Comparing flat tax to current federal tax system Essay

The whole of the current federal revenue enhancements is a progressive system. With the current system the higher the household income the more revenue enhancements you will hold to pay and the lower the household income the lower the sum of revenue enhancements you will hold to pay will be. Not all revenue enhancements under this system are progressive, Estate revenue enhancement is the most progressive, nevertheless, single and corporate revenue enhancement is besides progressive. Pay-roll revenue enhancements on Social Security and Medicare are regressive revenue enhancements which means that they collect a higher portion of income from lower income families than they do from higher income families ( Rohaly, 2008 ) . The Federal revenue enhancements include several different brackets to register from, these include: Married filing jointly, which starts at 10 % , Head of family, which starts at 10 % , single persons, which starts at 10 % , Married filing individually, which starts at 10 % , and Estate and trust which start at 15 % , all of these start at a specific per centum and travel up depending on the sum of income brought in to the family. These brackets merely include single revenue enhancement ; there are many more complicated processs and brackets when you get into the concern facet of filing revenue enhancements ( hypertext transfer protocol: // ) .

What Happened To It

In 1986 Ronald Reagan signed the Tax Reform Act, this act reduced the top fringy rate of revenue enhancement to 28 % , and this is down from a immense 70 % in 1980. The Tax Reform Act got rid of $ 100 billion in uneconomical revenue enhancement shelters, it besides improved inducements to work, salvage, and invest. This act merely lasted about 4 old ages before George Bush signed the Omnibus Reconciliation Act in 1990 and Bill Clinton signed the Omnibus Reconciliation Act of 1993. Both of these act ‘s announced $ 500 billion in shortage decrease, so revenue enhancements got raised on the rich and lowered on the hapless. In 1986 there were two revenue enhancement brackets 15 % and 28 % and by 1995 there were five revenue enhancement brackets 15 % , 28 % , 31 % , 36 % , and 39.6 % ( Rubushka, 1995 ) .

What Federal Income Tax Costs the Peoples

First, the Senate Finance Committee and the House Ways and Means Committee benefit the most from income revenue enhancement. The members of these two commissions collect twice every bit much in parts as the Senate or the House. Second, the members of Congress portion the benefits of income revenue enhancement with more than 70 1000 extremely paid lobbyists in Washington DC and with several hundred attorneies, comptrollers, Sellerss of revenue enhancement shelters, and package providers harmonizing to The Flat-Tax 2nd edition. Two big costs that impose the American people are direct conformity costs and indirect economic losingss from deterrences due to the complicated and high rate federal revenue enhancement system. Surveies of the Burden of the Tax System and the surveies of Tax Burdens partly explains why every alteration in federal income revenue enhancement is judged on who wins and who loses. The conformity load of persons 50 old ages ago was a mere 1.2 per centum compared to 1985 when the conformity load made a immense leap to 24.4 per centum. In 1993 the IRS included a subdivision in the instructions packages of the revenue enhancement signifiers that told you how much clip it should take you to make full out your paperwork, it concluded that with the most popular revenue enhancement signifier the 1040A it should take you about six and a half hours to make full out your signifiers. The sum of clip goes up from at that place when you have to add extra information. With the federal revenue enhancement system we spend approximately $ 50 billion to register and pay people to treat our revenue enhancements each twelvemonth

( Rubushka, 1995 ) .

Flat Tax

What Is It

Flat Tax is a more simple manner of paying your revenue enhancements. Alternatively of all the different signifiers and paper work that comes along with traditional federal revenue enhancements, Flat Tax would necessitate you to make full out one of two post card size signifiers. The two signifiers are, a Labor income signifier and a concern and capital income signifier. Flat Tax treats all revenue enhancement payers the same, alternatively of holding different degrees of revenue enhancement based on income, everyone would pay the same per centum of revenue enhancement no affair what income degree they are. Flat Tax would take down fringy revenue enhancement rates and extinguish the revenue enhancement prejudice against salvaging and puting. This would assist to better the economic public presentation in the planetary economic system. There have been many proposals for a Flat rate revenue enhancement and non one of them is the same but they all have similar points of involvement among them. The points that the people composing the proposals find of import are: A individual Flat Tax rate that is less than 20 % , Elimination of particular penchants, no dual revenue enhancement on salvaging and investings, territorial revenue enhancement, which says that people merely be taxed on income earned inside the U.S. , Family Friendly, which says that families would have freedoms, such as the size of your household determines how much money you must do before the authorities can revenue enhancement you, the sum of the freedom will be higher than it is under the federal revenue enhancement system, Flat Tax would be ingestion based. Flat Tax is based on income, merely one time at a low rate when it is earned. A Flat Tax is similar to a gross revenues revenue enhancement in the manner it is collected when you purchase something but ne’er once more ( Mitchell,2005 ) .

Advantages of Flat Tax

Some of the advantages of a Flat Tax system are that a Flat Tax system would better the economic public presentation by take downing revenue enhancement rates and stoping the revenue enhancement codes prejudice against salvaging and puting. The thing that most people find to be most persuasive about Flat Tax is the simpleness of the system, one set of instructions and two simple post card size signifiers. Flat Tax would increase the inducements to work, salvage, and invest and it would besides spur increased productive economic behaviour which would take to a encouragement in the economic systems long term growing rate. “ Harmonizing to Harvard economic expert Dale Jorgenson, revenue enhancement reform would hike national wealth by about $ 5 trillion. It would make this in portion because of all income bring forthing assets would lift in value since the Flat Tax would increase the after-tax watercourse of income that they generate. ” Fairness is another advantage of Flat Tax, people would all be charged the same per centum as everyone else, and for illustration a affluent individual that made a 1000 times the nonexempt income would pay a thousand times more in revenue enhancements. The revenue enhancement codification would no longer punish and know apart based on income. A Brief Guide to Flat Tax by Daniel Mitchell Says “ a Flat Tax gets rid of all tax write-offs, loopholes, credits, and freedoms. Politicians would lose all ability to pick victors and also-rans, wages friends and punish enemies, and utilize the revenue enhancement codification to enforce their values on the economic system. ” Along those same lines, struggle between the revenue enhancement remunerators and the authorities would about be nonexistent. Other states that have adopted a Flat Tax system are making really good, former Communist states are taking a planetary revenue enhancement reform revolution ( Mitchell, 2005 ) .

Direct Wordss from Daniel Mitchell

Daniel Mitchell says in the article A Brief Guide to Flat Tax ” In a planetary economic system, it is progressively easy for occupations and capital to get away high revenue enhancement states and migrate to low revenue enhancement states. This means that the wages for good revenue enhancement policy is greater than of all time before, but it besides means that the punishments for bad policy are greater than of all time earlier. A Flat Tax will do America a magnet for investing and occupation creative activity. “ ( Mitchell, 2005 )


Federal revenue enhancements or a Flat Tax system, they both have good and bad points that come along with them. I think that a Flat Tax system would work better for the U.S because it would make so much good, non merely would it be a more simplistic manner of making things but it would assist maintain our concerns alive and it would assist our economic system. Large companies are paying out the wazoo in revenue enhancements because they bring in so much money, but it is n’t all their money. With a Flat revenue enhancement system companies and persons would merely hold to pay revenue enhancement on the money they earned. There would be no more dual revenue enhancement, for case with a little concern proprietor, sometimes they get dual taxed on some things because the line between concern and personal money is really thin. Finally, our authorities would halt acquiring rich off of our revenue enhancement money.