Over the past week there has been a lot said about current governor of Texas and Republican Presidential candidate Rick Perry’s plan for a federal flat tax. His plan calls for all individuals to pay a rate of twenty percent on their income. This would replace the current progressive tax system that starts at ten percent and moves up to thirty-five percent. It might appear as though individuals and families on the lower end of the economic scale would be hindered by an increase in their tax rate. Not so, says Perry. He includes an option of up to $12,500 in tax deductions for the less privileged, tempering their tax rate. He states that “taxes will be cut across all income groups in America,” putting more money in their pockets. [1]
Herman Cain’s “9-9-9” plan also puts a flat rate on income tax. His plan calls for a nine percent income tax, with only charitable donation deductions. [2] Cain’s main focus is the idea of taxing all individuals at the same rate. But can a flat tax system work? Does this lead to equality? Can taxing at rates lower than the current system generate more revenue?
The idea of creating a flat tax is not new, in fact, flat tax has been proposed in the past by both Democrat and Republican candidates. Currently, several countries (Russia being the most prominent) and states within our own country have flat tax systems. The current system in Russia, which was implemented in 2001, has boosted their economy and resulted in increased tax revenues. [3] Although, the economy has improved since the implementation of a flat tax there is no guarantee that it was solely attributed to the new system. Even if that were the case, the United States economy is much larger than Russia’s and our current financial crisis is much larger than theirs was at the time.
Would implementing a flat tax rate be fair for all, or most, Americans? The easy answer is, yes, and no. Under the current tax system, individuals in lower economic brackets pay less of a percentage of their income and individuals in higher brackets pay more. But there’s a catch. There are several loopholes and tax-exemptions that are only available to the wealthy to help them pay a lower percentage of taxes than individuals who make tens of thousands of dollars less per year. Obviously, there is a definite inequality. A flat tax system will eliminate loopholes and make filing taxes a simpler process. With certain deductions for lower income groups the system has potential to overall be more “fair”. However, both Perry’s and Cain’s plans still allow for certain deductions which could eliminate the “fairness” in the system and benefit the wealthy and their personal causes.
Bottom line, we need a tax plan that will boost the US economy. Regardless of differing opinions, a flat tax rate system, with provided benefits for the less fortunate, is something we need to critically consider for America. Fewer loopholes would lead to less tax fraud and tax evasion could be decreased. The system does have potential and I support the principle, but it also needs to be investigated and debated more. Any new tax system put into place will also need to implement a system that can help our government balance the budget and improve the economy.
Sources:
[1] http://content.usatoday.com/communities/onpolitics/post/2011/10/rick-perry-flat-tax-economic-plan-/1
When debating the issues of a flat tax, several factors to consider include party ideology, negative income tax, how a flat tax could be deemed fair, and the effects of charitable donations. The Republican stance is to lower higher income tax rates so that the wealthy can reinvest in the economy by using that money to create jobs. This led to tax reform legislation in both 1986 and 2003. Democrats feel that lowering tax rates for the wealthy just puts a larger burden on those in lower income brackets. A negative income tax with regards to a flat tax rate creates a general progressive system. The system is based on taxable and tax exempt income up to a certain amount. This system can in turn be used to help lower income taxpayers. Essentially, this system awards individuals making below a certain income level. Flat tax rate advocates will argue that a progressive rate only punishes success. Although tax exemptions for charitable donations can be argued as a way the wealthy can manipulate the current system, generally the money is able to be used in systems that generate more good. With a flat tax system, that decreases tax evasion and fraud, more effort can be put into monitoring where “charitable” donations are going and making sure they are going towards efforts that are beneficial to others.
ReplyDeleteLet’s continue to put it up for debate.