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Flat Tax - Not In Your LifetimeAug 08 '00 Write an essay on this topic.From time to time, politicians or others will advocate a flat tax. Everybody pays a certain percentage of their income, no brackets, no exemptions, no deductions. Frequently, this is modified slightly, by proposing that only income above a certain level be taxed. Under such a proposal, maybe the first $25,000 of income would not be taxed. Anything above $25,000 would be taxed a a certain rate, say 17%. This has one advantage of being very simple. List your income, calculate the tax, send it in. You don't have to worry about deductions, record-keeping, etc. From the government standpoint, this simplicity would result is a drastically reduced IRS, since there would be less need to check compliance. Disadvantages include a time-honored tradition in the United States of having certain items preferred, from a tax viewpoint. Capital gains are taxed at favorable rates. Charitable contributions, interest on your home, certain taxes, and medical expenses are deductible. Under a flat tax, no deductions. Again, looking at it from the government standpoint, a flat tax means loss of the income tax as economic/social policy. If the government wants to encourage investment, favorable laws are enacted giving that income preferential status. If the government wants to encourage home ownership, interest and taxes on the home are made deductible. If the government wants to help out the two-wage-earner family, give a tax credit for child care. All of these, and more, are lost under a flat tax. Will we ever have a flat tax in the United States? My answer to that is an emphatic "NO!" Politicians simply cannot resist tinkering with the tax system to give a break to this group or that. They lose the power to influence people's lives through the tax system. There will always be politicians who want to carve out a tax break for their favored group. So, like it or not, talking about a flat tax is purely an academic exercise. It'll never happen here.  |
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