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The advantages of a flat tax system in texas usa

Contact Author Flat tax success stories are fairly easy to find. A number of countries have seen impressive economic growth after adopting the flat tax idea. This is especially true since the fall of the Soviet Union. As countries formerly under Soviet communist control adapted to capitalism, many of them made the flat tax part of their system and saw great economic growth. Would a flat tax be equally successful in the United States?

Income taxes can seem overwhelming and unfair. Would the flat tax help?

Pros and Cons for the U.S. of Flat vs. Progressive Taxes

Source This article will discuss the definitions of flat and progressive taxation, looking at the pros and cons of each, and then speculate as to the effectiveness of the flat tax for the US. Flat Tax Definition At first glance, the flat tax idea seems simple enough: No deductions, loopholes or tax shelters - you multiply your income times the tax rate, and your taxes are done.

Nothing could be easier! In reality, it's not quite that simple. What constitutes income, for example? In the US, long-term capital gains are taxed at a lower rate than regular income, in part to encourage long-term investment. Should this continue under a flat tax plan? Business income also complicates things, and not only for large corporations.

If you have income from a small part-time business, for example, you currently deduct your expenses to determine the taxable amount. Clearly, business income requires additional rules.

Modified Flat Tax A flat tax, applied across the board, would also increase the tax burden on those with lower incomes, many of whom currently pay little or no income tax.

For all of these reasons, most current flat tax proposals are actually modified flat tax proposals. These modified plans usually include some variation of these elements: Technically, this makes them progressive tax plans, although they are far "flatter" than our current system.

Pros & Cons of a Flat Tax

In the US, this the advantages of a flat tax system in texas usa done using tax brackets, in which income is divided into ranges, with each range taxed at a higher rate than the range below. Otherwise, it would be theoretically possible for a person to earn more money but actually end up with less, due to the entire amount being taxed at the higher rate.

Progressive tax systems often allow for a number of adjustments to taxable income, such as exemptions, deductions, and tax credits. These can be used to provide additional relief to low-income citizens, or to encourage certain types of behavior, such as business investment or higher education. Progressive Tax Pros and Cons Pros Cons shifts tax burden to those most able to pay "bracket creep" - inflation can push taxpayer into a higher tax bracket, with no real increase in income after adjusting for inflation those with greater influence in society pay more can be used in corrupt manner by politicians prevents political and social instability by limiting the gap between classes at least in theory "brain drain" - individuals with high earning potential often a nation's brightest and most talented people leave to avoid high taxes protects taxpayer during hard times - when income goes down, the tax rate also goes down may discourage business investment and expansion, as additional profit is taxed at higher rates many economists suggest that governments can get the most revenue from a progressive tax system progressive taxation is arguably unconstitutional, in that it does not treat all citizens equally Would Flat Tax Work in the US?

I've tried to accurately present the pros and cons of both flat and progressive taxation in an objective way. There are advantages to both philosophies, and neither should be dismissed out of hand. In my opinion, however, the flat tax is not the answer for the US. First, there's no way of knowing how much of the economic growth seen in flat tax success stories are actually due to the flat tax.

Because of political changes and other economic reforms, many of these nations would have seen growth under almost any tax plan.

In addition, I'm not sure that a flat tax in the US could provide the same amount of revenue as the current tax system without increasing the tax burden on the middle class.

  1. Business income also complicates things, and not only for large corporations.
  2. Since instituting the flat tax, Estonia has emerged from obscurity to become a member of the European Union. Modified Flat Tax A flat tax, applied across the board, would also increase the tax burden on those with lower incomes, many of whom currently pay little or no income tax.
  3. Get a free 10 week email series that will teach you how to start investing. Income taxes can seem overwhelming and unfair.
  4. Modified Flat Tax A flat tax, applied across the board, would also increase the tax burden on those with lower incomes, many of whom currently pay little or no income tax. In addition, a flat tax may not be as fair as one would think.

Nor do I believe than anyone can predict the effects on the US economy of switching to a flat tax. Flat Tax - What do You Think? Do you favor a flat tax for the US? Yes, a flat tax is simpler and more fair overall. No, the tax rate should be based on your ability to pay. A flat tax isn't needed, but a simpler tax is. The workings of both the US economy and the current 11,000-page US tax code are extremely complicated. Anyone who says that they understand both well enough to accurately make predictions about the flat tax is, in my opinion, simply mistaken.

Simpler Tax That uncertainty alone is reason enough not to switch to a flat tax - but this is not to say that there shouldn't be changes made. The current US tax code is 3.

Should The U.S. Switch To A Flat Tax?

Compliance is difficult even for those who want to. Clearly, the US tax code needs to be vastly simplified. Progressive taxation is fine, but it should meet these criteria: Taxes are only part of the equation. Congress also needs to rein in spending. Source the top tax rates should be low enough that they neither encourage "brain drain" nor stifle business investment. It's also important to realize that taxes are only part of the equation.

In the long run, no tax plan, flat or progressive, can help the US until the government learns not to spend more than it takes in.