who are unsatisfied with the implementation of our taxation system. You could use many colorful words to describe it, the nicest being bloated and the worst would get me banned from here. I can understand why different people would use different logic as to why taxation out to be based upon service or upon sacrifice (if you dont receive any benefit from the lighthouse why should you pay for it). Sadly though a basic understanding of economics is lacking within our society, and the implications of taxes upon it.
The purpose of taxes is to raise demand in the aggregate economy. Every nation has a certain MPC (marginal propensity to consume), meaning for every extra dollar that you get how much of it are you going to spend. The reciprocal of MPS (marginal propensity to save) or 1/(1-MPS) gives us our fiscal multiplier. It works like this i have a dollar so i buy a candy bar from you. You save ten cents and spend ninety on a pen. The owner of the pen saves nine and spends eighty-one on chewing gum. etc etc. The total expenditures created from the one extra dollars worth of demand that was introduced into this economy was (1/(1-.9)*1= 10 My extra dollars worth of demand created 10 dollars worth of consumption and work. Yep people working pay check to pay check is good for the economy.
There is more to it then this yes you will save money and that is bad for the economy but at the same time money is being spent elsewhere to compensate for your selfish saving habits. That is capital investment by big business. Their big money projects like new office buildings, new plants, research projects etc. serve to offset the money you don't spend. The problem with this is that in mid recession when were tightening our belts so is big business. Leading into one big downwards spiral.
This is where fiscal and monetary policy come into play. Monetary policy is what the federal reserve does and fiscal policy is what the government does. So that now when things get out of hand there are active tools to get things back in check. In order to get capital investment spending to go up the fed can lower interest rates now projects that were once unprofitable become profitable through lowered interest expense, investment spending will go up. In order to get consumer spending to go up you can lower taxes. The government can also decide to adjust its own spending.
That really is the purpose of taxation is to spend money that we would not, in order to raise the average propensity to consume. That is why a flat tax is counter productive. It makes no sense to tax someone who is living pay check to pay check when they would have spent everything anyways. It makes much more sense to tax someone who makes 1 million a year for 400 grand because he would have saved a whole lot more now the government can spend the money that he was not willing to, and that 400 which is now spent created more than 400 grand worth of wealth through the fiscal multiplier effect described above.
A flat tax will only serve to hurt the person who cant bear a tax in the first place and ensure that the wealthy will not be taxed enough for the economic well being of the nation.
Learn more about this author, Joseph Palazzo.
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