Flat Tax on Income Term Paper by Nicky

A look at pros and cons of a flat tax on income.
# 149246 | 1,428 words | 5 sources | APA | 2011 | US
Published on Nov 30, 2011 in Accounting (Tax)

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This paper addresses the advantages and disadvantages of a flat tax on income in the US, particularly in light of the current economic downturn. The paper notes how a lower tax rate would result in higher tax revenues. Both systems of taxation are described at length, using a graph as an explanatory tool of the economic principles. Three benefits of the flat tax system are given in a list format. This is compared with the existing income tax system, on which several taxation experts are quoted. The paper concludes by noting that there is presently a push from some sectors for the institution of the Flat Tax method in order to avoid the complexities experienced in the current method of taxing income earnings. It is likely that this will continue to be a source of debate for some time to come.


Comparison of Flat Tax and Personal Income Methods
Flat Tax
Three Main Benefits of Flat Tax Systems
Summary and Conclusion

From the Paper:

"The personal income tax is reported by Gale (1999) to have provided exemption of $9,800 for a family of four, an earned income tax credit and the choice of $6,350 standard or itemized deductions for mortgage interest, state and local income and property taxes, charity and large health expenditures" in 1994. (Gale, 1999, p.1) Gale states that without the personal exemptions "the flax tax would be equivalent to a VAT, but with taxes on wages remitted by households other than business." (1999, p.1) In other words, the flat tax would be a consumptions tax, although it would appear to be a wage tax to households and a variation of a VAT to most businesses." (Gale, 1999, paraphrased)
The result is that the economic effects of the FairTax would be practically the same as those of a VAT or sales tax. The family exemptions would mean that the flat tax is progressive for low-income households however "at the high end of the income distribution, the tax is regressive, just like sales taxes and VATs." (Gale, 1999, p.1) Critics of the flat tax note that the tax advantages that many will be expecting will not culminate noting that homeowners will no longer receive a tax deduction on their mortgage."

Sample of Sources Used:

  • Gale, William G. (1999) Flat Tax. The Brookings Institute 1 Oct 1999. Online available at: http://www.urban.org/UploadedPDF/1000530.pdf
  • Forbes, Steve (2005) Flat Tax Revolution: Using a Postcard to Abolish the IRS. Regenery Publishing 2005.
  • Paulus, Alari, and Peichl, Andreas (2008) Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives. Institute for the Study of Labor (IZA) Discussion Paper No. 3721. Online available at: http://ftp.iza.org/dp3721.pdf
  • McGrath, Jane (2009) What's the Difference Between a Flat Tax and a Fair Tax? How Stuff Works, 2009. Online available at: http://money.howstuffworks.com/personal-finance/personal-income-taxes/flat-tax-fair-tax1.htm
  • Hall, Robert Ernest and Rabushka, Alvin (1995) The Flat Tax. Hoover Press, 1995.

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Flat Tax on Income (2011, November 30) Retrieved May 09, 2021, from https://www.academon.com/term-paper/flat-tax-on-income-149246/

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