Four Reasons for the Flat Tax

Points for a Uniform Rate of Levying Income

Jul 8, 2009 Christopher Pascale

While the Flat Tax is a reform that has not picked up as much steam as other ideas, it is important to understand why this system should be supported.

The Flat Tax is a proposal to reform the current federal income tax model by collecting money only at the point that it is earned with one rate as opposed to rates that graduate as more income is made.

To clarify, under the current system, people who earn $8,000 a year are taxed at a rate of 10%, leaving them with an income tax burden of $800. People who earn $16,000 a year are taxed at a rate of 15%, leaving them with an income tax burden of $2,400, or three times the previous amount.

Under the 15% Flat Tax system proposed by Senator Sam Brownback (KS), these incomes are too low to be subject to income tax as they do not meet the minimum amount of $25,000 for singles and $30,000 for families of four.

The system's simplicity appeals to many taxpayers, especially those who are single-issue voters geared toward taxes, such as the TEA partiers who have been making noise across the country since April 15th.

Four positives of the Flat Tax system are:

• Simplified tax paperwork
• No income tax burden for low income families
• No Double Taxation
• US becomes a corporate tax haven

The Flat Tax Paperwork Does not Require an Accountant

The tax paperwork under the Flat Tax system is a very simple form consisting of 10 lines beginning with income, subtracting deductions, and ending with a determination of whether the taxpayer owes money or is going to receive a return for overpayment through withholding.

It is so simple that there is no need for the average citizen to require the need of a Certified Public Accountant (CPA) to do his tax return paperwork, potentially saving him $200. In addition to those savings are ones included for people with low incomes. While current rates seem favorable, the 15% flat rate would not apply to the first $25,000 for singles or $30,000 for families of four.

Low Income Families are Granted Tax Relief

With the current economy, many people are unemployed and unable to find work. Regardless of whether they make $5,000 or $45,000 this year, they will still be subject to income tax when it comes time to file. The Flat Tax has a provision through its income limitations that relieves all families of having to pay taxes on income that would be necessary to sustain a respectable standard of living. For families of four, it is determined to be $2,500 a month, which equates to $30,000 a year.

No Double Taxation

Under the Flat Tax system, investments made with money that has already been taxed will not be taxed a second time.

For example, if a person was to save away his tax return every year in a low risk interest bearing account, the interest earned on the account would not be subject to income tax. The reason for this is because it was part of income that had already been taxed.

This method of not taxing money that was already subject to income tax would allow retirees to retain more of their hard earned money in their golden years.

Corporate Tax Relief Would Bring More Jobs to the United States

With tax rates for corporations being 15%, the United States would be exerting a pull on large businesses who may find that the 28% corporate tax exacted by the Mexican government is just too high, just as some may feel the same way about Canada's 19.5% rate.

While the Flat Tax system does have downsides that should be considered, it is hard to ignore the negatives of the current tax system. The large amounts of paperwork required to be filed and held for years would be replaced by a form that could fit a standard piece of paper with room to spare.

When added to the relief for low income families, it appears that the Flat Tax is more progressive than the current system. The economic stimulation that would come with new companies flocking to US shores for relief from nations that have punished them with a graduated tax system would be complemented by the ability of average citizens to exercise more options in retirement.

Sources

"Federal Tax Brackets" moneychimp.com

Mitchell, Daniel J. "A Brief Guide to the Flat Tax". Heritage.org

Associated Press. "Brownback Pushes Flat Tax Rate Plan". msnbc.msn.com

The copyright of the article Four Reasons for the Flat Tax in Accounting is owned by Christopher Pascale. Permission to republish Four Reasons for the Flat Tax in print or online must be granted by the author in writing.

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Flat Tax Allows for More Retirement Options

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