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What is Flat Tax? Advantages, Disadvantages, Examples, and Comparison of the Flat Tax to the Fair Tax

What is Flat Tax? Advantages, Disadvantages, Examples, and Comparison of the Flat Tax to the Fair Tax

Will the Flat Tax Decrease the Tax Bill?

What is flat tax? 

A flat tax is the federal income tax system. It applies same lower rate across the board. Hence, its success solely depends on the rate of tax that is proposed. This should take in the revenue in order to fund the federal government. Many flat tax systems allow you the exemptions for living below the poverty line. So, resultantly, every flat tax proposal should be evaluated with much care in order to assess the correct revenue-producing potential.

Example

In the year 2005, Steve Forbes, in his book, had proposed the same seventeen percent flat tax plan. The name of his book is Flat Tax Revolution. Everybody got the exemption: 13,200 dollars for the adults (17,160 dollars for the single mothers) and 4,000 dollars for the dependents. 

A family of just 4 will not pay the taxes in case they have made less than 46,000 dollars. This plan will end estate tax as well as the Alternative Minimum Tax. And, the income which was actually saved or even invested was the tax exempt. This meant there were no taxes on the capital gains, interest, Social Security benefits, and dividends. The corporations would expense the investments.

Advantages

A flat tax has 3 major advantages. The very first major advantage of the flat tax is the simplicity. The very recent American tax system is very complex that this costs the taxpayers very much only to implement this. 

On average, this takes twenty-eight hours and thirty minutes in order to find out what you have. That is whether you give the taxes, or just you work these hours that are needed to give somebody to do taxes. A cost in the lost productivity is about 200 billion dollars. Add to this the salaries of about 97,440 IRS workers.  

The 2nd advantage is the enhanced fairness. The recent tax system is actually subject to the interpretation. For instance, the fictional tax return is given by a magazine to forty-five tax preparers that resulted in forty-five several tax calculations. The Treasury Department study has revealed that the callers to IRS help lines have got so many wrong answers that is 25% of the time. This means that these with the several tax preparers give the least in their taxes. This might increase the income inequality.

Disadvantages

There are 3 disadvantages of a flat tax. Firstly, many proposals do not replace revenue from an already existing tax system. For instance, the federal revenue is 3.3 trillion dollars in the fiscal year 2017. The half of it comes from the income taxes. The corporate taxes just contributed nine percent. Many flat tax proposals do not replace the already existing Federal revenue. This is so as the rate will be quite high. Hence, as a result, they boost the national deficit as well as the debt.

Secondly, a flat tax should address the payroll taxes which assist the Social Security and Medicare benefits. This is the income tax that is administered by the employers. In case the flat tax diminishes this, then the 3rd of the federal income is eliminated. The rate of flat tax should enhance in order to control a deficit. In case flat tax keeps payroll tax then still there will be so much complexity that will remain in preparing the tax returns. 

Thirdly, this leaves in place all of the state as well as local taxes. It means that the most families and businesses should still consume about the same amount of the time in order to find out the local tax bill. Also, in case you just read very carefully, this appears that so many taxes the rich people pay, just like the capital gains, interest, and dividends,  go away. The exemptions just like Social Security exclusion remain there. 

Flat Tax versus Fair Tax

Flat Tax is the income tax while the Fair Tax is basically the sales tax. Both of these finish the complex recent structure of income tax.  But, fair tax will enhance the cost of daily routine goods as well as services by twenty-three percent. That is just like double-digit inflation. This will be bad for the retirees who just live on the fixed income.






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