Moving to a flat tax system would remove these benefits because everyone would be paying the same thing.
The tax system in the United States encourages home ownership and charitable donations because of the available deductions. Incentives to behave in specific ways would be gone. If these items are exempted (which happens with most proposals), then the wealthy could escape tax-free despite high income levels.ģ. Lower income families do not typically have interest and dividend income, which means they would always pay the flat tax. It is a system that typically ignores dividends and interest. You would be asked to pay a significantly higher percentage of your discretionary income to meet your responsibilities.Ģ. Lower income families pay a greater percentage of their discretionary income.Īlthough you would pay the same percentage with a flat tax, having a lower income is a disadvantage in this system.
As you earn more, then you pay a greater percentage in each segment. Progressive systems require taxpayers to send in a specific percentage of income based on where their income falls in each tax bracket. There would be less confusion with the tax code. Moving to a flat tax system would eliminate the changes in withholdings, potentially saving independent contractors and freelancers a lot of money.ģ. If you are self-employed, then a progressive tax system will treat you as an employer and employee simultaneously. When people have more of their money to keep, then they spend more of it at local businesses. A flat tax often increases government revenues.ĭuring the first years of a flat tax, revenue gains can increase by as much as 10% for the government because of higher levels of consumption. Whether you earn $10,000 or $1 million, this idea would charge you a flat rate of a pre-determined percentage, such as 15%. One way to create a “fair” system of taxation is to charge every person and household the same percentage.