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Is It Time for the US to Consider a Flat Tax?

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Almost every year some TV station will take a typical tax return to about 20 tax preparers and they get 20 final results — all different. If trained tax preparers can’t get it right what chance does the average citizen have in filing an accurate tax return?

Other than accountants, and perhaps even some of them, you are not going to find many people who are happy with the current tax code. Each year more and more rules and tweaks are piled onto the massive page count. Each April we pull our hair out in frustration — trying to understand what we can or can’t deduct under the current rules. Is it any wonder that there is a national outcry for some type of tax reform that’s fair?

Is Flat Fair?

Is a “fair” tax code even possible considering how many ways there are to make money in our capitalist society? The current tax code is commonly referred to as a “progressive tax.” What that means is, the more you make in income, the more you are supposed to pay in taxes.

A Flat Tax is exactly what it sounds like. Everyone pays the same percentage of tax. Whether you make $50,000 or $50,000,000 you’d pay the same rate. The most common rate being discussed is 17% but there is also the possibility of including some form of household deduction to benefit the lowest income earners. To put that in perspective the US would have to produce $17 trillion in taxable income to fund a $3 trillion government budget at a 17% tax rate.

The good thing about the flat tax is that the poorest and richest would be paying the same percentage of their income. Rather than the tax rate increasing with income the dollars collected would raise while the rate remained the same. The person making $50,000 would pay a flat $8,500 ($708.33/month) in taxes while the millionaire making $50 million would pay $8.5 million ($708,000/month) in taxes. While the millionaire would have a lot more income left after paying the tax both would be paying the same percentage of income. This could still be seen as unfair by those taxpayers in the lower income brackets.

In addition, just a two percent increase in the flat tax would increase our $50,000 per year taxpayer from $8,500 to $9,500 per year in tax payments. I doubt there is any system out there that is perfect for everyone but you have to admit it is interesting to try it out on paper.

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